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Chapter 6: Entrepreneurship and Small Business Management

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Chapter 6: Entrepreneurship and Small Business Management Lesson 6-1 Becoming an Entrepreneur Lesson 6-2 Small Business Basics Lesson 6-3 Starting a Small Business – PowerPoint PPT presentation

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Title: Chapter 6: Entrepreneurship and Small Business Management


1
Chapter 6 Entrepreneurship and Small Business
Management
  • Lesson 6-1 Becoming an Entrepreneur
  • Lesson 6-2 Small Business Basics
  • Lesson 6-3 Starting a Small Business

2
Lesson 6-1Becoming an Entrepreneur
  • Objectives
  • Identify characteristics of successful
    entrepreneurs.
  • Recognize the importance of entrepreneurship in
    the economy.
  • Describe opportunities and risks of
    entrepreneurship.

3
Characteristics of Entrepreneurs
  • An entrepreneur is someone who takes a risk in
    starting a business to earn a profit.
  • Entrepreneurship is the process of starting,
    organizing, managing, and assuming the
    responsibility for a business.
  • Entrepreneurs create new product ideas and new
    businesses. Their ideas often respond to
    customer needs that are not being satisfied with
    current businesses.

4
What Does it Take?
  • It takes unique skills and personal
    characteristics to develop a new idea for a
    product or service. Not all people who own or
    manage a business are entrepreneurs.
  • It is important to have an understanding of
    business operations and management.
  • Entrepreneurs come from all age, racial, gender
    and ethnic groups.
  • Many entrepreneurs own their first business while
    in their teens while others may not take that
    step until retirement.

5

6
Advantages of an Entrepreneurship
  • Satisfaction from taking a risk and becoming a
    success.
  • Showing expertise and skills.
  • Working from home / flexible schedule.
  • Gaining profit.

7
Disadvantages of an Entrepreneurship
  • Total responsibility for the business.
  • Long hours. Time and effort are important pieces
    to making a company successful.
  • Financial risks.

8
Entrepreneurship and the Economy
  • Entrepreneurship is a key part of the U.S.
    economy.
  • Nearly 1 in 10 of all Americans 18-64 years old
    is involved in some type of entrepreneurship
    activity.
  • About 40 percent of new business owners run their
    own businesses with no help.

9
Financing
  • Most of the money needed to start a new business
    comes from the entrepreneur and his or her family
    and friends.
  • 1 in 5 Americans has invested in a business of
    someone they know well.
  • Family and friends invest over 100 billion in
    new businesses each year.
  • Venture capital is another source of money. It
    is money provided by large investors to finance
    new products and new businesses that have a good
    chance to be very profitable.
  • Loans from banks and financial institutions and
    credit from businesses are other sources of
    financing.

10
Productivity
  • Small businesses are responsible for nearly half
    of the U.S. gross domestic product each year.
  • Small businesses account for 55 percent of all
    innovative products and services developed.

11
New Business Opportunities
  • Opportunities begin with the creation of new or
    improved products and services.
  • An innovation is an invention or creation that is
    brand new.
  • Not all entrepreneurship opportunities emerge
    from inventions and innovations. Many come from
    an improved design, more effective procedures, or
    greater attention to quality.
  • An improvement is a designed change that
    increases the usefulness of a product, service,
    or process.

12
Recognizing Risks
  • Developing a successful new business is not easy.
    Many more new businesses fail than succeed.
  • The National Federation of Independent Business
    reports that of all new businesses, about 1/3 are
    profitable, 1/3 do not make a profit but continue
    to operate, and the remaining 1/3 lose money.
  • Over a ten year period, well over 50 percent of
    all new businesses are discontinued.

13
Primary Reasons New Businesses Close
  • Lack of adequate capital
  • Low sales
  • Higher than expected expenses
  • Goals are NOT realistic
  • Competitive pressure
  • The owner is unprepared to manage a growing
    business
  • Operations require more time than the owner is
    willing to commit

14
Lesson 6-2Small Business Basics
  • Objectives
  • Identify important characteristics of small
    businesses.
  • Recognize the competitive advantages of small
    businesses.
  • Identify problems faced by many small businesses.

15
Small Business Ownership
  • According to the Small Business Administration
    (SBA), a small business is an independent
    business with fewer than 500 employees.
  • Using that standard, 99.7 percent of the roughly
    23 million U.S. business are small businesses.
  • A more specific description of a small business
  • The owner is usually the manager.
  • It operates in one or very few locations.
  • It typically serves a small market.
  • It is not dominant in its field.
  • Many small businesses are run on a part-time
    basis from the owners home.

16
Small Business Employment
  • Small businesses employ nearly 50 percent of all
    U.S. workers.
  • Small businesses generate more than half the
    nations income.
  • A large number of small businesses are service
    businesses.
  • Professional, scientific, and technical services
    are the most common types of small business.

17

18
Small Business Employment in the U.S.

19
Ownership Diversity
  • Women own over one-fourth of all small
    businesses.
  • Over 16 percent have African-American,
    Asian-American, or Hispanic-American ownership.
  • The majority of small business owners are over 40
    years old, but nearly 20 percent are under 25.
    (Remember baby boomers and mini boomers from last
    chapter).
  • Almost all people starting a small business have
    at least a high school diploma. Nearly 30
    percent have finished some college work.
  • One half of all small businesses are home-based,
    part-time businesses and owners report that on
    average they needed 5,000 or less to start that
    type of business.
  • Full-time businesses with buildings, equipment,
    and employees may require over 100,000 of
    initial capital.

20
Small Business Advantages
  • Meeting Customer Needs
  • Serve customers where the number of products and
    services needed is small or the requirements are
    too specialized for large businesses to make a
    profit.
  • It is easier for a small business to meet the
    precise needs of customers than a large business.
  • Small businesses compete with large businesses by
    paying attention to their customers.

21
Small Business Advantages
  • Providing Unique Service
  • Small businesses take the time to determine their
    customers needs and discuss alternatives. Large
    businesses may not find it profitable to spend
    that much time with each customer.
  • Big business has a clear advantage when a large
    number of customers are willing to buy standard
    products and prefer low cost. Small businesses
    gain an advantage when customers have unique
    needs, want more individual attention, and are
    willing to pay a bit more for the product or
    service to obtain what they really want.

22
Common Small Business Problems
  • Reasons for Failure
  • Not keeping adequate records
  • Not having enough start-up money
  • Lack of management experience
  • Lack of experience with the type of business
  • Not controlling operating expenses
  • Poor location for the business
  • Failure to manage credit offered to customers

23
Small Business Assistance
  • Small business owners can get help from a number
    of sources to overcome each of the causes of
    failure.
  • Universities and colleges have faculty members
    who can give advice and support.
  • Local groups of businesspeople (Chamber of
    Commerce) have members who help others.
  • The Small Business Administration (SBA) helps
    owners develop business plans and obtain
    financing and other support.
  • The SBA sponsors Service Corps of Retired
    Executives (SCORE) who are retired local
    businesspeople who volunteer their services to
    counsel and mentor new business owners.

24
Lesson 6-3Starting a Small Business
  • Objectives
  • Recognize important factors to be considered when
    starting a business.
  • Describe the elements of a business plan.
  • Identify types and sources of financing for a
    small business.

25
The Business Decision
  • Many people think about starting a business.
  • The procedures followed to start a business often
    determine whether it will be successful.
  • The process begins with an idea and ends with a
    careful study of information to establish whether
    the idea can be successful.

26
An Idea Plus Experience
  • Every business begins with an idea.
  • Business ideas come from many sources (hobbies,
    interests, business experience, books, magazines,
    etc.)
  • Few people should think about starting a business
    without working for some time in a small
    business. Several years of training in a range
    of business operations will prepare you for the
    role of owner.

27
Right Place and Time
  • Putting your business idea into action means
    finding the right place to open the business. If
    the business is not easy to find or get to, many
    potential customers will stay away.
  • Timing is another key factor in starting a
    business. Most successful businesses start when
    customer demand for certain products or services
    is high.

28
Team Approach
  • A business is not easy to start without the help
    of others.
  • Even the smallest businesses need a few full- or
    part-time employees to work as a team.
  • Choosing the team members becomes one of the
    most important initial business decisions.
  • In addition to employees, small business owners
    may need assistance from bankers, lawyers, and
    accountants.

29
Preparation and Research
  • The most important step in starting a business is
    preparation.
  • Preparation includes having enough information to
    make good decisions about the business. The time
    spent gathering and studying information before
    the business is started will save time and avoid
    later problems.
  • Information is needed about customers,
    competitors, important operations, government
    regulations, and many other topics. The
    information is available through libraries,
    colleges or universities, and small business
    assistance centers.

30
Developing a Business Plan
  • A business plan is the most important factor that
    is shown to make a difference between successful
    businesses and failed businesses.
  • A business plan is a written description of the
    business idea and how it will be carried out,
    including all major business activities.
  • Key features of a business plan are
  • General description of the company
  • Credential of the owner(s)
  • Description of the product or service
  • Analysis of the market (demand, customers, and
    competition)
  • Operations plan
  • Financial plan
  • Marketing plan
  • Most business plans are developed for one year
    and then updated the next year.
  • If business owners need financial help a business
    plan will usually be required.
  • Developing a business plan forces the owner to
    think about the amount of time and costs. The
    process may identify potential problems.

31
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32
Steps in Developing the Business Plan
  1. Gather review information.
  2. Develop game plan (alternative plans for
    production, marketing, staffing, financing, etc.
    to allow the business to be prepared for the
    unforeseeable).
  3. Write each section of the plan (general
    description, basic legal form, major
    products/services, competition, potential
    customers, operations, marketing, finances.)

33
Example business plans
  • http//www.bplans.com/samples/sba.cfm

34
Financing
  • Most of the money needed to start a new business
    comes from the entrepreneur and his or her family
    and friends.
  • 1 in 5 Americans has invested in a business of
    someone they know well.
  • Family and friends invest over 100 billion in
    new businesses each year.
  • Venture capital is another source of money. It
    is money provided by large investors to finance
    new products and new businesses that have a good
    chance to be very profitable.
  • Loans from banks and financial institutions and
    credit from businesses are other sources of
    financing.

35
Financing the Small Business
  • A new business with a good product or service may
    run out of money before it can become profitable.
  • Several years of operation are required before
    most new businesses earn a profit.
  • Finding adequate financing is a key step in
    starting and running a new business.

36
Types of Financing
  • Start-up financing
  • The amount of money needed to open the business.
    It includes the cost of buildings, equipment,
    inventory (products or raw materials on hand),
    supplies, licenses, etc.
  • Short-term financing
  • The money needed to pay for the current operating
    activities of a business. Obtained for a period
    of less than a year and often for one or two
    months.
  • Long-term financing
  • Money needed for the main resources of a business
    (land, buildings, and equipment) that will last
    for many years. These resources require large
    amounts of money and will be paid for over many
    years.

37
Sources of Financing
  • The money required to start and operate a new
    business usually comes from a mixture of
    owner-supplied and borrowed funds.
  • The source of owner-supplied money depends on the
    ownership structure.
  • In a proprietorship, one person will supply the
    money.
  • In a partnership, the partners will be expected
    to contribute.
  • A corporation is owned and financed by the
    shareholders.
  • Borrowed funds are obtained through loans from
    banks and other financial institutions or through
    funding provided by other people, or credit from
    other businesses.
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