2. Small Businesses
- Companies that are independently owned and
operated and are not dominant in their field
- Concentrated in the service sector
Types:
1. Lifestyle businesses - intended to provide the
owners with a comfortable life
2. High-growth ventures - intended to
achieve rapid growth and high profits on
investments
3. Economic Role of Small Businesses
1. Providing jobs
2. Bringing out new products and services
3. Supplying the needs of big firms
4. Providing specialized goods and services
Building a Business
1. Finding an opportunity
a. Establish your own
b. Buy an existing operation
c. Obtain a franchise
4. 2. Deciding on a Form of Ownership
a. Sole proprietorship
b. Partnership:
partnership agreement – spells out the basic
outlines of your arrangement
Buy/sell agreement - defines what will happen in
case of the demise of one partner
c. corporation:
Stock redemption plan
Corporate by-laws
Determinants: circumstances, financial situation,
type of business, number of employees, risks
involved, tax position
5. 3. Developing a Business Plan
- A comprehensive written statement about what
you are going to do: basic idea, specific goals
& objectives, personnel, marketing, facilities,
suppliers, distribution, financial [ budget,
projections, cash flow for the first two years]
4. Obtaining Financing
Sources of funds:
a. Debt - to be repaid with interest out of
earnings
b. Equity - not to be repaid but entitles the
investor to a piece of the company and a share of
the profit
6. Funding the lifestyle business:
a. Own savings or loans from relatives/friends
b. Bank loans
c. Credit from suppliers [
Funding the high-growth venture
a. Private investors – wealthy individuals
interested in an ownership position
b. Venture capitalists – firms that operate
investment pools of capital to finance new
businesses; specialize in certain types of
business; prefer companies that has the
potential for going public, plays an active role
in managing the business
7. c. Corporate sources – venture capital pools
funded by large corporations that take
minority positions: acquire new technology,
financing & other types of assistance
d. Public stock offerings - selling shares in a
company
5. Managing the Business
a. Planning the activities of the business
- Ensure that a market exists
- Plans to cope with problems
8. b. Marketing for the new business
- Price
- Advertising
- Become innovative & responsive to the market
c. Monitoring and controlling operations
- Effective record-keeping system: customer files,
billing, production, inventory data, employee
information, accounting function
d. Coping with red tape
- Businesses are subject to the pressures and
requirements of our society’s legal system
9. e. Adjusting to growth – the idea person assumes
the role of a manager
FACTORS that Breed Success
1. Finding a solid business opportunity based on a
product that meets a clear need
2. Building effective management skills
3. Having adequate capital and credit to finance the
business
4. Employing modern business methods for planning
& controlling operations
10. FACTORS that Lead to Failure
1. Borrowing money without planning how and when
to pay it back
2. Attempting to do too much business with too little
capital
3. Not allowing for setbacks and unexpected
expenses
4. Buying too much on credit
5. Extending credit too freely
6. Expanding credit too rapidly
7. Failing to keep complete, accurate records
8. Carrying habits of extravagance into the business
9. Mistaking the freedom of being independent for
liberty to work
11. Common MISTAKES Small Businesses Make
1. Mistaking a hobby for a business
- Lacks the critical business experience
a. Go to work for someone in the same venture
b. Go directly into business with a partner strong
in management experience
2. Trying to make the business appeal to
everyone
a. Creates a company that is weak in several
areas
b. Identify a specific market segment
12. 3. Starting out with too little cash
- Must sustain losses
- Create a worst-case scenario projecting the
minimum revenue and maximum expenses
a. Arrange a line of credit at a bank
4. Failing to detect bad credit risks early
a. Implement early-warning detection plan
5. Setting the wrong price
- There should be a balance between the
company’s need to make a profit and the cons
- umer’s search for value
13. 6. Bleeding the business
- Generous remunerations
a. Establish a percentage of total earnings
7. The fortress complex
- Making all key decisions without going an
elaborate approval process
a. Bring in outside opinions
Business Plans: What Turns Investors On
14. 1. Evidence of customer acceptance
- The company’s new product is already being
used
2. Appreciation of Investor needs
- Recouping of investments within 3 to 7 years
- Proceeds of investment is commensurate with
the investment risk
3. Evidence of Focus
- Knowing which one or two things the firm does
best & concentrate on it
4. A propriety position
- Exclusive rights to a product or service [patents,
copyright, trademark] has an advantage over
its competitors
15. What Turns Investors Off
1. A Product Orientation
- More details on the product rather than the
market and how it will be sold
2. Projections that deviate excessively from
industry norms
- Unduly optimistic about company growth
against industry accepted financial results
3. Unrealistic growth projections
- Exaggerated long-term growth
4. Reliance on custom or application work
- Basic product needs to be altered or designed
for each customer because of high costs
16. TYPES of a Small Business
1. Small manufacturing business
Ex. Printing press, furniture shops, garments
manufacturing
2. Small service business
a. Business services – provide service to other
businesses
Ex. Accounting firm, janitorial services, security
services
b. Personal services – provide service to the person
Ex. Tutorial services, voice lessons, massage parlors
c. Repair services – provide repair services
Ex. Auto repair, plumbing, watch repair
d. Entertainment & recreation
Ex. Movie houses, resorts
17. e. hotels/ motels
f. Education services – correspondence
schools, nursery school
3. Wholesaling - activities of persons or
establishments which sell to retailers,
industrial, institutional and commercial
users in big volumes
4. Retailing - activities involved in the sale
of goods and services to the final consumers
5. General construction firms - performs
subcontracting jobs for the bigger
contractors
Ex. Installation of electrical facilities,
sewerage
18. CHARACTERISTICS of Small Business
1. Independent management
- owner/ manager
2. Small capital requirements
3. Mostly local operations
BENEFITS of Small Business Owners
1. Control over own destiny
2. Reach full potential
3. Reap unlimited profits
4. Make contribution to society & receive
recognition for the effort
19. DISADVANTAGES of Operating a Small
Business
1. Uncertainty of income
2. Risk of losing the entire invested capital
3. Lower quality of life until the business gets
established
4. Complete responsibility
5. Service to undesirable customers
6. Paper work & other chores
7. Long hours & demanding work conditions
20. The ENTREPRENEURIAL Personality
Characteristics:
1. Drive - willing to accept responsibility, with vigor,
initiative, persistence & health
2. Thinking ability - skills in abstract thinking and
the use of creative means to handle difficulties
3. Human relations ability - ability to deal with
employees and customers effectively
4. Communications ability -
5. Technical knowledge - knowledge of processes,
methods, procedures
