① Define what a small business is and recognize the fields in which small businesses are

concentrated.

② Identify the people who start small businesses and the reasons why some succeed and many
fail.

③ Assess the contributions of small businesses to our economy.

④ Describe the advantages and disadvantages of operating a small business.

⑤ Explain how the Small Business Administration helps small businesses.

⑥ Explain the concept and types of franchising.

⑦ Analyze the growth of franchising and franchising’s advantages and disadvantages.

Small Business: A Profile

 A business that is independently owned and operated for profit and is not dominant in its
field

 SBA developed specific “smallness” guidelines for various industries

Small Business: A Profile (cont’d)

 Small-business sector

 There are about 26.9 million businesses in the U.S.

 Just over 17,000 employ more than 500 workers

 In the last decade, the number of small businesses increased 49 percent

 Part-time entrepreneurs have increase fivefold and account for one-third of all small
businesses

 Seventy percent of new businesses survive at least two years, about 50 percent
survive at least five years, and 31 percent survive at least seven years

 The primary reason for these failures is due to poor management stemming from a
lack of business know-how

 Small businesses provide over 50% of the jobs in the U.S.

Industries That Attract Small Businesses

 Attractive small-business industry characteristics

 Low initial capital investment

 Some special skill requirements

 High growth and profit potential

 Industries that attract small businesses

  Distribution—retailing, wholesaling, transportation, and communications (about 33
percent of all small businesses)

 Service—medical and dental care; watch, shoe, and TV repairs; haircutting and
styling; restaurant meals; dry cleaning; financial services (over 48 percent of all
small businesses)

 Production—construction, mining, and manufacturing

(about 19 percent of all small businesses)

The People in Small Businesses:

The Entrepreneurs

 Characteristics and other personal factors

 The “entrepreneurial spirit”

 The desire for independence

 The desire to determine one’s own destiny

 The willingness to find and accept a challenge

 Personal background

 Age

 Motivation

 “Had enough” of working for someone else

 High-tech opportunities, especially for teens

 Losing a job and deciding to start a business

 An idea for a new product

 An opportunity presents itself

The People in Small Businesses:

The Entrepreneurs (cont’d)

 Women

 Owned at least 51 percent of small businesses

in 2008

 Own 66 percent of home-based businesses

 7.8 million women-owned businesses in the U.S. provide almost 7.6 million jobs and
generate $1.2 trillion in sales

 Teenagers

 High-tech entrepreneurship is exploding

 Face unique pressures juggling schoolwork,

social live, business workload
  Need skills for planning, persistence, patience, people management, generate profit

Why Some Entrepreneurs

and Small Businesses Fail

 Lack of capital and cash-flow problems

 Lack of management skills

 Overexpansion

The Importance of Small Businesses

in Our Economy

 Providing technological innovation

• Innovation among small-business workers is higher than among workers in large

businesses

• Small firms produce 2.5 times as many innovations as large firms relative to the
number of persons employed

• More than half of the major technological advances of the 20th century originated
with individual inventors and small businesses

• Inventions may spark new industries or contribute to established industries

 Providing employment

• Small firms hire a larger proportion of younger and older workers, women, and part-
time workers

• Small businesses provide 67 percent of workers with their first job and initial job
skills

• Small businesses represent 99.7 percent of all employers and employ over 50
percent of the private work force

• Small businesses provide 2/3 of the net new jobs added to the economy

 Providing competition

• Small firms can compete with large firms, forcing the larger firm to become more
efficient and responsive to customer needs

 Filling needs of society and other businesses

• Small firms can meet the special needs of smaller groups of customers

• Small firms can act as specialized suppliers of goods and services to larger businesses

The Pro and Cons of Smallness

ADVANTAGES

• Personal relationships with

customers and employees
 • Ability to adapt to change

• Simplified recordkeeping

• Independence

• Advantages of sole
proprietorships

- Keeping all profits

- Ease and low cost of

going into business

- Keeping business
information secret

DISADVANTAGES

• Risk of failure

• Limited potential

• Limited ability to raise capital

Developing a Business Plan

 Business plan—A carefully constructed guide for the person starting a business

 Three basic purposes

• Communication

• Management

• Planning

 Banking officials’ and investors’ questions

• What is the nature and mission of new venture?

• Why is it a good idea?

• What are the goals?

• How much will it cost?

Components of a Business Plan

List and explain the components here

The Small Business Administration

 A governmental agency that assists, counsels, and protects the interests of small business
in the U.S.

 SBA management assistance

• Management courses and workshops

 • Service Corps of Retired Executives (SCORE)

• Help for minority-owned small businesses

• Small-business institutes (SBIs)

• Small-business development centers (SBDCs)

• SBA publications

 SBA financial assistance

• Regular business loans

 Loans are made by private banks but are partially guaranteed by the SBA

• Small-business investment companies

 Venture capital: money invested in small firms that have the potential to
become very successful

 Small business investment companies: privately owned firms that provide

venture capital to small enterprises that meet their investment standards

 State of small business during the recession

• Among the segments of society hardest hit

 Layoffs

 Closures

• Government assistance to improve

market conditions

 American Recovery and Reinvestment Act

 Affordable Care Act

 New tax cuts and credits

 SBA loans with favorable terms

Franchising

 Franchise

• A license to operate an individually owned business as though it were part of a chain

of outlets or stores

 Franchising

• The actual granting of a franchise

 Franchisor

• An individual or organization granting a franchise

 Franchisee
 • A person or organization purchasing a franchise

Types of Franchises

 A manufacturer authorizes retailers to sell a certain brand-name item

 A producer licenses distributors to sell a product to retailers

 A franchisor supplies brand names, techniques, or services instead of a complete product

The Growth of Franchising

 The growth of franchising

• Franchising has expanded with the growth of the fast-food industry

• Franchising is attracting more women and minority business owners than ever
before

• Dual-branded franchises, in which two franchisors offer their products together,

are a new trend

 Are franchises successful?

• The success rate for franchises is significantly higher than that for other small
businesses

• The vast majority, 94 percent, of franchise owners report that they are successful

• Too rapid expansion, inadequate capital or management skills, or other problems

can cause franchises to fail

Advantages of Franchising

TO THE FRANCHISOR

• Fast and well controlled

distribution of its products

• No need to construct and

operate its own outlets

• More working capital

available for expanded production and advertising

• Franchising agreements
maintain product and quality
standards

• Motivated work force of

franchisees

TO THE FRANCHISEE

• Opportunity to start a proven business with

limited capital

• Guaranteed customers
 • Franchisor available for advice and guidance

• Materials for local promotional campaigns

and participation in
national campaigns

• Cost savings when purchasing in cooperation with other franchisees

Disadvantages of Franchising

TO THE FRANCHISOR

• Failure of the franchisee

to operate franchise properly

• Disputes with and lawsuits

by franchisees over the
terms of the franchise

TO THE FRANCHISEE

• Franchisor retains a large amount of control over the franchisee’s activities

• Franchisor opening competing franchises within the franchisee’s market

Global Perspectives in Small Business

 Growing interdependence of national and

international economies as trade barriers diminish

 Instant communications shrinks distances and

expands business opportunities

 The Internet is the favored strategy for growth for

small businesses

• Technology provides leverage and power to reach markets previously limited to

large corporations

 The SBA offers counseling on how and where to

market overseas

 Small businesses must adapt to demographic and economic changes in the world
marketplace