Chapter 06 – Entrepreneurship and Starting a Small Business
6-31
c. What makes it unique
learning objective 4
Analyze what it takes to start and run a small business.
VI. MANAGING A SMALL BUSINESS
A. According to the SBA, one of the major causes of
small-business failure is “POOR MANAGEMENT.”
1. This may involve poor planning, poor record keep-
ing, poor inventory control, poor promotion, or
poor employee relations.
2. The most likely cause is poor capitalization.
3. This section explores the MAJOR FUNCTIONS
OF BUSINESS as they pertain to small business:
a. PLANNING your business
b. FINANCING your business
c. KNOWING your customers (MARKETING)
d. MANAGING your employees (HUMAN RE-
SOURCE DEVELOPMENT)
e. KEEPING RECORDS (ACCOUNTING)
B. BEGIN WITH PLANNING
1. Small businesses start with an idea that can be
developed.
2. A BUSINESS PLAN is a detailed written state-
ment that describes the nature of the business,
the target market, the advantages the business
will have in relation to competition, and the re-
sources and qualifications of the owner(s).
3. A business plan forces potential small-business
Chapter 06 – Entrepreneurship and Starting a Small Business
6-32
PPT 6-38
Major Business Functions
MAJOR BUSINESS FUNCTIONS
6-38
LO 6-4
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
PPT 6-39
Business Plans
BUSINESS PLANS
6-39
LO 6-4
• Business Plan — A detailed written statement that
describes the nature of the business, the target
market, the advantages the business will have over
competition, and the resources and owners
’
qualifications.
• A business plan forces potential owners to be
specific about what they will offer.
• A business plan is mandatory for talking with
bankers or investors.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-33
owners to be SPECIFIC about the products and
services they intend to offer.
4. When talking with bankers or other investors, a
business plan is mandatory.
C. WRITING A BUSINESS PLAN
1. A good business plan takes a long time to write.
2. One of the most important parts of the business
plan is the EXECUTIVE SUMMARY, which must
catch the reader’s interest.
3. Software programs can help you get organized.
4. Getting the completed business plan in the right
hands is almost as important as getting the right
information in it.
5. The time and effort invested before starting a
business will pay off later.
D. GETTING MONEY TO FUND A SMALL BUSINESS
1. New entrepreneurs have several SOURCES OF
CAPITAL, but most start-ups receive money from
friends and family.
2. SUPPLIERS may also be a funding source.
3. The recent credit crunch drove many potential en-
trepreneurs to smaller community banks, which
were more likely to grant loans than larger banks
were.
4. COMMUNITY DEVELOPMENT FINANCIAL IN-
STITUTIONS (CDFIs) may be a source of fund-
Chapter 06 – Entrepreneurship and Starting a Small Business
6-34
box in text
OUTLINE OF A COMPREHENSIVE
BUSINESS PLAN
This text box outlines a comprehensive business plan and
gives suggestions on what to include.
PPT 6-40
Writing a Business Plan
• A good plan takes a long time to prepare.
• A good executive summary catches interest and
tempts potential investors to read on.
WRITING a BUSINESS PLAN
6-40
LO 6-4
• Getting the plan into
the right hands is
almost as important
as getting the right
information in it.
critical thinking
exercise 6-3
WRITING A BUSINESS PLAN
This exercise analyzes the business plan for a small auto repair
shop. (See the complete exercise on page 6.77 of this manual.)
PPT 6-41
A Family Affair
Source:BloombergBusinessweek,www.businessweek.com,accessedNovember2014.
A FAMILY AFFAIR
What to Consider Before Starting a Family Business
6-41
LO 6-4
• Clarify Expectations – What will each person
contribute?
• Discuss Work/Family Boundaries – What is the
line that separates work from personal relationships?
• Develop Good Communication – Agree about
types of decisions you’ll make jointly and on your own.
• Clarify Long-Term Intentions – Discuss how long
everyone will work full time and goals for the business.
• Have an Escape Hatch – Have a Plan B.
PPT 6-42
Sources of Capital
SOURCES of CAPITAL
6-42
LO 6-4
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors
• Venture capitalists — Individuals or companies
that invest in new businesses in exchange for partial
ownership.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-35
ing.
5. Aside from than personal savings, INDIVIDUAL
INVESTORS are the primary source of capital for
most entrepreneurs.
6. ANGEL INVESTORS are private individuals who
invest their own money in new businesses with
potential.
7. VENTURE CAPITALISTS are individuals or com-
panies that invest in new businesses in exchange
for partial ownership of those businesses.
a. Venture capitalists may demand a large share
(as much as 60%) in your company in ex-
change for the start-up cash.
b. Since the widespread failure of early Web
start-ups, venture capitalists are willing to in-
vest less and expect more.
8. Smaller companies have a better chance of find-
ing funding through an angel investor.
E. THE SMALL BUSINESS ADMINISTRATION (SBA)
1. The SMALL BUSINESS ADMINISTRATION
(SBA) is a U.S. government agency that advises
and assists small businesses by providing man-
agement training and financial advice and loans.
2. The SBA’s MICROLOAN PROGRAM awards
loans based on the borrowers’ integrity and the
soundness of their business idea.
3. Another source of funds is a SMALL BUSINESS
INVESTMENT COMPANY (SBIC).
Chapter 06 – Entrepreneurship and Starting a Small Business
6-36
PPT 6-43
Funding Your Dream
FUNDING YOUR DREAM
Getting Cash When Financing Isn’t an Option
6-43
LO 6-4
1. Get close to your customers.
2. Make clients pay upfront.
3. Outsource tasks on the cheap.
4. Get in front of customers quickly.
5. Become an expert.
6. Ask for help.
7. Be patient.
Source:Inc.,www.inc.com,October2014.
PPT 6-44
Community Development Financial
Institutions
COMMUNITY DEVELOPMENT
FINANCIAL INSTITUTIONS
6-44
LO 6-4
• CDFIs are playing a big role in the economic
recovery.
• First formed in the early 1980s; by 2009, over $1
billion flowed into CDFIs from investment
companies.
• Only 1% of loans were not paid back in the last 30
years!
ADAPTING TO
change
PPT 6-45
States Test New
Crowdinvesting
Tools
STATES TEST NEW
CROWDINVESTING RULES
6-45
• Sites like Kickstarter and
Indiegogo have connected
loan seekers to potential
lenders.
• When the JOBS Act was
passed in 2012, the goal
was to make crowdfunding
more accessible.
• It’s still too early to know
how this will affect
companies and investors.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-37
a. The SMALL BUSINESS INVESTMENT
COMPANY PROGRAM (SBIC) is a program
through which private investment companies
licensed by the Small Business Administration
lend money to small businesses.
b. An SBIC loans to or invests in small business-
es that meet its criteria.
4. SMALL BUSINESS DEVELOPMENT CENTERS
(SBDCs), funded jointly by the federal govern-
ment and individual states, can help evaluate the
feasibility of your idea, develop your business
plan, and complete your funding application.
5. The text gives several ways to contact the SBA,
including the SBA website (www.sba.gov).
6. For most small businesses, obtaining money from
banks, venture capitalists, and government
sources is very difficult.
7. Success depends on many factors, including:
a. Knowing your customer
b. Managing your employees
c. Keeping records
F. KNOWING YOUR CUSTOMERS
1. A MARKET consists of people with unsatisfied
wants and needs who have both the resources
and the willingness to buy.
2. The first step in filling these needs is to identify the
WANTS AND NEEDS of potential customers.
3. The goal of a businessperson is to FIND A NEED
Chapter 06 – Entrepreneurship and Starting a Small Business
6-38
PPT 6-46
The Small Business Administration
The SMALL BUSINESS
ADMINISTRATION
6-46
LO 6-4
• Small Business Administration (SBA) — A U.S.
government agency that advises and assists small
businesses by providing management training and
financial advice.
• SBA started a microloan program in 1991 that
provides very small loans to small business
owners.
• Program judges worthiness based on the
borrowers’ integrity and soundness of their
business ideas.
PPT 6-47
The Small Business Investment
Company
The SMALL BUSINESS
INVESTMENT COMPANY
6-47
LO 6-4
• Small Business Investment Company (SBIC) —
A program through which private investment
companies licensed by the SBA lend money to small
businesses.
• A SBIC must have a minimum of $5 million in
capital and can borrow up to $2 from the SBA for
each $1 of capital it has.
• SBICs are able to identify a business’s trouble
spots early, giving entrepreneurs advice, and in
some cases rescheduling loan payments.
TEXT FIGURE 6.5
Types of SBA Financial Assistance
This text figure shows the types of assistance the SBA can
offer to small businesses.
PPT 6-48
Small Business Development
Centers
SMALL BUSINESS
DEVELOPMENT CENTERS
6-48
LO 6-4
• Small Business Development Centers (SBDC) are
funded jointly by the federal government and
individual states.
• SBDCs are able to evaluate the feasibility of your
idea, develop your business plan and complete
your funding application – for no charge.
PPT 6-49
Help Please!
HELP PLEASE!
More SBA Resources and Other Helpful Groups
6-49
LO 6-4
• Small Business
Investment Companies
• The Office of Innovation
& Entrepreneurship
• SCORE
• Entrepreneurship.org
PPT 6-50
Knowing the Market
KNOWING the MARKET
6-50
LO 6-4
• Market — Consumers with unsatisfied wants and
needs who have both resources and willingness to
buy.
• Set out to fill the market’s needs by offering top
quality and great service at a fair price.
• One of the great advantages of small businesses
is the ability to know the market and quickly
adapt to market needs.
lecture enhancer 6-9
TURNING CAREGIVING INTO A
FRANCHISE
As the U.S. Boomer population ages, there are more and more
opportunities for businesses catering to older adults. (See the
complete lecture enhancer on page 6.73 of this manual.)
Chapter 06 – Entrepreneurship and Starting a Small Business
6-39
AND FILL IT.
4. Offer top quality at a fair price with great service.
5. After you have customers, you must to keep them
through excellent service.
G. MANAGING EMPLOYEES
1. It is not easy to FIND, HIRE, TRAIN, AND KEEP
GOOD EMPLOYEES.
a. Small businesses offer less money, fewer
benefits, and less room for advancement than
larger firms do.
b. However, employees of small companies are
often more satisfied with their jobs than their
counterparts in large companies.
c. They find their jobs are more challenging, their
ideas are more accepted, and their bosses
treat them with more respect.
2. As the business grows, the entrepreneur must
DELEGATE AUTHORITY.
a. In businesses with long-term employees, this
is especially difficult.
b. These long-term employees may not have the
necessary managerial skills.
3. Family firms may be held back by attitudes such
as “you can’t fire family” or you must promote
someone because “they’re family.”
4. Entrepreneurs best serve the business if they re-
cruit and groom employees for management posi-
tions.
5. Chapters 7 through 12 focus on managing em-
Chapter 06 – Entrepreneurship and Starting a Small Business
6-40
REACHING
BEYOND
our
borders
PPT 6-51
Beyond Knowing
What Your Cus-
tomers Need
BEYOND KNOWING WHAT YOUR
CUSTOMERS NEED
6-51
• Quirky allows customers to
take part in designing
products.
• Anyone in the community
can take part in design,
style, naming, packaging,
and pricing.
• Products are sold through
the site and can even be
found in brick and mortar
stores.
PPT 6-52
Managing Employees
MANAGING EMPLOYEES
6-52
LO 6-4
• Hiring, training and motivating employees is
critical.
• Employees of small companies are often more
satisfied with their jobs – they feel challenged
and respected.
• Entrepreneurs best serve themselves and the
business if they recruit and groom employees
for management positions.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-41
ployees.
H. KEEPING RECORDS
1. A businessperson who sets up an ACCOUNT-
ING SYSTEM early will save much grief later.
2. COMPUTERS simplify record keeping and let the
business owner follow the progress of the busi-
ness.
3. A good ACCOUNTANT can help:
a. Decide whether to buy or lease
b. Provide tax planning and financial forecasting
c. Choose sources of financing
4. Chapter 17 focuses on accounting.
I. LOOKING FOR HELP
1. Small-business owners need help setting up their
businesses early in the process.
2. A competent, experienced lawyer who knows
and understands small businesses is valuable.
a. A prepaid legal plan may be cost–effective.
b. Online legal services are also available.
3. A MARKETING RESEARCH STUDY can help
with key marketing decisions.
4. A COMMERCIAL LOAN OFFICER and an IN-
SURANCE AGENT are also valuable experts.
5. The SERVICE CORPS OF RETIRED EXECU-
TIVES (SCORE) is an SBA office with volunteers
from industry, trade associations, and education
who counsel small businesses at no cost (except
for expenses).
Chapter 06 – Entrepreneurship and Starting a Small Business
6-42
PPT 6-53
Accounting Assistance
ACCOUNTING ASSISTANCE
6-53
LO 6-4
• Computers simplify the process by helping with
inventory control, customer records and payroll.
• A good accountant can help in:
– Deciding whether to buy or lease equipment.
– Deciding whether to own or rent a building.
– Tax planning.
– Financial forecasting.
– Choosing sources of financing.
– Writing requests for funds.
PPT 6-54
Legal Help
LEGAL HELP
6-54
LO 6-4
• Owners need outside consulting advice early in
the process.
• Small and medium-sized firms cannot afford to
hire experts as employees.
• A competent lawyer can help with:
– Leases
– Contracts
– Partnership agreements
– Protection against liabilities
PPT 6-55
Marketing Research
MARKETING RESEARCH
6-55
LO 6-4
• Marketing decisions need to be made long before
introducing a product or opening a store.
• A marketing research study can help you:
– Determine where to locate.
– Whom to select as your target market.
– What is an effective strategy for reaching the
market.
PPT 6-56
Other Forms of Help
OTHER FORMS OF HELP
6-56
LO 6-4
• A commercial loan officer can help:
– Design an acceptable business plan.
– Give financial advice.
– Lend money.
• An insurance agent can help you:
– Know the risks associated with the business.
– How to cover risks with insurance.
– How to prevent risks with safety devices.
• Service Corps of Retired Executives
– Mo re than 13,000 volunteers from industry, trade
associations, and education who counsel small business at
no cost.
lecture enhancer 6-10
MAKING ENTREPRENEURSHIP A
COLLEGE MAJOR
There are only 12 successful university entrepreneurial pro-
grams in the United States today. (See the complete lecture
enhancer on page 6.73 of this manual.)
PPT 6-57
What Went Wrong?
WHAT WENT WRONG?
Five Mistakes Business Owners Make
6-57
LO 6-4
1. They’re too afraid to take the leap!
2. They hire the wrong people.
3. They don’t want to give up control.
4. They become complacent.
5. They fail to see new opportunities.
Source: Alan Hughes, www.blackenterprise.com, accessed September 2014.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-43
6. Local college business professors may also ad-
vise small-business owners for a fee.
7. Other sources:
a. Other small-business owners
b. Local chambers of commerce
c. The Better Business Bureau
d. National and local trade associations
learning objective 5
Outline the advantages and disadvantages small businesses have in entering
global markets.
VII. GOING GLOBAL: SMALL-BUSINESS PRO-
SPECTS
A. The WORLD MARKET is more lucrative for small
businesses than the U.S. market alone.
1. However, most small businesses still do not think
internationally.
2. Only 1% of small businesses export.
B. Technology advances, such as PayPal, have helped
increase small-business exporting.
C. Many potential international businesspeople DO NOT
enter the global market because:
1. Financing is often difficult to find.
2. They don’t know how to get started and don’t un-
derstand the cultural differences of potential mar-
kets.
3. The bureaucratic paperwork can be overwhelm-
ing.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-44
test
prep
PPT 6-58
Test Prep
TEST PREP
6-58
• A business plan is probably the most important
document a small business owner will ever
create. There are nine sections in the business
plan outline. Can you describe at least five
sections of a business plan?
PPT 6-59
Small-Business Prospects Abroad
SMALL BUSINESS PROSPECTS
ABROAD
6-59
LO 6-5
• Small– and medium-sized businesses accounted
for 99% of recent export growth.
• Advantages of global trade for small businesses:
– Overseas buyers enjoy dealing with individuals.
– Small companies can usually begin shipping
much faster.
– They provide a wide variety of suppliers.
– They can give more personal service and
attention.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-45
D. There are many good reasons for small-business
owners to CONSIDER GOING INTERNATIONAL:
1. Most of the world’s market lies outside the U.S.
2. Exporting can absorb excess inventory.
3. It can soften downturns in the U.S. market.
4. It can extend the life of products.
E. Small businesses have several ADVANTAGES
OVER LARGE BUSINESSES:
1. Overseas buyers enjoy dealing with individuals
rather than with large corporate bureaucracies.
2. Small companies can usually begin shipping
much faster.
3. Small companies provide a wide variety of sup-
pliers.
4. Small companies can give more personal ser-
vice and more attention.
F. SOURCES OF INFORMATION about international
business.
1. Department of Commerce’s Bureau of Industry
and Security (www.bis.doc.gov)
2. SBA’s international business resources
(www.sba.gov)
VIII. SUMMARY