Chapter Six

1
Chapter Six

• Small Business, Entrepreneurship, and Franchises

2
Small Business Defined

• A business that is independently owned and
  operated for profit not dominant in its field
• Accounts for 99.7 of all U.S. businesses
• SBA smallness guidelines
• Manufacturinga maximum of 500 employees
• Wholesalinga maximum of 100 employees
• Retailingmaximum annual sales of 6.5 million
• Agriculturemaximum annual sales of .75 million

3
The Small-Business Sector

• There are 23 million businesses in the U.S.
• Only 17,000 employ over 500 workers
• In the last decade, of small businesses
  increased by 49
• Part-time entrepreneurs have increase fivefold
  and account for one-third of all small businesses
• Small businesses provide over 50 of the jobs in
  the U.S.
• Over 70 of new business fail within their first
  5 years

WHY???
4
Why Small Businesses Fail

• Lack of capital
• Cash-flow problems
• Lack of management skills
• Overexpansion

5
Developing a Business Plan

• A carefully constructed guide for the person
  starting a business
• -Accuracy and realistic expectations are crucial
• Need to include
• Description of the goods or services to be
  offered
• Detailed estimate of potential customers
• Current competitors
• Facilities and labor force needed
• Financing and cash flow required
• Marketing strategy
• Exit Strategy-go public, sell out, dissolve

6
The Small Business Administration

• A governmental agency that assists, counsels,
  and protects the interests of small business in
  the U.S
• Types of SBA management assistance
• Management courses and workshops
• Service Core of Retired Executives (SCORE)
• SBA publications

7
Importance of Small Business to Economy

• 1) Providing employment
• hire a larger proportion of younger workers,
  older workers, women, and part-time workers
• provide 67 of workers with their first job and
  initial job skills
• provide 2/3 of the new jobs added to the economy

8
Importance of Small Business

• 2) Providing technological innovation
• Innovation among small-business workers is higher
  than among workers in big business
• More than half of the major technological
  advances of the 20th century originated with
  individual inventors and small businesses

9
Importance of Small Business to Economy

• 3) Providing competition
• Satisfy niche markets, forcing larger firms to
  become more responsive to customer needs
• 4) Filling needs of society other businesses
• meet the special needs of smaller customers
• act as specialized suppliers of goods and
  services to larger businesses

10
The Pro and Cons of Smallness

• ADVANTAGES
• Personal relationships with customers and
  employees
• Ability to adapt to change
• Independence
• 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

11
Franchising

• Franchise
• A license to operate an individually owned
  business as though it were part of a chain of
  outlets or stores
• Franchisor
• An individual or organization granting the
  franchise (Avon Corp)
• Franchisee
• A person or organization purchasing a franchise
  (Avon lady in your neighborhood)

12
Types of Franchises

• Product and trade name-
• Dealer sells product provided by the
  franchisor, but can use any sales tactics he
  chooses ex-Michelin Tires

• Business Format-
• Dealer must sell the product in the exact way
  the franchisor prescribes ex-Mc Donalds

13
Entrepreneurs Top Ten Franchises in 2006

• Subway
• Quiznos Sub
• Curves
• UPS Store, The
• Jackson Hewitt Tax Service
• Dunkin' Donuts
• Jani-King
• RE/MAX Int'l. Inc.
• 7-Eleven Inc.
• Liberty Tax Service
• For updates www.franchise500.com

14
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 because they
  see themselves as owners

15
Advantages of Franchising

• 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 supplies in
  cooperation with other franchisees

16
Disadvantages of Franchising

• TO THE FRANCHISOR
• Failure of the franchisee to operate franchise as
  agreed
• Disputes with franchisees over the terms of the
  franchise (flat or royalty, sphere of influence)

17
Disadvantages of Franchising

• TO THE FRANCHISEE
• Franchisor retains a large amount of control over
  the franchisees activities
• Franchisor or other franchisees opening competing
  outlets within the franchisees market