Options for Organizing Small and Large Businesses

1
Chapter 5 Options for Organizing Small and Large
Businesses
Learning Goals
Explain franchisings benefits for francisors and
franchisees. Summarize the forms of business
ownership and the advantages and disadvantages of
each form. Identify the levels of corporate
management. Describe recent trends in mergers
and acquisitions. Differentiate among private,
public, and collective ownership.
5
Distinguish between small and large businesses
and identify common industries for small
firms. Discuss the economic and social
contributions of small business. Explain why
small businesses fail. Describe how the Small
Business Administration assists small-business
owners.
1
6
2
7
3
8
4
9
2
MOST BUSINESSES ARE SMALL BUSINESSES  Eighty-nine
percent of firms with employees have fewer than
20.  Almost half of all sales in the U.S. are
made by small businesses. What Is a Small
Business?  Small Business Administrations
definition An independently owned and operated
firm that is not dominant in its field.  Small
Business Administration has established standards
for a variety of industries.
3
Typical Small Business Ventures  Compete against
the worlds largest corporations.
4
Typical Small Business Ventures  Compete against
the worlds largest corporations.
5
 Just over half small businesses are
home-based.  Since 1980, number of people
working from home has doubled.  Rise of the
personal computer, Internet, and other
communication devices.  Benefits include lower
costs, greater flexibility, freedom from cost of
commuting.  Drawbacks include isolation and
less visibility.  Internet can increase
competitiveness of small businesses. Three in
five small businesses have an Internet presence.
6
CONTRIBUTIONS OF SMALL BUSINESS TO THE
ECONOMY Creating New Jobs  Three of every four
new jobs are created by businesses with fewer
than 500 employees.  Small businesses dominate
fields with strongest employment growth. Creating
New Industries  Many of todays successful high
tech firmsMicrosoft, Dell, Cisco Systems,
Yahoo!, and Googlebegan as small
businesses. Innovation  Small firms develop
twice as many innovations per employee as large
firms.
7
WHY SMALL BUSINESSES FAIL  One new business in
every three closes permanently within two
years.  By the 10-year mark, 82 percent of all
small businesses have closed permanently. Manageme
nt Shortcomings Founders strengths in areas
such as marketing or interpersonal relations are
often offset by shortcomings in areas such as
finance or order fulfillment. Inadequate
Financing Start-up expenses, uneven cash flows,
and inadequate or high-interest
financing. Government Regulation  Paperwork and
limited resources to handle tax and regulatory
burdens.
8
INCREASING THE LIKELIHOOD OF SMALL BUSINESS
SUCCESS Creating a Business Plan Business plan A
written document that Provides an orderly
statement of a companys goals. The methods
by which it intends to achieve these goals.
The standards by which it will measure
achievements.
9
Small Business Administration Small Business
Administration (SBA) The principle government
agency concerned with helping small U.S. firms
and advocate for small businesses within the U.S.
government. Financial Assistance from the SBA
Provides guarantees for small-business loans by
private lenders. Licenses Small Business
Investment Companies. Other Specialized
Assistance  Manages set-aside programs for
federal contracts for small businesses and
manages the Small Business Training
Network. Business Incubators Business incubator
Organization that provides temporary low-cost,
shared facilities to small start-up ventures.
10
SMALL BUSINESS OPPORTUNITIES FOR WOMEN AND
MINORITIES Women-Owned Businesses More than
10.6 million women-owned firms in the U.S. employ
almost 19.1 million people.  Forty-eight
percent of U.S. businesses owned by women one in
five of these is owned by minority women.
Fastest growth occurring in construction,
transportation and communications, and
agricultural services.  Have rapidly established
support networks.  Small Business
Administration programs  Nonprofit support
organizations
11
Minority-Owned Businesses Growth in number of
businesses owned by African Americans, Hispanics,
and Asian Americans has outpaced overall
growth.  Immigrants own nearly 15 percent of all
small businesses and are more likely to own small
businesses than native-born citizens.  Minority
business owners face considerable
obstacles  Tend to start businesses on smaller
scale. Have more trouble attracting
investors.  Have harder time getting bank loans.
12
THE FRANCHISING ALTERNATIVE Franchising
Contractual agreement that specifies the methods
by which a dealer can produce and market a
suppliers good or service.  Generate 1.53
million in sales and employ more than 18 million
people in U.S. Franchising Agreements
Franchisee receives materials, equipment, and
training from the franchisor.  Franchisor
provides building plans, site selection help,
managerial and accounting systems, and other
services to assist the franchisee. Benefits and
Problems of Franchising Benefits prior
performance record, proven business
model  Problems expensive franchise fees and
future payments
13
INCREASING THE LIKELIHOOD OF SMALL BUSINESS
SUCCESS Creating a Business Plan Business plan A
written document that Provides an orderly
statement of a companys goals. The methods
by which it intends to achieve these goals.
The standards by which it will measure
achievements.
14
ALTERNATIVES FOR ORGANIZING A SMALL BUSINESS
15
Changing Legal Structures to Meet Changing
Needs A person considering launching a new
business should consider these factors when
deciding on the proper form of ownership
Personal financial situations and the need for
additional funds for the businesss start-up and
continued operation. Management skills and
limitations. Management styles and
capabilities of working with partners and other
members of top management. Concerns about
exposure to personal liability. Form of
ownership can be changed.
16
ORGANIZING AND OPERATING A CORPORATION Types of
Corporations Fall into three categories
Domestic corporation in the state in which it is
incorporated. Foreign corporation in states in
which it does business other than the one in
which it is incorporated. Alien corporation in
countries in which it does business other than
where it is incorporated A single company can
operate under all three of these designations.
17
The Incorporation Process Where to Incorporate
Can incorporate in any state. More than half of
Forbes 500 companies are incorporated in
Delaware. The Corporate Charter Most states
requires three incorporators. Incorporators
file articles of incorporation. State grants a
corporate charter, a legal document that
formally establishes a corporation.
18
Corporate Management Stockholder Person or
organization who owns shares of stock in a
corporation. Stock Ownership and Stockholder
Rights Annual meetings, elections of company
officers. Shares classified two ways Board of
Directors Board of Directors Governing body of a
corporation.  Hires chief executive
officer. Corporate Officers and Managers  CEO,
chief operating officer, and chief financial
officer make most major corporate decisions CEOs
and CFOs personally certify the accuracy of
their firms financial statements.
19
Employee-Owned Corporations  Workers buy shares
of stock in the company that employs
them.  Growing popularity 11,400 firms
employing nearly 10 million people. Employees
share in wealth the company generates.
Managers want employees to care deeply about
companys success. Not-for-Profit
Corporations  Not-for-profit corporation Firm
pursuing objectives other than returning a
profit. 1.5 million in the U.S. Includes
charitable groups, social-welfare and educational
organizations, religious congregations, political
parties, and labor unions.  Exempt from paying
taxes.
20
WHEN BUSINESSES JOIN FORCES Mergers and
Acquisitions (MA) Merger Combination of two or
more firms to form one company. Acquisition
Procedure in which one firm purchases the
property andassumes the obligations of
another. Joint Ventures Specialized
Partnerships Joint venture Partnership formed
between companies for a specific undertaking.
Example Transport4, a joint venture among four
U.S. pipeline companies to better service oil
refineries that use their services.
21
PUBLIC AND COLLECTIVE OWNERSHIP Public
Ownership A unit or agency of government owns
and operates an organization. Government-Owned
Corporations Can result when private investors
are unwilling to invest in a high-risk but
socially important project. Customer-Owned
Businesses Cooperatives Cooperative (co-op)
Collective ownership of a production, storage,
transportation, or marketing organization.