Options for Organizing Small and Large Businesses

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Options for Organizing Small and Large Businesses
Chapter 5
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Learning Goals
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. Explain franchising benefits for
franchisors 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.
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Most Businesses are Small Businesses

• 90 of firms with employees have fewer than 20
  people on staff.
• 98 have fewer than 100 employees.
• More than 20 million people in the United States
  earn business income without employees.
• Almost ½ the sales in the United States are made
  by small business.
• Small businesses generate 60 - 80 of new jobs
  over the last decade.
• Launching pad for entrepreneurs and prevalence of
  minorities.

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What is Small Business?

• The Small Business Administration defines a small
  business to be a firm that is independently owned
  and operated and is not dominant in the field.
• Manufacturing business fewer than 500 workers
• Wholesalers fewer than 100 workers
• Retailers less than 6 million in annual sales
• Agricultural business less than 750,000
• Small Businesses size ranges from 500,000 to 25
  million in sales and from 100 to 1,500 employees.

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Typical Small-Business Ventures
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Major Industries Dominated by Small Business
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Contributions of Small Business

• Creating New Jobs
• Creating New Industries
• Innovation

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Small Business Failure

• 1 in 3 businesses closes permanently within two
  years.
• 50 of businesses fail after four years.
• More than 60 of business fail within six years.
• By the 10-year mark, 82 of all small businesses
  have closed permanently.

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Reasons Why Small Businesses Fail

• Management Shortcomings
• Inadequate Financing
• Government Regulation

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Sources of Small Business Financing
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Increasing the Likelihood of Small Business
Success

• Creating a Business Plan
• Written documentation that provides orderly
  statement of goals, methods, and purpose.
• Small Business Administration
• Government agency concerned with helping small
  business firms.

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Small Business Administration

• Financial Assistance
• Loan Guarantees
• Microloans
• Small Business Investment Companies (SBICs)
• Active Capital

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Other Specialized Assistance

• Set-aside Programs
• Government Contracts (over 23)
• 5 for women and minorities
• Assistance in Financing Government Procurement
• Business Incubators
• Local community initiatives to share resources
  for small start-ups
• The University of Tennessee

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Opportunities for Women Minorities

• More than 50 of U.S. businesses are owned by
  women
• The number of businesses owned by minorities
  outpaced the growth in the number of U.S.
  businesses overall
• Women and minorities still face challenges
• Smaller scale operations
• Challenges finding investors
• Access to capital

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Minority Owned Businesses
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The Franchising Alternative
A contractual business agreement between a
manufacturer or another supplier and a dealer to
produce and market the suppliers good or service.
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The Franchising Agreement

• 50 of all retail sales
• 760,000 businesses
• 18 million jobs
• 500 billion in payroll
• 1 out of 12 businesses is a franchise
• Franchising overseas is a growing trend
• Franchising agreements exist between
  the franchisee
  and franchisor.

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Benefits and Problems of Franchising

• Advantages
• Prior Performance Record
• Recognizable Company Name
• Prove Business Model
• Tested Management program

• Disadvantages
• Franchise Fees
• Future Payments
• Linked to Reputation and Management
• Franchise Agreement Restrictions

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Alternatives for Organizing A Business
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Forms of Private Ownership
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Legal Structures to Meet Changing Needs

• Financial Situation
• Management Skills and Limitations
• Management Styles and Capabilities
• Exposure to Liability

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Types of Corporations

• Domestic Corporation
• Foreign Corporation
• Alien Corporation
• Employee-Owned Corporations
• Not-for-Profit Corporations

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Corporate Management

• Stockholders acquire stocks in exchange for
  ownership.
• Preferred Stock
• Common Stock
• Board of Directors elected by stockholders to
  oversee corporation.
• Corporate Officers Management make major
  corporate decisions and handle ongoing operations.

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When Businesses Join Forces

• Mergers and Acquisitions (MA)
• Merger - combination of two or more firms to form
  one company.
• Vertical
• Horizontal
• Conglomerate
• Acquisition - procedure in which one firm
  purchases the property and assumes the
  obligations of another.
• Joint Ventures partnership between companies
  for a specific purpose

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Public and Collective Ownership
Public Ownership a unit or agency of
government owns and operates an organization.
Parking structures, water systems, turnpike
authority
Customer-Owned Businesses collective ownership
of a production, storage, transportation or
marketing organization is a cooperative.