Ch4 Flashcards
To be included in Canada’s Business Register, a business must have…
at least one paid employee, an annual sales revenue of $30 000 or more, or be incorporated
A goods-producing business in the Register is considered small if it has ___ than ___ employees
goods-producing, less, 100
A service-producing business is considered small if it has fewer than ___ employees
50
What two sources of information does the government use to report small-business stats?
Business Register (tracks businesses) and Labour force Survey (tracks individuals)
Labour Force Survey
uses info from individuals to make estimates of employment and unemployment levels
self-employed
if they are working owners of a business that is incorporated, or if they work for themselves but do not have a business, or if they work without pay in a family business
Which group is not counted in the Business Register?
unincorporated businesses operated by a self-employed person with no employees
nascent entrepreneurs
people who are trying to start a business from scratch
small business
an independently owned and managed business that does not dominate its market
The three most common criteria used to determine when a firm comes into existence
when it was formed, whether it was incorporated, and if it sold goods/services
- considered a new venture/firm if it became operational within the last 12 months
entrepreneurship
the process of identifying an opportunity in the marketplace and accessing the resources needed to capitalize
entrepreneur
a business person who accepts both the risks and the opportunities involved in creating and operating a new business venture
intrapreneurs
people who create smthg new within an existing large firm/organization
private-sector
the part of the economy that is made up of companies and organizations that are not owned/controlled by the government
What is the most common source for new ventures?
- work experience
What are the key characteristics of an idea that is likely to succeed?
- idea adds value for the customer
- idea provides a sustainable competitive advantage
- the idea is marketable and financially viable
- the idea has low exit costs
sales forecast
an estimate of how much a product or service will be purchased by prospective customers over a specific period
How does one typically determine financial viability?
- prepares financial forecasts, two- to three-year projections of a venture’s future financial position and performance
- typically includes estimated start-up costs, cash budget, income statement, and balance sheet
What are the three main entry strategies used by new ventures?
introduce a totally new product/service, introduce a product/service that will compete with existing companies but adds a new twist, or franchise
franchise
an arrangement that gives franchisees the right to sell the product of the franchiser
business plan
a document that describes the entrepreneurs proposed business venture, explains why it is an opportunity, and outlines its marketing plan, operation and financial details, and its managers’ skills and abilities
Sample structure of a business plan
cover page, executive summary, table of contents, company description, product or service description, marketing, operating plan, management, financial plan, and supporting details/appendix
cover page
name of venture and owners, date, contact person and address, any other contact info, social media, and the name of the organization the plan is presented to
executive summary
1-3 page overview of the business plan
company description
identifies the type of company, describes the proposed structure fo the organization (sole proprietorship, corporation, etc)
typical organization of this section: name and location, company objectives, nature and primary product/service of the business, current status, history, and legal form
product/service description
indicates what is unique about product. highlights competitive advantages, legal protection, and dangers of technical or style obsolescence
marketing in business plan
market analysis and marketing plan
operating plan
explains the type of manufacturing or operation system to be used. describes facilities, labour, raw materials, and processing requirements
financial plan
financial needs and expected resources. include financial statements, including cash budget, balance sheet, and income statement
management
identifies the key players and cites experience and competence they possess
bootstrapping
doing more with less
What are the two main types of financing?
debt and equity
What does the entrepreneur have to have to obtain debt financing?
adequate equity investment in the business, typically 20 percent of the business’s value, and collateral
collateral
assets that a borrower uses to secure a loan or other credit, and that are subject to seizure by the lender if the loan isn’t repaid according to the specified repayment terms
most common sources of equity financing
personal savings, love money, private investors, and venture capitalists
- love money: investments from friends, relatives, and business associates
most common sources of debt financing
financial institutions and suppliers (provide goods with an agreement to bill them later – usually short term)
financial institutions as a source of debt financing
entrepreneurs often take out personal loans by mortgaging their house or borrowing against the cash value of a life insurance policy. done through banks, trust companies, cooperatives, finance companies, credit unions, and government agencies
government-provided resources to help businesses with financing
low-interest or interest-free loans, wage subsidies, and loan guarantees
What does the Business Development Bank of Canada do?
- helps develop Canadian businesses, especially small and medium-sized
- provides financing, venture capital, and consulting strategies
incubator
facility that supports small businesses during their early growth phase by providing basic services, office space, legal advice, and more
What are the two issues to consider when decided whether to share ownership of a venture?
size and scope of the venture, and personal competencies
three examples of business incubators in Canada
Entrepreneurship@UBC, Genesis Centre, Centre for Social Innovation
What are the different types of fits an entrepreneur should consider when starting a business?
- entrepreneur-opportunity, opportunity-resources, entrepreneur-resources
What are the three most common ways entrepreneurs start businesses?
start from scratch, buy an existing business, or buy a franchise
pros of buying an existing business
- pros: may have a higher chance of succeeding because it’s already proven to be able to attract customers, and it has relationships with suppliers, stakeholders, etc
cons of buying an existing business
- cons: uncertainty about the exact financial condition of the business, business may have a poor reputation, might be in a bad location, might be hard to determine an appropriate purchase price
pros/cons of taking over a family business
pros: might have financial and management resources (high employee loyalty, family management and shareholders group, good community and business relationships)
cons: disagreements over who gets the business, price to be paid for business, problems with employed family members (feeling of entitlement to a job/raise)
franchising agreement
stipulates the duties and responsibilities of the franchisee and the franchiser
cons of franchising
- you can get sued if you don’t follow the franchiser’s rules
- have to make sure that you have the right of first refusal on new potential stores near yours
- advertising may not be free
things to consider when deciding whether to buy a franchise
franchise sales price, expenses to be incurred before business opens, training expenses, operational expenses for the first 6 months, personal financial needs for the first 6 months, emergency needs
benefits of franchising for the franchiser
- can obtain rapid growth for the chain
- can share cost of advertising with franchisee
- investment money provided by franchisees
- advertising $ spent more efficiently
- franchisees are motivated to work hard for personal gain, which creates profit for franchiser as a byproduct
- doesn’t have to deal with details from the local operation
- economies in buying allow franchisees to get lower prices for raw materials they must buy
- financial assistance is provided by the franchiser through loans and possibly helping get loans from other sources
- franchisees retain rights to keep most of the profit they make
benefits of franchising for the franchisee
- have access to big business managemeent skills
- doesn’t have to start from scratch
- lower failure rates that starting one’s own business
- brand is already well-known
- might get sent to training program rum by franchiser
- get expert advice from franchiser
sole proprietorship
business owned and usually operated by one person who is responsible for all of its debts
- legally, considered an extension of yourself and not a separate entity
advantages of sole proprietorship
- freedom in making decisions
- easy to create, simple
- tax benefits – losses can be deducted from income the proprietor earns from personal sources other than the business
disadvantages of sole proprietorship
- unlimited liability
- lack of continuity (sole proprietorship legally dissolves when owner dies)
- depends on the resources of one person whose managerial and financial limitations may hurt the business
unlimited liability
a person who invests in a business is liable for all debts incurred by the business
- personal possessions can be taken to pay debts
partnership
a business with two or more owners who share in the operation of the firm and the financial responsibility for the firm’s debts
general partner
partner who is actively involved in managing the firm and has unlimited liability
limited partner
partner who generally doesn’t participate actively in the business, and whose liability is limited to the amount invested in the partnership
general partnership
all partners are jointly liable for the obligations of the business
limited partnership
at least one general partner and one or more limited partners
- the limited partners can’t participate in the day-to-day management of the business or they risk losing their limited liability status
advantages of a partnership
- ability to grow by adding talent and $
- easier to borrow funds than sole proprietorship
- relatively simple to organize, with few legal requirements – however they require an agreement covering how much was invested by whom, who has how much of the partnerhsip’s profits, dissolving the partnership, etc
- partnership agreement is private, and doesn’t need to be submitted to government
disadvantages of a partnership
- unlimited liability
- lack of continuity (if one partner dies or quits, the partnership dissolves legally)
- transferring ownership – no partner can sell out without consent of other partners
- conflict between partners
corporation
a business considred by law to be a separate legal entity from its owners, with many of the legal rights and privileges of a person (the liability of the owners is limited to their investment in the firm)
shareholder
investor who buys shares of ownership, in the form of stock
common stock
shares whose owners usually have the last claim on the corporation’s assets (after creditors and owners of preferred stock) but who have voting rights in the firm
board of directors
group of ppl elected by a firm’s shareholders and charged with overseeing and taking legal responsibility for the firm’s actions
inside directors
members of a corporations b of d who are also full-time employees of the corporation
outside directors
members of the b of d who are not employees of the corporation on a day-to-day basis
chief executive officer (ceo)
highest ranking executive in a company or organization
public corporation
business whose stock is available for sale to the general public
private corporation
business whose stock is held by a small group of ppl and is usually not available for sale to the general public
initial public offering (ipo)
selling shares of stock in a company for the first time to a general investing public
private equity firms
companies that buy publicly traded companies and then make them private
income trust
structure allowing companies to avoid paying corporate income tax if they distribute all or most of their earnings to investors
two most widely used methods of forming a corporation
federal incorporation under Canada Business Corporations Act and provincial incorporation under provincial corporations acts
limited liability
investor liability is limited to personal investments in the corporation
advantages of incorporation
limited liability and continuity
stock
a share of ownership in a corporation
disadvantages of incorporation
cost (approx $2500), corporations need legal help in govt regulations, some also say double taxation is another problem
double taxation
a corporation must pay income taxes on its profits, and then shareholders must also pay personal income taxes on the dividends they get from corporation
dividends
amount of money that is distributed to shareholders
cooperative
organization that is made to benefit its owners in the form of reduced prices and/or the distribution of surpluses at year-end
types of co-operatives
consumer cooperatives (sell goods to members and the general public)
financial (accept deposits from members, giving loans, providing chequing services – like banks)
insurance (provide insurance coverage)
marketing (sell the produce of their farm members and purchase inputs for the production process)
service (provide members with services)
housing (provide housing for members, who purchase a share in the co-operative, which holds the title to the housing complex)
advantages of co-operative
limited liability, continuity, structure (each member only has 1 vote, regardless of # of shares owned)
- can also avoid double taxation
disadvantages of co-operative
members are not inclined to invest in equity capital of co-op.
- democratic voting arrangements and dividends based purely on patronage
reasons for success of small business owners
hard work, drive, dedication
market demand for product/service
managerial competence
luck
reasons for failure of small business owners
managerial incompetence or inexperience
neglect
weak control systems
insufficient capital
