pathways to business ownership Flashcards
small business
defined by US Small Business Administration as having fewer than 500 employees and selling less than $5 million worth of products or services annually
there are ____ businesses in the US; approximately ___ percent of them are small companies with fewer than ___ employees
29.6 million
99.9%
500
small businesses in the US employed ___ % of the country’s private (non-government) workforce, hired __ % of high-tech workers, and created __% of new new jobs annually over the last decade
48%
43%
67%
home-based businesses make up __ % and franchises __% of all small firms
52%, 2%
small businesses represent __% of all companies with employees
99.7%
social entrepreneurship
a global movement with initiatives launched every year to improve social problems
process of sourcing innovative solutions to social and environmental problems
benefit corporation, or B-corp
microenterprises
businesses with five or fewer employees
initial monetary requirements of $50,000 or less
habitual operational involvement of the owner
lifestyle business
microenterprises that permit their owners to follow a desired pattern of living, such as supporting college costs or taking vacations
family enterprises
companies owned and operated primarily by family members
unicorns
startup companies valued over $1 billion
corporate entrepreneurship
when an individual or a team within an existing corporation creates or identifies new opportunities for increased profits and/or improved competitive position, secures the necessary resources, and creates value through a new organization or innovation within the firm
necessity-based entrepreneurs
individuals who are pushed into starting a business because of circumstance (layoffs, threat of job loss, inability to find a job)
family enterprising
family members own and manage
each generation can make changes
sometimes difficult to work with family members (blurred lines)
resistant to changes
serial entrepreneurs
entrepreneur start several business simultaneously or in quick succession
always new ideas
seeks greater opportunities
pathways to new ventures
1) creating the new venture
2) acquiring an existing venture
3) obtaining a franchise
4) pursuing a direct sales opportunity
developing a startup
thought as the most common form of entrepreneurship
building a new business model around a new technology, product, or service
decorating and remodeling (start up vs operating cost)
start up cost
installation of fixtures and equipment (start up vs operating cost)
start up cost
starting inventory (start up vs operating cost)
start up cost
deposits w/ utilities (start up vs operating cost)
start up cost
legal and other professional fees (start up vs operating cost)
start up cost
licenses and permits (start up vs operating cost)
start up cost
advertising and promotion (start up vs operating cost)
start up cost
accounts receivable (how much will be tied up for how long) (start up vs operating cost)
start up cost
wages (start up vs operating cost)
operating cost
rent (start up vs operating cost)
operating cost
advertising (start up vs operating cost)
operating cost
delivery expense (start up vs operating cost)
operating costq
supplies (start up vs operating cost)
operating cost
telephone/utilities (start up vs operating cost)
operating cost
insurance (start up vs operating cost)
operating cost
taxes/social security (start up vs operating cost)
operating cost
interest on debt (start up vs operating cost)
operating cost
maintenance (start up vs operating cost)
operating cost
professional services (start up vs operating cost)
operating cost
buying an existing business
entrepreneur purchases existing business
takes over operations
less risky than starting from scratch
advantages of acquiring an ongoing venture
-less fear about successful future operation
-reduced time and effort
-purchasing at a good price
factors affecting sale of the venture
-the business environment
-profits, sales, and operating ratios
-assets of the venture
factors affecting negotiations
time
information
pressure
alternatives
key questions to ask when buying a business
1) why is this business being sold
-new upcoming lease, zoning laws, competition
-non-compete agreements
2) what is the current physical condition of the business?
-need major repair or update?
-what is the condition of the inventory?
-must physically inspect
-what is the state of the other assets of the business?
3) goodwill
-how many employees will remain with the business?
-key employees
4) what type of competition does the business face?
-is walmart coming to town?
-what does the financial picture of the business look like?
-look at their documents and examine them with outside consultation
considerations when buying a business
-request that the seller retain a minority interest in the business or establish the final purchase price dependent on the performance of the business over a 3-5 year span
-be wary of any promises made without written corroboration
-spend time reconstructing financial statements to determine how much cash is actually available
-interview the owner, vendors, competitors, customers, and employees
buying a franchise
turnkey operation
outsider gains access to the market
franchising
any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services
hybrid because part creating a new venture and part acquiring an existing venture
franchisee: purchaser of a franchise
franchisor: seller of the franchise
how does a franchise work? franchisee:
1) makes a financial investment in the operation
2) obtains and maintains a standardized inventory and/or equipment package usually purchased from the franchisor
3) pays a franchise fee as well as a percentage of the gross revenues
4) engage in a continuing business relationship with the franchisor
how does a franchise work? franchisor provides:
1) the company name that provides drawing power
2) identifying symbols, logs, designs, and facilities
3) professional management training for each independent unit’s staff
4) sale of merchandise necessary for the unit’s operation, equipment to run the operation, and the food or materials needed for the final product
5) financial assistance, if needed
6) continuing aid and guidance to ensure that everything is done in accordance with the contract
pros of owning a franchise
-ready made business systems to help the franchise become operational right away
-formal training program (online modules, formal training class) after franchise agreement signed
-technology designed to help manage customers and administrative tasks
-marketing/advertising already in place to help launch your franchise
-excellent support system (in-house personnel, field reps, etc)
-real-estate resources to help source best location for franchise
-a whole franchisee network to reach out to for help and advice
cons of owning a franchise
-franchise fees to be paid upfront
-royalties (percentage of sales) to be paid to franchisor every month
-strict franchisors’ rules with no wiggle room
-requirement to pay a percentage of gross sales into the franchisor’s marketing fund
-most products and supplies need to be purchased from the franchisor
-sale of franchise requires approval from the franchisor
-potential competition from other franchisees in the network
the franchise opportunity decision
-finding reliable information
-investigating the franchisor
-seeking professional help
direct selling
allows independent salesperson to earn profit on retail sale of products and the ability to earn commissions
hybrid because part creating a new venture and part acquiring an existing venture
direct selling company owns the company and makes product devisions
independent sales consultant owns the business selling the products
