Chapter 5


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  • Statistically, small business dominates the cdn.economy accounting for over 80% of the businesses in this country.
  • Chapter 5

    1. 1. CHAPTER 5 Small Business, Entrepreneurship, and Franchising
    2. 2. Small Business... <ul><li>Represents 97.3% of business establishments. </li></ul><ul><li>Created more than 80% of all new jobs in fiscal 1996-97 </li></ul><ul><li>Accounted for 50% of GDP in 1999 </li></ul><ul><li>Provided over half of the employment in Canada in 1999 </li></ul>5-2 Source: Small Business Answer Card 1998, Small Business Administration Office of Advocacy, ADVO/stats/answer.html, August 23, 1998.
    3. 3. Small Business, Entrepreneurship, and Franchising <ul><li>Entrepreneur: person who risks his/her wealth, time, effort to develop for profit an innovative product or way of doing something </li></ul><ul><li>Entrepreneurship: process of creating and managing a business to achieve desired objectives </li></ul>
    4. 4. What is Small Business? <ul><li>Any independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people. </li></ul>
    5. 5. Role of Small Business…. <ul><li>Job Creation </li></ul><ul><li>Innovation </li></ul><ul><li>Exporting </li></ul>
    6. 6. # of Firms by Employment Size 5-4 Source: Key Small Business Statistics, May 2003, p.12. Retrieved from
    7. 7. Top Five Small Business Industries 5-6 Source:Key Small Business Statistics as reported at
    8. 8. Ch.6: Small Business…. <ul><li>Industries attracting small business: </li></ul><ul><ul><li>retail/wholesaling </li></ul></ul><ul><ul><li>manufacturing </li></ul></ul><ul><ul><li>services </li></ul></ul><ul><ul><li>high tech </li></ul></ul>
    9. 9. Advantages of Small Business <ul><li>Personal </li></ul><ul><ul><li>Independence </li></ul></ul><ul><ul><li>Work-Life balance </li></ul></ul><ul><ul><li>Sense of accomplishment </li></ul></ul><ul><li>Business </li></ul><ul><ul><li>Lower startup costs </li></ul></ul><ul><ul><li>flexibility and quick decision making </li></ul></ul><ul><ul><li>focus on niche markets </li></ul></ul><ul><ul><li>reputation </li></ul></ul>
    10. 10. Disadvantages of Small Business <ul><li>High stress level </li></ul><ul><ul><li>High time commitment </li></ul></ul><ul><ul><li>Personal investment </li></ul></ul><ul><ul><li>Legal liabilities </li></ul></ul><ul><li>High failure rate </li></ul><ul><ul><li>Undercapitalization </li></ul></ul><ul><ul><li>Managerial inexperience or incompetence </li></ul></ul><ul><ul><li>Inability to cope with growth </li></ul></ul>
    11. 11. Starting a Small Business <ul><li>The Business Plan </li></ul><ul><li>Forms of Business Ownership(chapter 4) </li></ul><ul><li>Financial Resources </li></ul><ul><li>Create a new business or buy an existing one? </li></ul>
    12. 12. The Business Plan <ul><li>Business Plan: A precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals </li></ul><ul><li>Contains: business description; competitive analysis; marketing plan; financial plan; and Organizational plan. </li></ul>
    13. 13. The Business Plan <ul><li>Purpose of the Business Plan </li></ul><ul><li>Sales Document to Investors and Lenders: Is the business worth providing money too? </li></ul><ul><li>Management Document: Provides direction to decision makers. Sets goals and timetables. </li></ul><ul><li>Feasibility Study of the viability of the business </li></ul>
    14. 14. The Business Plan <ul><li>Business Plan needs to address key questions: </li></ul><ul><li>What are you selling? </li></ul><ul><li>Who is going to buy it? Sufficient Interest? </li></ul><ul><li>Is anybody else doing it? </li></ul><ul><li>What are your goals? </li></ul><ul><li>What type of employees do you need? </li></ul><ul><li>How much is it going to cost? </li></ul><ul><li>How much money will you make? </li></ul>
    15. 15. Financial Resources <ul><li>What does a business need money for? </li></ul><ul><li>Start-Up Costs (costs incurred before revenue generated): Building, feasibility studies, inventory, equipment, etc.. </li></ul><ul><li>Operating Costs (costs incurred after start-up): salaries, interest on loans, inventory, heating and lighting, etc.. </li></ul><ul><li>Growth </li></ul>
    16. 16. Financial Resources <ul><li>Equity financing </li></ul><ul><ul><li>owner’s funds </li></ul></ul><ul><ul><li>venture capitalists </li></ul></ul><ul><li>Debt financing </li></ul><ul><ul><li>loans </li></ul></ul><ul><ul><li>lines of credit </li></ul></ul><ul><ul><li>trade credits </li></ul></ul>6-11
    17. 17. 35 Fastest Growing Companies in Atlantic Canada <ul><li>How was growth financed? </li></ul><ul><li>Profits: 25 </li></ul><ul><li>Loans: 15 </li></ul><ul><li>Owners: 10 </li></ul><ul><li>Government: 8 </li></ul><ul><li>Public Stock Issue: 5 </li></ul><ul><li>Family and Friends: 3 </li></ul>
    18. 18. Approaches to Starting a Business <ul><li>Creating a new business from scratch </li></ul><ul><li>Buying an existing business </li></ul><ul><ul><li>existing customer base, supplier and distributor relationships, company history </li></ul></ul><ul><li>Franchising </li></ul>
    19. 19. From Scratch or Purchase?
    20. 20. From Scratch or Purchase?
    21. 21. From Scratch or Purchase?
    22. 22. From Scratch or Purchase?
    23. 23. From Scratch or Purchase?
    24. 24. Franchising <ul><li>Franchise: A license to sell another’s products and/or to use another’s name in business. </li></ul><ul><li>Franchisor: Company that sells the franchise </li></ul><ul><ul><li>Sells rights to name, logo, methods of operation, national advertising, products, etc.. </li></ul></ul><ul><li>Franchisee: Purchaser of the Franchise </li></ul><ul><ul><li>Initial fee, monthly fees, follow co. rules, buy equipment, mortgage or lease, </li></ul></ul>
    25. 25. Advantages and Disadvantages of Franchising <ul><li>Advantages </li></ul><ul><ul><li>Built in name recognition </li></ul></ul><ul><ul><li>Built in customer base </li></ul></ul><ul><ul><li>Franchisor expertise </li></ul></ul><ul><ul><ul><li>Management </li></ul></ul></ul><ul><ul><ul><li>Accounting </li></ul></ul></ul><ul><ul><ul><li>Store Design </li></ul></ul></ul><ul><ul><li>National Advertising </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Less Flexibility and Control </li></ul></ul><ul><ul><li>Payment to join Franchise </li></ul></ul><ul><ul><li>Division of Profits with Franchisor </li></ul></ul>
    26. 26. Top 10 Fastest-Growing Franchises for 2002 <ul><ul><ul><ul><ul><li> Growth during 2001 </li></ul></ul></ul></ul></ul><ul><li>Kumon Math & Reading Centers 2,259 </li></ul><ul><li>7-Eleven Inc 1,654 </li></ul><ul><li>Curves for Women 555 </li></ul><ul><li>Coverall North America Inc. 1,675 </li></ul><ul><li>Subway 1,356 </li></ul><ul><li>Jani-King 681 </li></ul><ul><li>Jackson Hewitt Tax Service 483 </li></ul><ul><li>KFC Corp 996 </li></ul><ul><li>McDonald’s 895 </li></ul><ul><li>Budget Rent A Car Corp. 97 </li></ul> 5-13
    27. 27. Solve the Dilemma <ul><li>a. Evaluate the idea of a low-fat cookie and muffin retail store. </li></ul><ul><li>b. Are there any concerns in connection with starting a small business that Jack and Bruce have not considered? </li></ul><ul><li>c. What advice would you give Jack and Bruce as they start up their business? </li></ul>6-16
    28. 28. Top Ten Franchises 6-12 Source: Entrepreneur’s Franchise 500 For 2002 as reported Feb. 25,2002 at .
    29. 29. Additional Discussion Questions and Exercises <ul><li>1. Assume you wanted to go into business for yourself. What kind of business would you prefer? What would be the financial requirements for entering the business? What type of work or managerial experience would you need? </li></ul><ul><li>2. What should be included in a business plan? What is the importance of a business plan to the small-business entrepreneur? </li></ul>6-18a
    30. 30. Additional Discussion Questions and Exercises <ul><li>3. What are the goals of venture capitalists when they invest in new businesses? </li></ul><ul><li>4. Think of your local community. Can you name five new businesses that have started up recently? Would you consider these new businesses to be small businesses? Are these new businesses franchises? </li></ul>6-18b
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