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5 & 6. Small Business, Entrepreneurship & Franchises. Part II. Small Business: A Profile. Def.: Independently owned & operated for profit, and not dominant in its field SBA sets guidelines for “smallness” in terms of no. employees or annual sales Most businesses in U.S. are small
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Small Business: A Profile • Def.: Independently owned & operated for profit, and not dominant in its field • SBA sets guidelines for “smallness” in terms of no. employees or annual sales • Most businesses in U.S. are small • More than half of new small businesses fail within first six years
Why Small Businesses Fail • Lack of capital • Start-up & cash flow • Lack of resource management skills • Money, time, personnel • Lack of planning • Especially for growth • To minimize risk, create a business plan that addresses: • What are nature & mission of venture? • Why is enterprise a good idea? • What are goals? • What will it cost?
What’s in a Business Plan • Introduction • Name & address of business • Statement of financial needs • Statement of confidentiality • Executive summary • Summary of plan for busy investors • Justification stating why business will succeed • Industry analysis • Examination of potential customers, current competitors, and business’s future
What’s in a Business Plan (Cont.) • Detailed description of the business • Info. on products/services to be offered • Size & location of business • Personnel & office equipment needed • Brief history of business • Production plan • Description & cost analysis of manufacturing process • Outline of raw materials, physical plant & heavy machinery needed • Marketing plan • Pricing, promotion, distribution, & product forecasts
What’s in a Business Plan (Cont.) • Organizational plan • Form of ownership • Responsibilities of all members • Resumes of principals • Assessment of risk • Evaluation of weaknesses & how firm plans to deal with them & other business problems • Financial plan • Summary of investment needed – Funding sources • Sales & cash flow forecasts – Breakeven analysis • Estimated balance sheet • Appendix: Supplementary info (e.g., market research)
Small Business Administration • Created to help people get into business & stay there • Offers: • Management assistance • Courses/workshops • SBI’s • SCORE & ACE • SBDC’s • Minority-owned • SBA publications • Financial assistance (mostly loan guarantees) • Microloans • SBIC’s • Set-aside programs
Franchising • Terms • Franchise • Franchisor • Franchisee • Types of franchising arrangements: • Manufacturer authorizes retailers to sell brand • Producer licenses distributors to sell to retailers • Franchisor supplies brand names, techniques, services instead of complete product
Advantages of Franchising • Franchisor • Fast & selective distribution of products without attendant costs • Franchisee usually highly motivated • Franchisee • Opportunity to start business with limited capital and experience • Local & national advertising opportunities • Cooperative purchasing opportunities
Disadvantages of Franchising • Mainly affect franchisee • Fees add up; payment is ongoing • Long hours • Direct competition with franchisor possible • Investigate before you invest!