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ch 5 (part 2) (Chapter 5 Small Business Entrepreneurship and Franchises…
ch 5 (part 2)
Chapter 5
Small Business Entrepreneurship
and Franchises (part 2)
5-4 Describe the advantages and disadvantages of operating a small business.
Advantages
Personal relationships with customers and employees
Ability to adapt to change
Simplified record keeping
Independence
Profit retention
Ease of start-up
Ability to keep secrets
Disadvantages
High risk of failure
Limited potential
Limited ability to raise capital
The Importance of a Business Plan
Business plan—A carefully constructed guide for the person starting a business
Three basic purposes
Communication
Management
Planning
Banking officials’ and investors’ questions
What is the nature and mission of new venture?
Why is it a good idea?
What are the goals?
How much will it cost?
5-6 Explain the concept and types of franchising.
A franchise is a license to operate an individually owned business as though it were part of a chain of outlets or stores
Franchising is the actual granting of a franchise
A franchisor is an individual or organization granting a franchise
A franchisee is a person or organization purchasing a franchise
Types of Franchises
A manufacturer authorizes retailers to sell a certain brand-name item
A producer licenses distributors to sell a product to retailers
A franchisor supplies brand names, techniques, or services instead of a complete product
5-5 Explain how the Small Business Administration helps small businesses.
The Small Business Administration
A governmental agency that assists, counsels, and protects the interests of small business in the United States
SBA management assistance
Management courses and workshops
Service Corps of Retired Executives (SCORE)
Help for minority-owned small businesses
Small-business institutes (SBIs)
Small-business development centers (SBDCs)
SBA publications
SBA: Financial Assistance
The SBA partially guarantees regular business loans
SBA will repay 90% of loan if the borrower cannot repay it
Loans may be as large as $2 million
Average loans are $300,000 over eight years
The SBA licenses, regulates, and provides financial assistance to small-business investment companies (SBICs)
SBICs: privately owned firms that provide venture capital to small enterprises that meet their investment standards
Venture capital: money invested in small firms that have the potential to become very successful
5-7 Analyze the growth of franchising and its advantages and disadvantages.
Global Perspectives in Small Business
National and international economies are growing more interdependent
Trade barriers are diminishing or disappearing
Globalization and instant worldwide communications are rapidly shrinking distances at the same time that they are expanding business opportunities
The Internet is the favored strategy for growth for small businesses
Technology provides leverage and power to reach markets previously limited to large corporations
Small businesses must adapt to demographic and economic changes in the world marketplace
Global Perspectives in Small Business:Government Assistance
The SBA helps U.S. small business owners enter world markets
Matches executives with potential overseas customers
Helps exporters secure financing
Brings small U.S. firms into direct communication with overseas buyers and partners
SBA International Trade Loan guarantees up to $5 million in loans
The U.S. Commercial Service aids small and medium-sized businesses in selling overseas and has 251 offices in more than 70 countries
The Growth of Franchising
Franchising began in the United States around the time of the Civil War
Originally used by large firms to distribute products
Franchising has been increasing steadily in popularity since the early 1900s
Has experienced enormous growth since the mid-1970s
Dual-branded franchises, in which two franchisors offer their products together, are a new small-business trend
Are Franchises Successful?
The success rate for franchises is significantly higher than that for other small businesses
94% of franchise owners report that they are successful
Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail
Advantages of Franchising
To the Franchisor
Fast and well controlled distribution of its products
No need to construct and operate its own outlets
More working capital available for expanded production and advertising
Franchising agreements maintain product and quality standards
Motivated work force of franchisees
To the Franchisee
Opportunity to start a proven business with limited capital
Guaranteed customers
Franchisor available for advice and guidance
Materials for local promotional campaigns and participation in national campaigns
Cost savings when purchasing in cooperation with other franchisees
Disadvantages of Franchising
To the Franchiser
Failure of the franchisee to operate franchise properly
Disputes with and lawsuits by franchisees over the terms of the franchise
To the Franchisee
Franchisor retains a large amount of control over the franchisee’s activities
Franchisor opening competing franchises within the franchisee’s market