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Business Principles: Chapter 5 - Small Business, Entrepreneurship, &…
Business Principles: Chapter 5 - Small Business, Entrepreneurship, & Franchises
Entrepreneurship
Definition - Entrepreneur is a person that takes on greater than normal personal, financial, and time risks to organize, operate, and grow a business
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Small Business
Definition - a small business is one that is independently owned and operated for profit, but is not dominant in its field. A small business typically has less than 500 employees (see SBA Size Table)
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Small businesses created 1.9 million new jobs in 2015 out of 2.7 million, approximately 70% of all new jobs
1.1 million of the small business jobs created were created by businesses with less than 20 employees (57.9% of all small businesses)
24.3 million small businesses are classified as non-employer firms or businesses without employees (self-employed) making up 80.5% of all small businesses
In 2015, small businesses employed 58.9 million people or 47.5% of the private workforce / large businesses accounted for 65.1 million private employees
In 2015, the annual payroll of small businesses was $2.55 trillion which was 40.7% of the payroll for all businesses / large businesses made up $3.7 trillion of 59.3% of total annual payroll
Using annual payrolls for small and large businesses divided by total employees of each designation, the average payroll for small business employees in 2015 was $43,288 compared to $56,827 for employees of large firms
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Advantages
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Small businesses with 10 years and less than 20 employees are the most profitable companies in the U.S.
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Small Business Resources: SBA, SCORE, SBI, SBDC, SBIC
Franchises
Definition: Franchise - a license to operate an individually owned business a though a part of a chain of stores
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Advantages:
Franchisor: Gains fast and well controlled distribution of it produces with minimal costs of constructing and operating outlets; The franchisee (sole proprietor mostly) is very highly motivated;
Franchisee: Opportunity to start a business with limited capital; Start a business with established products, brand, and reputation; Can get advice from the Franchisor; Franchisor provides all Marketing materials
Disadvantages
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Franchisee: Franchisor retains a large degree of control; Franchisee must pay royalties to the Franchisor; Franchisor may open another location in competition with the Franchisee