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Entrepreneurship is thriving in the United States, but this wave of entrepreneurship is not limited to the United States; many nations across the globe are seeing similar growth in their small business sectors. A variety of competitive, economic, and demographic shifts have created a world in which “small is beautiful.” Capitalist societies depend on entrepreneurs to provide the drive and risk-taking necessary for the system to supply people with the goods and services they need. 2. Describe the entrepreneurial profile and evaluate your potential as an entrepreneur. Entrepreneurs have some common characteristics, including a desire for responsibility, a preference for moderate risk, confidence in their ability to succeed, desire for immediate feedback, a high energy level, a future orientation, skill at organizing, and a value of achievement over money. In a phrase, they are tenacious high achievers. 3-A. Describe the benefits of entrepreneurship. Driven by these personal characteristics, entrepreneurs establish and manage small businesses to gain control over their lives, make a difference in the world, become selffulfilled, reap unlimited profits, contribute to society, and do what they enjoy doing.
3-B. Describe the drawbacks of entrepreneurship. Entrepreneurs also face certain disadvantages, including: uncertainty of income, the risk of losing their investments (and more), long hours and hard work, a lower quality of life until the business gets established, high stress levels, and complete decision-making responsibility. 4. Explain the forces that are driving the growth of entrepreneurship. Several factors are driving the boom in entrepreneurship, including: entrepreneurs portrayed as heroes, better entrepreneurial education, economic and demographic factors, a shift to a service economy, technological advancements, more independent lifestyles, and increased international opportunities. 5. Explain the cultural diversity of entrepreneurship. Several groups are leading the nation's drive toward entrepreneurship: women, minorities, immigrants, parttimers, home-based business owners, family business owners, copreneurs, corporate castoffs, and corporate dropouts. 6. Describe the important role small businesses play in our nation's economy. The small business sector's contributions are many. They make up 99 percent of all businesses, employ 51 percent of the private sector workforce, have created two-thirds to three-fourths of the net new jobs in the economy, produce
51 percent of the country's private gross domestic product (GDP), and account for 47 percent of all business sales. 7. Describe the nine deadly mistakes of entrepreneurship. There are no guarantees that the business will make a profit or even survive. SBA statistics show that 64 percent of new businesses will fail within 6 years. The ten deadly mistakes of entrepreneurship include management mistakes, lack of experience, poor financial control, weak marketing efforts, failure to develop a strategic plan, uncontrolled growth, poor location, lack of inventory control, incorrect pricing, and inability to make the “entrepreneurial transition.” 8. Put failure into the proper perspective. Entrepreneurs recognize that failure is a natural part of the creative process. Successful entrepreneurs have the attitude that failures are simply stepping stones along the path to success, and they refuse to be paralyzed by a fear of failure. 9. Explain how entrepreneurs can avoid becoming another business failure statistic. Entrepreneurs can employ several general tactics to avoid these pitfalls. Entrepreneurs should know their businesses in depth, prepare a solid business plan, manage financial resources effectively, understand financial statements, learn to manage people, and try to stay healthy.
1. Explain the differences among creativity, innovation and entrepreneurship. The entrepreneur’s “secret” for creating value in the marketplace is applying creativity and innovation to solve problems and to exploit opportunities that people face every day. Creativity is the ability to develop new ideas and to discover new ways of looking at problems and opportunities. Innovation is the ability to apply creative solutions to those problems and opportunities to enhance or to enrich people’s lives. Entrepreneurship is the result of a disciplined, systematic process of applying creativity and innovation to needs and opportunities in the marketplace. 2. Describe why creativity and innovation are such an integral part of entrepreneurship. Entrepreneurs must always be on guard against paradigms--preconceived ideas of what the world is, what it should be like, and how it should operate--because they
are logjams to creativity. Successful entrepreneurs often go beyond conventional wisdom as they ask “Why not ... ?” Success--even survival--in this fiercely competitive, global environment requires entrepreneurs to tap their creativity (and that of their employees) constantly. 3. Understand how the two hemispheres of the human brain function and what role they play in creativity. For years, people assumed that creativity was an inherent trait. Today, however, we know better. Research shows that almost anyone can learn to be creative. The left hemisphere of the brain controls language, logic, and symbols, processing information in a step-by-step fashion. The right hemisphere handles emotional, intuitive, and spatial functions, processing information intuitively. The right side of the brain is the source of creativity and innovation. People can learn to control which side of the brain is dominant in a given situation. 4. Explain the ten “mental locks” that limit individual creativity. The number of potential barriers to creativity is limitless, but entrepreneurs commonly face ten “mental locks” on creativity: Searching for the one “right” answer; focusing on “being logical;” blindly following the rules; constantly being practical; viewing play as frivolous; becoming overly specialized; avoiding ambiguity; fearing looking foolish; fearing mistakes and failure; and believing that “I'm not creative.” 5. Understand how entrepreneurs can enhance the creativity of their employees as well as their own creativity.
expecting and tolerating failure. Step 3. reading books on stimulating creativity or taking a class on creativity. Implementation--involves transforming the idea into a business reality. and Step 7. Investigation--requires the individual to develop a solid understanding of the problem or decision. giving their minds fresh input every day. providing support. rewarding creativity. Step 2. Step 4. viewing problems as challenges. taking some time off to relax. 7. and modeling creativity. Discuss techniques for improving the creative process. providing creativity training.” Step 6. The creative process consists of seven steps: Step 1. keeping a journal handy to record their thoughts and ideas. Entrepreneurs can enhance their own creativity by using the following techniques: Allowing themselves to be creative. Describe the steps in the creative process. encouraging curiosity. Verification--involves validating the idea as accurate and useful. Illumination--occurs at some point during the incubation stage when a spontaneous breakthrough causes “the light bulb to go on. Three techniques that are especially useful for improving the creative process: Brainstorming is a process in which a small group of . Step 5. Incubation--allows the subconscious mind to reflect on the information collected. Preparation--involves getting the mind ready for creative thinking.Entrepreneurs can stimulate creativity in their companies by: expecting creativity. 6. Transformation--involves viewing the similarities and the differences among the information collected.
Mind-mapping is a graphical technique that encourages thinking on both sides of the brain. The goal of developing a strategic plan is to create for the . A trademark is any distinctive word. 8. It serves as a company's “signature” in the marketplace. A copyright protects original works of authorship. or trade dress that a company uses to identify its product and to distinguish it from other goods. Rapid prototyping is based on the premise that transforming an idea into an actual model will point out flaws in the original idea and will lead to improvements in its design. visually displays the various relationships among ideas. and copyrights. It covers only the form in which an idea is expressed and not the idea itself and lasts for 70 years beyond the creator's death. and improves the ability to view a problem from many sides. 1. trademarks. Describe the protection of intellectual property involving patents.people interact with very little structure with the goal of producing a large quantity of novel and imaginative ideas. Explain why and how a small business must create a competitive advantage in the market. A patent is a grant from the federal government that gives an inventor exclusive rights to an invention for 20 years. symbol.
This step must identify target market segments and determine how to position the firm in those markets. It should be relatively short. A company builds a competitive edge on its core competencies. which are a unique set of capabilities that a company develops in key operational areas. and not begin with extensive objective setting. Entrepreneurs must identify some way to differentiate their companies from competitors. innovation. The firm’s mission statement answers the first question of any venture: What business are we in? The mission statement . 2. be informal and not structured. flexibility. and others that allow it to vault past competitors. Linking the purposeful action of strategic planning to an entrepreneur’s little ideas can produce results that shape the future.small company a competitive advantage--the aggregation of factors that sets the small business apart from its competitors and gives it a unique position in the market. Step 1. team-building. Small businesses need a strategic planning process designed to suit their particular needs. such as quality. service. Develop a clear vision and translate it into a meaningful mission statement. Develop a strategic plan for a business using the ten steps in the strategic planning process. They are what the company does best and are the focal point of the strategy. Highly successful entrepreneurs are able to communicate their vision to those around them. responsiveness. encourage the participation of employees. Every small firm must establish a plan for creating a unique image in the minds of its potential customers.
It must center on establishing for the firm the key success factors identified earlier. Step 6.sets the tone for the entire company. Step 4. key factors that determine the success of the firms in it. A strategy is the game plan the firm plans to use to achieve its objectives and mission. Step 8. The process works best when managers and employees are actively involved. Translate strategic plans into action plans. Analyze the competition. and written down. weaknesses are negative internal factors. Step 3. long-range attributes that the firm seeks to accomplish. Step 7. In every business. measurable. assignable. timely. Key success factors are relationships between a controllable variable and a critical factor influencing the firm's ability to compete in the market. Business owners should know their competitors almost as well as they know their own. Step 2. Opportunities are positive external options. Actual . realistic. Step 9. Identify the key factors for success in the business. Objectives are quantifiable and more precise. Step 5. they should be specific. Establish accurate controls. Strengths are positive internal factors. Create company goals and objectives. No strategic plan is complete until the owner puts it into action. and so they must be an integral part of a company' strategy. Assess the company’s strengths and weaknesses. Formulate strategic options and select the appropriate strategies. threats are negative external forces. Goals are the broad. A competitive profile matrix is a helpful tool for analyzing competitors strengths and weaknesses. Scan the environment for significant opportunities and threats facing the business.
if ever. Discuss the characteristics of three basic strategies: low-cost. differentiation. the firm strives to be better than its competitors at something that customers value. realistic. A company following a differentiation strategy seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. The principal idea of this strategy is to select one (or more) segment(s). Establish meaningful goals and objectives. A focus strategy recognizes that not all markets are homogeneous.performance rarely. and focus. long-range attributes a company seeks to accomplish. identify customers special needs. matches plans exactly. They should be specific. 4. A company pursuing a cost leadership strategy strives to be the lowest-cost producer relative to its competitors in the industry. and focus. and approach them with a good or service designed to excel in meeting these . The strategic planning process does not end with these nine steps. objectives are quantifiable and more precise. In other words. assignable. measurable. This information is especially helpful when plotting future strategies. rather. it is an ongoing process that an entrepreneur will repeat. Operating data from the business assembled into a comprehensive scorecard serves as an important guidepost for determining how effective a company’s strategy is. Goals are broad. differentiation. 3. Three basic strategic options are cost leadership. and in writing. timely. and interests. wants.
and they are easy to discontinue. 1-A. limited access to capital. A partnership is an association of two or more people who co-own a business for the purpose of making a profit. and lack of continuity. Focus strategies build on differences among market segments.needs. Explain the advantages and the disadvantages of the partnership. Just as a pilot in command of a jet cannot fly safely by focusing on a single instrument. limited managerial skills and capabilities. there are no special legal restrictions. complementary skills of partners. wants. They also suffer from these disadvantages: unlimited personal liability of owner. A sole proprietorship is a business owned and managed by one individual and is the most popular form of ownership. division of profits. the owner has total decisionmaking authority. they are the least costly form to begin. The balanced scorecard is a set of measurements unique to a company that includes both financial and operational measures and gives managers a quick yet comprehensive picture of the company's total performance. Understand the importance of controls such as the balanced scorecard in the planning process. 5. an entrepreneur cannot manage a company by concentrating on a single measurement. Partnerships offer these advantages: ease of establishing. 1-B. Explain the advantages and the disadvantages of the sole proprietorship. Sole proprietorships offer these advantages: They are simple to create. larger . and interests.
An S corporation offers its owners limited liability protection but avoids the double taxation of C Corporations. Explain the advantages and the disadvantages of the corporation. and tax advantages. legal requirements and regulatory red tape. ability to attract limited partners. potential for personality and authority conflicts. and limited liability companies. To form a corporation. yet it operates without the restrictions . including S Corporations. ability to continue indefinitely. difficulty in disposing of partnership. Corporations suffer from these disadvantages: cost and time involved in incorporating. double taxation. is a cross between a partnership and a corporation. an entrepreneur must file the articles of incorporation with the state in which the company will incorporate. Partnerships suffer from these disadvantages: unlimited liability of at least one partner. is a separate legal entity. and potential loss of control by the founder(s). little government regulation flexibility. potential for diminished managerial incentives. and the joint venture. and transferable ownership. the professional corporation. interest lack of continuity. 1-C. Entrepreneurs can also choose from several other forms of ownership. the Limited Liability Company. Discuss the advantages and the disadvantages of the S Corporation. the most complex of the three basic forms of ownership. ability to attract capital. like an S Corporation. 2. and partners bound by the law of agency. A corporation. Corporations offer these advantages: limited liability of stockholders. A Limited Liability Company.pool of capital available.
imposed on an S Corporation. which . except that it is formed for a specific purpose. standardized quality of goods and services. 3. market saturation. Franchising also suffers from certain drawbacks: franchise fees and profit sharing. To create an LLC. strict adherence to standardized operations. brand name appeal. Tradename franchising involves a franchisee purchasing the right to become affiliated with a franchiser's tradename without distributing its products exclusively. Understand the laws covering franchise purchases. and a greater chance of success. A professional corporation offers professionals the benefits of the corporate form of ownership. limited distribution network. unsatisfactory training programs. territorial protection. Pure franchising involves a selling a franchisee a complete business format. financial assistance. The Federal Trade Commission (FTC) enacted the Trade Regulation Rule in 1979. product distribution. Describe the three types of franchising: tradename. Product distribution franchising involves licensing a franchisee to sell products or services under the franchiser's brand name through a selective. Franchises offer many benefits: management training and support. A joint venture is like a partnership. an entrepreneur must file the articles of organization and the operating agreement with the secretary of state. 5. and less freedom. proven products and business formats. Explain the benefits and the drawbacks of buying a franchise. national advertising programs. restrictions on purchasing. centralized buying power. limited product lines. and pure. 4.
multiple-unit franchising. or before any money is paid. research your market. Discuss the right way to buy a franchise. conversion franchising. smaller. The following steps will help you make the right franchise choice: evaluate yourself. master franchising. The FTC rule covers all franchisers. 6. Outline the major trends shaping franchising. nontraditional locations. Key trends shaping franchising today include: the changing face of franchisees. make your choice. consider your franchise options. talk to existing franchisees. get a copy of the franchiser's UFOC. The Trade Regulation Rule requires franchisers to provide information on 23 topics in their disclosure statements. ask the franchiser some tough questions. international franchise opportunities. and piggybacking (or combination franchising).requires all franchisers to disclose detailed information on their operations at the first personal meeting or at least ten days before a franchise contract is signed. Seventeen states have passed their own franchise laws requiring franchisers to provide prospective franchisees a Uniform Franchise Offering Circular (UFOC). 7. .
and the business may be a bargain. employees and suppliers are already established. its location may have become unsuitable. The right way to buy a business is: analyze your skills. The disadvantages of buying an existing business include: An existing business may be for sale because it is deteriorating. and the business may be overpriced. abilities. equipment is installed and its productive capacity known. inventory may be outdated. investigate and evaluate candidate businesses and evaluate the best one. including those that might be in the "hidden market". accounts receivable may be worth less than face value. the business may already have the best location. Buying a business can be a treacherous experience unless the buyer is well-prepared. employees inherited with the business may not be suitable. 2. equipment and facilities may be obsolete. The advantages of buying an existing business include: A successful business may continue to be successful.1. Understand the advantages and disadvantages of buying an existing business. Define the steps involved in the right way to buy a business. and interests to determine the ideal business for you. prepare a list of potential candidates. the buyer can use the expertise of the previous owner. explore financing options . change and innovation are hard to implement. inventory is in place and trade credit established. the previous owner may have created ill will. the owner hits the ground running.
Why does the owner wish to sell? Look for the real reason. How do they operate and why do customers prefer them? 4. looking at financial statements. Consider both the building and its location. and the market . income tax returns. Before closing a deal. the earnings approach (excess earnings method.before you actually need the money. Conduct a thorough analysis of the market for your products or services. Placing a value on a business is partly an art and partly a science. and finally. and especially cash flow. There is no single "best" method for determining the value of a business. Who are the present and potential customers? Conduct an equally thorough analysis of competitors. Rushing into a deal can be the biggest mistake a business buyer can make.Did you comply with the provisions of a bulk transfer? Negotiate a restrictive covenant? Consider ongoing legal liabilities? 5. every business buyer should investigate five critical areas: 1. 2. both direct and indirect. 4. The following techniques (with several variations) are useful: the balance sheet technique (adjusted balance sheet technique). ensure a smooth transition. and discounted future savings approach). Describe the various techniques for determining the value of a business. Explain the process of evaluating an existing business. 3. Consider all of the legal aspects which might constrain the expansion and growth of the business . Analyze the financial condition of the business. 3. Determine the physical condition of the business. capitalized earnings approach.
The best deals are the result of a cooperative relationship between the parties based on trust. and preparation to locate a suitable buyer. using a two-step sale. 6. strike a deal. the party who is the better negotiator usually comes out on top. a buyer should identify the factors that are affecting the negotiations and then develop a negotiating strategy. In a business sale. The first rule of negotiating is never confuse price with value. Selling a business takes time. patience. forming a family limited partnership. and establishing an employee stock ownership plan (ESOP). and make the transition. . Before beginning negotiations. Common exit strategies include: a straight business sale. selling to an international buyer. selling a controlling interest in the business.approach. Understand how the negotiation process works and identify the factors that affect the negotiation process. Sellers must always structure the deal with tax consequences in mind. Understand the seller's side of the buyout decision and how to structure the deal. 5. restructuring the company.
Describe the principles of building a guerrilla marketing plan and explain the benefits of preparing one. A solid marketing plan should: determine customer needs and wants through market research. create a marketing mix that meets customer needs and wants.1. A major part of the entrepreneur's business plan is the marketing plan. pinpoint the specific target markets the company will serve. Explain how small businesses can pinpoint their . 2. which focuses on a company's target customers and how best to satisfy their needs and wants. analyze the firm's competitive advantages and build a marketing strategy around them.
The steps in conducting market research include: defining the objective. Good research does not have to be complex and expensive to be useful. quality. analyzing and interpreting the data.some way to make their companies different from and better than the competition. Successful small businesses rely on eleven sources to develop a competitive edge: find a niche and fill it don’t just sell. convenience. Sound market research helps the owner pinpoint his target market. Discuss the role of market research and outline the market research process. entertain strive to be unique connect with the customer on an emotional level . innovation. drawing conclusions and acting on them. owners must strive to achieve a competitive advantage .target markets. 3.“What do you want to know?” collecting the data from either primary or secondary sources. 4. When plotting a marketing strategy. Describe the factors on which a small business can build a competitive edge in the marketplace: customer focus. The most successful businesses have well-defined portraits of the customers they are seeking to attract. Market research is the vehicle for gathering the information that serves as the foundation of the marketing plan. service. and speed.
product. Establishing a presence on the Web is important for companies targeting educated. Entrepreneurs are just beginning to uncover the Web's profit potential. which is growing rapidly. Successful Websites are attractive.and their role in building a successful marketing strategy. interactive. price. and promotion . 6. Entrepreneurs should understand where in the product life cycle their products are. Promotion involves both advertising and personal selling. The marketing mix consists of the “4 Ps”: Product. place. Promotion. Price. Discuss the marketing opportunities the World Wide Web (WWW) offers entrepreneurs and how to best take advantage of them. Setting the right price for a product or service is partly an art and partly a science. inviting.focus on the customer devotion to quality attention to convenience concentration on innovation dedication to service emphasis on speed 5. easy to navigate. young customers. and offer users something of value. The Web offers small business owners tremendous marketing potential on par with their larger rivals. Place. Discuss the "four Ps" of marketing . wealthy. . The focus here is on choosing the appropriate channel of distribution and using it most efficiently.
sellers.E-commerce is creating a new economy. and customers via . one that is connecting producers.
The power to educate and to inform The ability to lower the cost of doing business. business owners should consider the following important issues: How a company exploits the Web’s interconnectivity and the opportunities it creates to transform relationships with its suppliers and vendors. 1. The ability to remain open 24 hours a day. The Internet is creating a new industrial order. its customers.technology in ways that have never been possible before. Although a Web-based sales strategy does not guarantee success. Understand the factors an entrepreneur should consider before launching into e-commerce. the companies that have pioneered Web-based selling have realized many benefits. The ability to expand their reach into global markets. The ability to spot new business opportunities and to capitalize on them. seven days a week The capacity to use the Web’s interactive nature to enhance customer service. The power to track sales results. Describe the benefits of selling on the World Wide Web. In this fast-paced world of e-commerce. and companies that fail to adapt to it will soon become extinct. including the following: The opportunity to increase revenues. size no longer matters as much as speed and flexibility do. 2. . and other external stakeholders is crucial to its success. Before launching an e-commerce effort.
needs. Attracting customers on the Web costs money. and the rest will take care of itself.” Myth 7. lasting relationships with customers takes on even greater importance on the Web. Developing deep. Establishing an attractive Web site brimming with catchy photographs of products is only the beginning. and customer service. Myth 4. Making money on the Web is easy. Creating a meaningful presence on the Web requires an ongoing investment of resources—time. and talent. customer service is not as important as it is in a traditional . The plan should address issues such as site design and maintenance.Web success requires a company to develop a plan for integrating the Web into its overall strategy. On the Web. money. Myth 6. Measuring the success of its Web-based sales effort is essential to remaining relevant to customers whose tastes. customers will flock to it. and companies must be able to retain their online customers to make their Web sites profitable. marketing and promotional strategies. energy. Explain the twelve myths of e-commerce and how to avoid falling victim to them. Myth 5. The most important part of any e-commerce effort is technology. Setting up a business on the Web is easy and inexpensive. and preferences are always changing. “Strategy? I don’t need a strategy to sell on the Web! Just give me a Web site. sales. 3. Privacy is not an important issue on the Web. If I launch a site. creating and managing a brand name. The twelve myths of e-commerce are: Myth 1. Myth 3. Myth 2.
Flash makes a Web site better. Promote your Web site on-line and off-line. Entrepreneurs looking to launch an ecommerce effort have five basic choices: (1) on-line shopping malls. Make the most of the Web’s global reach. There is no sure-fire formula for stopping surfers in their tracks. Myth 12. Develop a community of on-line customers. and (5) building a site in-house.” Consider forming strategic alliances with larger. (4) hiring professionals to design a custom site. but avoid becoming a “spammer. (2) storefront-building services. 5. Explain the basic strategies entrepreneurs should follow to achieve success in their e-commerce efforts.retail store. It’s too late to get on the Web.” Make creative use of e-mail. (3) Internet service providers (ISPs). Ecommerce will cause brick-and-mortar retail stores to disappear.” Make sure your Web site says “credibility. The greatest opportunities for ecommerce lie in the retail sector. Myth 9. but the following suggestions will help: . Attract visitors by giving away “freebies. 4. Following are some guidelines for building a successful Web strategy for a small e-company: Consider focusing on a niche in the market. Myth 8. 6. more established companies. It’s what’s up front that counts. Discuss the five basic approaches available to entrepreneurs wanting to launch an ecommerce effort. Myth 11. Learn the techniques of designing a killer Web site. Myth 10.
Follow a simple design for your Web page. Explain how companies track the results from their Web sites. Give shoppers the ability to track their orders on-line. To make sure they are using the information they collect from visitors to their Web sites legally and ethically. Server logs record every page. Describe how e-businesses ensure the privacy and security of the information they collect and store from the Web. or photograph that visitors to a site access. and log-analysis software analyzes these logs and generates reports describing how visitors behave when they get to a site. Consider hiring a professional to design your site. Keep your site updated. Offer Web shoppers a special all their own. Another option for tracking Web activity is through log-analysis software. graphic. 7. preferably those selling products or services that complement yours. The simplest technique for tracking the results of a Web site is a counter. audio clip. which records the number of “hits” a Web site receives.Select a domain name that is consistent with the image you want to create for your company and register it. Assure customers that their on-line transactions are secure. companies should take the following steps: . Establish hyperlinks with other businesses. Give customers want they want. Include an e-mail option and a telephone number in your site. 8. Be easy to find.
magazines.1.and reception . • Advertising • Publicity and Public Relations • Hybrid Forms of Promotion and Advertising • Personal Selling 3. directories. • Build the message on the firm’s unique selling proposition. • The medium used to transmit an advertising message influences the consumer's perception . outdoor advertising. the World Wide Web. Describe the advantages and disadvantages of the various advertising media. trade shows.of it. transit advertising. • Knowledge of the firms targeted market to ensure that message is properly focused. radio. • Media options include: newspapers. Describe the advantages and disadvantages of the various advertising media. 2. • What is to be achieved with the message. direct mail. Describe the basis of a marketing communications plan. special events and promotions and point-of- . television.
5. Explain practical methods for stretching the small business owner's advertising budget. skimming.purchase ads. • Establishing an advertising budget presents a real challenge to the small business owner. matching competitors. there are three major pricing strategies used to introduce new products into the market: penetration. Generally. maintaining market share as the competition grows. percentage of sales. leader pricing. • Here are four basic methods: what is affordable. 4. discounts. objectiveand-task. 6. • Pricing techniques for existing products and services include odd pricing. but it should accomplish three objectives: getting the product accepted. geographical pricing. shared advertising. small businesses do not have to take a second-class approach to advertising. • Despite their limited advertising budgets. opportunistic pricing. and earning a profit. Describe effective pricing techniques for introducing new goods or services and for existing ones. • Pricing a new product is often difficult for the small business manager. and sliding-downthe-demand-curve. price lining. and publicity. . Discuss four basic methods for preparing an advertising budget. Three techniques that can stretch a small companies advertising dollars are cooperative advertising.
and frequently charge the going rate without any idea of their costs. labor involved. Every manufacturer should calculate a product's break-even price. Small firms offer . The most common technique is cost-plus pricing. overhead. 8. but some retailers put a standard markup on all their merchandise. A service firm must set a price based on the cost of materials used. more frequently. Most retailers compute their markup as a percentage of retail price. Describe the impact of credit on pricing. unfounded pricing procedures. they use a flexible markup. 7. Explain the pricing methods and strategies for retailers. • Pricing for the retailer means pricing to move merchandise. The proper price reflects the total cost of providing a unit of service. • Service firms often suffer from the effects of vague. and magnitude of customers' purchases. • Offering consumer credit enhances a small company's reputation and increases the probability. speed. manufacturers. and a profit. • A manufacturer's pricing decision depends on the support of accurate cost accounting records. and service firms. Markup is the difference between the cost of a product or service and its selling price. the price which produces neither a profit nor a loss. in which the manufacturer charges a price that covers the cost of producing a product plus a reasonable profit.and suggested retail pricing.
Cash and profits are not the same. 2. unproductive cash balances. Cash flow represents the flow of actual cash (the only thing businesses can use to pay bills) through a business in a continuous cycle. a small business will fail. are an accounting concept. More businesses fail for lack of cash than for lack of profits. Understand the five steps in creating a cash budget and use them to create a cash budget. The manager must maintain enough cash to meet the firm's normal requirements (plus a reserve for emergencies) without retaining excessively large. Differentiate between cash and profits. 1. Without adequate cash. A business can be earning a profit and be forced out of business because it runs out of cash. 3. Cash is the most important but least productive asset the small business has. The cash budgeting procedure outlined in this chapter tracks the flow of cash through the business and enables the owner to project cash surpluses and cash deficits at . and trade credit (charge accounts). the difference between total revenue and total expenses. installment credit.three types of consumer credit: credit cards. Profits. Explain the importance of cash management to a small business's success.
4. When managing accounts payable. Inventory frequently causes cash headaches for small business managers. Other techniques include: verifying invoices before paying them. and implementing an internal control system boost a . The goal is to collect cash from receivables as quickly as possible. 5. and inventory. forecasting cash disbursements. Owners must watch for stale merchandise. accounts payable. Describe fundamental principles involved in managing the "Big Three" of cash management: accounts receivable. leasing assets. a manager's goal is to stretch out payables as long a possible without damaging the company's credit rating. avoiding nonessential outlays. and determining the end-of-month cash balance. using zero-based budgeting. Trimming overhead costs by bartering. Sending invoices promptly and acting on past-due accounts quickly also improve cash flow. taking advantage of cash discounts. Excess inventory earns a zero rate of return and ties up a company's cash unnecessarily. firm credit and collection policies and to screen customers before granting them credit. and negotiating the best possible credit terms. The five steps in creating a cash budget are as follows: forecasting sales. forecasting cash receipts.specific intervals. Controlling accounts receivable requires business owners to establish clear. Explain the techniques for avoiding a cash crunch in a small company.
Also. The primary criteria for investing surplus cash are security and liquidity. Launching a successful business requires an entrepreneur to create a solid financial plan. Describe how to prepare the basic financial statements and use them to manage the small business. Not only is such a plan an important tool in raising the capital needed to get a company off the ground. Earning a profit does not occur by accident. but it also is an essential ingredient in managing a growing business. it takes planning.firm's cash flow position. . 2. 1. Understand the importance of preparing a financial plan. investing surplus cash maximizes the firm's earning power. Entrepreneurs rely on three basic financial statements to understand the financial conditions of their companies: 1.
3. The income statement. This statement compares the firm’s revenues against its expenses to determine its net profit (or loss). The twelve key ratios described in this chapter are divided into four major categories: liquidity ratios. operating ratios. which show the small firm’s ability to meet its current obligations. Projected financial statements are a basic component of a sound financial plan. the small business in search of startup funds will need these pro forma statements to present to prospective lenders and investors. inventory. Also. This statement shows the change in the company’s working capital over the accounting period by listing the sources and the uses of funds. It provides information about the company's bottom line. it provides an estimate of the company’s value on a particular date. which disclose the . 2. Built on the accounting equation: Assets = Liabilities + Owner’s Equity (Capital). Understand the basic financial statements through ratio analysis. leverage ratios. They also assist in determining the amount of cash. fixtures. They help the manager plot the company's financial future by setting operating objectives and by analyzing the reasons for variations from targeted results. 4. and other assets the business will need to begin operation. Create projected (pro forma) financial statements. which show how effectively the firm uses its resources. 3. and profitability ratios. which tell how much of the company’s financing is provided by owners and how much by creditors. The statement of cash flows.The balance sheet.
such deviations are the result of sound business decisions. A below average ratio does not necessarily mean that the business is in trouble. In some cases. breakeven analysis is a useful planning and decision-making tool. ratios that are out of the normal range for a particular type of business are indicators of what could become serious problems for a company.company’s profitability. 6. they should determine the cause of the deviations. If there is a discrepancy between the small firm’s ratios and those of the typical business. Although just a simple screening device. the level of operations at which total revenues equal total costs. Business owners should know their firm’s breakeven point. the owner should investigate the reason for the difference. Explain how to interpret financial ratios. To benefit from ratio analysis. . the small company should compare its ratios to those of other companies in the same line of business and look for trends over time. it is the point at which companies neither earn a profit nor incur a loss. 5. Many agencies and organizations regularly publish such statistics. in other instances. Conduct a breakeven analysis for a small company. When business owners detect deviations in their companies’ ratios from industry standards. however.
It also requires the owner to assess the venture's chances of success more objectively. First and most important. . The second function of the business plan is to attract lenders and investors. Explain why every entrepreneur should create a business plan. • The real value in preparing a business plan is not so much in the plan itself as it is in the process the entrepreneur goes through to create the plan. 2. Applying for loans or attempting to attract investors without a solid business plan rarely attracts needed capital. Building the plan forces a potential entrepreneur to look at her business idea in the harsh light of reality. Explain the benefits of preparing a plan. it guides the company's operations by charting its future course and devising a strategy for following it. • Preparing a sound business plan clearly requires time and effort. • A business plan serves two essential functions. A wellassembled plan helps prove to outsiders that a business idea can be successful. but the benefits greatly exceed the costs.1.
hit the highlights of your venture. use visual aids. 4. a competitor analysis. financial data. its target market. a business and industry profile. critical evaluation. "hook" investors quickly with an up-front explanation of the new venture. and the anticipated benefits to them. don't get caught up in too much detail in early meetings with lenders and investors. a statement explaining its marketing strategy. a company history. Understand the keys to making an effective business plan presentation. the process of building a plan requires an entrepreneur to subject his idea to an objective. and other factors can be essential to making the venture a success. • Lenders and investors are favorably impressed by entrepreneurs who are informed and prepared when requesting a loan or investment. a mission statement. • Tips include: Demonstrate enthusiasm about the venture. a profile of its products or services. 3. Describe the elements of a solid business plan. it should cover these basic elements: an executive summary. owners' and officers' resumes. avoid . a description of the company's business strategy. • Although a business plan should be unique and tailormade to suit the particular needs of a small company. but don't be overemotional.Although the finished product is useful. its opportunities. What the entrepreneur learns about his company. and the loan or investment proposal. its financial requirements. a plan of operation.
• Conditions .A synonym for capacity is cash flow. • Small business owners need to be aware of the criteria bankers use in evaluating the credit-worthiness of loan applicants – the five Cs of credit: capital. close by reinforcing the nature of the opportunity.The conditions .Collateral includes any assets the owner pledges to the bank as security for repayment of the loan. • Character . • Collateral . and conditions. capacity. industry growth rates.Lenders expect small businesses to have an equity base of investment by the owner(s) that will help support the venture during times of financial strain. and that takes cash. and be prepared for questions. character. rehearse your presentation before giving it.interest rates. the banker must be satisfied with the owner's character. etc. Explain the "5 Cs of Credit" and why they are important to potential lenders and investors reading business plans.Before approving a loan to a small business. The bank must be convinced of the firm's ability to meet its regular financial obligations and to repay the bank loan. collateral. • Capacity . the health of the nation's economy.the use of technological terms that will likely be above most of the audience. • Capital . surrounding a loan request also affect the owner's . 5.
Capital is any form of wealth employed to produce more wealth. Explain the differences in the three types of capital small businesses require: fixed.chance of receiving funds. 2. and is used to support the business's normal short-term operations. Describe the differences in equity capital and debt capital and the advantages and disadvantages of each. and growth. working. Equity financing represents the personal investment of the . Three forms of capital are commonly identified: fixed capital. and growth capital. 1. working capital. working capital represents the business's temporary funds. Fixed capital is used to purchase a company's permanent or fixed assets. growth capital requirements surface when an existing business is expanding or changing its primary direction.
Describe the various sources of equity capital available to entrepreneurs. which requires registering the public offering with the SEC. the next place entrepreneurs turn for capital is family members and friends. a competitive edge. Some owners choose to attract capital by taking their companies public. When screening prospects. professional investors looking for fast-growing companies in "hot" industries. and public stock offerings. After emptying their own pockets. including personal savings. Venture capital companies are for-profit. often a customer or a supplier. 3. but they also offer valuable advice and counsel to them. Some business owners have success financing their companies by taking on limited partners as investors or by forming an alliance with a corporation. and it offers the advantage of not having to be repaid with interest. 4. It does not require entrepreneurs to give up ownership in their companies. Debt capital is the financing that a small business owner has borrowed and must repay with interest.owner (or owners). and important intangibles that will make a business successful. venture capital firms look for competent management. corporations. friends and relatives. Describe the process of "going public." as well as its advantages and disadvantages and the various simplified registrations and exemptions from registration available . Angels are private investors who not only invest their money in small companies. a growth industry. venture capital. The most common source of financing a business is the owner's personal savings. angels. partners.
. improved access to future financing. Describe the various sources of debt capital and the advantages and disadvantages of each: banks. loss of privacy. stock brokers. and Small Business Lending Companies (SBLCs). Going public offers the advantages of raising large amounts of capital. Commercial banks offer the greatest variety of loans. Small Business Investment Companies (SBICs). negotiating a letter of intent. choosing the underwriter. 4. equipment suppliers. Rule 147. The disadvantages include dilution of the founder's ownership. file with the SEC. Typical short-term bank loans include commercial loans. private placements. asset-based lenders. Going public involves: 1. and gaining listing on a stock exchange. Regulation D (Rule 504) Small Company Offering Registration (SCOR). credit unions. bonds. although they are conservative lenders. preparing the registration statement. Section 4(6). and accountability to shareholders. Regulation D (Rule 505. lines of credit. Rather than go through the complete registration process. Regulation A. and foreign stock markets. and 5. savings and loan associations. direct stock offerings. and Rule 506) Private Placements. meet state requirements. commercial finance companies. 5. vendors (trade credit). 2.to small businesses wanting to sell securities to investors. insurance companies. improved corporate image. 3. reporting to the SEC. filing expenses. some companies use one of the simplified registration options and exemptions available to small companies: Regulation S-B.
and floor planning. Savings and loan associations specialize in loans to purchase real property . Small Business Investment Companies are privately owned companies licensed and regulated by the SBA that qualify for SBA loans to be invested in or loaned to small businesses. Small Business Lending Companies make only intermediate and long-term loans that are guaranteed by . liquid collateral . Equipment suppliers offer small businesses financing similar to trade credit. Commercial finance companies offer many of the same types of loans that banks do. 60. Insurance companies provide financing through policy loans and mortgage loans. Trade credit is used extensively by small businesses as a source of financing. They emphasize accounts receivable financing and inventory loans. inventory financing. Stock-brokerage houses offer loans to prospective entrepreneurs at lower interest rates than banks because they have high quality. but they are more risk oriented in their lending practices.commercial and industrial mortgages . Mortgage loans are made for large amounts and are based on the value of the land being purchased.for up to 30 years. but with slightly different terms. Policy loans are extended to the owner against the cash surrender value of insurance policies.discounting accounts receivable.stocks and bonds in the borrower's portfolio. or even 90 days. Vendors and suppliers commonly finance sales to businesses for 30.
The Department of Agriculture’s Rural BusinessCooperative Service loan program is designed to create nonfarm employment opportunities in rural areas through loans and loan guarantees. Popular SBA programs include: LowDoc program. 6. The Economic Development Administration. a branch of the Commerce Department. Describe the various loan programs available from the Small Business Administration. 7. the SBAExpress program. The Department of Housing and Urban Development extends grants (such as Community Development Block Grants) to cities that. in turn. the 7(A) loan guaranty program. and non-profit research institutions to join forces with small businesses and develop commercially promising ideas. federally funded R&D centers. makes loan guarantees to create and expand small businesses in economically depressed areas. Almost all SBA loan activity is in the form of loan guarantees rather than direct loans. 7. the . the CAPLine program. lend and grant money to small businesses in an attempt to strengthen the local economy. Identify the various federal loan programs aimed at small businesses.the SBA. The Small Business Innovation Research Program involves 11 federal agencies that award cash grants or long-term contracts to small companies wanting to initiate or to expand their research and development (R&D) efforts. The Small Business Technology Transfer Program allows researchers at universities.
the city. 1. Many state and local loan and development programs such as Capital Access Programs and Revolving Loan Funds complement those sponsored by federal agencies. By factoring accounts receivable. given its longterm effects on the company.Export Working Capital program. the Section 504 Certified Development Company program. and by minimizing costs. Explain the stages in the location decision . the state.choosing the region. An entrepreneur should look at the choice as a series of increasingly narrow decisions: Which region of the country? Which state? Which city? Which site? Choosing the . the Disaster Loan program. owners can stretch their supplies of capital. leasing equipment instead of buying it. 8. Discuss valuable methods of financing growth and expansion internally. • The location decision is one of the most important decisions an entrepreneur will make. the Microloan program. the Prequalification Loan Program. and the 8(a) program. and the final site. Small business owners may also look inside their firms for capital.
shopping centers and malls. neighborhoods. number of parking spots. • For retailers.right location requires an entrepreneur to evaluate potential sites with her target customers in mind. • A foreign trade zone is a specially designated area in or . Outline the basic location options for retail and service businesses. but government agencies such as the Census Bureau have a wealth of detailed data that can guide an entrepreneur in her location decision. Retailers must consider the size of the trade area. near competitors. 3. Two crucial factors for most manufacturers are the reliability (and the cost of transporting) raw materials and the quality and quantity of available labor. • Retail and service businesses have six basic location options: central business districts (CBDs). Demographic statistics are available from a wide variety of sources. and the visibility of a site. outlying areas. 2. availability of room for expansion. 4. Describe the location criteria for retail and service businesses. and at home. • A manufacturer's location decision is strongly influenced by local zoning ordinances. the volume of customer traffic. the location decision is especially crucial. Some areas offer industrial parks designed specifically to attract manufacturers. Explain the site selection process for manufacturers.
Many government agencies and universities offer incubator locations. entrances (Are they inviting?). assemble. manufacture. lowcost rental space to their tenants as well as business and consulting services. interior (Does the interior design contribute to our ability to make sales? Is it . signs (Are they legible. an entrepreneur should consider several factors: size (Is it large enough to accommodate the business with some room for growth?). process.near a United States customs port of entry that allows resident companies to import materials and components from foreign countries. Their goal is to nurture small companies until they are ready to "graduate" into the business community. how much will it cost to bring it up to standard?). Describe the criteria used to analyze the layout and design considerations of a building. construction and external appearance (Is the building structurally sound and does it create the right impression for the business?). legal issues (Does the building comply with the Americans with Disabilities Act? If not. or package them. including the Americans with Disabilities Act. • Empowerment zones offer businesses tax breaks on the investments they make within zone boundaries. and easy to see?). • Business incubators are locations that offer flexible. • When evaluating the suitability of a particular building. and then ship the finished product while either reducing or eliminating tariffs and duties. 5. well-located.
• The goal of a manufacturer's layout is to create a smooth. therefore. and leasing a building. but the business owner faces the uncertainty of lease renewals. and manufacturers. Explain the principles of effective layouts for retailers. Leasing a location is a common choice because it is economical. free-form. and renovation problems. not every small business owner can afford to tie up significant amounts of cash in fixed assets. more valuable. Two key considerations are worker productivity and materials handling costs. • Building a new building gives an entrepreneur the opportunity to design exactly what he wants in a brand new facility. 7. and fixed position layout. lights and fixtures (Is the lighting adequate for the tasks workers will be performing? What is the estimated cost of lighting?) 6. but this can be an expensive alternative. buying. • Layout for retail stores and service businesses depends on the owner's understanding of her customers' buying habits. Buying an existing building gives a business owner the freedom to renovate as needed. . and boutique. rising rents. however. Evaluate the advantages and disadvantages of building. process layout. service businesses. Retailers have three basic layout options from which to choose: grid. Some areas of a retail store generate more sales per square foot and are. efficient workflow. Three basic options exist: product layout.ergonomically designed?).
1. • One of the simplest and least expensive way for a small company to launch a global business effort is to create a Web site. increasing sales and profits. lowering manufacturing costs. exporting. The Web gives businesses of any size tremendous marketing potential all over the . But gaining a foothold in foreign markets is no easy task for a small company. • Companies that move into international business can reap many benefits. Describe the eight principal strategies small businesses have for going global: (relying on trade intermediaries. and becoming more customeroriented. international franchising. including offsetting sales declines in the domestic market. raising quality levels. joint ventures. and establishing international locations). 2. countertrading and bartering. Explain why "going global" has become an integral part of many small companies' strategies. extending their products' life cycles. global environment. foreign licensing. improving competitive position. • Businesses large and small can no longer consider themselves to be domestic companies in this hotly competitive.
The International Franchise Association estimates that more than 20 percent of the nation's 4. or products. and resident buying offices can serve as a small company's "export department. trademarks. copyrights. Of the 320 World Wide Web users across the globe. In a foreign joint venture." • In a domestic joint venture. • Some countries lack a hard currency that is convertible into other currencies. export trading companies. manufacturer's export agents.globe. so companies doing business there must rely on countertrading or bartering. Trade intermediaries such as export management companies. a domestic small business forms an alliance with a company in the target nation. • Franchising has become a major export industry for the United States. • Businesses looking to "go global" do not have to chart their courses alone. export merchants. With a well-designed Web site. technology. 184 million of them live outside the United States. A countertrade is a transaction in which a business selling its goods in a foreign country agrees to . a small company can extend its reach to customers anywhere in the world at a reasonable cost.S. two or more U. processes. • Some small businesses enter foreign markets by licensing businesses in other nations to use their patents. small companies form an alliance for the purpose of exporting their goods and services abroad.000 franchisers have outlets in foreign countries.
and collect your money. However. research markets and pick your target. small companies.promote investment and trade in that country. develop a distribution strategy. 4. are making exporting an ever-expanding part of their marketing plans. • Although small companies account for 97 percent of the companies involved in exporting. analyze your commitment to exporting." lack of information on how to get started in . some small businesses set up permanent locations there. Explain how to build a thriving export program. find your customer. Although they can be very expensive to establish and maintain. international locations give businesses the opportunity to stay in close contact with their international customers. 3. analyze your product or service. Discuss the major barriers to international trade and their impact on the global economy. Steps include: realize that even the tiniest firms have the potential to export. Bartering involves trading goods and services for other goods and services. find financing. • Three domestic barriers to international trade are common: the attitude that "we're too small to export. ship your goods. realizing the incredible profit potential it offers. • Once established in international markets. • Building a successful export program takes patience and research. they generate only 31 percent of the dollar value of the nation's exports.
Mexico. the General Agreement on Tariffs & Trade (GATT). The agreement created an association that knocked down trade barriers . dumping. was designed to reduce tariffs among member nations and to facilitate trade across the globe. • Created in 1947. political barriers.global trade. Describe the trade agreements that will have the greatest influence on foreign trade into the 21st century GATT and NAFTA. and a lack of available financing. 1. • International barriers include tariffs. . and the United States. 5. embargoes.among these partner nations. the first global tariff agreement.both tariff and nontariff . quotas. • The North American Free Trade Agreement (NAFTA) created a free trade area among Canada. Explain the challenges involved in the entrepreneur's role as leader and what it takes to be a successful leader. and cultural barriers.
• Management and leadership are not the same.• Leadership is the process of influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. • To avoid making hiring mistakes. Every "new hire" a business owner makes determines the heights to which the company can climb . Leadership gets a small business going. unwritten code of conduct that governs the behavior. 2. plan and conduct an effective interview. Leadership without management is unbridled. • The decision to hire a new employee is an important one for every business. management without leadership is uninspired. management keeps it going. entrepreneurs should: develop meaningful job descriptions and job specifications. Culture arises from an entrepreneur's consistent and . and check references before hiring any employee. attitudes. • Company culture is the distinctive. and style of an organization. 3. Describe the importance of hiring the right employees and how to avoid making hiring mistakes.or the depths to which it will plunge. but its impact is magnified many times in a small company. Explain how to build the kind of company culture and structure to support the entrepreneur's mission and goals and to motivate employees to achieve them. yet both are essential to a small company's success. relationships.
4. and improved employee motivation and morale. • Entrepreneurs rely on six different management styles to guide their companies as they grow. Companies that use teams effectively report significant gains in quality. • Empowerment involves giving workers at every level of the organization the power. The first three (craftsman. classic. the freedom. • Team-based management is growing in popularity among small firms. and feedback. increased customer satisfaction. and coordinator) involve running a company without any management assistance and are best suited for small companies in the early stages of growth. and the responsibility to control their own work. Four important tools of motivation include: empowerment. reductions in cycle time.relentless pursuit of a set of core values that everyone in the company can believe in. Small companies' flexible structures can be a major competitive weapon. to make . it shows up as excitement about work. job design. rewards and compensation. small partnership. big-team venture) rely on a team approach to run the company as its growth rate heats up. the last three (Entrepreneur-plusemployee team. • Motivation is the degree of effort an employee exerts to accomplish a task. Discuss the ways in which entrepreneurs can motivate their workers to higher levels of performance. lower costs.
and 5. 3. Create a survival kit for the successor. Groom the successor. Preparing a succession plan involves five steps: 1. • Job design techniques for enhancing employee motivation include: job enlargement. . and flexplace (which includes telecommuting). flextime. Describe the steps in developing a management succession plan for a growing business that will allow a smooth transition of leadership to the next generation.decisions. entrepreneurs must begin to plan for passing the leadership baton to the next generation well in advance. • As their companies grow. • Money is an important motivator for many workers. 4. • Giving employees timely. 5. Cope with the financial realities of estate taxes. Promote an environment of trust and respect. and to take action to meet the company's objectives. job sharing. 2. job enrichment. A succession plan is a crucial element in successfully transferring a company to the next generation. relevant feedback about their job performances through a performance appraisal system can also be a powerful motivator. Select the successor. The key to using rewards such as recognition and praise and to motivate involves tailoring them to the needs and characteristics of the workers. but not the only one. job rotation.