Understanding The Contemporary Business Environment: Fourth Edition

Fourth Edition
PART 1 . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Contemporary
Business Environment
Copyright ©2003 Prentice Hall, Inc.

Chapter 4
Entrepreneurship and
Small Business
Copyright ©2003 Prentice Hall, Inc. 4-2

“Entrepreneurs are simply those
who understand that there is little
difference between obstacle and
opportunity and are able to turn
both to their advantage.”
~ Victor Kiam

Key Topics
Small business and its importance in the economy

Sole proprietorships, partnerships, and corporations
Creating and managing corporations
Corporate trends and issues
Starting and funding a small business
Pros and cons of franchising

What Is “Small Business”?
Independently owned and

managed business that does
not dominate its market

Small business plays a critical role
in the U.S. economy.
Job Creation
Innovation
Importance to
Big Businesses

The Labor Force Reflects the
Importance of Small Business
86.09
Percentage of All U.S. Businesses
Percentage of All U.S. Workers

25.60 29.10 25.50
12.70
11.00 2.00 7.10
0.20 0.10
Under 20- 100- 500- 1000 or Under 20- 100- 500- 1000 or
20 99 499 1000 more 20 99 499 1000 more
Total Employees Total Employees
Popular Areas of Small Business Enterprise
Manufacturing
Services 5%
Finance &
Retailing Insurance Other
10% 1.7%
Construction Wholesale
8%
Financial
Insurance
Wholesaling
Transportation Construction Services
Retailing 37.6%
10%
Manufacturing 22.7%
Transportation
5%
Types of Business Organizations
Type of Business
7% 20%
73%
Sales Revenue
89%
5%
6%
Sole Proprietorship Partnership Corporations

Comparative Summary: Three Forms of Business
Business Investment
Liability Continuity Management
Form Sources
Proprietorship Personal, Ends with death Personal, Personal

limited or decision of unrestricted
owner
General Personal, Ends with death Unrestricted or Personal by

Partnership unlimited or decision of depends on partner(s)
any partner partnership
agreement
Corporation Capital As stated in Under control of Purchase of

invested charter, board of stock
perpetual or for directors, which
specified period is selected by
of years stockholders
Copyright ©2003 Prentice Hall, Inc. 4 - 10

Sole Proprietorships
Advantages: Disadvantages:
Freedom Unlimited Liability
Simple to form Limited resources
Low start up costs Limited fundraising
Tax benefits capability
Lack of continuity
Unlimited Liability
Legal principle holding owners responsible
for paying off all debts of a business
Partnerships
More talent and money Unlimited Liability
More fundraising Disagreements among
capability partners
Relatively easy to Lack of continuity
form
Tax benefits
Unlimited Liability
Legal principle holding owners responsible
for paying off all debts of a business
Remember…
“When two men in business always
agree, one of them is unnecessary.”
William Wrigley Jr.
But…
An exit plan is still crucial!

What is a Corporation?
“An artificial being, invisible, intangible, and

existing only in contemplation of the law.”
Corporations
Limited Liability Double Taxation
Continuity Fluid control
Stronger fundraising Complicated and
capability expensive to form

Types of Corporations
Closely Held (Private) Corporation

Publicly Held (Public) Corporation
S Corporation
Limited Liability Corporation (LLC)
Professional Corporation
Multinational or Transnational Corporation
Stockholders
Owners of Corporations
Stock: Share of ownership in a corporation

Common Stock
Preferred Stock

Corporate Governance Hierarchy
Stockholders
Board of Directors
Officers

Special Issues in Corporate Ownership
Joint Ventures &

Strategic Alliances
Employee Stock
Ownership Programs
(ESOPS)
Institutional
Ownership

Special Issues in Corporate Ownership
Mergers &
Acquisitions
(M&As)
Divestitures
& Spin-offs

Entrepreneurship vs. Small Business
Entrepreneur: Accepts the

risks and opportunities of
creating, operating and
growing a new business
Small Business Owner:

Does not have plans for growth

Trends in Small Business Start-ups
Emergence of
E-commerce
Crossovers From
Big Business
Opportunities for
Minorities & Women
Global
Opportunities
Increased
Survival Rates
E-commerce Continues to Grow Rapidly
$20,000
$17,387
$18,000
$16,000
$14,000
Percentage
$12,090
$12,000
$10,000 $7,924
$8,000
$6,000 $4,828
$4,000 $2,444
$2,000
$0
1997 1998 1999 2000 2001
Year
Reasons for Success and Failure
Reasons for Failure

Poor management
Neglect
Weak control systems
Reasons for Success
Insufficient capital
Hard work, drive,
dedication
Market demand
Strong management
Luck!!!

Getting Started
Buying an Starting
Existing From
Business Scratch

Financing the Small Business
Personal resources
Loans
Venture capital companies
Small-business investment companies
Small Business Association (SBA)
 Financial aid and management advice

FRANCHISING
An Ownership Opportunity
Advantages Disadvantages
Proven business Start-up costs
opportunity
On-going
Access to payments
management
Management rules
expertise
and restrictions

Chapter Review
Define small business and explain its importance to the

U.S. economy.
Describe sole proprietorships, partnerships, and
corporations, and explain the advantages and
disadvantages of each.
Identify the different types of corporations.
Describe the start-up decisions made by small
businesses and the potential sources of financial aid
and management advice.
Identify the advantages and disadvantages of
franchising.

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Fourth Edition

Copyright ©2003 Prentice Hall, Inc.

Copyright ©2003 Prentice Hall, Inc. 4-2

Copyright ©2003 Prentice Hall, Inc. 4-3

Small business and its importance in the economy

Copyright ©2003 Prentice Hall, Inc. 4-4

Independently owned and

Copyright ©2003 Prentice Hall, Inc. 4-5

Copyright ©2003 Prentice Hall, Inc. 4-6

Percentage of All U.S. Workers

Sole Proprietorship Partnership Corporations

Proprietorship Personal, Ends with death Personal, Personal

General Personal, Ends with death Unrestricted or Personal by

Corporation Capital As stated in Under control of Purchase of

Copyright ©2003 Prentice Hall, Inc. 4 - 10

Copyright ©2003 Prentice Hall, Inc. 4 - 13

“An artificial being, invisible, intangible, and

Copyright ©2003 Prentice Hall, Inc. 4 - 15

Closely Held (Private) Corporation

Stock: Share of ownership in a corporation

Copyright ©2003 Prentice Hall, Inc. 4 - 17

Copyright ©2003 Prentice Hall, Inc. 4 - 18

Joint Ventures &

Copyright ©2003 Prentice Hall, Inc. 4 - 19

Copyright ©2003 Prentice Hall, Inc. 4 - 20

Entrepreneur: Accepts the

Small Business Owner:

Copyright ©2003 Prentice Hall, Inc. 4 - 21

Reasons for Failure

Copyright ©2003 Prentice Hall, Inc. 4 - 24

Copyright ©2003 Prentice Hall, Inc. 4 - 25

Copyright ©2003 Prentice Hall, Inc. 4 - 26

Copyright ©2003 Prentice Hall, Inc. 4 - 27

Define small business and explain its importance to the

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