Chapter 4

HRTM 134 ENTREPRENEURSHIP AND BUSINESS PLANNING

02/07/17 AIREEN Y. CLORES, INSTRUCTOR 1

BUSINESS OWNERSHIP
By understanding the material discussed in
this chapter, youll be better prepared to:
1. Understand the keys to entrepreneurial
success, including business planning
2. Discuss the reasons for success or failure
3. Evaluate the advantages and disadvantages
of different kinds of ownership

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What is a Small
Busines?
Small Business Defined
A business that is independent (not part of a larger

business) and that has relatively little influence in its
market.
The Importance of Small Business in the U.S. Economy
Job creation
Innovation
Contributions to big business
Suppliers of specialized services and raw materials
Sellers of larger firms products
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 FIGURE 3.2: Small Business by
Industry

Business Essentials, 7th Edition

Ebert/Griffin
2009 Pearson Education, Inc.
 Starting the Small
Business
Buying an Existing Business
Less risk in purchasing ongoing, viable business
Franchising
Advantages
Proven business opportunity for franchisee
Access to management expertise of franchisor
Disadvantages
Start-up costs for franchise purchase
Ongoing payments to the franchisor
Management rules and restrictions on the franchisee

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 Starting the Small Business
(contd)
Starting from Scratch
Disadvantage: Higher risk of business failure
Advantage: Avoids problems of an existing business
Questions to Be Answered:
Who and where are my customers?
How much will those customers pay for my product?
How much of my product can I expect to sell?
Who are my competitors?
Why will customers buy my product rather than the product of
my competitors?

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Emergence of
E-commerce
Crossovers from
Big Business
Opportunities for
Minorities & Women
Global
Opportunities
Better
Survival Rates

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Organizational and
Management Plan
Basically a to do list for an Elements of an Organizational Plan

organization. It list the plan 1. Form of Business

2. Organizational Structure
3. Business Experience and
of work, programs and Qualifications of the Entrepreneur
4. Pre-Operating Activities
organizational growth over a 5. Pre-Operating Expenses
6. Office Equipment
period of time. 7. Administrative Expenses

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Role
Role Primary Duties
Primary Duties Person Filling
Person Filling Role
Role When
When
Needed
Needed
Product Development
Product Development Develop prototype
Develop prototype Lead entrepreneur
Lead entrepreneur Now
Now

Market Development
Market Development Customer research
Customer research Founder
Founder Now
Now
Channel development
Channel development

Finance
Finance Raise outside
Raise outside capital
capital To be
To be determined
determined Next
Next
month
month

Production
Production Identify manufacturing
Identify manufacturing To be
To be determined
determined 33
months
months partners
partners

STAFFING PLAN
Copyright 2014 John Wiley & Sons, Inc.
 BUILDING A POWERFUL TEAM

Copyright 2014 John Wiley & Sons, Inc.

 RESOURCES FOR CREATING
THE TEAM

Copyright 2014 John Wiley & Sons, Inc.

 EXTERNAL TEAM MEMBERS

Copyright 2014 John Wiley & Sons, Inc.

 PROBLEMS FACED BY
START-UP TEAMS

Copyright 2014 John Wiley & Sons, Inc.

Business Ownership
Forms of Legal Ownership
Sole proprietorship: Owned and operated by one person
Partnership: Sole proprietorship multiplied by the number
of partner-owners
Corporation
Choice of Ownership Form
Based on the entrepreneurs needs/desires for control,
ownership participation, financing sources, and
appropriateness of the chosen form for the industry in
which the firm will compete

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Sole Proprietorships
Advantages: Disadvantages:
Freedom Unlimited liability:
Owners are responsible
Simple to form for all debts of a business
Low start-up costs Limited resources
Tax benefits Limited fundraising
Formation of capability
cooperatives Lack of continuity

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Partnerships
Advantages: Disadvantages:
More talent and Unlimited liability
money
for general partner
More fundraising
capability Disagreements
Relatively easy to among partners
form Lack of continuity
Limited liability for
limited partners
Tax benefits
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Alternatives to General
Partnerships
Limited Partnership
Allows for limited partners who invest money but are liable for debts only to
the extent of their investments
Must have at least one general (or active) partner, who is usually the
person who runs the business and is responsible for its survival and growth
Master Limited Partnership
Organization sells shares (partnership interests) to investors on public
exchange. Investors are paid back from profits
The master partner retains at least 50 percent ownership and runs the
business, while minority partners have no management voice

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 Cooperatives
Combine the freedom of sole proprietorships
with the financial power of corporations
Groups of sole proprietorships or partnerships
agree to work together for their common benefit

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Corporations

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Corporations
Advantages: Disadvantages:
Limited liability: The
Double taxation of
owners responsibility for
the debts of a business is dividends
limited to their investment
in a business Fluid control
Continuity Complicated and
Stronger fundraising expensive to form
capability

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Types of Corporations
Closely Held (Private) Corporation
Publicly Held (Public) Corporation
Limited Liability Corporation (LLC)
Professional Corporation (PC)
Multinational (Transnational) Corporation

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Managing a Corporation
Corporate Governance
The roles of shareholders, directors, and other managers
in corporate decision making and accountability
Corporate governance is established by the firms bylaws
and involves three bodies:
Stockholders (shareholders): Investors who buy ownership
shares in the form of stock
The board of directors: Group elected by stockholders to
oversee corporate management
Corporate officers: Top managers hired by the board to run the
corporation

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Stockholders: Owners of Corporations
Stock: A share of ownership in a corporation
Dividends: Profits distributed among stockholders

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Special Issues in Corporate Ownership
Joint Ventures and Strategic Alliances:
Strategic alliance: Two or more organizations collaborate
on a project for mutual gain
Joint venture: Partners share ownership of a new
enterprise
Employee Stock Ownership Plans
Allows employees to own a share of the corporation
through trusts established on their behalf
Institutional Investors
Control enormous resources and can buy huge blocks of
stock
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Special Issues in Corporate Ownership
(contd)
Mergers, Acquisitions, Divestitures, and Spin-
Offs:
Merger: Two firms combine to create a new
company
Acquisition: One firm buys another outright
Divestiture: Strategy whereby a firm sells one or
more of its business units
Spin-off: A firm sells part of itself to raise capital

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Assignment:
RESEARCH: Requirements and steps on registering
the following business format:
1. Sole proprietorship
2. Partnership
3. Corporation

Please indicate your source reference;

write in whole sheet bond paper.
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