CHAPTER 1

Defining Small Business

A small Business is one that is independently owned and operated
and is not dominant in its field of operation
Two of the following three reasons:
Management is independent since the manager usually own the
Business
Capital supply is held by an individual or few individual
The area of operation is primarily local, market may not

More definitions
An

organization with a name, a place

of operations, an owner, and one or
more workers other than the owner.
business that is managed by not more
than 3 managers or whose workforce
does not exceed 100 persons.
Any enterprise employing 500 or
fewer employees.4

business which is independently

owned and operated and has either
fewer than 100 employees or less
than $1,000,000 in gross receipts.5

Distinguishing Between Small Business &

Entrepreneurial Venture
SMALL BUSINESS
o A small business does not engage in new or
innovative practice
o It may never grow large
o It involves normal sales, profit and growth.

Entrepreneurial Venture
o Its Primary objective is profitability and growth.
o It involves innovative strategic products or practices
o Entrepreneurs are usually seeking rapid growth, immediate
and high profits and sellouts with large profits.
o Entrepreneurial venture creates substantial wealth, in excess of
Several million dollars of profit.
o Speed of wealth creation in entrepreneurship is great. A small
Business might take a lifetime to generate several million dollars,
But an entrepreneurial venture would take time of say 5 yrs.
o Risk is an entrepreneurial activity must be high.

Reasons of increased interest in

SBM

No.

of SBM are growing rapidly

Small firms generates most new
employment
The public favors small business
Interests increasing at high schools
and colleges
Trends towards self employment
Attractive to all ages

Contributions of Small
Business

Encourage innovation & Flexibility

Maintain close relationship with
customers & the community
Keep larger firms competitive
Provide employees with
comprehensive learning experience
Develop risk takers
Generate new employment

Problems Facing Small

Business

Taxes
Regulation and Red
Tape
Insurance Costs
Weak Sales
Competition from Large
Companies
Finding Good Workers

25%
23%
11%
10%
8%
7%

Why SBM Fails

Lack of capital
No business knowledge
Poor management
Inadequate planning
Inexperience

Trends Challenging
Entrepreneurs & Small
Business Owners

A More Diverse Work Force

Empowerment & Team Performance
Exploding Technology
Occupational & Industry Shifts
Reengineering, reinvention, downsizing

Global Challenges

CHAPTER 2
Why own & manage
small Business
Reasons For Starting Small Businesses
1. To Satisfy Personal Objectives:
Personal objectives as independence, control and satisfaction are
Met. People working as managers in larger firms tend to seek security,
Place, power, prestige, high income and benefits.
i. To achieve independence
Small business owners tend to want autonomy to exercise their
Initiative. Owning your business provides satisfaction that may be
Absent when working for someone else.
ii. To obtain additional income
In order to acquire more money people usually start their own small
business

iii. The help their families

iv. To provide products not available elsewhere
2. To achieve business objectives:
Objectives should be set by the owner as they are the goals
towards which activities of the business are directed.
i. Service Objective
Primary objective of a small business is to serve the customers
by producing and selling goods and services.
ii. Profit Objective
To earn profit is the reward for taking a risk. Profits are needed
to create new jobs , acquire new facilities and develop new
products.
iii. Social Objective
Assisting group and protecting the environment
iv. Growth Objective
owners should be concerned with the growth of their
business and must consider growth objectives in mind, so
as to retain their current state or to expand the business

Characteristics of successful small

business owners
1. Desire independence
2. Have a strong sense of initiative
3. Motivated by personal & family considerations
4. Expect quick & concrete results
5. Are able to react quickly
6. Dedicated to their business
7. Enter business as much by chance as by design

Characteristics to be a
Successful Entrepreneur

Analyzing
Analyzing
Analyzing

ur
ur
ur

Values
Mental Abilities
Attitudes

What leads to Success in

Managing a Small
Serving anBusiness?
adequate & well-defined

market for the product

Acquiring sufficient capital
Recruiting & using human resources
effectively
Obtaining & using accurate
information
Coping with govt. regulations
effectively

Having expertise in the field on the

part of both the owner and the
employees
Managing time effectively

CHAPTER 3
Opportunities and Challenges
in Small Business
What

are the opportunities?

What are the Fastest Growing industries

Factors effecting the future of an
industry or a business
Economics

GNP, interest rates, inflation rates, stages of

business cycle, employment level, competition
Technology

Artificial intelligence, robots, laser beam, new

energy sources etc

 Life

Style

Career expectations, consumer activism, health

concerns, desire to upgrade education and climb
for socioeconomic ladder etc
political

and legal forces

Anti trust regulations, Environmental protection

law, foreign trade regulations, tax changes,
immigration laws, attitude of govt. and society
towards the particular type of industry and
business
Demographics

Population growth rate, age and regional shift,

ethnic moves and life expectancy, number and
distribution of firms within the industry, size and
character of markets

Practical ideas for small business

Catering
Computer and office machine repair
Day care
Education services and products
Career counseling
Financial planning
Home health care
Printing, copying and mailing
Marketing promotion and public relations
Senior fitness and recreation
Specialized delivery services
GROWTH OPPERTUNITIES FOR WOMEN

Areas of concern for Small

Business Owners
Poorly

planned growth

Loss of Independence and Control

Typical Growth Pattern
Threat

of Failure

Discontinuance
Failure
Formal
Informal

Stages
Stage

1
Stage 2
Stage

Owner only
Owner only with few
worker
Owner and Manager (s)
with worker

Chapter 04
Legal Structures For New
Business
Ventures

Factors to Consider
Family tolerance level to physical, psychological
and emotional strains
Ease of starting, transferring and creating
interest of others
To what extent the owner and family ready to
accept financial risks of own savings and others
How much do u want to expose to public
Income tax consideration
Amount of free time available
Responsibility

Sole Proprietorships
A sole proprietorship is a
business
that is owned and operated
by one person. The
enterprise has no existence
apart from its owner.

Advantages
Ease

of formation
Sole ownership of profits
Decision making and control vested in
one owner
Flexibility
Relative freedom from governmental
control
Freedom from corporate business taxes

Disadvantages
Unlimited

liability
Lack of continuity
Less available capital
Relative difficulty obtaining longterm financing
Relatively limited viewpoint and
experience

Partnerships
A

partnership is an association of
two or more persons acting as coowners of a business for profit.
The articles of partnership clearly
outline the financial and managerial
contributions of the partners and
carefully delineate the roles in the
partnership relationship.

Advantages
Ease

of formation
Direct rewards
Growth and performance facilitated
Flexibility
Relative freedom from governmental
control and regulation
Possible tax advantage

Disadvantages
Unlimited

liability of at least one partner

Lack of continuity
Relative difficulty obtaining large sums
of capital
Bound by the acts of just one partner
Difficulty of disposing of partnership
interest
Fragile

Factors Associated with Partnership

Success
Partnership Attributes
Commitment
Coordination
Interdependence
Trust

Communication Behavior
Quality
Information Sharing
Participation

Satisfaction
Dyadic Sales

Conflict Resolution Techniques

Joint Problem
Solving
Persuasion
Smoothing

Partnership Success

Domination
Harsh Words
Arbitration

Corporations
A

corporation is an artificial being,

invisible, intangible, and existing
only in contemplation of the law*.
As such, a corporation is a separate
legal entity apart from the individuals
who own it.

Advantages
Limited

liability
Representative management
Separate Legal Entity
Transfer of ownership
Unlimited life
Relative ease of securing capital in
large amounts
Increased ability and expertise

Disadvantages
Activity

restrictions
Lack of interests
Lack of representation
Regulation- accounts to public
Organizing expenses
High Incorporation Fee
Double taxation
Limited Powers

Specific Forms
of
Partnerships
and
Corporations

Limited Partnerships
Permits

capital investment without

responsibility for management and
without liability for losses beyond the
initial investment.
Limited partnerships are governed by
the Uniform Limited Partnerships Act
(ULPA).

Limited Liability Partnerships

The

limited liability partnership (LLP)

is a relatively new form of
partnership that allows professionals
the tax benefits of a partnership
while avoiding personal liability for
the malpractice of other partners.

S Corporations
Formerly

termed a Subchapter S
corporation, the S corporation takes
its name from Subchapter S of the
Internal Revenue Code, under which a
business can seek to avoid the
imposition of income taxes at the
corporate level yet retain some of the
benefits of a corporate form
(especially the limited liability).
Commonly known as a tax option
corporation, an S corporation is taxed
similarly to a partnership.

Limited Liability Companies

The

LLC is a hybrid form of business

enterprise that offers the limited
liability of a corporation but the tax
advantages of a partnership.
Perhaps the greatest disadvantage
is that LLC statutes differ from state
to state, and thus any firm engaged
in multistate operations may face
difficulties.

 Domestic

Other Corporation
Classifications

and Foreign Corporations

Public and Private Corporations
Nonprofit Corporations
Professional Corporations
Close Corporations

Franchising

A franchise is any arrangement in which the

owner of a trademark, trade name, or copyright
has licensed others to use it in selling goods or
services. A franchisee (a purchaser of a
franchise) is generally legally independent but
economically dependent on the integrated
business system of the franchisor (the seller of
the franchise).

Advantages
Training

and guidance
Brand-name appeal
A proven track record
Financial assistance

Disadvantages
Franchise

fees
Franchisor control
Unfulfilled promises

The Costs of Franchising

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

The Basic Franchise Fee

Insurance
Opening Product Inventory
Remodeling and Leasehold Improvements
Utility Charges
Payroll
Debt Service
Bookkeeping and Accounting Fees
Legal and Professional Fees
State and Local Licenses, Permits, and
Certificates

Chapter 05

How to Become the

Owner of a Small
Business

Steps in Starting a Business

Identifying

niche

a need product of find your

Identifying the product

Idea

generation and Idea Evaluation---Idea

Sources (Social Conversation Bankers, consultant,
Sales people, any individual)

Identifying the niche

Choosing the Business to Enter
Capital

requirement
Time of investment repay
Time to reach desirable income
Own spending till desirable income

Degree

of risk
Skills requirement
Effort requirement
Buying or establishing a business
Potential and chances of success
Sufficient information availability
Is it desirable/enjoyable

 Studying

the Market for the Product

Methods of obtaining information about

market
Marketing

Research
Publications
Chamber of commerce
Trade associations
Business owners
Bankers

 Methods Used to stud the market

Estimating

the size of the market

Estimating the competition
Number of competitors
Level of competition
Strengths of competitors
Locale/National/Global
Estimating

your Share of the market

Determine geographic boundaries

Estimate your product sales
Niche

Deciding whether to start, buy existing or buy

Franchise

To start a new business

Reasons: Liberty in:
Defining

the nature of business

Creating required physical facilities, selecting and
developing personnel
Fresh inventory
Installing latest tech, equipment, materials, tools

Problems: Avoid when fails to:

Deciding

right business, assembling resources,

locating facilities, non tested idea, production
problems, lack of establishing experience, lack of
established markets and distribution channels

 To

Buy an existing business

Reasons
Trained

personnel's
Facilities availability
Management system availability
Established markets
Well defined product line
Established relationships
Assurance of revenues and good will

 To

Buy an existing business

Reasons not to buy

Old

or bad physical facilities

Poorly developed employees
Past due or uncollectible A/R
Undesirable locations
Poor financial conditions
Bad condition of inventory

Buy or not to Buy

Why the business available for sale?

What are the intensions of present owner?
Are environmental factors are changing?
Are physical facilities are fit for present and
future operations?
Is the business operating efficiently?
What is the financial conditions of firm?
How much investment is needed?
What is the estimated return on investment?
Is the price right?
Do you have the necessary managerial ability?

To Buy a Franchise?
Reason

to buy

Identified markets
Sales are almost defined but not
guaranteed
Brand recognition
Available goodwill
Supplemental help in managing the
franchise by franchisor
Free/shared promotion (may be worldwide)

 Reason

not to buy

Initial investment and fee

Royalty payments
Franchisor requirements
Undesirable (not according to nature)
Poorly managed with no goodwill