MMT045 PDF

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Introduction to Entrepreneurship.
: The Foundations Of Entrepreneurship
Topic Objective:
At the end of this topic student would be able to:
Define the role of the entrepreneur in business in the United States and around the world.
Describe the entrepreneurial profile and evaluate your potential as an entrepreneur.
Describe the benefits and drawbacks of entrepreneurship.
Explain the forces that drive the growth in entrepreneurship.
Explain the cultural diversity of entrepreneurship.
Describe the important role small business plays in our nations economy.
Describe the ten deadly mistakes of entrepreneurship and how to avoid them.
Put failure into the proper perspective.
Explain how entrepreneurs can avoid becoming another failure statistic.
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Definition/Overview:
Entrepreneur: An entrepreneur is one who creates a new business in the face of risk and
uncertainty for achieving profit and growth opportunities and assembles the necessary resources
to capitalize on those opportunities.
Key Points:
1.
The Benefits of Entrepreneurship
The primary benefits entrepreneurs enjoy include the opportunity to:
Create their own destiny
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Make a difference
Reach their full potential
Generate impressive profits
Contribute to society and be recognized for their efforts
Do what they enjoy and have fun at it!
2.
The Potential Drawbacks of Entrepreneurship
With these potential rewards, Entrepreneurship also presents risk and uncertainty. Entrepreneurs
may experience:
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Uncertainty of income The entrepreneur is the last one to be paid.
Risk of losing their entire investment
Long hours and hard work
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Lower quality of life until the business gets established
High levels of stress
Complete responsibility
Discouragement
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Behind the Boom: Whats Feeding the Entrepreneurial Fire?
The rapid increase in entrepreneurs has been a result of:
Considering entrepreneurs as heroes
Entrepreneurial education
Demographic and economic factors
Shift to a service economy
Technological advancements
Independent lifestyles
Commerce and the Internet
Additional international opportunities
4.
The Cultural Diversity in Entrepreneurship
Entrepreneurs are found in virtually every walk of life including:
Young Entrepreneurs
Women Entrepreneurs
Minority Enterprises
Immigrant Entrepreneurs
Part-time Entrepreneurs
Home-Based Businesses
Family Businesses
Copreneurs
Corporate Castoffs
Corporate Dropouts
5.
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The Power of Small Business
Because big business is more visible than small business, most people underestimate the role of
the small firm in the U.S. economy.
The definition of a Small Business is:
One which is independently owned and operated and not dominant in its field.
Eligibility requirements are based on the specific industry.
Retailing annual sales/receipts not exceeding $5 to $15 million.
Services annual receipts not exceeding $5 to $15 million.
Wholesaling yearly sales must not be over $5 to $22 million.
Agriculture annual receipts not exceeding $0 to $5 million.
Construction General construction with annual receipts not exceeding $17 million.
Special Trade Construction annual receipts not exceeding $7 million.
Manufacturing maximum number of employees may range from 500 to 1,500 depending
on the industry.
The most commonly used measure of small business is the number of employees on a firms
payroll. The White House Conference on Small Business definition is: A firm employing 500
people or fewer.
The Committee for Economic Development states that a small business must meet two of four
stated criteria:
Management is independent.
Capital is supplied and ownership is held by an individual or a small group.
Area of operation is mainly local; markets need not be local.
Size is small when compared to the biggest unit in the field.
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The Ten Deadly Mistakes of Entrepreneurship
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Studies have indicated that there are common reasons for new business ventures to fail. These
causes of small business failure may include:
Management mistakes
Lack of experience
Poor financial control
Weak marketing efforts
Failure to develop a strategic plan
Uncontrolled growth
Poor location
Improper inventory control
Incorrect pricing
Inability to make the entrepreneurial transition
7.
Putting Failure into Perspective
Entrepreneurs dont failthe venture fails.
There are no such things as failures, only results.
Always look to turn a negative situation into a positive opportunity.
Have no fear of failure and be sure to have a contingency plan.
The only people who never fail are those who never do anything or never attempt
anything new.
The successful entrepreneur understands the meaning of these clichs and knows how to deal with
adversity in a proactive and positive manner.
8.
How to Avoid the Pitfalls
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These same studies have indicated that entrepreneurs can increase their changes for success if
they:
Know their business in depth.
Develop a solid business plan in writing.
Manage financial resources.
Understand financial statements.
Learn to manage people effectively.
Keep in tune with who they are.
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: Inside The Entrepreneurial Mind: From Ideas To Reality

Topic Objective:
Explain the differences among creativity, innovation, and entrepreneurship.
Describe why creativity and innovation are such an integral part of entrepreneurship.
Understand how the two hemispheres of the human brain function and what role they
play in creativity.
Explain the ten mental locks that limit individual creativity.
Understand how entrepreneurs can enhance the creativity of their employees as well as
their own creativity.
Describe the steps in the creative process.
Discuss techniques for improving the creative process.
Describe the protection of intellectual property involving patents, trademarks, and

copyrights.
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Creativity: is the ability to develop new ideas and discover new ways of looking at problems and
opportunities.
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Innovation: is the ability to apply creative solutions to problems and opportunities that enhance or
enrich peoples lives.
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Entrepreneurship is the result of a disciplined, systematic process of applying creativity and

innovation to needs and opportunities in the marketplace. Innovation must be a constant process
because most ideas dont work and most innovations fail.
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Key Points:
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Creativity A Necessity for Survival
Creativity is an important source for building a competitive advantage and for survival.
Making the inferential leap from what has worked in the past to what will work today (or in the
future) requires entrepreneurs to cast off their limiting assumptions, beliefs, and behaviors and to
develop new insights into the relationship among resources, needs, and values.
A paradigm is a preconceived idea of what the world is, what it should be like, and how it should
operate. These ideas become so deeply rooted in our minds that they become blocks to creative
thinking, even though they may be outdated, obsolete, and no longer relevant.
Can creativity be taught? Research shows that anyone can learn to be creative. Author Joyce
Wycoff believes everyone can learn techniques and behaviors that generate ideas.
2.
Creative Thinking
Research into the operation of the human brain shows that each hemisphere of the brain
processes information differently and that one side of the brain tends to be dominant over the
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other. The human brain develops asymmetrically, and each hemisphere tends to specialize in
certain functions. The left brain handles language, logic, and symbols. The right brain takes care
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of the bodys emotional, intuitive, and spatial functions.
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Right-brained lateral thinking is somewhat unconventional, unsystematic, and relies on

kaleidoscope/lateral thinking (considering a problem from all sides and jumping into it at
different points).
Left-brained vertical thinking is narrowly focused and systematic, proceeding in a highly logical
fashion from one point to the next. It is guided by linear, vertical thinking (from one logical
conclusion to the next).
Those who have learned to develop their right-brained thinking skills tend to:
Challenge custom, routine, and tradition
Realize there is more than one right answer
Have helicopter skills to rise above daily routine
Ask the question, Is there a better way?
Entrepreneurs can learn to tap their innate creativity by breaking down the
barriers to creativity that most of us have.
Entrepreneurship requires both left- and right-brained thinking.
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Barriers to Creativity
There are many barriers to creativitytime pressures, unsupportive management, pessimistic

coworkers, overly rigid company policies, and countless others.
The most difficult hurdles to overcome are those that individuals impose upon themselves. In his
book, A Whack on the Side of the Head, Roger von Oech identifies ten mental blocks that limit
individual creativity.
They are as follows:
Searching for just one right answer
Focusing on being logical
Blindly following rules
Constantly being practical
Viewing play as frivolous
Becoming overly specialized
Avoiding ambiguity
Fearing looking foolish
Fearing mistakes and failure
Believing that Im not creative
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Questions to spur the imagination:
Is there a new way to do it?
Can you borrow or adapt it?
Can you give it a new twist?
Do you merely need more of the same?
Less of the same?
Is there a substitute?
Can you rearrange the parts?
What if you do just the opposite?
Can you combine ideas?
Can you put it to other uses?
What else could we make from this?
Are there other markets for it?
Can you reverse it?
What idea seems impossible, but if executed, would revolutionize your business?
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How to Enhance Creativity
New ideas are fragile creations, but the right organizational environment can encourage people to
develop and cultivate them.
Ensuring that workers have the freedom and the incentives to be creative is one of the best ways
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to achieve creativity.
Entrepreneurs can stimulate their own creativity and encourage it among workers by:
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Embracing diversity
Expecting creativity
Expecting and tolerating failure
Encouraging curiosity
Viewing problems as challenges
Providing creativity training
Providing support
Developing a procedure for capturing ideas
Rewarding creativity
Modeling creative behavior
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You can enhance individual creativity by using the following techniques:
Allow yourself to be creative
Give your mind fresh input every day
Recognize the creative power of mistakes
Keep a journal handy to record your thoughts and ideas
Listen to other people
Talk to a child
Keep a toy box in your office
Read books on stimulating creativity or take a class on creativity
Take some time off
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The Creative Process

Although new ideas may appear to strike like a bolt of lightning, they are actually the
result of the creative process, which involves seven steps:

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Preparation
Investigation
Transformation
Incubation
Illumination
Verification
Implementation
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Techniques for Improving the Creative Process
Brainstorming is a process in which a small group of people interact, with very little
structure, with the goal of producing a large quantity of novel and imaginative ideas. For a
brainstorming session to be successful, an entrepreneur should follow these guidelines:

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Keep the group smallfive to eight members
Company rank and department affiliation are irrelevant
Have a well-defined problem to address
Limit the session to 40 to 60 minutes
Appoint someone the job of recorder
Use a seating pattern that encourages communication
Encourage all ideas from the team, even wild and extreme ones
Establish a goal of quantity of ideas rather than quality
Forbid evaluation or criticism
Encourage idea hitch-hiking
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Mind-mapping is an extension of brainstorming. Mind-mapping is a graphical technique that

encourages thinking on both sides of the brain, visually displays the various relationships
between ideas, and improves the ability to view the problem from many sides. It relates to the
way the brain actually works. Rather than throwing out ideas in a linear fashion, the brain jumps
from one idea to another. In many creative sessions, ideas are rushing out so fast that many are
lost if a person attempts to shove them into a linear outline.
The mind-mapping process works this way:
Sketch a picture symbolizing the problem
Write down every idea that comes to your mind use key words and symbols
When idea flow starts to trickle, stop
Allow your mind to rest a few minutes
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Rapid prototyping transforms ideas into actual models that point out flaws and lead to
improvements. The three principles of rapid prototyping are The Three Rs: rough, rapid, and
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right.
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Protecting Your Ideas
Entrepreneurs must understand how to put patents, copyrights and trademarks to work for
them.
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Patents a grant from the federal governments Patent and Trademark Office (PTO), to the
inventor, giving the exclusive right to use or sell the invention in this country for 20 years from
the date of the patent application.
Inventors who develop a new plant can obtain a plant patent (by grafting or crossbreeding, not planting seeds).
Most patents are granted for new product inventions, but design patents, which extend
beyond the date the patent is issued, are given to inventors who make new original and
ornamental changes in the designs of existing products that enhance their sales.
A device cannot be patented if it has been in print anywhere in the world.
Before beginning the lengthy process of applying for a patent, it is best to seek the advice
of a patent agent or attorney.
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The patent process involves these steps:
Establish the inventions novelty
Document the device
Search existing patents
Study search results
Submit the patent application
Prosecute the patent application
A trademark is any distinctive word, phrase, symbol, design, name, logo, slogan, or trade
dress that a company uses to identify the origin of a product or to distinguish it from other goods
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in the market. A service mark is the same as a trademark, except that it identifies and
distinguishes the source of a service rather than a product.
A copyright is an exclusive right that protects the creators of original works of authorship
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such as literary, dramatic, musical, and artistic works. This includes motion pictures, software,
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choreography, books, and recordings.
Protecting intellectual property is imperative in the marketplace today. Unfortunately, not

every businessperson respects the rights of ownership to products, processes, names, and works.
The primary weapon is efficient use of the legal system. Before bringing a lawsuit, an
entrepreneur must consider the following issues:

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Can the opponent afford to pay if you win?
Will you get enough from the suit to cover the costs of hiring an attorney?
Can you afford the loss of time and privacy from the ensuing lawsuit?
: Designing A Competitive Business Model And Building A Solid Strategic Plan

Topic Objective:
Understand the importance of strategic management to a small business.
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Explain why and how a small business must create a competitive advantage in the
market.
Develop a strategic plan for a business using the nine steps in the strategic planning
process.
Discuss the characteristics of three basic strategies: low cost, differentiation, and focus,
and know when to employ them.
Understand the importance of controls such as the balanced scorecard in the planning
process.
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Strategic Plan: Developing a strategic plan allows a company to create a competitive advantagean
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aggregation of factors that sets a company apart from its competitors and gives it a unique position
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in the market. No business can be everything to everyone. Creating a strategic plan prevents a
small business from failing to differentiate itself from its competitors.
Key Points:
1.
Building a Competitive Advantage
Another avenue for a small business seeking a competitive advantage is customer intimacy,
focusing on the goods and services that customers want and value. When it comes to developing
a strategic plan, small companies have a variety of natural advantages over their larger
competitors: fewer product lines, a better-defined customer base, a specific geographical area,
and closer customer contact.
No business can be everything to everyone. The goal of developing a strategic plan is to create a
competitive advantage for the small businessthe aggregation of factors that sets the small
business apart from its competitors and gives it a unique position in the market.
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Strategic management includes developing a game plan to guide a company as it strives to

accomplish its vision, goals, and objectives and to keep it from straying off its course.
Strategic planning should include:
Both a short- and long-term planning horizon
Company goals and objectives
Complete industry and other relevant information
Customer and employee input
Customer focus
Strategic planning can position a business to build a sustainable competitive

advantage.
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The Strategic Management Process
Strategic planning is a continuous process that consists of nine steps:
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Step 1: Develop a clear vision and translate it into a meaningful mission
statement
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A vision is the entrepreneurs dream of something that does not yet exist. It provides
direction, a basis for decision making and a source of motivation. A companys vision statement
incorporates the values of its owner and is about more than just making money. A clearly defined
vision leads to a companys mission statement that includes a description of the business, its
products, its markets and customers, its competitive distinction, and its effects on the community
at large.
Step 2: Assess the companys strengths and weaknesses
Strengths are positive internal factors that a company can use to accomplish its mission.
Weaknesses are potentially negative factors that could inhibit those efforts. This on-paper
analysis allows the entrepreneur to have a better perspective of the overall venture, to establish a
foundation to build on (strengths), and to meet and remove the challenges and obstacles standing
in the way of success (weaknesses).
Step 3: Scan the environment for significant opportunities and threats facing
the business
With the internal inventory complete, the firm now searches for external opportunities
such as specific market niches that match up well with internal resources. The key to success is
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to take action and to stay a step ahead of the competition. External threats may come from
competitors, government agencies, rising interest rates, and so on. The firm must have a plan for
shielding itself from those threats.
Step 4: Identify the key factors for success in the business
Every business has a certain degree of control over key variables such as production
capabilities, market opportunities, its labor force, access to raw materials, inventory, and so on.
Success comes from the ability to recognize and to capitalize on those opportunities, and to
maximize revenues and/or minimize costs accordingly.
Step 5: Analyze the competition
Analyzing all forms of competition must be a never-ending process for all companies.
Markets and competitors come and go very quickly. Reaction time is often relatively slow, so the
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entrepreneur must have the ability to anticipate changes in the marketplace. There is an
abundance of information available through many sources (public information, Web sites, and
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market researchers). Knowledge management is the process of collecting information, analyzing

it, and taking action in an effective manner.
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Step 6: Create company goals and objectives
A company (or person for that matter) with no goals wanders aimlessly into the future.
Setting goals provides focus and direction for a company and its people. Objectives are the
specific targets of performance required to achieve goals, such as production, marketing,
financing, and profit standards. Goals and objectives should be measurable, reachable, and in
writing.
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Step 7: Formulate strategic options and select the appropriate strategies

A strategy is a road map of the actions an entrepreneur draws up to fulfill a companys
mission, goals, and objectives. A strategy is the master plan that incorporates all of the parts
(marketing, finance, personnel, and operations) to make up the whole.
Step 8: Translate strategic plans into action plans

Entrepreneurs must convert strategic plans into operating (tactical) plans that guide their
companies on a daily basis. Involving and empowering employees throughout the entire process
is often a key to successful outcomes. If an organizations people have a vision for the future
direction and goals of a company, and if they are given a stake in the company, they are more
likely to work in unison to achieve those goals.
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Step 9: Establish accurate controls
With a vision, mission statement, strategic and tactical plan now in place, managers must
constantly measure and assess the actual production, sales, costs, and other performances of their
departments and people, and effect any changes necessary to stay on schedule and on budget.
3.
Conclusion
The strategic planning process is never ending. It provides structure and discipline and requires
the entrepreneur to pay close attention to the details of both the internal and external factors that
determine success.
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: Conducting A Feasibility Analysis And Crafting A Winning Business Plan
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Topic Objective:
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Discuss the steps involved in subjecting a business idea to a feasibility analysis.
Explain why every entrepreneur should create a business plan as well as the benefits of
developing a plan.
Describe the elements of a solid business plan.
Explain the Five Cs of Credit and why they are important to potential lenders and
investors reading business plans.
Describe the keys to making an effective business plan presentation.
Feasibility: Feasibility studies are particularly useful when entrepreneurs have generated
multiple ideas for business concepts and must winnow their options down to the best choice.
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Key Points:
1.
Conducting a Feasibility Analysis
For many entrepreneurs, coming up with an idea for a new business concept or approach is easy.
A feasibility analysis is the process of determining if the idea is a viable foundation for creating a
successful business. If the idea passes, the entrepreneurs next step is to build a solid business
plan for capitalizing on the idea. If the idea fails, the entrepreneur drops it and moves on to the
next opportunity. It is about efficiency and increasing the chances for success before investing
resources. Conducting a feasibility study reduces the likelihood that entrepreneurs will pursue
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fruitless business ventures.

A feasibility study is not the same as a business plan.
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A feasibility study is an investigative tool to answer the question, Should we proceed with this
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business idea? It serves as a filter, screening out ideas that lack the potential for building a
successful business, before an entrepreneur commits the necessary resources to building a
business plan.
A business plan is a planning tool for transforming an idea into reality.
Feasibility studies are particularly useful when entrepreneurs have generated multiple ideas for
business concepts and must winnow their options down to the best choice.
A feasibility analysis consists of three interrelated components:
An industry and market feasibility analysis,
A product or service feasibility analysis, and
A financial feasibility analysis.

Addressing these questions helps entrepreneurs determine whether the potential for sufficient
demand for their products and services exists. We will first explore techniques to assess the
Industry and Market Feasibility aspect of the Feasibility Analysis.
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When evaluating the feasibility of a business idea, entrepreneurs find a basic analysis of
the industry and targeted market segments a good starting point. The focus in this phase is twofold:
To determine how attractive an industry is overall as a home for a new business,
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To identify possible niches a small business can occupy profitably.

Porters five forces model evaluates five key forces that determine the setting in which
companies compete. Hence, the attractiveness of the industry based upon these five
considerations:
The rivalry among the companies competing in the industry,
The bargaining power of suppliers to the industry,
The bargaining power of buyers,
The threat of new entrants to the industry, and
The threat of substitute products or services.
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Rivalry among companies competing in the industry The strongest of the five forces in
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most industries is the rivalry that exists among the businesses competing in a particular market.
This force makes markets a dynamic and highly competitive place. An industry is generally more
attractive when:
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The number of competitors is large, or, at the other extreme, fewer than five.
Competitors are not similar in size or capability.
The industry is growing at a fast pace.
The opportunity to sell a differentiated product or service is present.
Bargaining power of suppliers The greater the leverage that suppliers of key raw
materials or components have, the less attractive is the industry. An industry is generally more
attractive when:
Many suppliers sell a commodity product to the companies in it.
Substitute products are available for the items suppliers provide.
Companies find it easy to switch suppliers or to substitute products.
When the items suppliers provide the industry account for a relatively small
portion of the cost of the industrys finished products.
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Bargaining power of buyers Buyers have the potential to exert significant power over
businesses. When the number of customers is small and the cost of switching to a competitors
product is low, buyers have a high level of influence. An industry is generally more attractive
when:
Industry customers switching costs are high
The number of buyers is large
Customers demand differentiated products
Customers find it difficult to gain access to information about buyers
The products companies sell account for a small portion of the cost of their
customers finished goods.
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Threat of new entrants The larger the pool of potential new entrants to an industry, the
greater is the threat to existing companies in it. This is particularly true in industries where the
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barriers to entry, such as capital requirements, specialized knowledge, access to distribution
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channels, and others are low. An industry is generally more attractive to new entrants when:
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Economies of scale are absent
Capital requirements to enter are low
Cost advantages are not related to company size
Buyers are not brand-loyal
Governments do not restrict new companies from entering the industry
Threat of substitute products or services Substitute products or services can turn an entire
industry on its head. An industry is generally more attractive when:
Quality substitutes are not readily available
Prices of substitute products are not significantly lower that those of the industrys
products
Buyers switching costs are high

After surveying the power these five forces exert on an industry, entrepreneurs can evaluate the
potential for their companies to generate reasonable sales and profits in a particular industry to
answer the question, Is this industry a good one for my business? Note that the lower the score
for an industry, the more attractive it is.
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Business prototyping enables entrepreneurs to test their business models on a small scale.
Business prototyping recognizes that every business idea is a hypothesis that needs to be tested.
If the test supports the hypothesis and its accompanying assumptions, it is time to launch a
company. If the prototype fails, the entrepreneur scraps the business idea with only minimal
losses and turns to the next idea.
A product or service feasibility analysis determines the degree to which a product or

service idea appeals to potential customers and identifies the resources necessary to produce the
product or provide the service. This portion of the feasibility analysis addresses two important
questions:
Are customers willing to purchase our goods and services?
Can we provide the product or service to customers at a profit?
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Getting that feedback might involve using engaging in primary research such as customer
surveys and focus groups, gathering secondary customer research, building prototypes, and
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conducting in-home trials can help answer these questions. Information gained through primary
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or secondary research may also prove invaluable.
The financial feasibility of a venture is the final component of the feasibility analysis.
This involves these three elements:

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Capital requirements
Estimated earnings
Return on investment
2.
Why Develop a Business Plan

The plan serves as an entrepreneurs road map to building a successful business. It
describes the direction the company is taking, what its goals are, where it wants to be, and how it
plans to get there. The business plan serves three essential functions:
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The business plan provides an operational guide for action and success;
The business plan attracts lenders, and;
The business plan is a reflection of its creator.
A viable business plan is capable of passing three tests including:
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The reality test
The competitive test
The value test
A business plan can increase your chances for success and serve as a guide through uncertain and
new experiences.
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The Elements of a Business Plan

Every plan is unique. There are many resources available to use as a guide. The
seemingly overwhelming task of building a business plan is easily broken down into workable
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parts that any student or entrepreneur can undertake. Plans may include the following:
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Executive Summary
Mission Statement
Company History
Business and Industry Profile
Objectives
Business Strategy
Description of Firms Product/Service
Marketing Strategy
Documenting Market Claims
Competitor Analysis
Description of the Management Team
Plan of Operation
Forecasted or Pro-Forma Financial Statements
The Loan or Investment Proposal
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In addition, there are ten tips on preparing your business plan that can save time and help
to create a more cohesive and impressive overall plan.
Have a cover
Check for spelling and grammar
Create a visual appeal
Include a table of contents
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Make it interesting and compelling
Demonstrate its profit potential
Use spreadsheets
Include cash flow projections
Keep it concise and crisp
Tell the truth always!
4.
What Lenders and Investors Look for in a Business Plan

Bankers and other lenders include the five Cs of credit as a part of their evaluation of the
credit-worthiness of loan applications. The higher a business scores on the evaluation, the greater
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its chance will be of receiving a loan based on these five criteria:

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Capital
Capacity
Collateral
Character
Conditions
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Making the Business Plan Presentation
Keys to making an effective business plan presentation include the following:
Demonstrate enthusiasm, but dont be too emotional.
Know your audience.
Hook investors quickly with an up-front explanation of the new venture, its
opportunities, and the benefits to them.
Keep it simple and to the point.
Avoid the use of technological terms.
Use visual aids.
Close by reinforcing the nature of the opportunity and the related benefits to
investors.
Be prepared for questions.
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Follow up with every investor to whom you make a presentation.
6.
Business Plan Formatcontents and sources
Review the business plan outline in the text. This may also be an opportunity to show the
business plan outline from Business Plan Pro as an example to the class. Emphasize that
although business plans may vary regarding the order of information, good business plans
contain the same basic elements.
In Section 2 of this course you will cover these topics:

Forms Of Business Ownership
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Franchising And The Entrepreneur

Buying An Existing Business
You may take as much time as you want to complete the topic coverd in section 2.
There is no time limit to finish any Section, However you must finish All Sections before
semester end date.
If you want to c ontinue remaining courses later, you may save the course and leave.
You can continue later as per your convenience and this course will be avalible in your
area to save and continue later.
: Forms Of Business Ownership

Topic Objective:
Explain the advantages and the disadvantages of the three major forms of ownership: the
sole proprietorship, the partnership, and the corporation.
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Discuss the advantages and the disadvantages of the S corporation, the limited liability
company, the professional corporation, and the joint venture.
Sole proprietorship: The sole proprietorship is the most popular type of ownership, defined as
business owned and managed by one individual.
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Key Points:
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The Sole Proprietorship
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The sole proprietorship is the most popular type of ownership, defined as business owned and
managed by one individual.
Advantages of the sole proprietorship:
Simple to create
Least costly form of ownership to begin
Profit incentive
Offers total decision-making authority
No special legal restrictions
Easy to discontinue
Disadvantages of the sole proprietorship include:
Unlimited personal liability
Limited skills and capabilities
Feelings of isolation
Limited access to capital
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Lack of continuity for the business
The sole proprietorship has implications regarding the claims of the businesss creditors and the
owners personal assets. They are treated the same under this unlimited liability situation.
2.
The Partnership
A partnership is an association of two or more people who co-own a business for the purpose of
making a profit. This association between the owners is defined by the partnership agreement
and The Uniform Partnership Act (UPA), which codifies the body of law dealing with
partnerships.
Easy to establish
Complementary skills
Division of profits
Larger pool of capital
Ability to attract limited partners
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Types of partnerships include:
Limited partnership
Limited liability partnership
Master limited partnership
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Advantages of a partnership include:
The list of advantages increases from this initial list:
Easy to establish
Complementary skills
Division of profits
Larger pool of capital
Ability to attract limited partners
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And can be expanded further to include:
Little governmental regulation
Flexibility
Taxation
Disadvantages of partnership include:
Unlimited liability of at least one partner
Capital accumulation
Difficulty in disposing of partnership interest without dissolving the partnership
Lack of continuity
Potential for personality and authority conflicts

Limited partnerships are composed of at least one general partner to actively participate in the
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business and one or more limited partners that look much like investors in the business, each
with specific roles.
3.
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Corporations
The corporation is a separate entity apart from its owners, and may engage in business, make
contracts, sue and be sued, and pay taxes. It is a legal entity and represents the most complex
form of business ownership.
C corporations are creations of the state and are categorized as either:

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Domestic corporation
Foreign corporation
Alien corporation
Corporation can be publicly held by many, or closely held by a relatively small number of
owners.
The process of incorporation includes:
Certificate of Incorporation
Bylaws
Advantages of a corporation include:
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Limited liability of stockholders
Ability to attract capital
Ability to continue indefinitely
Transferable ownership
Disadvantages of a corporation include:
Cost and time involved in the incorporation process
Double taxation
Potential for diminished managerial incentives
Legal requirements and regulatory red tape
Potential loss of control by the founder(s)
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S corporation: An S corporation, standing for small, is the same as any other corporation,
except that a distinction is made for federal income tax purposes.
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Other Forms of Ownership
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The criteria for businesses seeking S status is that the venture must:
Be a domestic (U.S.) corporation
Not have a nonresident alien as a shareholder
Have only one class of common stock so all shares have the same rights
Limit shareholders to individuals, estates, and certain types of trusts
Not have more than 100 shareholders
Have less than 25 percent of the corporations gross revenues during three
successive tax years came from passive sources
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Advantages of an S corporation include:

Retains all of the advantages of regular corporations
Passes all profits/losses through to individual shareholders
Avoids double taxation
Avoids taxes paid on assets that have appreciated in value and are sold
Disadvantages of an S corporation include:
Increase in individual tax rates above maximum corporate tax rate
Many fringe benefits cannot be deductible business expenses
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Choosing an S corporation wisely is important to optimize the advantages this entity offers.
The limited liability company (LLC): The limited liability company is a cross between a
partnership and a corporation. LLCs offer many of the advantages of both, but are not subject to
the restrictions incurred by S corporations. LLCs offer the tax advantage of a partnership, the
legal protection of a corporation, and maximum operating flexibility. These advantages make the
LLC an attractive form of ownership for smaller companies across many industries.
Creating an LLC is much like creating a corporation through establishing the articles of
organization and an operating agreement.
LLCs are limited to no more than two of the following corporate concepts:
Limited liability
Continuity of life
Free transferability of interest
Centralized management
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The professional corporation: Professional corporations are designed to offer

professionalslawyers, doctors, dentists, accountants, and othersthe same advantages of the
corporate form of ownership.
The joint venture: A joint venture is much like a partnership, except it is formed for a specific,
limited purpose.
: Franchising And The Entrepreneur

Topic Objective:
Describe the three types of franchising: trade name, product distribution, and pure.
Explain the benefits and the drawbacks of buying a franchise.
Understand the laws covering franchise purchases.
Discuss the right way to buy a franchise.
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Outline the major trends shaping franchising.
Entrepreneur: An entrepreneur is one who creates a new business in the face of risk and
uncertainty for achieving profit and growth opportunities and assembles the necessary resources
to capitalize on those opportunities.
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Franchising: Franchising refers to the methods of practicing and using another person's
philosophy of business
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Key Points:
1.
Types of Franchises
There are three types of franchising systems:
Trade name franchising
Product distribution franchising
Pure (or comprehensive or business format) franchising
One of the primary reasons for interest in a franchise system is that the franchisee
is able to tap into the proven experience and guidance that the franchise offers.
2.
The Benefits of Buying a Franchise

Benefits of franchising include:
Management training and support
Brand name appeal
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Standardized quality of goods and services
National advertising programs

Financial assistance
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Proven products and business formats
Centralized buying power
Site selection and territorial protection
Greater chance for success

These benefits have proven to have a positive impact on the success rate of franchises, beginning
in the first year of operation, compared to nonfranchise ventures.
3.
There are some negative attributes of buying a franchise and those include:
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Franchise fees and profit sharing
Strict adherence to standardized operations
Restrictions on purchasing
Limited product line
Unsatisfactory training programs
Market saturation
Less freedom
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The Drawbacks of Buying a Franchise
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The 10 myths regarding franchising are that franchises will be:
Safer and will not fail
Economical
More successful based on its size
Able to have improvement potential
All the same
Enable the owner to be removed from day-to-day management
A business anyone can do
The cheapest business option
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Taking care of my business problems
A business I can run things the way I want to
4.
Franchising and the Law
In response to problems that occurred in the 1950s to the franchising boom and the associated
franchisers who defrauded their franchisees, strict laws have been enacted to prevent such
behavior.
Uniform Franchise Offering Circular (UFOC): Franchisers must register a UFOC and deliver a
copy to the prospective franchisees before any offer or sale of a franchise. It establishes full
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disclosure and guidelines for the franchising company. It contains 23 rules, the franchise
agreement, and any contracts accompanying it.
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Trade Regulation Rule: Enacted by the Federal Trade Commission (FTC) requiring all
franchisers to disclose detailed information on their operations at the first personal meeting or at
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least ten days before a franchise contract is signed, or before any money is paid. In this section,
the twenty-three major topics required by the Trade Regulation Rule are discussed as well.
Red flags to detect dishonest franchisers occur when franchises:
Fail to provide sufficient documentation
Have marginally successful or no prototypes
Offer a poorly prepared operations manual
Promise future earning with no documentation
Demonstrate a franchise turnover or termination rates
Experience an unusual amount of litigation by franchisees
Discourage having your attorney review the contract
Have no written documentation
Exert a high degree of pressure
Claim to be exempt from federal disclosure laws
Promise high profits with minimal effort
Are reluctant to provide a list of referral franchisees
Respond with evasive, vague answers to your questions
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5.
The Right Way to Buy a Franchise

The steps to consider buying a franchise are:
Evaluate yourself
Research your market
Consider your franchise options
Get a copy of the franchisers UFOC
Talk to existing franchisees
Ask the franchiser some tough questions
Make your choice
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Factors that make a franchise appealing include an association with:
A unique concept
The potential profitability
The benefits of a registered trademark
A proven business system
Training programs
Its affordability
The relationships with other franchisees:
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Trends Shaping Franchising
Franchising has experienced three major growth waves since its beginning with fast-food activity
in the 1970s, service businesses in the 1980s, and low-cost franchises that focus on specific
market niches.
Today, franchisees are better educated, more sophisticated, have more business acumen,
and are more financially secure than those of the past. Other trends include:
Multiple-unit franchising
International opportunities
Smaller, nontraditional locations
Conversion Franchising
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Master franchising
Piggybacking (combination or multi-branded franchising)
Serving dual-career couples and baby boomers
7.
Conclusion
Franchising has proven its viability in the U.S. economy and offers many the ability to own and
operate their own business with support and an increased chance for success.
: Buying An Existing Business
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Topic Objective:
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Understand the advantages and disadvantages of buying an existing business.
Define the steps involved in the right way to buy a business.
Explain the process of evaluating an existing business.
Describe the various techniques for determining the value of a business.
Understand the seller's side of the buyout decision and how to structure the deal.
Understand how the negotiation process works and identify the factors that affect the
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negotiation process.
Buying: Some entrepreneurs choose to buy existing businesses rather than start their own. Each
year, about one-half million businesses are bought and sold. Purchasing an established business
can offer many advantagesif the entrepreneur knows what they are really buying and it is priced
right.
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Key Points:
1.
Buying an Existing Business

There are several key questions a prospective owner must ask before considering to
purchase an existing business.

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Is it the right type of business for the market?
What experience do I bring to the venture?
What is the success potential?
What changes are neededand how extensive are theyto realize the businesss full
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potential?
Advantages of buying an existing business include:
A successful existing business may continue to be successful.
An existing business may already have the best location.
Employees and suppliers are established.
Equipment is installed and productive capacity is known.
Inventory is in place and trade credit is established.
The new business owner hits the ground running.
The new owner can use the experience of the previous owner.
Easier financing.
It's a bargain (maybe).
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Disadvantages of buying an existing business include:
The previous owner may have created ill will.
Employees inherited with the business may not be suitable.
The business location may have become/is unsatisfactory.
Equipment and facilities may be obsolete or inefficient.
Change and innovation are difficult to implement.
Inventory may be outdated or obsolete.
Accounts receivable may be worth less than face value.
Changes may be difficult to implement.
Inventory may be stale.
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Accounts payable may be worth more than face value.
The business may be overpriced.
2.
Steps in Acquiring a Business

More than half of business acquisitions fail to meet the buyers expectations. The correct
way to evaluate a match is to:

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Analyze your skills, abilities.
Prepare a list of potential candidates.
Investigate and evaluate candidate businesses and evaluate the best one.
Explore financing optionsthe seller is a potential source.
Ensure a smooth transitioncommunicate with employees, listen and ask.
3.
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Evaluating an Existing Business The Due Diligence Process
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A potential buyer should explore a business opportunity by examining five critical areas.
Why does the owner want to sell?
There are many reasons business owners plan to sell their companies and knowing that
motivation will be beneficial to the buyer.
Assess the condition of the business:
The physical plant
Accounts receivable
Lease arrangements
Business records
Intangible assets
Location and appearance
What is the potential for the company's products or services?
Customer characteristics and composition
Competitor analysis
What legal aspects should you consider?

Liens
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Bulk transfers
Contract assignments
Covenants not to compete
Ongoing legal liabilities
Is the business financially sound?
Income statements and balance sheets for past 3-5 years
Income tax returns for the past 3-5 years
Owner's compensation (relatives, skimming)
Cash flow
4.
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Methods for Determining the Value of a Business
Business valuation is partly an art and partly a science. Establishing a price for a privately held
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business may be difficult due to the nature of the business itself.
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There are a few rules for establishing the value of a business:
There is no single best method to determine a business's worth. The best way is to
compute the value using different methods and choose the one that justifiably results in a
realistic value.
Both parties, buyer and seller, must be satisfied with the deal.
Both the buyer and seller should have access to business records.
Valuations should be based on facts, not fiction.
Both parties should deal with one another honestly and in good faith.
Business valuation techniques include:
The basic balance sheet methods offer two techniques:
The balance sheet technique
Adjusted balance sheet technique
Earnings approach with three variations:
Variation 1: Excess earnings method
Variation 2: Capitalized earnings approach
Variation 3: Discounted future earnings approach
Market approach
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We will now address each of these earnings approaches.
The excess earning method is based on six steps:
Computing the adjusted tangible net worth
Calculating the opportunity cost of investing
Projecting earnings for the next year
Computing extra earning power (EEP)
Estimating the value of the goodwill intangibles
Determining the value of the business
The capitalized earnings method is a second variation. This method is based on the net
earnings after deducting the owners salary over the rate of return.
The discounted future earnings method is a third variation and five steps are a part of this
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technique.
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Forecasts projected earnings for five years.
Discount these projections based on a weighted average of future earnings at the
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appropriate present value rate.
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Estimate the earnings stream beyond five years.
Discount this estimate using the present value factor for year
Compute the value of the business.
The market approach involves two steps:
possible.
Multiplies the average P-E ratio by next years forecasted earnings.
5.
Computes the average price earnings (P-E) ratio for as many similar businesses as
Understanding the Seller's Side

A recent study found that 64 percent of closely held companies expect to sell their
businesses within three years. Businesses may benefit from restructuring to better position
themselves for sale.
Understanding the sellers position may better position the buyer in the negotiation
process.
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Structuring the deal is one of the most important decisions a seller can make. Tax
implications can be significant; therefore, a skilled tax planner can help. Exit strategy options
include:
Straight business sale
Sale with an agreement to stay on
Form a family limited partnership
Sell a controlling interest
Restructure the company
Sell to an international buyer
Use a two-step sale
Establish an employee stock ownership plan (ESOP)
6.
Negotiating the Deal

Factors affecting the negotiation process involve:
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How strong is the seller's desire to sell?
Is seller willing to finance part of purchase price?
Must the seller close the deal quickly?
What deal structure fits your needs?
What are tax consequences for both parties?
Is seller willing to stay on as a consultant?
What general economic conditions exist in the industry?

Building A Powerful Marketing Plan
E-Commerce And The Entrepreneur
Pricing Strategies
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semester end date.
: Building A Powerful Marketing Plan

Topic Objective:
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Describe the principles of building a guerrilla marketing plan and explain the benefits of
preparing one.
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Explain how small businesses can pinpoint their target markets.
Discuss the role of market research in building a guerrilla marketing plan and outline the
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market research process.
Describe how a small business can build a competitive edge in the marketplace using
guerrilla marketing strategies: customer focus, quality, convenience, innovation, service, and
speed.
Discuss the marketing opportunities the Internet offers entrepreneurs and how to best take
advantage of them.
Discuss the four Ps of marketingproduct, place, price, and promotionand their role in
building a successful marketing strategy.
Business Plan: The business plan captures many of the topics discussed, and in addition, it
includes a concise statement of how an entrepreneur plans to achieve success in the marketplace.
This section focuses on building the marketing plan.
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Key Points:
1.
Building a Guerrilla Marketing Plan
Marketing is the process of creating and delivering desired goods and services to customers and
involves all of the activities associated with winning loyal customers.
Guerilla marketing strategies are unconventional, low-cost, creative techniques small companies
can get more bang from their marketing bucks. The required marketing investment is scaled to fit
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the often limited marketing resources of the organization.
A guerilla marketing plan should accomplish four objectives:
It should determine customer needs and wants through market research.
It should pinpoint the specific target markets the company will serve.
It should analyze the firm's competitive advantages and build a marketing strategy
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around them.
It should help create a marketing mix that meets customer needs and wants.
2.
Pinpointing the Target Market
Target markets are the specific groups of customers at whom the company aims its goods or
services.
Pinpointing the target market offers greater marketing efficiency. Mass marketing techniques of
the past are expensive and risky. The marketing strategy can then be built to reach that specific
targeted group that has the highest propensity to buy and be an ongoing customer.
Target customers must permeate the entire businessmerchandise, music, layout, dcor, Web site,
and the total experience.
Market research can be invaluable to better understand, segment, and identify target markets.
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3.
Determining Customer Needs and Wants Through Market Research
Market research serves as the foundation for the marketing plan. Its objective is to learn how to
improve the level of satisfaction for existing customers and to find ways to attract new
customers. By performing some basic market research, small business owners can detect key
demographic and market trends. Market research does not have to be time consuming, complex,
or expensive to be useful.
Demographics are the characteristics and trends of a population including age, income, gender
(composition), education, household size, race, and ethnicity. For example, we can quickly gain
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information regarding the growth rate of U.S. populations by many criteria, such as race.
Market research is the vehicle for gathering this information and can avoid basing your
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marketing plan on assumptions rather than facts.
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Tracking trends can be a valuable and affordable way to get a pulse on markets. Faith Popcorn, a
marketing consultant and author, offers tips to help spot significant trends:
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Read as many current publications as possible
Watch the top ten TV shows
See the top ten movies
Talk to at least 150 customers a year about what they're buying and why
Talk with the 10 smartest people you know
Listen to your childrenWhat trends are they tracking?
Market research begins with defining the objective and collecting the data.
This is based on successful one-to-one marketing that:
Collects information on your existing customers
Identifies your best customers
Enhances your products and services
Welcomes customer complaints
Offers exceptional quality
Understands your customers buying cycle
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Calculates the long-term value of customers
Conducting market research involves four steps:
Step 1: Define the objective
Step 2: Collect the data
Step 3: Analyze and interpret data
Step 4: Draw conclusions and act
4.
Plotting a Guerrilla Marketing Strategy: How to Build a Competitive Edge
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A competitive edge is attained when customers perceive that one organizations products or
services are superior to those of its competitors. Successful entrepreneurs often use the special
advantages that flow from their companies small size to build a competitive advantage over their
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larger rivals.
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One way these companies can do this is through relationship marketing, or customer relationship
management, referred to as CRM.
Relationship marketing involves the following five steps:
Collect meaningful customer information and compile it as a database
Mine the database to identify best customers
Use the information to develop lasing relationships with best customers
Attract more customers who fit the best customer profile
Stay in contact with customers between sales
There are four levels of customer sensitivity, beginning at the base of the steps in the
illustration:
Level 1: Customer Awareness
Level 2: Customer Sensitivity
Level 3: Customer Alignment
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Level 4: Customer Partnership
Guerrilla marketing strategies complement this and propose that a company:
Find a niche and fill it
Dont just sell, entertain
Strive to be unique; create an identity for your business
Connect with customers on an emotional level

The unique selling proposition offers a key customer benefit of a product that sets it apart from
its competition. It answers the question: Whats in it for me? The unique selling proposition
should be communicated consistently and often!
Guerilla marketing strategies can be instrumental in building a brand for your business in a
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number of ways as long as you always focus on the customer.
We can think about this process in five steps and apply guerilla marketing strategies to
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each:
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Focus on the customer
Devotion to quality
Concentration on innovation
Dedication to service
Emphasis on speed
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Focus on the customer allows you to optimize your marketing and profitability potential.
Every business depends on customer satisfaction. If you can't take care of your customers,
someone else will.
The Principles of Customer Experience Management (CEM) address the need to

establish:
An intimate understanding of each customers needs, want preferences, and
peculiarities
A personal, customer-specific message in marketing, sales, service, and
advertising
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A consistent, courteous, and professional treatment by everyone
A responsive, rapid handing of requests, questions, problems, and complaints
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Helpful information and advice delivered proactively
The involvement of caring, well-trained people
Long-term view of the company/customer relationship with an emphasis on

sustaining an ongoing relationship
Frequent and visible demonstrations of commitment to nurturing this relationship

A focus on the customer can directly correlate to higher customer retention rates and is
based on the response to these four questions:
What are we doing right?
How can we do that even better?
What have we done wrong?
What can we do in the future?
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Guerrilla marketing strategies help to attain customer focus in a direct and economical manner.
Devotion to quality is another point of differentiation. Quality goods and services are a
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prerequisite for survival. Today quality is more than just a slogan. Businesses buy into
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operational strategies like total quality management (TQM) where quality is in the product or
service and in every other aspect and component of the business as well. It is important to
understand how customers (American customers and others) define quality in the products and
services they purchase.
Attention to convenience is an important part of this relationship experience. Customers want
convenience. Studies show that customers rank convenience at the top of their purchasing
criteria. Successful companies must show that it is easy for customers to do business with them.
Areas of customer convenience include:
Location
Hours
Delivery services
Payment options
Transaction efficiency
Additional extra experiences
Product bundling
Product adaptation
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Communication efficiency
Concentration on innovation is a key to future success. In order to keep up with changing

markets, small businesses must be innovative. Small businesses are frequently leaders in
innovation even though they may lack resources compared to larger businesses.
Dedication to service and to consistent customer satisfaction is one way to achieve the
goal of customer astonishment. Dedication to service deals with these twelve attributes:
Listening
Defining a superior space
Setting standards and measurements for performance
Examining your service cycle
Hiring the right employees
Training those employees to deliver superior serviceevery time!
Empowering employees
Treating employees with respect and value
Using technology to provide improved service
Rewarding superior service
Getting top managers support
Viewing developing stellar customer service as an investment, not an expense
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Emphasis on speed enables companies to be competitive and reduce the time it takes to develop,
design, manufacture, and distribute a product, which results in reduced costs, increased quality,
and increased market share.
5.
Marketing on the World Wide Web
The Internet is a vast network that links computers around the globe via the World Wide Web. A
small business Web site can enable it to sell its products around the world. It is a phenomenal
commercial opportunity that offers businesses a worldwide marketing and distribution system.
The Internet is the Great Equalizer for entrepreneurs in a world of larger and more powerful
competitors.
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Todays business students and entrepreneurs are on the frontier of an industry and market that
will likely see tremendous growth in the next few years. The opportunity is now. We will talk
more about the power of the Web throughout the course and how it is continuing to change the
face of business.
6.
The Marketing Mix

The four Ps of the marketing mix are essential elements in developing a solid marketing
strategy and an executable marketing plan.

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Product
Placeor distribution
Price
Promotion
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Establishing a sound marketing strategythat fits the resources and objectives of the
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organizationis a critical aspect of the plan and future for the business.
The product life cycle plays an important role in the marketing mix. It is important to
realize that the five stages of the PLC impact marketing strategy. The five stages of the product
life cycle are:
Introductory
Growth and acceptance
Maturity and competition
Market saturation
Product decline
Channels of distribution for consumer goods, or the place aspect of the four Ps, may be
directmanufacturer to consumeror through a more complex channel delivery system that involves
wholesalers, distributors, and/or retailers.
Channels of distribution for industrial goods, or the place for business-to-business dealings, may
be direct or simply through a single wholesaler.
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: E-Commerce And The Entrepreneur

Topic Objective:
Describe the benefits of selling on the World Wide Web.
Understand the factors an entrepreneur should consider before launching into ecommerce.
Explain the twelve myths of e-commerce and how to avoid falling victim to them.
Discuss the five basic approaches available to entrepreneurs wanting to launch an ecommerce effort.
Explain the basic strategies entrepreneurs should follow to achieve success in their e-
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commerce efforts.
Learn the techniques of designing a killer Web site.
Explain how companies track the results from their Web sites.
Describe how e-businesses ensure the privacy and security of the information they collect
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and store from the Web.
Learn how to evaluate the effectiveness of a companys Web site.
E-commerce: E-commerce has removed the obstacle of size for many small business
entrepreneurs, replacing that with speed, and the Internet has changed the face of business.
Key Points:
1.
Benefits of Selling on the Web
The Internet has brought new customers and offered an improved competitive position for many
businesses that have an online presence.
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Some of the primary benefits of having a market presence on the Internet include:
The opportunity to increase revenues
The ability to expand their reach into global markets
The ability to remain open 24/7
The capacity to use the Webs interactive nature
The power to educate and inform
The ability to lower the cost of doing business
The ability to spot and capitalize on new business opportunities
The ability to grow faster
The power to track sales results

Today, a majority of small businesses70 percent and growinghave a presence on the Internet.
2.
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Factors to Consider before Launching into E-Commerce
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As with any proposed change or new venture, business owners must consider the
variables and challenges facing them:
Is the product or service conducive to e-business?
Can the business afford not to add e-business to its mix?
Will customers use the Web to buy?
How and where to best start a Web site?
What are the specific goals and objectives of the Web site?
What effects would a Web site have on customer relations, channels of
distribution, financial condition of the business, and so on?
3.
Twelve Myths of E-Commerce

E-commerce already has many stories of success and failure. Make sure that you do not
fall victim to one of the following e-commerce myths:
Myth 1: Setting up a business on the Web is easy and inexpensive.
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A Web site can result in additional costs for site redesign, hardware requirements,
and other implication to the infrastructure of the business.
Myth 2: If I launch a site, customers will flock to it.

Promoting the site is important and needs to become an integral part of the overall
promotional strategy.
Myth 3: Making money on the Web is easy.

Web retailers invest 65 percent of revenue in marketing and advertising,
compared to just 4 percent for their off-line counterparts.
Myth 4: Privacy is not an important issue on the Web.
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Internet users value their privacy and this concern has a negative impact on online
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sales.
Myth 5: The most important part of any e-commerce effort is technology.
Other factors influence online buyer behavior more than technology alone.
Myth 6: Strategy? I dont need a strategy to sell on the Web! Just give me a Web site, and
the rest will take care of itself.

Having a plan for the role your site will play in your business is critical to ensure
it is a solid investment and that it complements and supports all other aspects of your business.
Myth 7: On the Web, customer service is not as important as it is in a traditional retail

store.
The customer service experience on the Web is vitally important and directly
impacts buyer behavior.
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Myth 8: Flash makes a Web site better.

A simple, easy to navigate and intuitive Web site wins every time!
Myth 9: Its whats up front that counts.

The site must offer value throughout.
Myth 10: E-commerce will cause brick-and-mortar retail stores to disappear.

A well-designed Web site can provide synergy to the physical retail store.
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Myth 11: The greatest opportunities for e-commerce lie in the retail sector.
Internet technology offers tremendous value to many areas of business. The

business-to-business environment is just one other example where the Internet has had a
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Myth 12: Its too late to get on the Web.
It is never too late and, as the Internet continues to evolve, additional features and
technologies will make it even more attractive.
Approaches to e-commerce need to consider the short- and long-term goals of a company
along with its target markets, and budgetary constraints help to define the best approach to an ebusiness venture. Entrepreneurs have five basic choices:
Online shopping malls
Storefront-building services
Internet service providers and application service providers
Hiring a professional to design a custom site
Building a Web site in-house
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4.
Strategies for E-Success

A well-designed plan for your online presence may benefit from these tactics:
Consider focusing on a niche in the market.
Develop a community and potentially leverage Web 0 strategies.
Attract visitors by giving away freebies.
Make creative use of e-mail, but avoid becoming a spammer.
Tracking e-mail read and click-through rates is one method to assess activity on a
day and weekly basis.
In addition, you can increase your online effectiveness when you:
Make sure your Web site says credibility.
Consider forming strategic alliances.
Make the most of the Webs global reach.
Promote your Web site online and off-line.
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Search engine strategies enable your site to be found as visitors use a variety of search
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techniques through:
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Natural listings organic
Paid listings sponsored
Paid inclusions
5.
Designing a Killer Web Site
Web users demand fast and reliable sites, have little patience, and currently buy from a relatively
low number of the e-businesses that they visit. While there are no guarantees, the following
suggestions may increase the chances for online success.
Understand your target customer.
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Select a domain name that is consistent with the image you want to create for
your company and register it. Selecting a domain name that is short, memorable, intuitive with
the company name, and easy to spell will help visitors find it.
Design your Web site with ease of navigation in mind.
Give customers what they want.
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Build loyalty by giving online customers a reason to return to your Web site.
Establish hyperlinks with other businesses, preferably those selling products or

services that complement yours.
Include an e-mail option and a telephone number in your site.
Give shoppers the ability to track their orders online.
Offer Web shoppers a special all their own.
Assure customers that their online transactions are secure.
Post shipping and handling charges up front.
Keep your site updated.
Consider hiring a professional to design your site.
6.
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Tracking Web Results
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Firms using Web sites must closely track the benefits of increased sales against increased costs.
Web analytics are software tools that measure a sites ability to attract customers, generate sales,
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and keep customers coming back. Other tracking methods include: clustering, collaborative
filtering, profiling systems, and artificial intelligence.
The art and science of quantifying the return on investment from e-commerce activities
continues to develop.
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Recency length of time between customers visits
Click-through rate (CTR) proportion of people who click on a companys online
ad
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Cost per acquisition CPA the amount it costs to generate a customer purchase
Conversion (browse-to-buy) ratio the proportion of visitors to a site who make a

purchase
7.
Ensuring Web Privacy and Security

The Webs ability to track the behavior of its customers raises concerns and issues over
the privacy of that information. Companies are encouraged to take the following steps to ensure
that the information they collect is being used in a legal and ethical manner:
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Take an inventory of the customer data collected.
Develop a company privacy policy for the information you collect.
Post your companys privacy policy prominently on your site and follow it!
Security is another unresolved and developing Web site issue. Hackers, viruses, credit card
fraud, and unauthorized users continue to adversely affect companies, customers, and the growth
of e-commerce. Virus and intrusion detection software and firewalls may help to ward off attacks
from hackers
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: Pricing Strategies
Topic Objective:
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Discuss the relationships among pricing, image, competition, and value.
Describe effective pricing techniques for both introducing new products or services and
for existing ones.
Explain the pricing methods and strategies for retailers, manufacturers, and service firms.
Describe the impact of credit on pricing
Pricing: Pricing communicates a powerful message about the organizations image.
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Key Points:
1.
Three Potent Forces: Image, Competition, and Value
Setting prices for products and services is complex and difficult. A number of factors are
important to carefully consider. Price conveys an image that must match the companys target
markets. It is an art and a science.
Pricing communicates a powerful message about the organizations image.
The firm must also consider its place among the competition and that does not mean they have to
match or beat competitors pricesit is about value.
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This focus on value will set the right price based upon objective value and perceived value.
Costs impact pricing and it is important that costs are based on communication and the continued
value you offer.
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When all is taken into consideration, the factors that small business owners must consider
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when determining price for goods and services includes:

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Product/service costs
Market factors - supply and demand
Sales volume
Competitors' prices
The company's competitive advantage
Economic conditions
Business location
Seasonal fluctuations
Psychological factors
Credit terms and purchase discounts
Customers' price sensitivity
Desired image
Customized or dynamic pricing is a technique that sets different prices based on the customer
and their characteristics. For example, Dell Computer uses this technique as people order
systems online and more is learned about who they are and what they are willing to pay.
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2.
Pricing Strategies and Tactics

When introducing a new product, the owner should try to satisfy three objectives:
Getting the product accepted
Maintaining market share as competition grows
Earning a profit
When introducing a new product, firms may choose from three basic strategies:
Market penetration: set prices below competitors to gain market entry.
Skimming: set higher prices for new products and for markets with little or no
competition.
Sliding-down-the-demand-curve: set higher prices initially and slide down as
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technology improves and/or one step ahead of competitors.
Pricing established goods and services offers the following techniques:
Odd pricing
Price lining
Leader pricing
Geographical pricing
Opportunistic pricing
Discounts
Multiple unit pricing
Suggested retail prices
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3.
Pricing Strategies and Methods for Retailers
Retailers have changed their pricing strategies to emphasize the value they offer. This value/price
relationship allows for a wide variety of highly creative pricing and marketing practices.
Four of those value/price relationship practices are:
Markup
Follow-the-leader pricing
Below-market pricing
Adjustable or dynamic pricing
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4.
Pricing Concepts for Manufacturers
Cost-plus pricing is the most commonly used pricing technique for manufactures. The breakeven
point is calculated on the basis of the variable costs and the quantity produced as it compares to
the total fixed costs.
Direct costing and price formulation is based upon:

Absorption costing: All manufacturing and overhead costs are absorbed into the
finished product's total cost.

Variable (direct) costing: The costs of the product include only those costs that
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vary directly with the quantity produced.
5.
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Pricing Strategies and Methods for Service Firms
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Most service firms set prices based on hourly rates and materials that include a margin for both
overhead and profit.
6.
The Impact of Credit on Pricing
Consumer credit has a dramatic impact on pricing and on the attractiveness of the
business. This includes:
Credit cards
Installment credit
Trade credit
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Creating A Successful Financial Plan
Managing Cash Flow
Sources Of Financing: Debt And Equity
semester end date.
area to save and continue later
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: Creating A Successful Financial Plan

Topic Objective:
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Understand the importance of preparing a financial plan.
Describe how to prepare the basic financial statements and use them to manage a small
business.
Create projected (pro forma) financial statements.
Understand the basic financial statements through ratio analysis.
Explain how to interpret financial ratios.
Conduct a breakeven analysis for a small company.
Financial plan: A well-designed and logical financial plan is one of the most important steps to
launching a new business venture and therefore a critical aspect of a comprehensive business
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plan. This chapter focuses on practical tools that will help entrepreneurs develop a workable
financial plan and enable them to plan to be profitable.
Key Points:
1. Basic Financial Statements
There are four common financial challenges facing entrepreneurs:
Failing to collect and analyze basic financial data
Lack of any kind of financial plan
Ongoing analysis of financial statements
Financial planning is essential!
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Three important financial statements assist entrepreneurs to better understand the
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financial status of their business:
The balance sheet takes a snapshot of a business at a given date, providing owners
with an estimate of its value in terms of assets, liabilities, and equity.
The income statement is also called a profit and loss (P&L) statement and
compares expenses against revenues for a certain period of time to indicate profits or losses.
The statement of cash flows shows the actual flow of cash into and out of a
business for a certain time period.
2. Creating Projected Financial Statements

Entrepreneurs must determine the funds needed for starting and sustaining a business for the
initial growth period. Typically, the entrepreneur relies on data collection through extensive
market and field research and on published statistics summarizing the performance of similar
companies.
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By developing pro forma statements, statements projecting future financial activity, the owner
transforms goals into reality by estimating the profitability and overall financial condition of the
business for the initial one- to three-year period.
A general guideline to assist with this process of developing pro forma statements is to
start with the sales forecast and work down.
The pro forma income statement begins with the sales forecast and estimates the
corresponding expenses required to generate those sales dollars. Banks typically require two- to
three-year projections.
The pro forma balance sheet starts with the beginning balances of cash,
inventories, assets, and liabilities. Banks typically require a year-one and year-two balance sheet
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projection.
The proforma cash flow statement charts cash flow, typically by month, for the
first two years of operation. It is often one of the major criteria for lending decisions by creditors.
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3. Ratio analysis
Ratio Analysis expresses the relationship between two selected accounting elements and is one
technique used in conducting a financial analysis.
The 12 key ratios include:
Liquidity ratios indicate whether the business will be able to meet its short-term financial
obligations as they come due.
Current ratio measures solvency through the relationship between current assets
and current liabilities.

Quick ratio focuses even more on liquidity by removing inventory from the
current ratio calculation.

Leverage ratios measure the relationships between financing supplied by a firms owners and by
its creditors.
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Debt ratio measures total debt against total assets the extent or percentage of total
assets owned by creditors
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Debt-to-net-worth ratio indicates the degree of leveraging by measuring capital

contributions from creditors against those by the owners (debt to equity).
Times interest earned ratio a measure of the firm's ability to make the interest
payments on its debt.
Average inventory-turnover ratio measures the average number of times inventory

is turned over during the year.
Average collection period ratio measures the average number of days it takes to
collect receivables.
Average payable period ratio indicates the average number of days it takes a
company to pay its accounts payable.
Net sales to total assets ratio the measure of a firm's ability to generate sales in
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relation to its assets.

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Net sales to working capital ratio measures the sales that a business generates for
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every dollar of working capital.

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Net profit on sales ratio measures a firm's profit per dollar of sales.
Net profit to equity ratio measures an owner's rate of return on investment.
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4. Interpreting Business Ratios
Ratios are useful yardsticks when measuring a small firm's performance and can point out
potential problems before they develop into a crisis.
Comparison of a firm's ratios to businesses within the same industry is a useful tool. A
firm can also develop ratios unique to its operation. Several organizations compile and publish
operating statistics including key ratios. This information may be found in the following sources:
Robert Morris Associates
Dun & Bradstreet, Inc.
Vest Pocket Guide to Financial Ratios
Industry Spotlight
Bank of America
Trade associations
Government agencies
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5. Breakeven Analysis
The breakeven point is the level of production and sales volume at which a companys revenues
equal its expenses, resulting in a net income of zero.
First, determine the variable and fixed expenses.

Fixed expensescosts that do not vary with changes in the volume of sales or
production.
Variable expensescosts that vary directly with changes in the volume of sales or
production.
Next, follow these steps to calculate the breakeven point:
Step 1: Determine the expenses a business can expect to incur.
Step 2: Categorize those expenses as fixed or variable.
Step 3: Calculate the percentage of variable expenses to net sales.
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Determine the percentage of contribution margin to sales.
Step 4: Compute the breakeven point.
Include desired net income into the breakeven analysis calculations.
Calculate the breakeven point and desired profit in both units and dollars.
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The breakeven chart illustrates the correlation with fixed and variable costs.
: Managing Cash Flow

Topic Objective:
Explain the importance of cash management to a small company's success.
Differentiate between cash and profits.
Understand the five steps in creating a cash budget and use them to create a cash budget.
Describe fundamental principles involved in managing the Big Three of cash

management: accounts receivable, accounts payable, and inventory.
Explain the techniques for avoiding a cash crunch in a small company.
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Cash Management: Cash is the most important yet least productive asset that a small business
owns. Businesses must have enough cash to meet their obligations or run the risk of declaring
bankruptcy. It is entirely possible for a business to earn a profit and still go out of business by
running out of cash. Small and growing companies are like sponges, soaking up every available
dollar to fund growth and sales. The first step in managing cash more effectively is to understand
the companys cash flow cycle.
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Cash flow cycle: is the time lag between paying suppliers for merchandise or materials and
receiving payment from customers for the product or service. Business owners should calculate
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their cash conversion cycle whenever they prepare their financial statements. On a daily basis,
business owners should generate reports showing the following: total cash on hand, bank balances,
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summary of day sales, summary of the day cash receipts, and a summary of accounts receivables
collections.
Key Points:
1. Cash Management
Cash is the most important yet least productive asset that a small business owns. Businesses must
have enough cash to meet their obligations or run the risk of declaring bankruptcy. It is entirely
possible for a business to earn a profit and still go out of business by running out of cash. Small
and growing companies are like sponges, soaking up every available dollar to fund growth and
sales. first step in managing cash more effectively is to understand the companys cash flow
cycle.
Cash flow cycle is the time lag between paying suppliers for merchandise or materials and
receiving payment from customers for the product or service. Business owners should calculate
their cash conversion cycle whenever they prepare their financial statements. On a daily basis,
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business owners should generate reports showing the following: total cash on hand, bank
balances, summary of day sales, summary of the day cash receipts, and a summary of accounts
receivables collections.
The entrepreneur has five roles they take on to manage cash flow:
The role of the cash Finder
The role of the cash Planner
The role of the cash Distributor
The role of the cash Collector
The role of the cash Conserver

The next step in effective cash management is to shorten the length of the cash flow cycle.
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Receiving your cash soonerrather than laterhas a positive impact on your cash flow.
As an essential business resource, cash is used, or depleted, to purchase goods and materials and
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pay for labor to create products for inventory. When these products are sold, this is turned back
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into cash or accounting receivables and the inventory can be replaced as profits are generated.
2. Cash and Profits Are Not the Same
Profit (or net income) is the difference between a company's total revenues and total expenses. It
measures how efficiently the business is operating.

Cash flow measures a company's liquidity and its ability to pay its bill and other financial
obligations on time by tracking the flow of cash into and out of the business over a period of
time. Profitability does not guarantee liquidity. Cash is the money that flows through a business
in a continuous cycle without being tied up in any other asset.
3. The Cash Budget

The need for a cash budget arises because the uneven flow of cash in a business cycle creates
surpluses and shortages. A cash budget is based on the cash method of accounting. Credit sales
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to customers are not recorded until the customer actually pays, and purchases made on credit are
not recorded until the owner pays them. Depreciation, bad debt expense, and other noncash items
that do not involve cash transfers are omitted entirely from the cash budget. A cash budget is
nothing more than a cash map. The cash budget shows the amount and timing of cash receipts
and cash disbursements day by day, week by week, or month by month and is used to predict the
amount of cash the firm will need to operate smoothly over a specific period of time.
4. Preparing a Cash Budget
Five basic steps to preparing a cash budget include:
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Determining an adequate minimum cash balance the most reliable method is
based on past experience. For example, past operating records may indicate that it is desirable to
maintain a cash balance equal to five days sales.
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Forecasting sales sales forecasts are the heart of the cash budget and are based
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partially on past patterns. Financial analysts suggest creating three estimatesoptimistic,

pessimistic, and most likely.
Forecasting cash receipts the budget must account for the delay between the sale
and the actual collection of the proceeds. It is vital to act promptly once an account becomes past
due.
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Forecasting cash disbursements many cash payments are fixed amounts due on
specified dates. Others are standard like the purchase of inventory, salary and wages, overhead,
selling expenses, and so on. Financial analysts suggest that new owners add an additional 10 to
25 percent to estimate disbursement totals as a cushion.
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Determining the end-of-month cash balance the cash balance at the end of the
month becomes the beginning balance for the following month. Anticipate cash shortages and
surpluses; this can reduce lending expenses and time.
Determining a minimum cash balance is also important. A range of cash balances gives you an
insight to know the amount of cash that is acceptable, enough to get you through time of need,
but not too much to have lazy cash that is not effectively working for your business.
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Forecasting sales is at the heart of the cash budget and will be an important predictor for cash
flow projections.
Common causes of cash flow problem within small businesses include:
Difficulty collecting accounts receivables
Seasonal sales patterns
Unexpected variations in sales
Weak sales
Collecting delinquent accounts is critical to keep cash flow moving in a positive direction and
can be a challenging task for the entrepreneur.
Forecasting cash disbursements can become more meaningful through:
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Recording disbursements
Noting their due dates
Reviewing the checkbook and expenses
Adding a cushion to those estimates
Making a daily list of items that generate and consume cash
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Estimating the end-of-the-month balance will give you insight and may help to avoid a shortage
or identify a cash surplus.
The most significant benefits of effective cash management include:
Increasing the amount of cash and the speed of cash flow into the company
Reducing the amount of cash flow leaving the company
Making the most efficient use of available cash
Taking advantage of money-saving opportunities such as cash discounts
Efficiently financing seasonal business needs
Developing a sound borrowing and repayment program
Impressing lenders and investors
Reducing borrowing costs by only doing when needed
Providing funds for expenses
Planning for investing surplus cash
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5. The Big Three of Cash Management
There are three essential factors for the effective management of cash flow:
Accounts receivable extending credit to customers. A firm should always try to
accelerate the collection of its receivables. If possible, a firm should also work to reduce or even
eliminate credit sales.
Accounts payable suppliers and others extend credit to you. Take advantage of
and never abuse those opportunities.

Inventory is the number one expense for all retail and manufacturing businesses.
Product-based businesses need to monitor, manage, and control their inventory on a continual
basis.
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Accounts receivable is a critical area for the entrepreneur to address. Establishing a credit and
collection policy and process is essential. This will provide clear and consistent direction for you,
your employees, and your customers.
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The steps to establishing a credit and collection policy include:
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Screen customers carefully by developing a detailed credit application. Know
when to walk away from an orderwhy make the sale if you wont get paid?
Establish a written credit policy and let every customer know the company's
credit terms in advance.
Send invoices promptly (cycle billing).
Take immediate actions when an account becomes overdue.
Steps to accelerate the collection of accounts receivable through encouraging the prompt
payment of invoices include:
Ensure that invoices are clear, accurate, and timely.
Make sure that invoice prices agree with the quotations on purchase orders or
contracts.
Highlight the terms of the sale (2/10/net30, net 30).
Include a telephone number and contact person in your organization in case the
customer has a question or concern.
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Work with company owners or representatives in a positive and collaborative

fashion to reduce and eliminate their overdue accounts.
As a last resort, consult with your attorney and/or turn the account over to a
collection attorney.
Few owners use any formal method for managing inventory. Entrepreneurs may find that they
have either too much inventory, or the wrong type of inventory that has become outdated or
obsolete. This inventory ties up cash and is expensive to the firm. A typical manufacturing
company pays 25-30 percent of the value of its inventory in handling and finance costs; however,
retailers that carry too little inventory experience stockouts and lost sales.
Entrepreneurs can avoid a cash crisis through an effective management of accounts
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receivable. Tips to accomplish this include:

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Stretching out payment times without jeopardizing credit
Verify all invoices before payment
Take advantage of cash discounts
Negotiate terms with suppliers
Communicate with creditors about your status
Schedule and stagger cash disbursements
Use credit cards wisely
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Inventory management also plays an important role through:
Monitoring it regularly
Not buying more than needed
Scheduling deliveries at the latest possible date
Negotiating quantity discounts
6. Avoiding the Cash Crunch
Tools that allow small business managers to get the maximum benefit from their
companies' pool of cash include:
Bartering: the exchange of goods and services for other goods and services rather than for cash is
an effective way to conserve cash.
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Trimming overhead costs: high overhead expenses can strain a small firm's cash supply.
Ways to trim overhead costs include:
Periodically evaluate expenses
When practical, lease instead of buy
Avoid nonessential outlays
Negotiate fixed loan payments to coincide with your company's cash flow cycle
Buy used or reconditioned equipment, especially if it is behind-the-scenes

machinery
Hire part-time employees and freelance specialists whenever possible
Control employee advances and loans
Establish an internal security and control system
Develop a system to battle check fraud
Change your shipping terms
Switch to zero-based budgeting
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Additional ways to control cash flow include making efforts to:
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Be on the lookout for employee theft.
Keep your business plan current.
Invest surplus cash to generate revenue.
: Sources Of Financing: Debt And Equity

Topic Objective:
Explain the differences in the three types of capital small businesses require: fixed,
working, and growth.
Describe the differences in equity capital and debt capital and the advantages and
disadvantages of each.
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Describe the various sources of equity capital available to entrepreneurs, including

personal savings, friends and relatives, angels, partners, corporations, venture capital, and public
stock offerings.
Describe the process of going public, as well as its advantages and disadvantages.
Describe the various sources of debt capital and the advantages and disadvantages of
each.
Identify the various federal loan programs aimed at small businesses.
Describe the various loan programs available from the Small Business Administration
(SBA).
Discuss valuable methods of financing growth and expansion internally.
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Capital: Capital is any form of wealth employed to produce more wealth. It exists in many
forms in a business, including cash, inventory, plant, and equipment. Small businesses require
three types of capital:
Fixed capital Capital needed to purchase the business's permanent or fixed assets.
Working capital Capital used to meet the needs of day-to-day business operations.
Growth capital Capital requirements surface when an existing business is expanding or
changing its primary direction.
Equity capital: Equity capital represents the personal investment of the owner(s) in a business.
Debt financing: Debt financing involves funds that small business owners borrow and must
repay with interest.
Debt capital: Debt capital represents the financing that a small business owner has secured and
must repay with interest.
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Key Points:
1. Planning for Capital Needs
Rather than relying on a single source of funds, entrepreneurs may need to piece together
multiple sources, a method known as layered financing.
Capital is any form of wealth employed to produce more wealth. It exists in many forms in a
business, including cash, inventory, plant, and equipment. Small businesses require three types
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of capital:
Fixed capital Capital needed to purchase the business's permanent or fixed assets.
Working capital Capital used to meet the needs of day-to-day business operations.
Growth capital Capital requirements surface when an existing business is expanding or
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changing its primary direction.
2. Equity Capital versus Debt Capital
Equity capital represents the personal investment of the owner(s) in a business.
Debt capital represents the financing that a small business owner has secured and must repay
with interest.
3. Sources of Equity Financing

Potential sources of equity financing include this list of financing resources:
Personal savings The most common form of equity funds is the entrepreneur's pool of
personal savings. Entrepreneurs should expect to provide between 20 percent -50 percent of the
required start-up funds.
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Friends and family members Consider the potential ramifications and consequences with
this source!
Angels Angels are wealthy individuals, often entrepreneurs themselves, who invest in
business start-ups in exchange for an equity stake.
Partners Entrepreneurs can choose to take on a partner(s) to expand their capital.
Corporate venture capital Some large corporations, both U.S. and foreign, finance and
invest in small companies.
Venture capital companies Venture capital companies are private, for profit organizations
that purchase equity positions in young businesses with high growth and profit potential.
Public stock sale One method of raising large capital is to sell shares of stock, known as
going public.
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An initial public offering (IPO) is when a company raises capital by selling share of its
stock to the public for the first time.
Companies with sales over $20 million annually are commonly the best fit for an IPO.
Successful IPO candidates are strong in the areas of growth, earnings, financial
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statements, growth industry, and a sound management team with a strong board of directors.
Advantages center on access to more capital with a higher business profile.
Disadvantages include potential dilution of the founders position, loss of control, loss of
privacy, SEC and investor reporting requirements, filing expenses, pressure for short-term
performance, and additional time requirements.
The registration process alone is a required, time-demanding task.
Simplified registrations and exemptions enable smaller companies easier access to capital
markets.
4. The Nature of Debt Financing

Debt financing involves funds that small business owners borrow and must repay with interest.
Borrowed capital does allow entrepreneurs to maintain complete ownership.
There are many sources of debt capital and they include:
Commercial banks
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Equipment suppliers
Commercial finance companies
Savings and loan associations
Stock brokerage houses
Insurance companies
Credit unions
Bonds
Private placements
Small Business Investment Companies (SBICs)
Small Business Lending Companies (SBLCs)

We will begin by talking about funds from commercial banks, one of the most common sources
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for entrepreneurs: loans from commercial banks.

Commercial Banks offer both short- and long-term loans.
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The six most common reasons for rejection from commercial banks are:
No interest in small business loans
Uninformed about your business
Reason for financing
Lack of cash flow
Lack of collateral
Need to back the business loan with personal assets
Another source of debt capital is through asset-based lenders.

Asset-based borrowing occurs when a business can borrow money by pledging collateral, such as
accounts receivable and inventory. The advance rate is the percentage of an assets value that a
lender will loan.
In addition to the sources of debt capital that we have discussed, others include:
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Vendor financing or trade credit
Equipment suppliers
Commercial finance companies
Saving and loan association
Stock brokerage houses
Insurance companies
Credit unions
Bonds
Private placements
Small Business Investment Companies (SBICs)
Small Business Lending Companies (SBLICs)
Federally sponsored programs
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All of these sources merit consideration. Evaluating each option enables the entrepreneur to
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identify the most attractive source for financing the venture.
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5. Federally Sponsored Programs
The federal government provides financing options for entrepreneurs and some of those include:
Economic Development Administration (EDA)
Department of Housing and Urban Development (HUD)
U.S. Department of Agricultures Rural Business-Cooperative Service
Small Business Innovation Research (SBIR)
The Small Business Technology Transfer Program
6 . Small Business Administration (SBA)

The SBA has several programs designed to help finance both start-up and existing businesses
that do not qualify for traditional loans. SBA programs include:
(A) Loan Guaranty Program

The CAPLine Program
73
The Export Working Capital Program
The International Trade Program
Section 504 Certified Development Company Program
Microloan Program
Pre-qualification Loan Program
Disaster Loans
7. State and Local Loan Development Programs

State and local loan development programs come in a variety of forms. These loan programs
assist small businesses that will potentially create the greatest number of jobs and offer economic
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benefit to the communities they serve.
8. Internal Methods of Financing
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Bootstrap financing is a term used for internal methods of financing that includes factoring,
leasing rather than purchasing equipment, using credit cards, and managing the business frugally.

Choosing The Right Location And Layout
Global Opportunities
Building A Team And Management Succession
semester end date.
74
: Choosing The Right Location And Layout

Topic Objective:
Explain the stages in the location decision: choosing the region, the state, the city, and the
specific site.
Describe the location criteria for retail and service businesses.
Outline the location options for retail and service businesses: central business districts
(CBDs), neighborhoods, shopping centers and malls, near competitors, outlying areas, and at
home.
Explain the site selection process for manufacturers.
Describe the criteria used to analyze the layout and design considerations of a building,
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including the Americans with Disabilities Act.
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Explain the principles of effective layouts for retailers, service businesses, and
manufacturers.
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Business Location Decision: The business location decision has far-reaching and often longlasting effects on a small companys future. Entrepreneurs who choose their locations wisely can
establish an important competitive advantage over rivals who choose their locations haphazardly.
The location selection process is challenging and can set the course for the future of the
enterprise.
75
Key Points:
1. Location: A Source of Competitive Advantage
The location decision is important to entrepreneurs and considers a series of analyses of critical
factors unique to each business. Tax rates, availability of qualified workers, the quality of the
infrastructure, traffic patterns, and other factors vary from one site to another and can influence
the growth rate and ultimate success of a business.
Choosing the region
Choosing the state
Proximity to markets
Proximity to raw materials
Wage rates
Labor supply
Business climate
Tax rates
Internet access
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Choosing the city
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Population trends
Competition
Clustering
Compatibility with the community
Local laws and regulations
Transportation networks
Police and fire
Utilities
Quality of life
Choosing the site
2. Location Criteria for Retailers and Service Businesses:

The following are important considerations for retail and service locations:
76
Trade area size
Retail compatibility
Degree of competition
Index of retail saturation
Transportation network
Physical, racial, or emotional barriers
Political barriers
Customer traffic
Adequate parking
Reputation
Room for expansion
Visibility
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3. Location Options for Retail and Service Businesses
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Retail and service locations have additional consideration to optimize their location selection.
Central business district
Neighborhood locations
Shopping centers and malls
Neighborhood shopping centers
Community shopping centers
Regional shipping centers
Power centers
Shopping centers and malls may offer excellent locations based on their focus and reach.
Neighborhood shopping centers Serves up to 40,000 people with 3-12 stores
Community shopping centers Serves up to 150,000 with 12-50 stores
Power centers A mall with convenience of a neighborhood shopping center
Theme or festival centers Unifying theme, often involving entertainment
Outlet centers Manufacturers and retailers sell name-brand goods and discount prices
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Lifestyle centers Located near affluent residential neighborhoods with a business districtvillage style design
Regional shopping malls Draws from a large area with 50-100 stores
Super-regional shopping malls Similar to regional malls but larger such as Mall of
America or West Edmonton Mall in Canada, the worlds largest mall
4. The Location Decision for Manufacturers

Suitable manufacturing plant sites are limited by zoning regulations, utility and transportation
needs, proximity to raw materials, and other special requirements.
Foreign trade zones
Empowerment zones
Business incubators
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5. Layout and Design Considerations
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The layout and design of the physical facility affects efficiency, productivity, and sales.
External layout factors involve:
Adequate size
External appearance
Entrances
Creative window displays
Compliance with Americans with Disabilities Act
Signage
The signage for the business should be:
Informative
Comply with all ordinances
Visible, simple and clear
Changed to keep attention
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Legible both day and night
Maintained
The interior of the building needs to address issues relating to:
Ergonomics
Productivity, efficiency, and sales needs
Proper lighting and fixtures
Attractive colors
Appealing to all of the senses of the customers
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6. Layout: Maximizing Revenues, Increasing Efficiency, or Reducing Cost
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The layout for retailers falls into one of three patterns:
Grid layout
Free-form layout
Boutique layout
Layout guidelines include these considerations:
Know your customers buying habits
Display merchandise as attractively as your budget allows
Display complementary items together
Recognize and leverage the value (and cost) of floor space
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Factors to consider in manufacturing layouts are:
Type of product
Type of production process
Ergonomic consideration
Economic considerations
Space availability within the facility
Layout for manufacturers should consider:
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Product layout
Process layout
Fixed position layout
Functional layout
Topic Objective:
Explain why going global has become an integral part of many small companies'
strategies.
Describe the principal strategies small businesses have for going global.
Explain how to build a thriving export program.
Discuss the major barriers to international trade and their impact on the global
V
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community.
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Describe the trade agreements that will have the greatest influence on foreign trade in the
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21st centuryGATT and NAFTA.
Global Marketplace: The global marketplace offers tremendous potential for many
entrepreneurial companies. The Internet combined with other forms of affordable technology,
increased access to information on conducting global business, and the growing interdependence
of the worlds economies have made it easier than ever before for companies to engage in
international trade.
80
Key Points:
1. Why Go Global?
Today's business environment is highly competitive and businesses can no longer consider
themselves as domestic companies if they truly want to compete.
Advantages of going global include:
Offset sales declines in domestic markets
Increase sales and profits
Extend the product life cycle
Lower manufacturing costs
Lower product cost
Improve competitive position
Raise quality levels
Become more customer-oriented
Global questions to address:
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Are there profitable markets?
Do we have the necessary resources?
Do we understand the cultures, economic systems, and other unique aspects of
prospective trading nations?
Are there viable exit strategies?
Can we afford not to go global?
2. Strategies for Going Global

We can list nine strategies for going global:
To break them out further, these global strategies include:
Employing a presence on the World Wide Web
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Trade intermediaries
Export management companies
Export trading companies
Agents
Resident offices
Foreign distributors
Joint ventures
Foreign licensing
International franchising
Countertrading and bartering
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3. The Exporting Process
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Anyone can export. Start by developing an export business plan:
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The following steps may enhance the chances of success:
Recognize that all companies have the potential to export
Analyze your product or service
Analyze your commitment to developing export markets
Research potential markets and select your target markets
Develop a distribution strategy
Find your customers
Find financing for export sales
Ship your goods
Collect your money
A letter of credit will enable you to complete transactions with foreign buyers.
4. Barriers to International Trade
Many U.S. firms are simply ignorant about exporting opportunities. In addition, some
governments use a variety of barriers that block free trade among nations in an attempt to protect
82
their own industries. Foreign firms are restricted access into global markets and all consumers
suffer and pay the price.
Barriers to international trade include:
The I'm too small to export attitude
Lack of information
Lack of available financing
Tariffs
Quotas
Embargos
Dumping
Political barriers
Cultural barriers
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5. International Trade Agreements
In an attempt to boost world trade and address trade issues, several organizations and agreements
among nations have been created. The most prominent organizations include:
The World Trade Organization (WTO) was established to settle trade disputes among
member nations, replacing the General Agreement on Tariffs and Trade (GATT) in 1995.
The North American Free Trade Agreement (NAFTA) created a free trade area among
Canada, Mexico, and the United States.
Guidelines for enhancing success in international market include:
Seek a presence in North American, Europe, and Asia
Appeal to the similarities in the segments while you recognize the differences in local
cultures
Develop new products for the world market
Familiarize yourself with foreign customers and languages
Glocalize and make global decisions based on local resources and markets
Recruit and retain multicultural employees
83
Train employees to think globally and provide them experiences to reinforce that thinking
Hire local managers to staff foreign locations
Do what you need to regardless of potential employment impacts at home
Consider using partners and joint ventures to break into foreign markets
: Building A Team And Management Succession

Topic Objective:
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Explain the challenges involved in the entrepreneur's role as leader and what is required
to be a successful leader.
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Describe the importance of hiring employees and how to avoid making hiring mistakes.
Explain how to create a company culture that encourages employee retention.
Describe the steps in developing a management succession plan for a growing business
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that will allow a smooth transition of leadership to the next generation.
Explain the exit strategies available to entrepreneurs.
Management Succession: Small business managers take on a wide range of roles and
responsibilities, but the most important is the role of leader. This can present significant
challenges for the entrepreneur and yet is critical to the success of the venture.
84
Key Points:
1. Leadership in the New Economy
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. Management and leadership are
not the same; yet both are essential to a small companys success. Leadership without
management is unbridled; management without leadership is uninspired. Leadership gets a small
business going; management keeps it going.
Effective leaders exhibit certain behaviors:
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Create a set of values and beliefs for employees and passionately pursue them.
Define and then constantly reinforce the vision they have for the company.
Respect and support their employees.
Set the example for their employees.
Create a climate of trust in the organization.
Focus employees efforts on challenging goals and on reaching those goals.
Provide the resources employees need to achieve their goals.
Communicate with their employees.
Value the diversity of their workers.
Celebrate their workers successes.
Encourage creativity among their workers.
Maintain a sense of humor.
Create an environment of motivation, training, and freedom to achieve goals.
Become a catalyst for change when change is needed.
Keep their eyes on the horizon.
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To become effective, a small business leader must perform three vital tasks:
Add the right employees and constantly improve their skills.
Create a culture for retaining employees.
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Plan for passing the torch to the next generation of leadership.
2. Building an Entrepreneurial Team: Hiring the Right Employees

An estimated 80 percent of turnover is caused by poor hiring decisions and 46 percent of new
employees fail within 18 months. About one-third of hiring managers admit to making bad hiring
decisions because of pressure to fill the position. This can be avoided.
Hiring managers can avoid hiring mistakes by:
Elevate recruiting to a strategic position in the company
Look inside the company first
Encourage employee referrals
Make employment advertisements stand out
Use the Internet as a recruiting tool
Recruit on campus
Forge relationships with schools and other sources of workers
Recruit retired workers
Offer what workers want
Conduct a job analysis and create practical job descriptions and job specifications.
The job analysis includes:
Creating a job description
Creating job specifications
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Sample job descriptions may be helpful in the process and the Dictionary of Occupation Titles is
one resource to investigate.
Next, plan an effective interview.
Developing a series of core questions and ask them of every candidate
Ask open-ended questions rather than yes or no questions
Create hypothetical situations candidates would likely encounter on the job and ask how
they would handle them
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Probe for specific examples in the candidates past work experience that demonstrate the
necessary traits and characteristics
Ask candidates to describe a recent success and a recent failure and how they dealt with
them
Arrange a noninterview setting that allows others to observe the candidate in an informal
setting.
Again, hiring the right employees involves taking the time and effort to:
Conduct a job analysis and create job descriptions and job specifications
Plan an effective interview
Conduct the interview
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Conducting an effective interview begins with:
Breaking the ice
Asking questions
Selling the candidate on the company
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Be disciplined and check references, as it is an essential task for finding the right people for your
company. Hiring is an important decision. It takes an investment of time and effort to do this
important step.
3. Creating an Organizational Culture That Encourages Employee Retention

Company culture is the unwritten code of conduct that governs the behavior, attitudes,
relationships, and style of an organization. For a small company, having the right kind of
structure and culture can lead to a competitive advantage. The most successful companies rely on
some of the following principles:
Distinctive, unwritten, informal code of conduct that governs the behavior, attitudes,
relationships, and style of an organization.
The way we do things around here.
87
In small, entrepreneurial companies, culture plays an important part in gaining a

competitive edge.
Characteristics of a positive culture include:
Respect for work and life balance
A sense of purpose
A sense of fun
Diversity
Integrity
Participative management
Learning environment
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Job design strategies involve:
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Job simplification breaks work down and standardizes each task
Job enlargement more tasks to broaden its scope
Job rotation cross-training benefits
Job enrichment motivates through increased responsibilities
Five core characteristics
Skill variety
Task identity
Task significance
Autonomy
Feedback
Flextime employees have input into their work hours
Job sharing two or more share a single full-time position
Flexplace employees work from other locations
Telecommuting employees work from home
Rewards and compensation involve:
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Motivating workers through rewards that meet their individual needs
Money can workup to a pointthrough pay-for-performance systems and stock options.
Intangible rewards are very powerful yet inexpensive
Entrepreneurs tend to relay on nonmonetary rewards
4 Management Succession: Passing the Torch of Leadership

Family-owned businesses make up 90 percent of all U.S. companies and account for 64 percent
of the U.S. GDP, comprising one-third of the Fortune 500 companies. However, only 30 percent
of the first-generation businesses survive into the second generation and only 12 percent make it
to the third.
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For most growing family businesses, 81 percent of them, the leadership will be passed on to the
next generation. However, 25 percent of family business owners have no formal management
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succession plan.
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The succession plan specifies how and potentially when the next generation will assume
responsibilities. A management succession plan involves:
Step 1. Select the successor
Step 2. Create a survival kit for the successor
Step 3. Groom the successor
Step 4. Promote an environment of trust and respect

Step 5. Cope with the financial realities of estate and gift taxes
Estate taxes are a factor in this process. There are ways to address this issue before it becomes a
problem.
Buy/sell agreement
Lifetime gifting
Trusts
Bypass trust
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Irrevocable life insurance trust
Irrevocable asset trust
grantor-retained annuity trust (GRAT)
Estate freeze
Family limited partnership (FLP)
5. Exit Strategies
Entrepreneurs planning to retire often use one or two exit strategies:
Sell to outsiders
Sell to insiders
Cash plus a note
Leveraged buyout (LBO)
Employee stock ownership plan (ESOP)
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Describe the entrepreneurial profile and evaluate your potential as an entrepreneur.

Describe the benefits and drawbacks of entrepreneurship.

Explain the forces that drive the growth in entrepreneurship.

Explain the cultural diversity of entrepreneurship.

Put failure into the proper perspective.

Explain how entrepreneurs can avoid becoming another failure statistic.

The Benefits of Entrepreneurship

The primary benefits entrepreneurs enjoy include the opportunity to:

Create their own destiny

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Reach their full potential

Generate impressive profits

Contribute to society and be recognized for their efforts

Do what they enjoy and have fun at it!

The Potential Drawbacks of Entrepreneurship

Uncertainty of income The entrepreneur is the last one to be paid.

Risk of losing their entire investment

Long hours and hard work

Lower quality of life until the business gets established

High levels of stress

Behind the Boom: Whats Feeding the Entrepreneurial Fire?

The rapid increase in entrepreneurs has been a result of:

Considering entrepreneurs as heroes

Demographic and economic factors

Shift to a service economy

Commerce and the Internet

Additional international opportunities

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The Cultural Diversity in Entrepreneurship

Entrepreneurs are found in virtually every walk of life including:

The Power of Small Business

the small firm in the U.S. economy.

The definition of a Small Business is:

Eligibility requirements are based on the specific industry.

Retailing annual sales/receipts not exceeding $5 to $15 million.

Services annual receipts not exceeding $5 to $15 million.

Wholesaling yearly sales must not be over $5 to $22 million.

Agriculture annual receipts not exceeding $0 to $5 million.

Special Trade Construction annual receipts not exceeding $7 million.

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Capital is supplied and ownership is held by an individual or a small group.

Area of operation is mainly local; markets need not be local.

Size is small when compared to the biggest unit in the field.

The Ten Deadly Mistakes of Entrepreneurship

Poor financial control

Weak marketing efforts

Failure to develop a strategic plan

Improper inventory control

Inability to make the entrepreneurial transition

Putting Failure into Perspective

Entrepreneurs dont failthe venture fails.

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There are no such things as failures, only results.

Always look to turn a negative situation into a positive opportunity.

Have no fear of failure and be sure to have a contingency plan.

How to Avoid the Pitfalls

Know their business in depth.

Develop a solid business plan in writing.

Manage financial resources.

Understand financial statements.

Learn to manage people effectively.

Keep in tune with who they are.