Small Business Ownership

• Starting a small business can lead to economic independence.
• Many entrepreneurs leave secure jobs, with 81% seeking the "American Dream".
• 49% of entrepreneurs pursue their passion, using personal savings (73%) and credit cards (23%) to start.
• Small business owners often work long hours, averaging 50 hours a week.
• 90% work on weekends, and many continue working after family members are asleep.
• Choosing a legal form of ownership requires considering setup costs, control, profit sharing, taxes, skills, continuity, financing, and liability.
• The U.S. business failure rate within the first year is approximately 20%.

Key Terms

• Sole Proprietorship
• Partnership
• Corporations
• Limited Liability Company
• Franchise
• Entrepreneur

Franchising

• Franchising offers a way to own a business with established products, methods, and training.
• Franchise agreements let franchisees use the franchisor’s name, trademark, and logo with rules for running the franchise.
• Franchisees follow operating rules, maintain inventory, purchase equipment, participate in promotions, and maintain relationships.
• Franchisors offer use of their name, site help, building plans, training, management assistance, systems and procedures, employee training, wholesale pricing, and financial assistance.
• Franchised businesses provided about 8.9 million direct jobs with a $890 billion economic output in the U.S.

Advantages of Franchises

• Franchisors can expand without major investment.
• Franchisees benefit from a recognized name, product, and operating concept.
• Franchisors provide structured training programs.
• Franchisees gain access to financial management advice and referrals to lenders.

Disadvantages of Franchises

• Franchisors relinquish some control over operations.
• Franchisees incur costs, including fees and royalties.
• Franchisees must conform to the franchisor’s operating rules.

International Franchising

• International franchising involves understanding local culture, language differences, and political environment.
• Aligning business operations with franchisees located across the globe is a challenge.

Tips for Purchasing a Franchise

• Take a personality test.
• Research the franchise and location.
• Seek tax advisor and contract specialist assistance.
• Focus on financials and limit liability.
• Use the franchise disclosure document.
• Utilize instincts.

Qualities of a Franchisee

• Passion for the franchise concept
• Desire to be own boss
• Willingness to commit time
• Assertiveness
• Optimism
• Patience
• Integrity

Sole Proprietorships

• It is a business owned and operated by one person.

Advantages of Sole Proprietorships

• Easy and Inexpensive to Form.
• Profits all go to the owner.
• Direct control of the business.
• Freedom from government regulation.
• No special taxation.
• Ease of dissolution.

Disadvantages of Sole Proprietorships

• Unlimited liability.
• Difficulty raising capital.
• Limited managerial expertise.
• Trouble finding qualified employees.
• Personal time commitment.
• Unstable business life.
• Losses are the owner’s responsibility.

Work-Life Balance

• Small business owners report high work satisfaction but face challenges in balancing work and personal life.
• Stress of ownership can be higher than imagined.
• Employees value leaders who support work-life balance.

Partnership

• It is a business operated by two or more individuals who agree to operate a business together for profit

Partnership Agreements

• Spelling out terms and conditions, the name, purpose, contributions, responsibilities, duties, compensation, provisions for new partners, sale of interests, conflict resolution, dissolution, and asset distribution.

Partnership Types

• General: all partners share management and profits, co-own assets, can act on behalf of the firm, and have unlimited liability.
• Limited: includes general partners with unlimited liability and limited partners with liability limited to their investment, with limited partners not participating in management.
• Limited Liability Partnership (LLP): partners not responsible for business debt and liabilities.
• Limited Liability Limited Partnership (LLLP): protects general partners from the debt and liabilities of the partnership.

Advantages of Partnerships

• Ease of formation.
• Availability of capital.
• Diversity of skills and expertise.
• Flexibility.
• No special taxes.
• Relative freedom from government control.

Disadvantages of Partnerships

• Unlimited liability.
• Potential for conflicts between partners.
• Complexity of profit sharing.
• Difficulty exiting or dissolving a partnership.

Risks of Entrepreneurship

• Start-ups face a high risk of failure, with failure rates exceeding 50% after five years and 70% after ten years.
• Ethical failures, such as hubris, can arise even in financially successful start-ups.
• Holding destructive egos in check is an ethical challenge at many successful businesses, particularly hard-riding start-ups.

Start-Up Successes

• Success can lead to bureaucracy, slowing management processes.
• Start-ups can lose their original spirit as more employees are added and ranks become more defined.
• Long-term employees may be seeking a secure position with a growing business rather than a chance to get in on the ground floor of a risky start-up.
• Treating all stakeholders with honesty, courtesy, and respect from the outset can cement ethics into the operating matrix.

Entrepreneurial Culture

• Successful start-ups often have charismatic, driven founders with competitive mentalities.
• It takes a thick skin and powerful ego to get through the inevitable disappointments that confront a start-up leader.
• A key question is whether an entrepreneur can embrace a humanistic leadership style from the start without undermining the chances of success.
• If the enterprise is successful, the principles and philosophy of the founder become enshrined in the lore of the company, so that long after his or her departure, succeeding leaders find themselves beholden to the management philosophy exemplified from the early days of the firm.
• Respect for customers should be ingrained in the culture of the company even after it grows.

Apple

• In 1976 Steve Jobs and Steve Wozniak created their first computer, the Apple I.
• Started in 1976 with $1,300 investment in Jobs’ garage.
• By 2019, it became a company generating over $260 billion in sales.
• The Internet and other improvements in communication now affect the way companies do business. The workforce is more diverse than ever.
• Economic turmoil that began in the housing and mortgage industries as a result of troubled subprime mortgages quickly spread to the rest of the economy began in 2008.
• Lawmakers tried to get money flowing again by passing a $700 billion Wall Street bailout.

Natural Barriers

• Physical or cultural.
• Distance is a natural barrier to international trade.
• Language is another natural trade barrier.

Tariff Barriers

• It is a tax imposed by a nation on imported goods.
• Makes imported goods more costly, so they are less able to compete with domestic products.
• Protective tariffs make imported products less attractive to buyers than domestic products.

Arguments for Tariffs

• Tariffs protect infant industries.
• Tariffs protect U.S. jobs.
• Tariffs aid in military preparedness.

Arguments against Tariffs

• Tariffs discourage free trade.
• Tariffs raise prices.

Nontariff Barriers

• Import Quota: limits on the quantity of a certain good that can be imported. The goal of setting quotas is to limit imports to the specific amount of a given product.
• Embargo: a complete ban against importing or exporting a product.
• Buy-National regulations: government rules that give special privileges to domestic manufacturers and retailers.
• Exchange Controls: laws that require a company earning foreign exchange from its exports to sell the foreign exchange to a control agency, usually a central bank.