Small Business Entry: Paths to Full-Time Entrepreneurship PDF

Small Business Entry Paths to Full-Time Entrepreneurship Chapter 06 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.  Learning Objectives LO1 Describe fi...

Small Business Entry Paths to Full-Time Entrepreneurship Chapter 06 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.  Learning Objectives LO1 Describe five ways that people get into small business management LO2 Compare the rewards with the pitfalls of starting a small business LO3 Compare the opportunities with the pitfalls of purchasing an existing business LO4 Explain four methods for purchasing an existing business 6-2  Learning Objectives LO6 Explain the issues of inheriting a family- owned business LO7 Describe how hired managers become owners of a small business 6-3 Five Paths to Business Ownership  You may start a new business  You may buy an existing business  You may franchise a business  You may inherit a business  You may be hired to be the professional manager of a small business 6-4  The Five Paths to Business Ownership  Franchise  Start-up – A legal agreement – A new business that that allows a is started from business to be scratch. operated using the name and business procedures of another firm. 6-5  Survival Rate of Start-up Businesses Figure 6.1 6-6  Starting a New Business Advantages of start-ups Begin with a clean slate Use the most up-to-date technologies Provide new, unique products or services Can be kept small consciously to limit the magnitude of possible losses 6-7  Starting a New Business Disadvantages of start-ups No initial name recognition Require significant time Very difficult to finance Cannot easily gain rotating credit May not have experienced managers and workers 6-8  Starting a New Business  Cash flows – The actual receiving and spending of cash by a business.  Asset – Something the business owns that is expected to have economic value in the future. 6-9  Top 12 Indicators of Start-up Success Exhibit 6.1 6-10  Special Strategies for Starting from Scratch Home-based businesses – Businesses that are operated from the owner’s home Partnering – the process of two or more entities agreeing to work together for a common goal 6-11  Buying an Existing Business Advantages of purchasing an existing business Established customers Business processes are already in place Often requires less cash expense 6-12  Buying an Existing Business Disadvantages of purchasing an existing business  Finding a successful business for sale that is appropriate for you  Existing employees may resist change  Reputation  Facilities and equipment may be obsolete 6-13  Finding a Business to Buy  First problem is finding a business for sale  Should be in an industry in which you have experience  Product or service that has demand and high margins  Adequate financing  Contact business brokers 6-14 Steps to Follow When Acquiring a Business 1. Conduct extensive interviews with the sellers of the business. 2. Study the financial reports and other records of the business. 3. Make a personal examination of the site (or sites) of the business. 4. Interview customers and suppliers of the business. 6-15 Steps to Follow When Acquiring a Business (cont.) 5. Develop a detailed business plan for the acquisition. 6. Negotiate an appropriate price for the business, based upon the business plan projections. 7. Obtain sufficient capital to purchase and operate the business. 6-16