ppt05.pptx

Boone & Kurtz Contemporary Business Fourth Canadian Edition Khan, Canzer, Harms, Moreira Chapter 5 Small Business and the Legal Forms of Business Ownership Copyright ©2023 John Wiley & Sons, Canada, Ltd. Learning Objectives • • • • • • • • LO 5.1 Discuss why most businesses are small businesses...

Boone & Kurtz Contemporary Business Fourth Canadian Edition Khan, Canzer, Harms, Moreira Chapter 5 Small Business and the Legal Forms of Business Ownership Copyright ©2023 John Wiley & Sons, Canada, Ltd. Learning Objectives • • • • • • • • LO 5.1 Discuss why most businesses are small businesses. LO 5.2 Determine the contributions of small businesses to the economy. LO 5.3 Discuss why small businesses fail. LO 5.4 Describe the features of a successful business plan. LO 5.5 Identify the available assistance for small businesses. LO 5.6 Explain franchising. LO 5.7 Outline the forms of private business ownership. LO 5.8 DescribeCopyright public ©2023 and John Wiley collective & Sons, ownership of 2 Canada, Ltd. Most Businesses are Small Businesses • Approximately 98% of Canadian firms have fewer than 100 employees on staff. • Canada has approximately 2.8 million selfemployed individuals. • Small businesses are a launching pad for entrepreneurs. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 3 What is a Small Business? • Industry Canada defines a small business as an “independent business having fewer than 100 employees, not dominant in its market and revenues not more than $2 million.” • The majority of small businesses are concentrated in retail, construction, professional, scientific and technical services; health care; and other services. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 4 Typical Small-Business Ventures • Home-Based Business: Firms that operate out of the business owner’s residence. o Benefits • More control over both their business and personal time. • Lower startup and operating expenses. o Drawbacks • Owner can feel isolated. • Business has less visibility to customers. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 5 Contributions of Small Business to the Economy (1 of 2) Creating New Jobs • In 2018 alone, small and medium-sized businesses accounted for 89.5% of the total employment in the private sector. • Offer customized services. Creating New Industries • Provide the opportunity and outlet for developing new ideas. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 6 Contributions of Small Business to the Economy (2 of 2) Innovation • Often the entire reason for starting a new business. • Good at being innovative and developing new or improved goods and services. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 7 Why Small Businesses Fail (1 of 4) • Approximately 4% of small businesses close after one year. • Approximately 15% of small businesses close permanently within three years. • Approximately 30% of small businesses fail within five years. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 8 Why Small Businesses Fail (2 of 4) Management shortcomings • Mismanagement of management inexperience • Overconfidence in their abilities • Lack the right combination of people skills • Poor knowledge of finance • Misjudging or underestimating the competition • Taking on too many business functions can lead to bad decisions Copyright ©2023 John Wiley & Sons, Canada, Ltd. 9 Why Small Businesses Fail (3 of 4) Inadequate Financing • Often underestimate start-up costs. • Sometimes don’t turn a profit for months or even years. • Can make management shortcomings worse by making it more difficult to have enough funds to attract and keep talented people. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 10 Why Small Businesses Fail (4 of 4) Government Regulation • Spend billions each year on administrative tasks related to regulatory compliance. • Often have difficulty paying costs of government paperwork because of fewer staff and smaller budgets. • Taxes are another major expanse for small business. o Provincial and Copyright federal income tax, workers’ ©2023 John Wiley & Sons, Canada, Ltd. 11 The Business Plan: A Foundation for Success Creating a Business Plan • Written documentation that details a company’s goals, the methods it will use to achieve those goals, and the standards it will use to measure its achievements. • Creates a framework for the organization. • Identifies the company’s mission and vision. • Analyzes unique advantage, customers, competition, andCopyright risks ©2023 John Wiley & Sons, Canada, Ltd. 12 Assistance for Small Businesses (1 of 3) The Business Development Bank of Canada (BDC) assists, counsels, and protects the interest of small businesses in Canada. • In the U.S. the Small Business Administration (SBA) is the advocate and/or supporter for small businesses . • Many small business resources are available at the websites of both organizations. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 13 Assistance for Small Businesses (2 of 3) Financial Assistance • Canada Small Business Financing Program (CSBFP): When a bank loans money to a small business and it is not paid back, the government will guarantee payment of 85% of the loan. • During difficult times or downturn, the federal government has offered financial assistance to business to help them survive until the economy improves. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 14 Assistance for Small Businesses (3 of 3) • Business Incubators: Provide low-cost, shared business facilities to small start-up companies to help accelerate and encourage business development. o The goal is for new businesses to be ready to move out and operate on their own after a few months or years. o More than 1,250 business incubator programs Copyright ©2023 John Wiley &7,000 Sons, operate in North America, worldwide. 15 Canada, Ltd. Private Investors • Venture capital: Money invested in a small business by another business or group of individuals in return for an ownership share. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 16 Small-Business Opportunities for Women and Minorities (1 of 2) • Approximately 50% of Canadian small- and medium-sized enterprises (SMEs) have at least one female owner. • Rate of women’s entrepreneurship is about two thirds the rate for men. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 17 Small-Business Opportunities for Women and Minorities (2 of 3) • Many female millennials are leaving their corporate jobs to start their own companies citing lack of career progression, restrictions in corporate life, inability to influence organization in meaningful ways, wage inequality, general lack of female mentors, being passed over for promotions etc. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 18 Small-Business Opportunities for Women and Minorities (3 of 3) • Opportunity for racial and ethnic minorities to better represent and do business within the communities in which they live. • Adds to the diversity of goods and services offered and appeals to a wider customer base. • Significant emphasis in last few years to promote and provide support for minority groups to start a business. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 19 Franchising • Franchising: A contract-based business arrangement between a manufacturer or another supplier and a dealer that specifies how the dealer will market the supplier’s product or service. o Can involve goods or services, to produce and market the supplier’s good or service. o Can reduce the amount of time and effort need Copyright ©2023 John Wiley & Sons, 20 to grow a business from a start-up. Canada, Ltd. The Franchising Sector • Canada has world’s 2nd largest franchise industry. • Accounts for approximately 45% of all sales in Canada each year. • Canada has between 1,200 and 1,300 franchise companies operating approximately 76,000 outlets, employing more than 1.5 million people. • Franchising overseas is a growing trend Copyright ©2023 John Wiley & Sons, Canada, Ltd. 21 Franchising Agreements • Franchisee: The individual or business firm that buys the franchise. • Franchisor: The firm whose products are sold by the Franchisee. • Franchising agreement: A contract between the franchisee and the franchisor. • Can be complex involving an initial purchase fee plus other start-up costs. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 22 Benefits and Challenges of Franchising ADVANTAGES DISADVANTAGES • Prior performance • Franchise fees • Future payments record • Recognizable (royalties) • Linked to reputation company name (brand) and management • Proven business • Franchise agreement model restrictions • Tested management • Tight control Copyright ©2023 John Wiley & Sons, program 23 Canada, Ltd. Forms of Private Business Ownership (1 of 2) • Sole Proprietorships: A business ownership in which the sole proprietor’s status as an individual is not legally separate from their status as a business owner. • Partnerships: An association of two or more persons who operate a business as co-owners by voluntary legal agreement Copyright ©2023 John Wiley & Sons, Canada, Ltd. 24 Forms of Private Business Ownership (2 of 2) • Corporations: A legal organization that has assets and liabilities separate from the assets and liabilities of its owners. o A corporation can be a large or small business. • Not-for-Profit Corporations: Organizations whose goals do not include pursuing a profit. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 25 Public and Collective Ownership of Business Public (Government) Ownership • Local, provincial, or federal government unit or agency owns and operates an organization. • Examples: Manitoba Hydro, Toronto Transit Commission (TTC) Collective (Cooperative) Ownership • The owners work together to operate all or part of the activities in their firm or industry • Examples: Vancity Credit Copyright ©2023 JohnUnion, Wiley & Sons, Mountain 26 Canada, Ltd. Organizing a Corporation (1 of 2) • A corporation is a legal structure. • Most small businesses are incorporated in the provinces where they operate, but they may choose to incorporate in any province. • Incorporation can be done at the federal or provincial level. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 27 Organizing a Corporation (2 of 2) • Information in the articles of incorporation forms the basis on which a government grants a corporate charter. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 28 Corporate Management (1 of 2) • Shareholders: Buy shares of stock in the corporation, which makes them part owners. o Preferred shares: Limited voting rights o Common shares: Have voting rights but only residual claims on the firm’s assets Copyright ©2023 John Wiley & Sons, Canada, Ltd. 29 Corporate Management (2 of 2) • Board of Directors: Governing body of the corporation elected by shareholders to oversee corporation. • Corporate Officers & Managers: Members of top management that make major corporate decisions and handle ongoing operations. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 30 When Businesses Join Forces (1 of 2) Mergers and Acquisitions • Merger: Two or more firms combine to form one company. o Vertical o Horizontal o Conglomerate • Acquisition: Agreement in which one firm purchases and the buyer acquires the firm’s property and assets and takes on the firm’s debt. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 31 When Businesses Join Forces (2 of 2) Joint Venture: Partnership between companies for a specific activity. • Partnering with a local firm might allow sharing of the operation’s costs, risks, management, and profits. • Common when a firm wants to start a business in a foreign market. • Can also help companies solve a common problem. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 32 Copyright Copyright © 2023 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein. Copyright ©2023 John Wiley & Sons, Canada, Ltd. 33