LECTURE OUTLINE AND LECTURE NOTES



LECTURE OUTLINE AND LECTURE NOTES

CHAPTER OPENING PROFILE

LOOMIS SALES CORPORATION (TEXT PAGES 136-137)

The chapter opening profile focuses on Chuck Loomis of Loomis Sales Corporation. Loomis’ company produces plastic injection molding, part of a finished plastic product. His high labor costs forced him to move production to China. He now runs his business out of a home office. The profile discusses many of the challenges entrepreneurs such as Loomis face, plus the benefits and opportunities.

|Lecture outline lecture notes |

| I. Introduction to Entrepreneurship |PowerPoint 5-1 |

|A. Anyone can start a business. |Chapter Title |

|B. Entrepreneurship requires preparation and commitment. |(Refers to text page 136) |

| | |

| |PowerPoint 5-2 |

| |Learning Objectives |

| |(Refers to text page 137) |

| II. What Does It Take To Be an Entrepreneur? | |

|Learning objective 1 |PowerPoint 5-3 |

|EXPLAIN THE TRAITS A SUCCESSFUL ENTREPRENEUR POSSESSES. (TEXT PAGES 139-140) |Introduction to Entrepreneurship |

|A. Great Entrepreneurs |(Refers to text pages 138-142) |

|1. Du Pont was started in 1802 by French immigrant Éleuthère Irénée du Pont de Nemours. | |

|2. George Eastman founded Kodak in 1880 with $3,000. |Lecture link 5-1 |

|3. began with investments by founder Jeff Bezos’s friends and family, including $300,000 |History’s Greatest |

|from his parents’ retirement fund. |Entrepreneurs |

|4. Larry Page and Sergey Brin founded Google with an initial investment of $100,000 when they were |Who are the greatest entrepreneurs of |

|still graduate students. |all time? One news Website lists its |

|B. The stories of entrepreneurs show some similarities: |top ten. (See complete lecture link on|

|1. They have a good idea, borrow initial funds, and start a business. |page 5.33 of this manual.) |

|2. If successful, they create jobs and help the economy. | |

|3. Entrepreneurs share common characteristics: | |

|a. Self-directed and self-disciplined; |TEXT REFERENCE |

|b. Self-nurturing, believing in your own ideas; |Real World Business Apps |

|c. Action-oriented, having a desire to build the dream into reality; |(Box in text on page 139) |

|d. Highly energetic, willing to work long hours to succeed; |Sam Leung and Richard McDonald are |

|e. Tolerant of uncertainty, the ability to take calculated risks. |best friends who decide to open a |

|4. The ideas for entrepreneurs’ products and services don’t usually come from some flash of |business selling handcrafted wooden |

|inspiration—often the source of innovation is more like a flashlight. |signs. The two partners have skills |

|C. Reasons why people are willing to take the risks of business ownership include: |that complement each other. They are |

|1. Opportunity to share in the American dream |now looking for advice on how to get |

|2. Profit: The richest person in the U.S. is Bill Gates, the entrepreneur who founded Microsoft. |started. |

|3. Independence | |

|a. Many entrepreneurs don’t enjoy working for someone else. |TEXT REFERENCE |

|b. Some have found more self-satisfaction in starting their own businesses. |Thinking Critically: |

|4. Challenges |African American Women Step Up in the |

|a. Some believe that entrepreneurs are excitement junkies who flourish on taking risks. |Business World |

|b. Many believe that entrepreneurs take moderate, calculated risks. |(Box in text on pages 142-143) |

|c. In general, entrepreneurs seek achievement more than power. |Thousands of African-American women |

|SELF Check Questions (Text page 143) |are launching companies for the same |

|What characteristics are required to be an entrepreneur? Are there any others not mentioned in the |reasons that spur other entrepreneurs.|

|discussion that you think would be helpful? |This box focuses on several |

|Why do people start new businesses? |African-American entrepreneurial women|

| |and their experiences building |

| |companies. |

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| | |

| |critical thinking |

| |exercise 5-1 |

| |What Does It Take to Be an |

| |Entrepreneur? |

| |This exercise explores the motivations|

| |and expectations of small |

| |businesspeople. (See complete exercise|

| |on page 5.44 of this manual.) |

| | |

| | |

| |lecture link 5-2 |

| |The Man Who Was Almost Bill Gates |

| |Bill Kindall’s operating system, CP/M,|

| |was IBM’s first choice when the |

| |company entered the market for PCs. |

| |How this opportunity slipped from his |

| |grip is in dispute. (See complete |

| |lecture link on page 5.34 of this |

| |manual.) |

| | |

| |lecture link 5-3 |

| |Charles Babbage: 19th |

| |Century Entrepreneur |

| |Nineteenth century England was not |

| |ready for Charles Babbage. (See |

| |complete lecture link on page 5.34 of |

| |this manual.) |

| | |

| | |

| |Bonus Case 5-1 |

| |1154 Lill Studio: Are You Still Going |

| |Around with that Old Bag? (Video Case)|

| |This bonus case ties in with the video|

| |available for use with this chapter |

| |featuring 1154 Lill Studio, a custom |

| |handbag retailer. (See complete case, |

| |discussion questions, and suggested |

| |answers on page 5.51 of this manual.) |

| III. Types of Business Ownership | |

|Learning objective 2 | |

|DISCUSS THE TYPES OF BUSINESS OWNERSHIP AND THE ADVANTAGES AND DISADVANTAGES OF EACH. (TEXT PAGES | |

|144-151) | |

|A. About 650,000 new businesses are started in the U.S. each year. | |

|1. Two-thirds of these businesses survive at least two years. | |

|2. However, about 56% will fail in the first four years. | |

|3. Each form of ownership has advantages and disadvantages. | |

|B. Sole Proprietorships | |

|1. A sole proprietorship is a form of ownership that involves one individual. | |

|a. It is the easiest kind of business to start. | |

|b. A SOLE PROPRIETOR is the name given to a person who owns a sole proprietorship. | |

|2. Advantages of sole proprietorships | |

|a. Ease of starting and ending the business. | |

|i. After you rent or buy the equipment, all you need is a permit from the local government. | |

|ii. To get out of business, you just quit. | |

|b. Being your own boss: working for yourself is exciting. | |

|c. Retention of company profits: you don’t have to share profits with anyone. | |

|d. No special taxes: profits of the business are taxed as the personal income of the owner. | |

|3. Disadvantages of sole proprietorships | |

|a. The initial cost may be too large. |PowerPoint 5-4 |

|b. Limited financial resources: funds available are limited to the funds that the sole owner can |Types of Business Ownership (Refers to|

|gather. |text pages 144-146) |

|c. Management difficulties: many owners are not skilled at management and with details such as | |

|accounting. | |

|d. The major disadvantage is Unlimited liability, the responsibility of business owners for all of | |

|the debts of the business. | |

|e. Overwhelming time commitment: the owner has no one with whom to share the burden. | |

|f. Few fringe benefits: | |

|i. You have no paid vacation or health insurance. | |

|ii. Fringe benefits can cut into profits. | |

|g. Limited life span. If the sole proprietor dies or leaves, the business ends. | |

|4. Many entrepreneurs prefer that their business not grow too large. | |

|5. Others may wish to expand, but sole proprietorships have limited growth potential. | |

|C. Partnerships | |

|1. A partnership is a legal form of business with two or more owners. |TEXT REFERENCE |

|2. Types of Partnerships |Study Skills: The Value of Time |

|a. A GENERAL PARTNERSHIP is a partnership in which all owners share in operating the business and in |Management |

|assuming liability for the business’s debts. |(Box in text on page 144) |

|b. A LIMITED PARTNERSHIP is a partnership with one or more general partners and one or more limited |An additional exercise and discussion |

|partners. |is available on page 5.32 of this |

|i. A GENERAL PARTNER is an owner (partner) who has unlimited liability and is active in managing the |manual |

|firm. | |

|ii. A LIMITED PARTNER is an owner who invests money in the business but does not have any management | |

|responsibility or liability for losses beyond the investment. | |

|iii. LIMITED LIABILITY means limited partners are not responsible for the debts of the business | |

|beyond the amount of their investment—their liability is limited to the amount they put into the | |

|company; their personal assets are not at risk. | |

|c. MASTER LIMITED PARTNERSHIP (MLP) is structured much like a corporation in that it acts like a | |

|corporation and is traded on the stock exchanges like a corporation, but taxed like a partnership and| |

|thus avoids the corporate income tax. | |

|d. A LIMITED LIABILITY PARTNERSHIP (LLP) is a partnership that limits partners’ risk of losing their | |

|personal assets to only their own acts and omissions and the acts and omissions of the people under | |

|their supervision. | |

|e. Uniform Partnership Act (UPA) | |

|i. All states except Louisiana have adopted the Uniform Partnership Act to replace laws relating to | |

|partnerships. | |

|ii. The UPA, most recently revised in 1997, is a default agreement that guides the way partners must | |

|behave with one another. | |

|3. Advantages of partnerships | |

|a. More financial resources: two or more people pool their money and credit. | |

|b. Pooled/complementary knowledge: partners give each other time off and provide different skills and| |

|perspectives. | |

|4. Disadvantages of partnerships | |

|a. Unlimited liability | |

|i. Each general partner is liable for the debts of the firm, no matter who was responsible for | |

|causing those debts. | |

|ii. You are liable for your partners’ mistakes as well as your own. | |

|b. Conflicts among partners | |

|i. Disagreements can arise over division of authority, sharing of profits, and so on. | |

|ii. Because of such potential conflicts, all terms of partnership should be spelled out in writing to| |

|protect all parties. | |

|c. Difficult to terminate | |

|i. It is not easy to get out of a partnership. | |

|ii. For example: Who gets what and what happens next? | |

|D. Corporations | |

|1. Many corporations are not large. | |

|2. When forming a corporation, you must draw up a set of corporate governance guidelines. | |

|a. Corporate governance are the processes, customs, policies, laws, and institutions affecting the | |

|way in which a corporation is directed, administered, or controlled. | |

|b. Part of corporate governance is a board of directors, the group ultimately responsible for the | |

|decisions of a business. | |

|3. C-Corporations | |

|a. A conventional (C) corporation is a form of business ownership that provides limited liability. | |

|i. A conventional (C) corporation is a state-chartered legal entity with authority to act and have | |

|liability separate from its owners. | |

|ii. The corporation’s owners (stockholders) are not liable for the debts of the corporation beyond | |

|their investment. | |

|iii. The corporate form of ownership also lets many people to share in the ownership of a business | |

|without working there. | |

|b. Besides the traditional C corporation, new forms of corporations have been developed. | |

|i. Individuals can incorporate. | |

|ii. The advantage is that owners have limited liability. | |

|4. S Corporations | |

|a. An S CORPORATION is a type of legal entity in which the biggest advantage is that it is taxed like| |

|a sole proprietorship. | |

|b. S corporations must: | |

|i. have no more than 100 shareholders; | |

|ii. have shareholders who are individuals or estates and are citizens or permanent residents of the | |

|U.S.; | |

|iii. have only one class of outstanding stock; | |

|iv. not have more than 25% of income derived from passive sources (rents, royalties, interest, etc.).| |

|5. Limited Liability Companies (LLC) | |

|a. A limited liability company (LLC) is a company similar to an S corporation but without the special|TEXT FIGURE 5.1 |

|eligibility requirements. |How to Form a Partnership (Box in text|

|b. Advantages of LLCs |on page 147) |

|i. Limited liability: personal assets are protected. | |

|ii. Choice of taxation: LLCs can choose to be taxed as partnerships or as corporations. | |

|iii. More operating flexibility | |

|6. Advantages of corporations | |

|a. Corporations may sell stocks. | |

|i. To raise money, a corporation sells ownership (stock) to anyone interested. |PowerPoint 5-5 |

|ii. It is easy to transfer ownership. |Types of Business Ownership (Refers to|

|b. Ease of drawing talented employees: Corporations can offer benefits such as stock options. |text pages 146-148) |

|c. Corporations are viewed by the government as entities in and of themselves, separate from the | |

|owners. | |

|7. Disadvantages of corporations | |

|a. Extensive paperwork | |

|i. The legal costs of starting a corporation can run to several thousand dollars. | |

|ii. The Internet has made incorporation much easier and more expensive. | |

|b. DOUBLE TAXATION occurs when the owners of the corporation are taxed twice—once when the |critical thinking |

|corporation itself gets taxed and a second time when the dividends are taxed. |exercise 5-2 |

|i. Corporate income is taxed twice. |Picking Partners |

|ii. The corporation pays tax on income before it can distribute any to stockholders. |This exercise explores the personal |

|iii. The stockholders pay tax on the dividends they receive from the corporation. |skills and capital that can be |

|c. Possible conflict with stockholders and board of directors. |obtained for a business by adding a |

|SELF Check Questions (Text page 151) |partner. (See complete exercise on |

|What are the advantages of forming a partnership over a sole proprietorship? |page 5.45 of this manual.) |

|Why would someone want to form a corporation rather than a partnership? | |

|If you were to start a business, which form do you think you would use and why? | |

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| |PowerPoint 5-6 |

| |Types of Business Ownership (Refers to|

| |text pages 147-148) |

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| |TEXT FIGURE 5.2 |

| |Comparison of Business Ownership Forms|

| |(Box in text on page 150) |

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| |bonus internet |

| |exercise 5-1 |

| |Most Admired |

| |Corporations |

| |Each year Fortune magazine asks top |

| |business experts to evaluate and rank |

| |the most admired corporations. (See |

| |complete exercise on page 5.39 of this|

| |manual.) |

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| |TEXT FIGURE 5.3 |

| |The Process of Incorporation (Box in |

| |text on page 151) |

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| |bonus internet |

| |exercise 5-2 |

| |Researching Boards of |

| |Directors |

| |This exercise expands on the Internet |

| |exercise above (BIE 5-1) and asks |

| |students to research the composition |

| |of the boards of directors in most |

| |admired corporations. (See complete |

| |exercise on page 5.40 of this manual.)|

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| |PowerPoint 5-7 |

| |Types of Business Ownership (Refers to|

| |text pages 148-150) |

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| |critical thinking |

| |exercise 5-3 |

| |Choosing a Form of |

| |Business Ownership |

| |This exercise presents eight types of |

| |businesses and asks the student to |

| |consider which form of business |

| |ownership would be right for each one.|

| |(See complete exercise on page 5.46 of|

| |this manual.) |

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| IV. Franchises and Cooperatives | |

|Learning objective 3 | |

|DESCRIBE THE ALTERNATIVES TO STARTING YOUR BUSINESS FROM SCRATCH. (TEXT PAGES 151-157) | |

|A. Franchises | |

|1. Franchising is an alternative to starting a business from scratch. | |

|a. A chain store is a business that has central management and shares a brand name. | |

|b. A franchise shares a brand name but doesn’t have central management. |TEXT FIGURE 5.4 |

|c. A company store is a store owned by a chain that owns and franchises stores. |Top 10 Franchises in 2007 (Box in text|

|2. A franchise is not a legal form of business, but rather a type of business. |on page 152) |

|3. Advantages of franchises | |

|a. A franchisee has a greater chance of succeeding. | |

|b. Marketing and management assistance, including: | |

|i. an established product | |

|ii. help in choosing a location | |

|iii. assistance in all phases of operation |PowerPoint 5-8 |

|c. Franchisors (the person who owns the rights to the franchise) also provide intensive training. |Franchises and Cooperatives (Refers to|

|d. Some franchisors help franchisees with marketing. |text pages 151-154) |

|e. Many franchises also offer financial assistance, such as loans, to franchisees. | |

|f. Personal ownership: you are still your own boss, although you must follow the rules, regulations, | |

|and procedures of the franchise. | |

|g. Franchisees support networks provide advice. | |

|h. Lower failure rate | |

|i. Historically, the failure rate for franchises has been lower than that of other business ventures.| |

|ii. According to some research, independent businesses fail eight times more often than franchised | |

|businesses. | |

|4. Disadvantages of franchises | |

|a. The biggest disadvantage is large start-up costs. | |

|b. Shared profit: The franchisor often demands a large share of the profits, or royalties, based on | |

|sales, not profit. | |

|c. Management regulation | |

|i. Franchisors have very tight restrictions on all aspects of the operation. |TEXT FIGURE 5.5 |

|ii. Bad publicity can reflect negatively on the franchisee. |The Process of Buying a Franchise (Box|

|d. The actions of other franchisee have a coattail effect, an impact on the franchise’s future growth|in text on page 155) |

|and profitability. | |

|e. Franchisees complain that franchisors open up too many new stores, a practice called | |

|cannibalizing. | |

|f. Restrictions on selling | |

|i. Many franchisees face restrictions when reselling their franchises. | |

|ii. Franchisors often insist on approving the new owner, who must meet their standards. | |

|B. Buying an Existing Business | |

|1. Business brokers can put buyers and sellers of businesses together. | |

|2. The text describes a method of becoming a small business owner. | |

|a. First find someone running a successful business who wants to sell. | |

|b. An existing business already has a customer base, inventory, and physical location. | |

|c. Often the previous owner will stay for a while and train new owners. | |

|3. The most important thing is to determine the cost of the business vs. the return (profit) you | |

|expect. |Bonus Case 5-2 |

|C. Cooperatives |Keeping the Air in Blimpie |

|1. You can form a cooperative, a business owned and controlled by the people who use it—producers, |Tony Conza decided that franchising |

|consumers, or workers with similar needs who pool their resources for mutual gain. |was the way to keep his struggling |

|a. In many rural areas, electrical power is sold through cooperatives. |sandwich business afloat. (See |

|b. Members democratically control these businesses by electing a board of directors. |complete case, discussion questions, |

|2. Some cooperatives are formed to give members more economic power than they would have as |and suggested answers on page 5.53 of |

|individuals (i.e. farm cooperatives.) |this manual.) |

|a. The farm cooperative began with farmers joining together to get better prices for their food | |

|products. | |

|b. Farm cooperatives now buy and sell other products needed on the farm. | |

|c. Cooperatives do not pay the same kind of taxes that corporations do, giving them an advantage. | |

|3. Credit unions are another example of a service co-op. | |

|SELF Check Questions (Text page 157) | |

|Why would someone want to open a franchise as opposed to starting from scratch? | |

|What things would you tell someone to look for before buying a franchise? |Bonus Case 5-3 |

|What advantage would there be in buying an existing business? |Lessons in Starting a Small Business |

| |A husband and wife team opens a |

| |restaurant and discovers how big a job|

| |it is. (See complete case, discussion |

| |questions, and suggested answers on |

| |page 5.55 of this manual.) |

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| |Bonus Case 5-4 |

| |Sonic: Sonic is Booming (Video Case) |

| |This bonus case ties in with the video|

| |available for use with this chapter. |

| |Sonic is an example of a business that|

| |has evolved from a sole proprietorship|

| |to a partnership to a publicly-held |

| |business. (See complete case, |

| |discussion questions, and suggested |

| |answers on page 5.57 of this manual.) |

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| |PowerPoint 5-9 |

| |Franchises and Cooperatives (Refers to|

| |text page 154) |

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| |TEXT REFERENCE |

| |Career Development: |

| |Developing Habits for a Successful |

| |Career |

| |(Box in text on page 156.) |

| |An additional exercise and discussion |

| |is on page 5.29 of this manual. |

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| |PowerPoint 5-10 |

| |Franchises and Cooperatives (Refers to|

| |text pages 156-157) |

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| |Bonus Case 5-5 |

| |When Employees Make the Decisions |

| |W. L. Gore has a unique organizational|

| |structure—there are no directors, |

| |managers, or supervisors. Everyone is |

| |an “associate” and shares |

| |decision-making authority. (See |

| |complete case, discussion questions, |

| |and suggested answers on page 5.59 of |

| |this manual.) |

| | |

| V. Corporate Expansion | |

|Learning objective 4 | |

|UNDERSTAND HOW A BUSINESS CAN GROW THROUGH MERGERS, ACQUISITIONS, AND BUYOUTS. (TEXT PAGES 157-160) | |

|A. Expanding the Business | |

|1. A MERGER is the result of two firms forming one company. | |

|2. An ACQUISITION is one company’s purchase of the property and obligations of another company. |TEXT FIGURE 5.6 |

|B. Mergers |Three Types of Mergers (Box in text on|

|1. Three major types of mergers |page 158) |

|a. VERTICAL MERGER is the joining of two companies involved in different stages of related businesses| |

|(example: merger of a soft drink company and a company producing artificial sweetener.) | |

|i. Example: a merger between a bicycle company and a company that produces bike wheels. | |

|ii. A recent example was the Time Warner and Turner Corporation merger. | |

|b. HORIZONTAL MERGER joins two firms in the same industry and allows them to diversify or expand | |

|their products. | |

|i. Example: merger of a bicycle company and a tricycle company. | |

|ii. A recent example: AT&T Wireless merging with Cingular Wireless. | |

|c. CONGLOMERATE MERGER unites firms in completely unrelated industries. | |

|i. Example: the acquisition of a restaurant chain by a bicycle company | |

|ii. There are many recent examples. | |

|2. Rather than merge or sell to another company, some corporations decide to maintain control of the |PowerPoint 5-11 |

|firm internally. |Corporate Expansions |

|a. One way is to take the company private. |(Refers to text pages 157-159) |

|b. Taking a firm public means selling and trading shares of the company on the stock exchange. | |

|c. Taking a firm private involves a group of management buying all of the firm’s stock for | |

|themselves. | |

|d. Example: The private investor group that took the Maple Leaf Gardens private. | |

|3. The bidder makes an offer to the board of directors. | |

|a. The board can make a recommendation that the shareholders accept the offer. | |

|b. A hostile takeover is an attempt by the bidder to acquire a firm against the interest of the | |

|latter’s management. | |

|C. Types of Buyouts | |

|1. Current managers may want to take ownership of the company. | |

|2. A LEVERAGED BUYOUT (LBO) is an attempt by employees, management, or a group of investors to | |

|purchase an organization primarily through borrowing. | |

|3. Another term for this is MANAGEMENT BUYOUT, when employees of the company get together to purchase| |

|the business. | |

|4. The term “leveraged” means that the funds for the purchase are borrowed. | |

|SELF Check Questions (Text page 160) | |

|What are the three types of mergers? Give an example of each? | |

|Define leveraged buyout. Why would an employee or manager want to participate in a leveraged buyout? | |

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| |lecture link 5-4 |

| |Developing Opportunities: Diversifying|

| |Brunswick |

| |Over its long history, Brunswick has |

| |diversified its operations many times |

| |to adapt to changing customer tastes. |

| |(See complete lecture link on page |

| |5.35 of this manual.) |

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| |lecture link 5-5 |

| |Employee Stock Ownership Plans |

| |When used properly, ESOPs can be a |

| |powerful strategy for improving |

| |company profitability and increasing |

| |employee satisfaction. (See complete |

| |lecture link on page 5.36 of this |

| |manual.) |

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| VI. Getting Started in Your Own Business | |

|Learning objective 5 | |

|DESCRIBE THE FIVE MAIN AREAS OF FOCUS WHEN STARTING A SMALL BUSINESS. (TEXT PAGES 160-168) |PowerPoint 5-12 |

|A. Five areas of focus when starting a business: |Getting Started in Your Own Business |

|1. planning your business; |(Refers to text page 160) |

|2. financing your business; | |

|3. knowing your customers (marketing); | |

|4. managing your employees (human resource development); | |

|5. keeping records (accounting). | |

|B. Businesses usually fail due to one of the following reasons: | |

|1. lack of planning; |TEXT REFERENCE |

|2. lack of marketing; |Ethical Challenge: It’s All in a Name |

|3. unrealistic financial expectations; |(Box in text on page 161) |

|4. wrong business partner; |Is it ethical to choose a business |

|5. lack of business knowledge. |name that is very similar to an |

|C. Planning |established competitor and former |

|1. Begin with planning. |employer? |

|2. Small businesses start with an idea that can be developed. | |

|3. A BUSINESS PLAN is a detailed written statement that describes the nature of the business, the | |

|target market, the advantages the business will have in relation to competition, and the resources | |

|and qualifications of the owner(s). | |

|a. A business plan forces potential small-business owners to be specific about the products and | |

|services they intend to offer. | |

|b. When talking with bankers or other investors, a business plan is mandatory. | |

|4. Writing a business plan |lecture link 5-6 |

|a. A good business plan takes a long time to write. |Lucky Office Space |

|b One of the most important parts of the business plan is the executive summary, which must catch the|According to its owners, the building |

|reader’s interest. |at 165 University Avenue in Palo Alto,|

|c. Computer software programs can help you get organized. |California, is blessed with “good |

|d. Getting the completed business plan in the right hands is almost as important as getting the right|karma.” (See complete lecture link on |

|information in it. |page 5.37 of this manual.) |

|5. INTRAPRENEURING is the process of continuing to innovate a small business. | |

|a. Intrapreneuring is a kind of internal or ongoing entrepreneurship once the business gets rolling. | |

|b. To be successful, the entrepreneur must continue to innovate with new products and new ideas. | |

|D. Financing | |

|1. An entrepreneur has several sources of capital: | |

|a. VENTURE CAPITALIST, a company that has money to invest in small and large businesses and in return|PowerPoint 5-13 |

|for its investment will generally take a stake in the business. |Getting Started in Your Own Business |

|b. Government agencies such as |(Refers to text pages 160-163) |

|i. the Small Business Administration (SBA); | |

|ii. the Farmers Home Administration; | |

|iii. the Economic Development Authority. | |

|c. Angel investors, individuals, usually wealthy, who invest their own money in a business for a | |

|share of the company. | |

|d. Potential suppliers | |

|2. The Small Business Administration (SBA) | |

|a. The Small Business Administration (SBA) is a U.S. government agency that advises and assists small| |

|businesses by providing management training and financial advice and loans | |

|b. The SBA’s microloan program awards loans based on the borrowers’ integrity and the soundness of | |

|their business idea. | |

|3. Venture capital and angel investors provide funding in return for a stake in the business, which | |

|means they will have a say in running the company. | |

|E. Knowing Your Customer (Marketing) |critical thinking |

|1. A MARKET consists of people with unsatisfied wants and needs who have both the resources and the |exercise 5-4 |

|willingness to buy. |Writing a Business Plan |

|2. The first step is to identify the wants and needs of potential customers. |This exercise analyzes the business |

|3. The goal of a businessperson is to find a need and fill it. |plan for a small auto repair shop. |

|4. After you have customers, you must to keep them through excellent service. |(See complete exercise on page 5.49 of|

|F. Managing Your Employees |this manual.) |

|1. It is not easy to find, hire, train, and keep good employees. | |

|a. Small businesses offer less money, fewer benefits, and less room for advancement than larger firms| |

|do. | |

|b. However, employees of small companies are often more satisfied with their jobs than their | |

|counterparts in large companies. | |

|c. They find their jobs are more challenging, their ideas are more accepted, and their bosses treat | |

|them with more respect. | |

|2. As the business grows, the entrepreneur must delegate authority. | |

|a. In businesses with long-term employees, this is especially difficult. | |

|b. These long-term employees may not have the necessary managerial skills. | |

|3. Family firms may be held back by attitudes such as “you can’t fire family” or you must promote | |

|someone because “they’re family.” | |

|4. It is usually best to gradually recruit and groom employees for management positions. | |

|G. Keeping Records |TEXT FIGURE 5.7 |

|1. A businessperson who sets up an accounting system early will save much grief later. |Types of SBA Financial Assistance (Box|

|2. It is usually better if the entrepreneur uses experts to set up the accounting system. |in text on page 163) |

|3. An entrepreneur needs to handle some record-keeping activities. | |

|4. Computers simplify record keeping and let the business owner follow the progress of the business. | |

|5. A good accountant can help: | |

|a. set up record keeping systems; |TEXT REFERENCE |

|b. provide tax planning, financial forecasting; |Career Spotlight: |

|c. choosing sources of financing. |So, You Want to Be … an Entrepreneur |

|SELF Check Questions (Text page 168) |(Box in text on page 165) |

|Explain each of the five areas required to run a small business. Which one do you think you would |Entrepreneurship is a way to use your |

|enjoy the most? Which do you think would be most challenging for you personally? |skills and make money at it. |

|What are the advantages of understanding some accounting, even if you don’t do the accounting for | |

|your small business yourself? | |

| |TEXT FIGURE 5.8 |

|VII. SUMMARY |Outline of a Comprehensive Business |

| |Plan (Box in text on page 166-167) |

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| |lecture link 5-7 |

| |3M Company, Intrapreneurial Leader |

| |Each year the 3M Company produces |

| |about 60,000 products and generates |

| |$16 billion in sales by fostering |

| |employee innovation. (See complete |

| |lecture link on page 5.37 of this |

| |manual.) |

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| |TEXT REFERENCE |

| |Real World Business Apps |

| |(Box in text on page 168) |

| |The two prospective entrepreneurs have|

| |decided to open their woodworking |

| |business and have chosen the |

| |partnership form of ownership. The |

| |text chapter outlines many of the |

| |decisions they must now make. |

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| |PowerPoint 5-14 |

| |Getting Started in Your Own Business |

| |(Refers to text pages 163-168) |

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| |lecture link 5-8 |

| |Start-Ups for Grown-Ups |

| |Nearly half of the country’s |

| |self-employed workers are Baby |

| |Boomers, and that figure is expected |

| |to climb as this generation retires. |

| |(See complete lecture link on page |

| |5.38 of this manual.) |

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| |bonus internet |

| |exercise 5-3 |

| |What Is “Small”? |

| |The Small Business Administration |

| |defines “small” in different ways for |

| |different industries. This Internet |

| |exercise asks students to visit the |

| |SBA Website and find definitions for |

| |several industries. (See complete |

| |exercise on page 5.41 of this manual.)|

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| |bonus internet |

| |exercise 5-4 |

| |Small Business Administration |

| |Resources |

| |This Internet exercise asks the |

| |student to identify SBA services |

| |available locally. (See complete |

| |exercise on page 5.42 of this manual.)|

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| |bonus internet |

| |exercise 5-5 |

| |Recordkeeping for the IRS |

| |This Internet exercise asks students |

| |to use the SBA Website to find out |

| |what types of records must be kept and|

| |what types of reports are required to |

| |be filed. (See complete exercise on |

| |page 5.43 of this manual.) |

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