Dairo
70-101 Olubunmi Intro. to Business Management
January 2010
Homework 3
Questions for Review
1. Why are small businesses important to the U.S. economy?
Small businesses are important to economy because they employee a large portion of
workers in the US. Since small businesses are opening frequently, they hire a lot. Also
many of the new innovative inventions have occurred because of small businesses. Small
Businesses also help out big businesses by selling their goods or even selling goods to
them. Without the aid of small businesses big businesses and the American economy
would probably fail.
2. Which industries are easiest for start-ups to enter? Which are the hardest?
Why?
The industries that are easiest for startups to enter are services, retailing, construction,
wholesaling, finance and insurance but most specifically industries. Services, as of 2006
accounted for about 50% of small businesses with 20 employees of less. The reason
services is so appealing to entrepreneurs is because it requires the least amount of
resources and it covers a broad range of things such as marriage counseling and
plumbing. The hardest industry to get into in my opinion I would say are manufacturing
and media. This is because these are areas where big businesses succeed, while start-ups
have a hard time finding any footing. Manufacturing is all about making things
sometimes on a large scale but start-ups might not readily have the money to finance a
manufacturing company. This is the same reason that media is not a good industry for a
start-up to enter. Media is dominated by the large corporations and without an abundance
of resources; start-ups will find it almost impossible to get their business the notoriety
that they want.
4. What are the basic forms of noncorporate business ownership? What are the
key advantages and disadvantages of each?
The basic forms of noncorporate business ownership are sole proprietorships,
partnerships and cooperatives.
Sole proprietorships
Advantages The advantages of sole proprietorships are freedom, it is easy to form, and
there are tax benefits. The freedom experienced in a sole proprietorship is due to the fact
Olubunmi Dairo
70-101 Intro. to Business Management
January 2010
that you have sole ownership of your company and you are your own boss. It is easy to
form in the sense that it requires little paperwork and legal proceedings. Also when it
comes to taxes, the owners benefit from having sole proprietorships because they are able
to have certain discounts.
Disadvantages The disadvantages of sole proprietorships are unlimited liability, and
lack of continuity and the dependence on the resources of one person. The unlimited
liability refers to that fact that owners are responsible to pay off all the debt of the
company. Lack of continuity refers to the fact that once an owner dies, the company ends.
Also it is difficult to get resources to future the company because banks dont want to
loan one to person or to a company that doesnt appear secure financially.
Partnerships
Advantages The advantages of partnerships are it is easier for them to borrow than for
sole proprietors, they can grow their company, and they are easy to organize. When it
comes to borrowing from banks, partnerships have it a little easier than sole proprietors
since there are usually two or more people in the partnership the banks and other lenders
feel a little more comfortable giving them funds. Partnerships can also grow their
business by adding more people which gives them more money. Lastly partnerships are
very easy to organize, there are few legal requirements and they just need an agreement
which is not made public at any time.
Disadvantages The disadvantages of partnerships are unlimited liability, lack of
continuity, and difficulty in transferring ownership. Unlimited liability is a problem
because every member is liable for the debts and the actions of the partnership which is
very risky. Similar to the situations in the sole proprietorships, partnerships have a lack of
continuity, if a partner dies or leaves the partnership because legally void. Lastly it is
very difficult in trying to transfer ownership, if a partner wants to retire or hand off their
portion of the partnership to a child they have to get the rest of the partners to agree to it.
Cooperatives
Advantages The advantages of cooperatives are increased marketing power and
production power. When sole proprietorships join together they have the added power of
the different contacts that each bring to the table which helps out their business.
Disadvantages The disadvantages of cooperatives are similar to those of sole
proprietorships. Owners are liable for all the debts of their business and now they are also
affected by the actions of the other businesses that they are working with.
Questions for Analysis
7. Would you prefer to buy an existing business or start from scratch? Why?
Olubunmi Dairo
70-101 Intro. to Business Management
January 2010
I would prefer to buy an existing business, simply because of the reduced financial costs.
When starting a business from scratch one has to think of numerous things which include
buying equipment and other things that require resources. However, when buying a
preexisting business that stress can be taken away because the equipment of the former
owners is acquired in the sale. Another added benefit is that if the company is still
managing to keep a good reputation you can use the contacts of the company and take on
their old customers as your own. It is also easier to get investors if the previous company
has proven its financial stability. I am not saying that there are no downsides to buying an
existing business some of which include acquiring some of the debts and paying for the
mistakes of the previous company. However, overall the pros of buying an existing
business far outweigh that of starting from scratch.