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Chapter 5 - Chapter 5 Options for Organizing Small...

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Chapter 5: Options for Organizing Small Businesses and Large Businesses I. Most Businesses are Small Businesses a. What is a Small Business? 1. Small Business Administration considers a small business a firm that is independently owned and operated, and isn’t dominant in its field, meets industry specific size standards for income/# of employees b. Typical Small Business Ventures 1. Examples of Small Businesses 1. Dentists, Home Builders, Florists, Hair Salons, Auto Repair, Funeral Homes 2. Home Based Businesses 1. firms operated from the residence of the business owner 2. internet contributed to the rise in Home Based Business a. Benefits i. Low costs ii. More flexibility/freedom 3. The Internet and Small Businesses a. The internet has created opportunity for new small businesses II. Contributions of Small Business to the Economy a. Creating New Jobs 1. Create a lot of jobs 2. Hire minorities/women/younger/older workers than normal b. Creating New Industries 1. Gives entrepreneurs outlet to form entirely new industry 1. ex. Microsoft/Dell 2. Fuels economies 3. provide services to larger corporations 2. Attracting New Industries 1. New Markets Initiative proposed to target areas where 20% of residents live in poverty/median of income is below average companies get tax incentives/exemptions from paying certain taxes III. Advantages of a Small Business a. Innovation 1. Need to think of creative ways to compete with large corporations 2. Small firms make 2x as many product innovations as corporations b. Superior Customer Service 1. Greater flexibility than larger corporation allowing it to tailor to its customer’s needs c. Low Costs
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1. Overhead Costs: costs not directly related to providing specific goods and services, allows them to earn profits on lower prices 2. Small businesses frequently avoid rent/and may have little to no inventory d. Filling Isolated Market Niches 1. Small underserved market niches attract small businesses, b/c corporations supply based on an average IV. Disadvantages of a Small Business a. Management Shortcomings 1. Large firms recruit specialists where as small businesses rely on a small staff that is adept at many skills b. Inadequate Financing 1. Many 1 st time business owners assume firms will make funds in 1 st months of start up, fail to recognize start up costs 2. Fluctuating cash flow throughout the year 3. Credit Cards are often used for financial aid 4. Venture Capitalists/Angel Investors good sources for financing c. Government Regulation 1. Sometimes exempts small companies from certain regulations 2. Taxes are also a burdensome expense (Social Security/Unemployment benefits) V. Increasing the Likelihood of Business Success a. Creating a Business Plan 1. Business Plan: written document that provides an orderly
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