CHAPTER 1
Definitions Of:
What does Small Business mean?
Independently owned and operated and is not dominant in its field. It may never grow large,
and the owners may not want it to.
Entrepreneurial Ventures?
The principal objectives of the owner are profitability and growth including achievement,
profit, and growth, achieved through innovation.
Profit motive?
Entering a business to make profit as the reward for taking risks of starting and
running the business.
Reasons for the increased interest in small business:
1. The number of small businesses is growing rapidly.
2. Small firms generate most new private employment as they provide opportunities for
entrepreneurs.
3. Public support is growing as many consumers lose favor with big business retailers.
4. There is a growing trend toward self-employment.
5. There is an increasing interest in small business entrepreneurship at high schools and
collage.
6. Entrepreneurship is attractive to people of all ages.
What are the contributions of small business?
1. Encourage innovation and flexibility. Small businesses are often sources of new ideas,
materials, processes, and services that larger firms may be unable to provide.
2. Generate new employment. Small businesses generate employment by creating job
opportunities.
3. Keep larger firms competitive. With the introduction of new products and services,
small businesses encourage competition, if not in price, then at least in design and efficiency.
4. Develop risk takers. Small business owners have relative freedom to enter or leave a
business at will.
5. Maintain close relationships with customers and the community. Small businesses
tend to be close touch with their communities and customers.
6. Provide employees with comprehensive learning experience. Small business
employees have more freedom to make decision, which can flourish their working
experience. Some current problems facing small businesses.
What are the problems that are facing small business?
1. Political and economic issues.
2. World economy.
3. Capital or financing
4. Succession.
5. Burdensome government regulations and paperwork.
6. Inadequate financing.
7. Inadequate Management.
8. Unexpected growth.
What are that challenges small business owners?
1. Exploding Technology: Is the primary challenge of exploding technology for small
companies will be to improve the selection and training of workers.
2. Occupational and industry shifts
Examples could be:
• Reinvention: Is a fundamental redesign of a business.
• Reengineering: The redesign of operations, starting from scratch.
• Downsizing: Reducing the number of employees to increase efficiency.
What are the Characteristics of successful entrepreneurs?
• Desire independence
• Have a strong sense of initiative
• Are dedicated to their businesses
• Are motivated by personal and family considerations
• Are able to react quickly
What are some areas that concern small business owners?
The success of smaller firms tends to be limited by factors such as:
• Inadequate management.
• Shortages of capital.
• Government regulation and paperwork.
• Lack of proper recordkeeping.
CHAPTER 5
Niche marketing
The process of finding a small—but profitable— demand for something and producing a
custom-made product for that market.
Market research:
Is the systematic gathering, recording, and analyzing of data related to the marketing of
goods and services.
What are the reasons for starting a new business?
• Define the nature of the business.
• Create the preferred type of physical facilities.
• Obtain fresh inventory. • Have a free hand in selecting and developing personnel.
• Take advantage of the latest technology, equipment, materials, and tools.
• Select a competitive environment.
What are the reasons for not starting a new business?
• Problems in finding the right business.
• Problems associated with assembling the resources.
• Lack of an established product line.
• Production problems associated with starting a new business.
• Lack of an established market and channels of distribution.
• Problems in establishing basic management systems and controls.
What are the Reasons for buying an existing business?
• Personnel are already working.
• The facilities are already available.
• A product is already being produced for an existing market.
• The location may be desirable.
• Relationships have been established with banks and trade creditors.
• Revenues and profits are being generated, and goodwill exists.
What are the Reasons for not buying an existing business?
• The physical facilities may be old or obsolete.
• The employees may have a poor production record or attitude.
• The accounts receivable may be past due or uncollectible.
• The location may be bad.
• The financial condition and relations with financial institutions may be poor.
• The inventory may be obsolete or of poor quality.
What are the Reasons for buying a franchise?
• The franchiser brings proven and successful methods of operation and business images to
aid the franchisee.
• Franchise has many of the requirements for success.
• Franchises have a higher rate of success than start-up businesses.
• Franchisors usually provide the training you need to operate their business model.
What are the reasons for not buying a franchise?
• Not having enough money to cover all needs (including personal funds).
• Unsuccessful marketing.
• Issues affecting the franchisee understanding their role in the responsibilities of operating
the franchise.
• Buying a franchise means ongoing sharing of profit with the franchisor.
• Bad performances by other franchisees may affect your franchise's reputation.
What are the two types of Franchising Systems?
1. Product and trademark franchising:
Grants the franchisee the right to sell a widely recognized product or brand.
Examples: Automobile and truck dealerships, gasoline service stations. The franchiser
exercises very little control over the franchisee’s operations
2. Business format franchising:
Grants a franchisee the right to market the product and trademark and to use a complete
operating system.
Examples: Restaurants. Hotels, and convenience stores.
CHAPTER 6
Three types of planning:
1.Strategic Planning:
Provides comprehensive long-term direction to help a business accomplish its mission.
Some examples of strategic planning?
• Selecting the type of business to enter.
• Formulating the mission of the company.
• Deciding whether to start a new business, buy an existing one, or buy a franchise.
• Choosing the product or service to sell.
• Deciding on the market niche to exploit.
• Choosing the type of organization to use.
2.Financial planning:
involves determining what funds are needed, where they can be obtained, and how they can
be controlled. It should involve at least the following.
What is the role of financial planning in small businesses?
1. Estimating income and expenses:
Net profit: The amount of (sales) over and above the total amount of expenses (costs) of
doing business.
Variable expenses: Change in relation to volume of output: when output is low, the expenses
are low, and when output is high, expenses rise.
Fixed expenses: Do not vary with output but remain the same.
2. Estimating initial investment required.
Cash flow: The amount of cash available at a given time to pay expenses.
3.Locating sources of funds.
1. Using your own funds.
2. Use funds from others:
Equity investors.
Lenders.
Microloans.
3.Business plan:
is a formal plan prepared to serve as a tool for attracting the other components of the
business formation package, including people and money.
What is the business plan should include:
1. The proposed product.
2. The expected market for it
3. The strengths and weaknesses of the industry.
4. Planned marketing policies.
5. Operations or production methods and facilities.
6. Financials aspects, income, expenses, investment needed, expenses, profits (losses), and
expected cash flow.
4.Operational planning:
provides guides to action that provide consistency in decision-making, particularly in
repetitive situations.
Help us to plan:
For future activities using measures of control.
It's the prescribed manner of accomplishing desired output.
CHAPTER 7
What are the two types of funding available to small businesses?
1. Debt financing.
As a business owner, you can apply for a business loan from a bank or receive a personal loan
from friends, or other lenders, all of which you must pay back.
The main advantages of debt financing are:
-The lender has no control over your business.
-Once you pay back the loan, your relationship with the financer ends.
What are the sources of debt financing?
1. Trade credit
2. Credit cards
3. Line of credit
4. Insurance companies
5. Seller Financing.
2. Equity financing.
Equity: is an owner’s share of the assets of a company. In a corporation, it is represented by
shares of common or preferred stock.
1. Common stockholders:
have a share of its profits and the right to vote on certain corporate decisions.
2. Preferred stockholders:
have a share of the firm’s profits, but they often have no voting rights.
What are the sources of equity financing?
1. Venture capital
2. Business angle
3. Barter
4. Business incubators.
