1. Actively managed by the owners
2. Highly Personalized
3.Largely local in its area of operation
4. Largely dependant on internal sources of capital
5. Independently owned and operated does not dominate the field of operation
A successful growing concern has demonstrated?
1. An ability to attract customers
2. An ability to control costs
3. An ability to make a profit
4. Track record under acutal marketing conditions
Three causes of business failure
1. Lack of Planning 2. improper financing 3. poor management
Economic contributions of small business in the US
1. Interdependence of business- small businesses are essential to enable a few large ones to concentrate on those economic activities with their efforts are more effective small business creates 52% of all private employment and 51% of the nations total output of goods and services as of 2002 data
Economic contributions of small business in the US
Stimulating Economic competetion- Economic development of the US has resulted from the efforts of small business
Economic contributions of small business in the US
Innovation- Individuals and small businesses provide the major source of new ideas, inventions and innovations
Tangible Asset
A fiscal asset that possesses genuine value.
Examples of Tangible Assets
Accounts and Notes Receivable. Inventories: Pre Paid Expenses,building fixtures and supplies.
Tangible Assets
1. Timely fresh well balanced selections of materials and merchandise. 2. Consist of item the public wants. 3. Raw materials and supplies that will be used up within a reasonable production time. 4. “Close buying” is essential to profit in any business when just starting. 5. Don’t buy dead stock that seller lists as worth, (original value) the is is rightly the original buyers
Intagible assets
Type of asset that is not able to be physically touched but is retained by a small business because of its genuine value appearnace
Examples of Intangible Assets
Goodwill, Franchises or Restricted Representation, Leases and other contracts, patents, copyrights, and trademarks.
intangible asset such as the name of a funeral home. It enables a business to earn a profit in excess of the normal rate of profit earned by other businesses of the same kind. It is subjective. Every business has goodwill because of its public accepatance over the years. difference between the selling prices and appraised value of the tangible and other intangible assets.
Leases and other contracts
intangible asset since a favorable lease in a good location is a valuable business asset. new owner must determine if lease is transferrable or must be renegotiated and the terms.
Patents (Intangible Asset)
Protect a product idea from unauthorized ise or infringement for a limited time. the registered right of an inventor to make, use and sell an invention
Copyright (Intangible Asset)
Offer best protection for books, periodicals, and orally presented materials. Renewable but are difficult to protect against infringement. Registered right of a creator to reproduce, publish, and sell the work which is the product of intellegence and skill of that person.
Trademark (Intangible Asset)
Provide protection against unfair competetion in business. Chief function is to identify certain products create and maintain a demand for them.
Written statements of actions and decisions that will lead the company to its goals or missions. 3 types: long range, intermediate, and short-term.
Long Range Planning
Over 10 years
Intermediate Planning
2-9 years
Short- Term Planning
1 year or less
Major sources of new ideas come from
1. prior work experience 2. Personal experience 3. Hobbies 4. Accidental Discovery 5. Deliberate Search
Management Activities
1. Planning 2. Organizing 3. Motivating 4. Directing 5. Controlling
Planning (Management Activites)
The selection in ordering of tasks required to achieve an organazations goals
organizing (management activities)
the assignment and coordination of tasks and resources necessary to perform each task
Motivating (management activities)
goal directing forces that organize and give direction to tension caused by unsatisfied needs.
Directing (management activities)
the process of motivating, leading, and influencing activities of subordinates.
Controlling (Management Activities)
Collection, Evaluation, and comparison of information in order to correct any task improperly performed.
management skills
1. technical skills 2. human skills 3. conceptual skills
technical skills (management skills)
abilities that are necessary to carry out a specific risk
human skills (management skills)
ability to work with, motivate, and direct individuals toward a common goal
conceptual skills (management skills)
ability to understand the degree of complexity in a given situation and to reduce that complexity to a level at which specific courses of action can be derived.
organizational goals
desired state of affairs which the organization tries to realize
1st function of organizational goals
goals affect the way the organization relates to the enviroment serving to clarify the connection between organizational activities and other organizations, groups and individuals in the enviroment
2nd function of goals
goals guide the internal activities of the organization providing employees knowledge of task scope, decision guidelines, methods of motivations, performance criteria, and a rational for organizing.
5 reasons for selling a business
1.Old age or illness 2. desire to relocate in a different part of the country 3. decision to accept a position with another company 4. owners lose a big contract 5. proposed changes in road routes or zoning.
Small Business Administration Act
Principal government agency concerned with the financing, operation, and management of a small business
Small Business Administration Act
Established by the small business act in 1953 to combat growing monopolies by the larger businesses.
Purpose of the Small Business Act
Encourage competetion by small business as a basis of free enterprise.
# of employees to determine a small business in mining/manufacturing
## of employees to determine a small business in Wholesale
up to 500
## of employees to determine a small business in Retail
## of employees to determine a small business in Service
three types of business activity
Merchandising, Manufacturing, and Service
Merchandising Business Activity
a business that purchases finished goods for resale
Manufacturing Business Activity
A business that makes finished good from raw materials by hand or machinery
Service Business
A business that provides a service as opposed to a product
valuation approach methods
1. Market Value Approach 2. Replacement Cost Approach 3. Liquidation Value Approach 4. Earnings approach
market value approach
valuation based upon the sale of similar businesses. 1. does depend on similarity of business. 2. recent sales of like business 3. real estate appraisals rely extensively on this method.
replacement cost approach
asset valuation that relies on replacement value of the business. 1. attempts to find replacement value of tangible assets being purchased (current inventory) 2. starts with most recent balance sheets. 3. usually ignores intangible assets. 4. difficult if small business has poor business records, need good accounting records.
Liquidation value approach
asset based method that equates the salvage value of the business’ assets. 1. provides a minimum vale worst case scenario 2. worst method for the seller
Earnings Approach
valuation based on the business’s past earnings record. 1. centers on estimating the amount of potential income that may be produced by the business. 2. capitalization of the average earning of the company (usually 5 years average) 3. the average annual earnings are divided by expected rate of return. 4. funeral homes rate of return is about 12.9% before taxes.
private investors who are willing to supply financing for new and or risky small venture startups.
artisan entrepreneur
a person with primarily technical skills and little business knowledge who starts a business
the emphasis placed on providing to customers products and services that are safe, reliable, and honestly advertised also a social movement that seeks to strengthen the rights of consumers to sellers.
corporate refugees
those individuals that flee the burecratic enviroment of big business by going into business for themselves.
delegation of authority
a superiors act of granting to subordinates on the basis of competence the right to act or decide.
one who organizes, manages and assumes the risk of a business firm or venture.
an entreprenuer who brings a new firm into existence
desired state of affairs which the organization tries to realize.
Internal Locus of Control
a belief that one’s success depends on one’s own effort.
The acceptance of the organization’s activities by non members of the organization
Art and science of motivating people for the achievement of a goal. process of planning, organizing, staffing, directing, and controlling activities in an organization in a systematic way in order to acheive a common goal.
The path that the managers choose to achieve their purpose
opportunistic entrepreneur
a person with both sophisticated managerial skills and technical knowledge who starts a business.
a person who becomes an entrepreneur to escape an undesirable situation.
Reluctant Entrpreneur
a person who becomes an entrepreneur as a result of some severe hardship