Unit 11 – Entrepreneurship

Chapter 37 – What is Entrepreneurship?

Objective 37.1

Being an entrepreneur is risky as it takes a major commitment of time, money and effort. New business owners must be risk takers. The motives for becoming an entrepreneur include being successful and working for ones-self. You must have strong organizational skills, tremendous drive, and leadership ability to become a successful entrepreneur. Small businesses play an important role in our economy. Small business take up the majority of U.S. businesses and provide jobs for about 55 percent of the labor force.

Terms 37.1

  • Entrepreneurship – The process of starting and managing your own business.
  • Entrepreneurs – People who attempt to earn money and make profits by taking the risk of owning and operating a business..

Objective 37.2

There are four ways to enter business and they are to develop a new business, purchase a franchise business, purchase an existing non-franchise business, or take over the family business. You can choose how to legally organize or structure your business, either as a sole proprietorship, partnership, or corporation.

Terms 37.2

  • Franchise – A legal agreement to operate a business in the name of a recognized company.
  • Sole Proprietorship – A business owned and operated by one person.
  • Unlimited Liability – Your financial liability is not limited to your investment in the business, but extends to your total ability to make payments.
  • Partnership – A legal agreement between two or more people to be jointly responsible for the success or failure of a business.
  • General Partnership – A partnership in which each partner shares in the profits and losses.
  • Limited Partnership –A partnership in which each limited partner is liable for any debts only up to the amount of his or her investment in the company.
  • Corporation – A business that is chartered by state and legally operates apart from the owner/s.
  • Stockholders – The people who actually own the corporation.
  • Foreign Corporation – A corporation that is incorporated under the laws of a different state from the one in which it does business.
  • Subchapter S Corporation – A small business that is taxed like a partnership or proprietorship.
  • Doing Business As (DBA) – A registration process by which your county government officially recognizes that your business exists.
  • Articles of Incorporation – Identifies the name and address of your business, its purpose, the names of the initial directors, and the amount of stock that will be issued to each director.

Chapter 38 – Risk Management

Objectives 38.1

Although businesses cannot totally eliminate all the risks of doing business, marketers can reduce and manage risks through careful planning. There are three kinds of business risks and they are economic, natural and human.

Terms 38.1

  • Risk – Potential for loss or failure.
  • Business Risk – The possibility of business loss or failure.
  • Economic Risks –Business risks that occur from changes in overall business conditions.
  • Natural Risks – Risks resulting from natural causes.
  • Human Risks – Risks caused by human mistakes and the unpredictability of employees or customers.

Objectives 38.2

There are four basic ways that businesses can handle risks and that is through risk prevention and control, risk transfer, risk retention, and risk avoidance. Business risks can be handled through prevention and control. Some business risks can be handled by transferring the risk to another business or to another party. The three most common risk transfers include insurance, guarantees and warranties, and transferring risks through business ownership.

Terms 38.2

  • Insurance Policy – A contract between a business and an insurance company to cover a certain business risk.
  • Extended Coverage – Optional insurance coverage on a basic property coverage policy.
  • Fidelity Bonds – Bonds that protect a business from employee dishonesty.
  • Performance Bonds – Bonds insure against losses that might occur when work or a contract is not finished on time or as agreed.

Chapter 39 – Developing a Business Plan

Objectives 39.1

A business plan is necessary prior to starting any business. A business plan is important because it helps you map out the course of your business and helps you do three things and that is to obtain financing, guide the opening of the business, and manage the business successfully. The following are necessary sections you need to include in a business plan and they are the description and analysis of the proposed business, which includes the type of business, business philosophy, type of products, self analysis, trading area analysis, market segment analysis, and analysis of potential locations.

Terms 39.1

  • Business Plan – A proposal that describes every part of a new business to potential investors and lenders.
  • Business Philosophy – Tells how you think the business should be run and shows your understanding of your firm’s role in the marketplace.
  • Trading Area – The geographical area from which a business draws its customers.
  • Buying Behavior – The process individuals use to decide what they will buy and from where and whom they will buy it.

Objectives 39.2

The next part of your business plan explains the organization and marketing plan which includes the proposed organization, proposed good or service, and proposed marketing plan.

Terms 39.2

  • Job Descriptions – A written statement listing the requirements of a particular job.
  • Organization Chart – A diagram of the various jobs and functions that are found in a company.

Objectives 39.3

When entrepreneurs open their own businesses, they usually need a substantial amount of capital. The final piece of a business plan includes the financial plan and analysis. There are several ways to raise the capital for a new business either via equity or debt capital. The method you choose depends on the amount involved.

Terms 39.3

  • Equity Capital – Raising money from within a company or by selling part of the interesting the business.
  • Debt Capital – Raising funds by borrowing money.
  • Collateral – Something of value that a borrower pledges to a lender to ensure repayment of a loan.
  • Credit Union – A cooperative assocation formed by labor unions or groups of employees for the benefit of its members.

Chapter 40 – Financing the Business

Objectives 40.1

The most common reason fro writing a business plan is obtain financing for the business. The major purpose of the business plan is to put together the financial information relating to your business. The five important financial documents are the personal financial statement, the start-up cost estimate, the income statement, the balance sheet, and the cash flow statement.

Terms 40.1

  • Personal Financial Statement – A summary of a person’s current personal financial condition.
  • Liability – A debt owed by a business.
  • Start-Up Costs – A projection of how much money a person will need the first year of business operation.

Objectives 40.2

After estimating your start-up costs and personal living expenses, the next step is to estimate the money you expect to earn and to spend in operating your business. The income statement for an existing business shows the previous year’s income and expenses. The income statement for a new or planned business estimates earnings and expenses for the first few months. The major parts of the income statement includes total and net sales, expenses of operating the business, net income from operations, net profit before income taxes, and net profit after income taxes.

Terms 40.2

  • Income Statement – A summary of a business’s income and expenses during a specific period, such as a month, a quarter, or a year.
  • Gross Sales – The total of all sales for any period of time.
  • Net Sales – The total of all sales after subtracting sales returns and allowances.
  • Net Income – The difference between total expenses and gross profit.
  • Interest – The money paid for the use of money borrowed or invested.
  • Principal – The amount of money borrowed.
  • Balance Sheet – A summary of a business’s assets, liabilities, and owner’s equity.
  • Net Worth – The difference between the assets of a business and its liabilities.
  • Cash Flow Statement – A monthly plan that shows when cash is anticipated to come into the business and when cash is expected to be paid out.