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Contents The Dynamic Role of Small Business 1 Chapter 1 Starting Your Small Business 2 Profile: LogoLink 3 It?s an Interesting Time to Be Studying Small Business 4 The Number of Small Businesses Is Growing Rapidly 5 The Public Favors Small Business 6 Interest Is Increasing at High Schools, Colleges, and Universities 6 Trend Is toward Self-Employment 6 Entrepreneurship Is Attractive to All Ages 7 Defining Small Business?No Easy Task 8 What Is Small? 8 Distinguishing between Entrepreneurial Ventures and Small Businesses 9 Some Unique Contributions of Small Business 9 Encourage Innovation and Flexibility 10 Maintain Close Relationship with Customers and Community 10 Keep Larger Firms Competitive 11 Provide Employees with Comprehensive Learning Experience 11 Develop Risk Takers 12 Generate New Employment 12 Provide Greater Job Satisfaction 12 Some Current Problems Facing Small Businesses 12 Inadequate Financing 12 Inadequate Management 13 Burdensome Government Regulations and Paperwork 13 Some Current Trends Challenging Small Business Owners 13 Exploding Technology 13 Occupational and Industry Shifts 14 Global Challenges 14 Why People Start Small Businesses 15 Satisfy Personal Objectives 15 Achieve Business Objectives 18 Need to Mesh Objectives 19 Characteristics of Successful Entrepreneurs 19 Desire Independence 20 Have a Strong Sense of Initiative 20 Are Motivated by Personal and Family Considerations 20 Expect Quick and Concrete Results 21 Are Able to React Quickly 21 Are Dedicated to Their Businesses 21 Enter Business as Much by Chance as by Design 21 What Leads to Success in Managing a Small Business? 21 Doing an Introspective Personal Analysis 22 Where are the Opportunities for Small Business? 22 What Are the Fastest-Growing Industries? 22 Factors Affecting the Future of an Industry or a Business 23 Some Practical Ideas for Small Businesses 23 Some Areas of Concern for Small Business Owners 24 Poorly Planned Growth 24 Threat of Failure 25 Case 1.1:The Big Wash 27 Case 1.2:Judy Jones?s Try J. Advertising Agency 28 Chapter 2 Family-Owned Businesses 30 Profile: Ferris-Feuerborn Memorial Chapel 31 Role of the Family-Owned Business 33 The Family and the Business 33 Family Interactions 36 Family Limitations 37 Culture and the Family Business 38 Family Resources 39 Preparing the Next Generation 39 Preparing for Management Succession 40 Why Succession Is a Problem 40 An Overlooked Problem 42 Plan Ahead! 42 Sudden Departure 42 Planned Departure 42 Selling to Family Members 44 Selling to Outsiders 44 Making the Transition Easier 45 Tax and Estate Planning 45 Tax Planning 45 Estate Planning 45 Estate Planning to Minimize Taxes 46 Estate Planning Issues 47 Estate Planning Techniques 47 Case 2.1:The Son-in-Law 49 Case 2.2:Tire Rack 50 Chapter 3 Forms of Ownership of Small Businesses 52 Profile: SpringHill Kitchens, LLC 53 Selecting the Right Legal Form 55 Factors to Consider 55 Relative Importance of Each Form 55 Why Form a Proprietorship? 57 Why Form a Partnership? 58 How a Partnership Operates 60 Types of Partnerships 60 Rights of Partners 60 Why Form a Corporation? 61 How to Form a Corporation 62 How a Corporation Is Governed 63 The S Corporation 63 Other Forms of Business 64 The Limited-Liability Company (LLC) 64 The Limited Liability Partnership (LLP) 65 The Family Limited Liability Partnership (FLLP) 65 The Professional Service (PS) Corporation 65 Nonprofit Corporations 65 The Cooperative 66 The Joint Venture 66 Fractional Ownership 66 How to Evaluate the Legal Form of Organization 67 Case 3.1:The Martin Family Grows a Business 68 Case 3.2:DB Bikes 69 How to Plan and Organize a Business 71 Chapter 4 Becoming the Owner of a Small Business 72 Profile: Arve Henriksen: Million Air 73 How to Go into Business for Yourself 75 Finding Your Niche by Identifying a Needed Product 75 How to Decide on a Product 76 Choosing the Business to Enter 78 Studying the Market for the Product 79 Methods of Obtaining Information about the Market 80 Methods Used to Study the Market 80 Deciding Whether to Start a New Business, Buy an Existing One, or Buy a Franchise 81 To Start a New Business? 82 To Buy an Existing Business? 83 To Buy a Franchise? 83 Growing Opportunities in Franchising 86 What Is Franchising? 86 Extent of Franchising 86 Types of Franchising Systems 87 Why Franchising Is Growing in Importance 88 Recent Rapid Growth 88 Causes of Rapid Growth 88 How to Tell Whether a Franchise Is Right for You 89 See What the Franchise Can Do for You 89 Investigate the Franchise 89 Obtain Professional Advice 91 Know Your Legal and Ethical Rights 92 The Future of Franchising 93 Expected Areas of Growth 93 Other Areas of Expected Development 94 Global Franchising 96 Turning Your Dream into a Reality 97 Case 4.1:Tim Lewis Fills a Niche 99 Case 4.2:La-Van Hawkins: Urban Entrepreneur 100 Chapter 5 Planning, Organizing, and Managing a Small Business 102 Profile: Sam and Teresa Davis Do Their Homework before Launch 103 Why Is Planning So Important to Small Businesses? 104 Why Small Business Owners Need to Plan 104 Why Small Business Owners Neglect Planning 105 The Role of Strategic Planning 106 SWOT Analysis 107 Mission and Objectives 108 Strategies 110 The Role of Operational Planning 110 Setting Up Policies, Methods, Procedures, and Budgets 111 Planning to Operate the Business 111 The Role of Financial Planning 114 Estimating Income and Expenses 114 Estimating Initial Investment 114 Locating Sources of Funds 117 The Role of the Business Plan in Strategic and Operational Planning 118 Purposes of the Plan 118 What the Plan Should Include 118 Preparing the Plan 119 Who Should Prepare the Plan? 120 Developing Action Steps 120 Components of the Plan 120 Cover Sheet 121 Executive Summary 121 Table of Contents 122 History of the (Proposed) Business 122 Description of the Business 123 Definition of the Market 123 Description of the Product(s) 123 Management Structure 124 Objectives and Goals 124 Financial Data 124 Appendixes 124 Presenting the Plan 125 Writing the Plan 125 The Written/Oral Presentation 125 Implementing the Plan 126 Sample Business Plan 126 Appendix: A Sample Business Plan: The Business Center 128 Chapter 6 How to Obtain the Right Financing for Your Business 152 Profile: Roy Morgan?Pioneer in Air Medical Services 153 Estimating Financial Needs 154 Principles to Follow 154 Using Cash Budgets 155 Reasons for Using Equity and Debt Financing 155 Role of Equity Financing 155 Role of Debt Financing 155 Types of Debt and Equity Securities 156 Equity Securities 156 Debt Securities 157 Sources of Equity Financing 158 Self 158 Small Business Investment Companies (SBICs) 158 Venture Capitalists 159 Angel Capitalists 160 Other Sources 160 Sources of Debt Financing 162 Trade Credit 162 Commercial and Other Financial Institutions 162 Small Business Administration (SBA) 164 Small Business Investment Companies (SBICs) 166 U.S. Department of Agriculture (USDA) 166 What Lenders Look For 166 Case 6.1:Ella Williams: Making It on Her Own 168 Case 6.2:Karen & Co. 169 How to Market Goods and Services 171 Chapter 7 Developing Marketing Strategies 172 Profile: Advanced Control Solutions 173 The Marketing Concept 175 Meeting Customers? Needs 175 Implementing the Marketing Concept 176 Seeking a Competitive Edge 176 Using Marketing Research to Implement the Marketing Concept 178 How Does Marketing Research Aid Marketing? 179 How to Do Marketing Research 179 Gathering Information on the Web 182 Using Computerized Databases 182 Developing a Marketing Strategy 184 Setting Objectives 184 Choosing Target Markets 184 Developing an Effective Marketing Mix 187 The Product Life Cycle 188 Stages of the Product Life Cycle 188 Need for a Wide Product Mix 189 Packaging 190 Pricing Your Product 190 Establishing Pricing Policies 191 How Prices Are Set by Small Businesses 193 Other Aspects of Pricing 194 Strategy for Marketing Services 195 Nature of Service Businesses 195 How Services Differ 195 Developing Service Marketing Strategies 196 Implementing Your Marketing Strategy 197 The Introductory Stage 197 The Growth Stage 197 Case 7.1:Parkview Drug Store: Adding the ?Personal Touch? 199 Case 7.2:Buying Diamonds Online 201 Chapter 8 Promoting and Distributing 202 Profile: Springdale Travel, Inc. 203 Advertising 206 Types of Advertising 206 Developing the Advertising Program 206 Setting the Budget 206 Selecting Advertising Media 207 Developing the Message 209 When and How to Use an Advertising Agency 209 Measuring the Results of Advertising 209 Merchandising, Sales Promotion, and Publicity 209 Merchandising 210 Sales Promotion 210 Publicity 211 Considering Ethnic Differences 211 Opportunities for Small Firms in Global Marketing 212 Importing by Small Firms 212 Exporting by Small Firms 213 Distribution 217 Storing 217 Order Processing 217 Transportation 218 Choosing a Distribution Channel 219 Factors to Consider in Choosing a Distribution Channel 219 Distribution Channels for Consumer Goods 220 Distribution Channels for Industrial Goods 221 Selling through Intermediaries 221 Brokers 222 Agents 222 Wholesalers 222 Retailers 222 Selling with Your Own Sales Force 223 Need for Personal Selling 224 Steps in the Creative Selling Process 224 Attributes of a Creative Salesperson 227 Case 8.1:Taking Your Store to Your Customers 229 Case 8.2:Clark Copy International Corporation?s China Experience 230 How to Organize, Manage, and Operate the Business 233 Chapter 9 How to Obtain and Manage Human Resources and Diversity in Small Companies 234 Profile: Mary H. Partridge and Michael Levy: Even Small Companies Merge! 235 Planning for Human Resource Needs 236 Determining Types of Employees Needed 236 Developing Sources from Which to Recruit Potential Employees 237 Recruiting and Selecting Employees 240 Methods of Recruiting Employees 240 Methods of Selecting the Right Person for the Job 241 Training and Developing Employees 246 Ways of Training Nonmanagerial Employees 246 Outside Help with Training 248 Selecting and Developing Managers 248 Selecting Managers 249 Developing Managers 249 Complying with Equal Employment Opportunity (EEO) Laws 250 Laws Providing for Equal Employment Opportunity 250 Enforcing EEO Laws 251 Compensating Employees 252 Legal Influences 252 Setting Rates of Pay 254 Using Money to Motivate 254 Compensating Managerial and Professional Personnel 256 Providing Employee Benefits 256 Legally Required Benefits 256 Some Other Popular Benefits 258 Flexible Approach to Benefits 259 Protecting Employees? Health and Safety 259 Factors Influencing Workers? Health and Safety 260 The Role of the Occupational Safety and Health Act 261 Environmental Protection 262 Case 9.1:Supreme Plumbing and Heating Company: Where Are the Workers? 264 Case 9.2:The Case of Sam Sawyer 265 Chapter 10 How to Maintain Relationships with Your Employees and Their Representatives 266 Profile: Cathy Anderson-Giles: Master Motivator 267 Setting Up the Organizational Structure 268 Some Basic Organizational Concepts 268 Some Organizational Problems in Small Firms 269 Some Ways of Organizing a Small Business 270 Preparing an Organization Chart 272 Using Team Management to Improve Performance 272 Good Human Relations Is Needed in Small Firms 273 Exercising Effective Leadership 274 Communicating with Employees and Others 275 What Happens When You Communicate? 275 Barriers to Effective Communication 275 How to Improve Communication 276 Motivating Employees 277 What Is Motivation? 278 Why Motivate Employees? 278 How to Motivate Employees 279 Some Practical Ways to Improve Motivation 280 Does Money Motivate? 281 Motivation Is More than Mere Technique 281 Appraising and Evaluating Employees? Performance 282 Counseling Troubled Employees 284 Job-Related Areas Needing Counseling 285 Personal Problems Needing Counseling 285 Handling Employee Complaints 286 Imposing Discipline 286 Encouraging Self-Discipline 286 Using Positive Discipline 287 How to Discipline Employees Legally 287 Dealing with Unions 288 Laws Governing Union?Management Relations 288 What Happens When the Union Enters 289 Negotiating the Agreement 290 Living with the Agreement 290 Terminating Employees 291 Case 10.1:Personnel Policies Help Intermatic Grow 293 Case 10.2:Visiting Angels 293 Chapter 11 Obtaining and Laying Out Operating Facilities 296 Profile: Koi and Lilies 297 Developing Operating Systems 298 What Are Operating Systems? 299 How Operating Systems Work 299 How to Begin Operations 300 Choosing the Right Location 301 Why Choosing the Right Location Is So Important 301 Some Important Factors Affecting Location Choice 301 Locating Retail Stores 304 Types of Stores 304 Types of Locations 305 Locating Manufacturing Plants 307 Planning Physical Facilities 307 Determine Product to Be Produced 308 Identify Operations and Activities to Be Performed 308 Determine Space Requirements 308 How Telecommuting Affects Physical Facility Needs 308 Decide on the Best Layout 310 Implement Your Plans 313 How to Improve Operations 313 State the Problem 313 Collect and Record Information 314 Develop and Analyze Alternatives 314 Select, Install, and Follow Up on New Methods 314 Setting and Using Performance Standards 314 Case 11.1:Telecommuting in the Rockies 316 Case 11.2:Nell Hill?s: An Adventure in Shopping 316 Chapter 12 Purchasing, Inventory, and Quality Control 318 Profile: Anders Book Stores: Dealing with Hundreds of Suppliers 319 The Importance of Purchasing 320 What Purchasing Involves 320 Why Purchasing Is So Important 321 Assign Responsibility for Purchasing to One Person 322 Selecting the Right Supplier 323 Types of Suppliers 323 Use Few or Many Suppliers? 323 Investigating Potential Suppliers 323 Evaluating Supplier Performance 324 Establishing an Effective Purchasing Procedure 324 Requisitioning Goods or Services 324 Making and Placing the Purchase Order 325 Paying a Satisfactory Price 326 Receiving the Items 326 Using Computers to Aid Purchasing and Inventory Control 327 Controlling Inventory 327 The Role Played by Inventory 327 Types of Inventory 328 Inventory Mix 329 Costs of Carrying Inventory 329 Determining When to Place an Order 329 Determining How Much to Order 330 Operations Planning and Control 330 Handling Variations in Demand 330 Scheduling Operations 331 Controlling Operations 331 Quality and Its Control 331 What Is Quality? 331 Improving and Controlling Quality 332 Case 12.1:Universal Fleet Services Inc. (UFS): Selling a Unique Service 337 Case 12.2:Eddie & Company: Exceeding the Relevant Range 339 Basic Financial Planning and Control 341 Chapter 13 Profit Planning 342 Profile: What Is Profit? 343 What Is Profit Planning? 344 How a Business?s Financial Position Changes 345 Tracing Changes in a Company?s FinancialPosition 345 Importance of Accounting 346 What Is the Financial Structure of a Business? 347 Assets 347 Liabilities 349 Owners? Equity 349 Profit-Making Activities of a Business 350 Revenue and Expenses 350 Profit 351 How to Plan for Profit in a Small Business 351 Need for Profit Planning 351 Steps in Profit Planning 351 Need for Realism in Profit Planning 352 Profit Planning Applied in a Typical Small Business 352 Step 1: Establish the Profit Goal 352 Step 2: Determine the Planned Sales Volume 353 Step 3: Estimate Expenses for Planned Sales Volume 353 Step 4: Determine the Estimated Profit 355 Step 5: Compare Estimated Profit with Profit Goal 355 Step 6: List Possible Alternatives to Improve Profits 356 Step 7: Determine How Expenses Vary with Changes in Sales Volume 356 Step 8: Determine How Profits Vary with Changes in Sales Volume 357 Step 9: Analyze Alternatives from a Profit Standpoint 358 Step 10: Select and Implement the Plan 358 Case 13.1:Eillen Dorsey and Walter Hill, Jr., Use Financial Planning 360 Case 13.2:The Need for a Cash Budget 360 Chapter 14 Budgeting and Controlling Operations and Taxes 362 Profile: Allen Smith: eGo 363 What Is Involved in Control? 364 The Role of Control 364 Steps in Control 364 Setting Performance Standards 364 Characteristics of Effective Control Systems 365 Using Budgets to Communicate Standards 365 Types of Budgets 365 Preparing the Operating Budget 365 Preparing the Cash Flow Budget 366 Procedure for Planning Cash Needs 366 Using Budgetary Control 368 Controlling Credit, Collections, and Accounts Receivable 368 Other Types of Budgetary Control 368 Using Audits to Control the Budget 369 Obtaining and Using Performance Information for Control Purposes 369 Obtaining the Information 369 Comparing Actual Performance with Performance Standards 370 Determining Causes of Poor Performance 370 Evaluating the Firm?s Financial Condition 371 Some Important Ratios and Their Meanings 371 Are Profits Satisfactory? 371 Are Assets Productive? 371 Can the Business Pay Its Debts? 372 How Good Are the Business?s Assets? 373 Is Your Equity in the Business Satisfactory? 373 Ratios Are Interrelated 373 The U.S. Tax System 374 Who Pays the Taxes? 374 How Taxes Affect Small Businesses 374 Get Professional Help! 375 Types of Taxes 376 Taxes Imposed on the Business 376 Taxes and Fees Paid to Operate the Business 376 Excise and Intangible Property Taxes 376 State and Local Sales and Use Taxes 377 Federal, State, and Local Income Taxes 377 How the Form of a Business Affects Its Taxes 377 Treatment of Federal Corporate Income Taxes 378 Employment-Related Taxes 380 Income Tax Withholding 380 Social Security/Medicare Taxes 381 Unemployment Compensation Insurance 381 Workers? Compensation 381 Personal Taxes Paid by Owners 381 Taxes on Amounts Withdrawn from the Business 381 Taxes on Amounts Received from Sale of the Business 382 Recordkeeping and Tax Reporting 382 Maintaining Tax Records 382 Reporting Your Taxes 384 Credit Management 384 Methods of Payment 384 Setting Credit Policies 385 Carrying Out Credit Policies 386 Classifying Credit Risks 386 Investigating Customers? Creditworthiness 386 Establishing Collection Procedures 386 Case 14.1:Theme Restaurants 388 Case 14.2:How to Deal with Cash Flow Problems 389 Chapter 15 Using Computer Technology in Small Businesses 390 Profile: Gayle M. Ross: Wordsmith and Publisher 391 The Role of Information in Small Business 393 Elements of a Management Information System (MIS) 393 What Information Is Needed? 394 Timing of Information Flow(s) 396 Choosing an MIS 397 The Role of Computers in Business 397 The Laptop and Other Electronic Devices 397 Strengths and Weaknesses of Computers for Small Firms 399 The Internet 400 Some Potential Problems with Computer Technology 401 Computers Require Added Security 401 Business to Business (B2B) 402 Reluctance of Some Owners to Use Computer Technology 403 Choosing Software, Hardware, and Employee Training 404 Small Business and E-Commerce 405 Internet Marketing 407 Web Design 407 The Seven Design Elements of the Customer Interface 408 Case 15.1:Herman Valentine: Customizing Computers for Military Use 411 Case 15.2:Tom Williams Is Off to a Heady Start in Computers 413 Chapter 16 Risk Management, Insurance, and Crime Prevention 416 Profile: Dr. Jeffrey F. Van Petten: A Unique Entrepreneur 417 Risk and Its Management 418 Types of Risk 418 Ways of Coping with Risk 419 Using Insurance to Minimize Loss Due to Risk 420 Types of Insurance Coverage 420 Guides to Choosing an Insurer 425 Crime Prevention to Protect People and Assets 426 Armed Robbery 427 Theft 428 White-Collar Crime 431 Document Security 433 Safeguarding Employees with Preventive Measures 433 Case 16.1:Beware of ?Softlifting? 435 Case 16.2:When Inventory and Sales Don?t Balance 436 Chapter 17 Maintaining Good Government Relations and Business Ethics 438 Profile: BSI: Thirty Years and Still Going 439 Understanding the Legal Environment 440 Some Basic Laws Affecting Small Business 440 The Uniform Commercial Code 441 Torts 441 Bankruptcy 441 Government Help for Small Businesses 442 Small Business Administration (SBA) 442 U.S. Department of Commerce 442 Other Government Agencies 442 Handling Government Regulations and Paperwork 443 Dealing with Regulatory Agencies 443 Some Benefits of Government Regulation 444 Some Problems with Government Regulation 445 How Owners of Small Firms Can Cope with Government Regulations 446 Dealing with Private Regulators 447 Choosing and Using a Lawyer 447 Choosing the Lawyer 447 Maintaining Relationships with Lawyers 448 Socially and Ethically Responsible Behavior 448 Social Responsibility 449 Business Ethics 451 Case 17.1:?Hannadowns? 455 Case 17.2:What to Do? 456 workbook for developing a successful business plan 457 glossary 484 endnotes 493 photo credits 505 index 507
Library of Congress Subject Headings for this publication:
Small business -- Management.
Small business -- Management -- Case studies.