LO1: Describe five ways that people get into small business management.

• You may start a new business.
• You may buy an existing business.
• You may franchise a business.
• You may inherit a business.
• You may be hired to be the professional manager of a small business.

LO2: Learn the rewards and pitfalls of starting a new business.

• Advantages: A start-up begins with a clean slate and provides the owner with the opportunity to use the most up-to-date technologies and new unique products or services. It can be deliberately kept small to limit possible losses.
• Disadvantages: A start-up business has no initial name recognition, will require significant time to become established, can be very difficult to finance, cannot easily gain credit, and may not have experienced managers and workers.
• There are 12 methods for increasing start-up success.
• Starting a new business from scratch can be made easier by using methods to reduce initial capital requirements and to gain access to business and industry experience, such as starting a business in your home to reduce start-up costs, having a partner to share capital, and making an alliance with your current employer to gain access to industry sources.

LO3: Understand the opportunities and pitfalls of purchasing an existing business.

• Advantages: Established customers provide immediate sales and cash inflows, business processes are already in place in an existing business, and purchasing a business often requires less cash outlay than does creating a start-up.
• Disadvantages: It is very difficult to determine the value of a small business, existing managers and employees may resist change, the reputation of the business may be a hindrance to future success, the business may be declining because of changes in technology, or the facilities of the business may be obsolete or in need of major repair.
• There are multiple sources to help find businesses for sale such as business brokers, networking in the industry of interest, advertising of businesses for sale, and your current employer’s business.
• You must do an exhaustive investigation to determine a business’s suitability and value.

LO4: Explain four methods for purchasing an existing business.

• Buyouts are restricted to businesses that have a formal legal form of organization, including corporations, limited liability companies, and partnerships.
• A buy-in involves acquiring only a part of the ownership of an existing business.
• Key resource acquisitions, also called bulk asset purchases, are the only manner in which a sole proprietorship may be purchased.
• A takeover involves purchasing enough of the target business’s stock to gain control of the board of directors of the business.

LO5: Understand the advantages and disadvantages of buying a franchise.

• Franchising is a legal agreement that allows a business to be operated using the name and business procedures of another firm.
• There are four basic forms of franchising: trade name, product distribution, conversion, and business format.
• Master franchises require opening multiple stores within a specified area.
• Advantages: the benefit of a proven successful business model, training and management support, and less risk than in starting a new business or acquiring an operating business.
• Disadvantages: little control of business marketing and operations, and success determined to a large extent by the success of the franchisor.

LO6: Understand the issues of inheriting a familyowned business.

• Family-owned businesses tend to fail after the death or retirement of the founder.
• Those family businesses that make the transition from the founder to the next generation take specific actions to organize the business.

LO7: Describe how hired managers become owners of small businesses.

• Entry into ownership by employee managers may be accomplished in three ways: leaving employment to start up a new business, buying out or buying into a business, or contracting a franchise relationship.