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MNGT 1711: Introduction to Business
Unit 2:
The Business Formation and Entrepreneurship
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Who is an Entrepreneur?
Someone who takes the risk of establishing and operating a new business to fill an opportunity niche in the marketplace.
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Types of Entrepreneurs
Classic entrepreneurs
Micropreneurs: keep it small
Growth-oriented: make it big
Multipreneurs: start multiple businesses
Intrapreneurs: apply creativity within an organization
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Are You Ready to Take the Plunge?
4(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Checklist for Starting a Business
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(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Canadian Entrepreneurs
Do an internet search to find the company names and the nature of business of these Canadian entrepreneurs:
Mike Lazaridis
John Molson
Stephanie Ciccarelli
Wallace McCain
Heather Reisman
James Pattison
Guy Laliberté
Cassandra Nordell
Tobias Lutke
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Small Businesses in Canada (2017)
As of December 2017, there were 1.18 million businesses in Canada. 1.15 million (97.9 per cent) were small businesses,
21,926 (1.9 per cent) were medium-sized businesses
2,939 (0.2 per cent) were large businesses.
More than half of the small businesses are concentrated in Ontario and Quebec (417,742 and 236,705 respectively).
British Columbia had 179,517 small businesses.
Innovation, Science and Economic Development Canada. (2019, Jan.). Key small business statistics. https://www.ic.gc.ca/eic/site/061.nsf/eng/h_03090.html#point1-1
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Small & Medium Business (SME) Impact on Canadian Economy (2014)
Private Sector
Small business contribution to GDP generated by the private sector was 41.5 per cent
Medium businesses contribution was 11.0 percent and large businesses was 47.5 per cent.
Goods and Service Sector
SMEs’ average contribution to GDP was 43.6 per cent in the goods-producing sector, compared with 74.5 per cent in the service-producing sector.
Innovation, Science and Economic Development Canada. (2019, Jan.). Key small business statistics. https://www.ic.gc.ca/eic/site/061.nsf/eng/h_03090.html#point1-1
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Survival Rates of Canadian Businesses by Sector within Ten Years of Birth
Innovation, Science and Economic Development Canada. (2019, Jan.). Key small business statistics. https://www.ic.gc.ca/eic/site/061.nsf/eng/h_03090.html#point1-1
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Survival Rates of Canadian Businesses by Business Size
Innovation, Science and Economic Development Canada. (2019, Jan.). Key small business statistics. https://www.ic.gc.ca/eic/site/061.nsf/eng/h_03090.html#point1-1
Elements of a Business Plan
1. Executive Summary
2. Vision and Mission statements
3. Company overview and Business Formation
4. Product and/or service plan
5. Marketing plan
6. Management plan
7. Operating plan
8. Financial plan
9. Appendix of supporting documents
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Vision: Where we are heading, futuristic
Mission: Reason for existence, past and core values
Company structure & business formation
Product or Service Plan: what do we offer?
Marketing Plan
Customer base: to whom?
Competitors: how are you different? If not different, what is the plan to survive?
Sales & forecasts: what does the future hold and in what ways can you influence it?
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Elements of a Business Plan
Management and Staff Plan: Who will lead? The size and type of human resources base. Organization chart
Operations: How the good or service will be produced, nature of operations and supplier base
Finance: How the business will be financed
Financial projections:
How much capital is needed for setup and operations
How much revenue and profit is expected?
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Elements of a Business Plan
Personal savings
Loans from family, friends, or institutions
Angel investors
Venture capital
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Funding a Business
Elevator Speech
15 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Sole proprietorships – owned and managed by a single individual
Partnerships – where two or more co-owners manage the business:
General partnership – unlimited liability for all
Limited partnership – liability limited for limited partners to the extent of their investment
Corporations – legal entities, separate from their owners
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Business Formation
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Sole Proprietorships: Advantages
Minimal paperwork and cost of formation
Complete control
Full right over profits
No double taxation: business earnings are treated as personal earnings
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Sole Proprietorships: Disadvantages
Hard to raise financial resources
Unlimited personal liability to owner
Difficult to retain employees due to low salaries and lack of benefits
Heavy workload and stress
Business ceases to exist when owner leaves
Partnerships – Advantages
Pooled financial resources
Shared risks and responsibility
Possible tax advantages and single taxation
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Partnerships– Disadvantages
Unlimited liability for general partners
Disagreements
Responsible for other partners’ actions
Difficulty in withdrawing from partnership
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Corporations
A legal entity separate from its owners
Owned by shareholders but the board of directors establishes the mission and direction.
The board is elected by the shareholders.
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Corporations – Advantages
Limited liability for owners
Company continuity after death or withdrawal of ownerships
Easily transferable ownership
Ability to raise capital through public offerings
Operated by an expert management chosen by and reporting to the board, rather to the ownership
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Corporations – Disadvantages
The legal cost of preparing and filing article of incorporating
Double taxation for owners
Cost and complexity of compliance is high when operating in various jurisdictions
A Large Corporation Organizational Structure
24 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
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Business Formation Comparison
(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
26 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Business Formation Comparison
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Franchising
Not an ownership form but an operations agreement
Examples:
Macdonald’s, Tim Hortons, Wendy’s, Subway, M&M Foods, H&R Block
The franchisee uses the brand name, business model, and trademark of the franchisor
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Franchising – Advantages
Tested and proven business model
Availability of training and support
Using a selling brand
Marketing support and leveraging national marketing campaigns
Easy to arrange funding for franchises
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Franchising – Disadvantages
Costs of franchise fees and royalty payment
Less control and flexibility to make decisions
Bad behaviour at one location can hurt the reputation of other locations despite a different staff and management
Limited growth potential
Difficult to sell business as it requires franchisor’s approval
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Franchises in Canada
Go to the Canadian Franchise Association website
Identify 5 franchises using this criterion: Located in British Columbia
$0-50K investment
Industry Hotels/Motels/Campgrounds
Industry Hair/Nails Salon/Spas
Industry Environmental Products & Services
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Tips for Purchasing a Franchise
(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Merger: two companies agree to become one new company
Vertical merger
Horizontal merger
Acquisition: when one firm buys another and the purchased firm ceases to exist
Friendly take-over
Hostile take-over
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Business Growth: Mergers & Acquisitions
Self-Review Questions
1. What are the drawbacks to being a sole proprietor?
2. How does a partnership differ from a sole proprietorship?
3. Explain the difference between a limited partner and a general partner.
4. What are the main advantages and disadvantages of a partnership?
5. Summarize the advantages and disadvantages of corporations.
6. Describe the two types of cooperatives and the advantages of each.
7. Differentiate between a merger and an acquisition.
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