Starting and Expanding a Small Business

Small Business, Entrepreneur and Franchises

What is this module all about?

A day filled with blessings! It’s nice to see you again! I hope that you will find
this module very interesting. This module focuses on preparing students for all levels of the
business environment. The course is designed to develop the knowledge and skills necessary for
success in the business world, and to develop a competence in putting or starting up a business.

What are you expected to learn.

In this module, the students are expected to:

1. Describe the importance of Small Business Administration (SBA) in

putting up a small business.
2. Analyze the different factors in order to organize or solve the business
problems.
3. Apply all the good qualities of being a good entrepreneur.
4. Demonstrate knowledge of the process involve in making business
plan.
5. Apply good techniques in putting up or buying a Franchise.

How would you learn from this module?

In order for you to learn from this module all you need to succeed is a good
attitude, the willingness, in the discipline to get the job done.

Answer all the activities and self- check correctly. This will give you a good start
for preparing for your business skills. Hope you will enjoy it! Good luck!
 PRETEST

INSTRUCTIONS: Read and understand the questions carefully and choose the best
answer by writing the correct answer that best fit to the item on the space provided for.

____1. It is a good source of information about small business.

a. SBA c. NSA
b. NSF d. CIA

____2. It is the average interest rate paid on financing.

a. Short – term financing c. Cost of capital
b. Long – term financing d. Dept financing

____3. It is the risk takers that begin new businesses in private industry.

a. Intrapreneurs c. Businessman
b. Entrepreneurs d. Risk takers

____4. They are the one who create innovation within a bigger organization.
a. Entrepreneurs c. Businessman
b. Risk takers d.Intrapreneurs

____5. It is a business arrangement in which a small business buys the rights to sell
goods or services of the supplier.
a. defense, modified c. factual
b. develop, devote d. failure, feature

____6. It is also called small business or it is the other term for the small business
a. Franchisee c. Franchisor
b. Franchise d. Fast food chain

____7. It is also called supplier in the franchising world.

a. Franchisee c. Franchisor
b. Franchise d. Fast food chain
 ____8. These are organizations that help small business through the early stages of
development.

a. Incubators c .Internet

b. Score d. Newsgroups

____9. It is the Service Corps of Retailed Executives that is a resource partner of the
SBA

a. Incubators c .Internet

b. Score d. Newsgroup

____10. It contains a large amount of data for research and the opportunity to market
services globally in real – time.

a. Incubators c .Internet

b. Score d. Newsgroup
 SMALL BUSINESS

Independently owned
and operated
Not dominant in
field

Relatively small in
terms of annual
sales
Typically employing
fewer than 5oo
workers

Small businesses:

 Create 67-75% of new jobs.

 Generate more than half of the private
U.S GDP.
 Supply the needs of big businesses.
 Provide specialized goods and services.
 There are two categories of small businesses:
Lifestyle business and High – growth ventures

The table below contrasts the two types.

Characteristics Lifestyle business High – growth venture

Managed and run by: One or two people Team
Percent of a small business 80 – 90% 10 – 20%
Growth potential Limited High
Typical expansion Slow Rapid
Cash Flow Low Medium to High
Investors Few Several to many

 New Small business owners are surprised by how

much time is required to maintain their business.
 Those who come from big business environment
are particularly challenged by the amount of work
that is required.
 Other surprised often include the amount of
money required and the amount of time required.
 The number of small business increase when the
economy weakens, but when the economy was
strong in the 1990’s small business increased.
 The main factors that contributed to the rise in
small businesses were technology including the
internet, rise in the number of women and
minority business owners, downsizing, and
outsourcing.
 The increasing availability and decreasing cost of
technology allowed small business owners to
create professional documents and websites
accessible to a global customer base.
 From 1987 to 1997 the number of new minority
business increased 168%.
The Glass Ceiling Effect is the unseen
barrier for women to advance The number of women - owned
further in a male – dominated business also increased tremendously
from 5% to 39% of all small business.
industry.
The main reason women start small
business is that they have an
entrepreneurial idea.
Less important reasons listed in
ascending are: the glass ceiling effect,
boredom in current job, and downsizing.
If someone is a talented person now he/
or she can have a great opportunity to begin
businesses of their own and many take that
opportunity.
Another way for companies to reduce
recurrent costs is to subcontract, or out course,
specific function and/ or projects.
When they look for companies to
take the outsourced tasks, they often look
for small business.

When
companies
suffer through
difficult times,
they often fire
or layoff
employees. This
is also called

Downsizing

Hi there! I’m Robbie and

I want to be an
entrepreneur. Do you
know what entrepreneur
is? James?
Entrepreneur
 Of course I am! An
entrepreneur is those who
are risk takers that begin
new businesses in private
industry.

Oh really? How about

the intrapreneur? Are
DO not confuse
they the same?
with the word
Intrapreneurs.
They are those
who create
innovation within
a bigger
organization.

Are there any qualities that

should be considered?
Most successful entrepreneurs are outgoing,
independent, news savvy, ambitious, positive, and
risk takers.
QUALITIES OF A GOOD ENTREPRENEUR
 Going into business is highly profitable. The field of business enterprise is a large enough
for people who are able to identify the needs of others for possible business opportunities;
make use of the necessary resources to deliver the needs(goods and services) when needed by
other people at a particular time and place.

ORGANIZED HARDWORKING

ENTHUSIASTIC

DECISION-MAKING

SELF-CONFIDENT RESOURCEFUL

To succeed in business you must developed good work habits such as : hardworking,
enthusiastic, and willing to learn the trade, build your own self – confidence, set goals or objectives,
concentrate on what you are doing, organize yourself, take initiative and be resourceful, make wise
decisions as need arises.

A good entrepreneur is highly motivated to provide the needed goods and services of the
people in the community. He is creative and innovative. He is a good planner and set his goals clearly. He
is willing to take the responsibility for his decision.

An entrepreneur is adaptable, driven, intelligent leaders that are highly disciplined and
creative. They watch the trends, anticipate future moves and exploit them. They watch the trends,
anticipate future moves and exploit them. When they make mistakes they quickly adjust and
overcome so not to repeat the same errors. After making the decisions to jump into a new
business, the next thing to do is to begin planning. A business plan is necessary for whatever
business the entrepreneur chooses.

A BUSINESS PLAN provides an orderly statement of a company’s goals and how it

intends to achieve those goals. It is also a tool used to attract investors.

STANDARDS SECTION OF A BUSINESS PLAN INCLUDES:

Summary of business concept.
Mission statement and goals of company
Background of company and industry.
Timeline of business development.
Description of product and services to be offered.
Analysis of completion and market.
Problems and possible critical risks.
Design and development plans, if necessary.
Operations plan – facilities, labor and equipment needed.
Marketing strategies – how to sell the products.
Management summary.
Financial projections, budget, and capital required.
Exit strategies – how investors cash out.

FRANCHISE
 There are three ways to begin a business: create a startup, buy a franchise, or purchase an
existing business. Choosing the startup option, a new venture, is the most common with sixty-six
percent of all new businesses beginning as a startup. This is also the most difficult option.
Purchasing an existing business reduces risks only if the background is thoroughly investigated.
A franchise is a business arrangement in which a small business (franchise) buys to sell goods or
services of the supplier (franchisor). McDonalds and subway are two very popular franchisors.

One of the best ways to evaluate a prospective franchisor is to talk to other franchises.
Advantages of choosing franchises are: getting a successful business blueprint, instant name
recognition, training, advertising programs, standardized quality, and an instant support network.
Disadvantages of franchises include upfront costs, monthly royalties, fixed suppliers, and little
independence or creativity options. There are three types of franchises:
 Franchise Type
Product franchise
Manufacturing franchise
Business – format franchise
Description Example
Right to sell trademarked Car dealerships.
goods
Right to produce and Soft – drink bottling plant.
distribute manufacturer’s
products.
Right to open a business using Fast food chains.
a franchisors name and format
for doing business.

Regardless of the business type the entrepreneur chooses, there is a risk of failure. Lack
of management skills, experience, uncontrolled growth, and proper financing are some of the
most common reasons businesses fail.

Chaos is the fastest way to kill a successful business. How does a business get help to
continue? The textbook mentions three sources: SCORE, INCUBATORS, and the INTERNET.
Score is the service corps of retired executives, a resource partner of the SBA. These retired
business people volunteer to consult small businesses on financing, business plans, and growth.

Incubators are organizations that help small businesses through the early stages of
development. Help includes offices space, legal and accounting services, advice, support for
marketing and administration, and contracts. Some incubators specialize in particular industries
or products. Eight out of ten business helped by incubators will be successful.

Ones the business survives though initial stages of start-up, the incubator services end. The time
limit for helping a business is usually set at 18 months to five years.

The Internet contains a large amount of data for research and the opportunity to market
services globally in real-time. Newsgroups and site that specialize in the industry or business
type can be a particular useful. Two popular newsgroup site are http://www.yahoo.com and
http://www.topica.com. There are also general sites that supply information to small business
like http://www.inc.com and http://business2.com. The Wall Street Journal has a site devoted to
small business a http://www.startupjournal.com.
 The Small Business Administration (SBA) is a federal organization that provides many
resources for small business owners. The website at http://www.sba.gov contains many features
including:

Answer desk
Business courses
Publications
Final assistance
Extra support for women, minorities, and veterans
Links to other resources

When a business needs external financing, there are four topics to consider: length of term,
type of financing, cost of capital, and source of financing. Financing terms can be split into two
categories: short-term financing and long-term financing. Short-term financing is capital that will
be repaid within one year. It is typically debt financing and is used to increase cash-flow and pay
creditors. Long-term financing is any financing that extends beyond one year. It is more costly
than other financing. This financing is used to buy buildings, equipment, vehicles, and other
asset. Long-term financing is also used to fund new or grow existing business.

The cost of capital is the average interest rate paid on financing. It is similar to the interest
rate you must pay when purchasing a house. It is not included in the initial price of the house, but
it is an additional expense that should be considered. There are three main factors that affect the
interest rate a particular company must pay:

Risk associated with the company-how likely is it that the company will repay?
Most common interest rate currently available- rates fluctuate with economic
environment
What type of financing is chosen
 The two types of financing are debt financing and equity financing. Debt
financing is short-term loan instrument that can be secured or unsecured. A secured loan
is backed by the company’s assets or collateral. If the company cannot relay the loan, the
lender will take the collateral away from the company. Payments must be made
regardless of operating results. Assets typically secured include buildings, equipment,
and land. An unsecured loan is not backed by an asset; therefore, the lender cannot take
immediate ownership. Equity financing is offering company stock for sale. Stock is a
(usually small) percentage or share of company ownership. The first offering of this stock
is called the initial public offering (IPO). Making this initial offering is called “going
public”. This process is often time-consuming and costly.

CHARACTERISTICS DEBT FINANCING EQUITY FINANCING

Short – loan Long IPO
TYPICAL TERM
Secured or Preferred stock or Common
SUBCATEGORIES Unsecured stock
1. Lender doesn’t gain 1. No specific maturity
BENEFITS ownership interest. date.
2. Obligation are limited 2. Company not required
by loan terms repaying.
3. Less costly and time 3. Can include many
consuming than equity more investors.
financing.

Private financing is obtaining capital from individual investors, family and friends,
partners or customers. There are four sources that the book emphasizes: venture capitalists, angel
investors, credit cards, and SBA assistance. Venture capitalists (VC’s) raise money privately as
opposed to a public stock offering on the open market. VC’s are specialists in financing new
businesses. In exchange for their health, VC’s expect ownership interest in the company. Their
goal is to make a large profit on investments. In the dot – com era, VC’s been much more
generous with funds and required fewer guaranties than they do today. Angel investors focus on
risky startup companies looking for second – round financing. Just like gamblers, angel investors
tried to play against the odds. They are willing to lend smaller sums than other investors. Angels
can provide expertise in addition to money.

Credit cards help fund one – third of the companies with nineteen or fewer employees. In
the 1990’s credit card companies began to focus on small businesses as a source of new income.
Credit cards are popular because of their availability and ease of use. The disadvantage is the
high interest rates associated with credit cards.
 The small business administration offers private financing for some small businesses. It is
possible to receive microloans backed by the SBA, but the demand for these loans is very high.
The SBA offers limited direct loans to minorities, women, and veterans through investment firms
created by the SBA for small business assistance. This include the small business investment
company (SBIC’s) and minority enterprise small business investment companies (MESBIC’).
These firms operate similarly to angel investors and VC’s, but are more willing to accept risks.

Now that you know all about small business and entrepreneur as well as the franchises,
now you can do the activity below.
 ACTIVITY 1
Instruction: Match column A with the picture in Column B.

1. Entrepreneur a.

2. Franchise b.

3. Small Business c.

d.

4. Business plan

5. Glass Ceiling e.

How did you find the activity? Was it interesting? I know it is difficult to remember all
the things that you have study. Don’t worry. As you go along, you will gradually be familiar with
it. Try to master each lesson by reading and observing in your community. When you go to
different places try to talk with some entrepreneurs to know how they manage their businesses.
But for now try to answer the self check below to test what have you learned.

SELF – CHECK

Instruction: Put a check ( / ) if the statement below is correct and if the statement is
incorrect change the word to make it right.

____1. There are two categories of small business, the lifestyle businesses and high –
growth ventures.

____2. Making this initial offering is called “going private” this process is often time –
consuming and costly.

____3. Share is a (usually small) percentage or Stock of company ownership.

____4. The “glass ceiling” effect is the unseen barrier for women to advance further in a
male- dominant industry.

____5. There are three ways to begin a business: create a start – up, buy a franchise, or
purchase an existing business.

You can now relax! Have fun with your favorite habit! Recall what you have learned.
Then, do the posttest. I did it simply for you! See you soon!
 LET’S SUMMARIZE

Small business has two categories the lifestyle businesses and high-
growth ventures.
SBA (small business administration) is a good source of information
about small business.
Entrepreneurs are risk takers that begin new businesses in private
industry.
To succeed in business you must developed good work habits such as :
hardworking, enthusiastic, and willing to learn the trade, build your
own self – confidence, set goals or objectives, concentrate on what you
are doing, organize yourself, take initiative and be resourceful, make
wise decisions as need arises.
There are three ways to begin a business: create a startup, buy a
franchise or purchase an existing business.
A franchise is a business arrangement in which a small business
(franchisee) buys the rights to sell goods or services of the supplier
(franchisor).

POSTTEST
 INSTRUCTIONS: Read and understand the questions carefully and choose the best
answer by writing the correct answer that best fit to the item on the space provided for.

____1. It is a good source of information about small business.

a. SBA c. NSA
b. NSF d. CIA

____2. It is the average interest rate paid on financing.

a. Short – term financing c. Cost of capital
b. Long – term financing d. Dept financing

____3. It is the risk takers that begin new businesses in private industry.

a. Intrapreneurs c. Businessman
b. Entrepreneurs d. Risk takers

____4. They are the one who create innovation within a bigger organization.
a. Entrepreneurs c. Businessman
b. Risk takers d.Intrapreneurs

____5. It is a business arrangement in which a small business buys the rights to sell
goods or services of the supplier.
a. defense, modified c. factual
b. develop, devote d. failure, feature

____6. It is also called small business or it is the other term for the small business
a. Franchisee c. Franchisor
b. Franchise d. Fast food chain

____7. It is also called supplier in the franchising world.

a. Franchisee c. Franchisor
b. Franchise d. Fast food chain

____8. These are organizations that help small business through the early stages of
development.

a. Incubators c .Internet
 b. Score d. Newsgroups

____9. It is the Service Corps of Retailed Executives that is a resource partner of the
SBA

a. Incubators c .Internet

b. Score d. Newsgroup

____10. It contains a large amount of data for research and the opportunity to market
services globally in real – time.

a. Incubators c .Internet

b. Score d. Newsgroup

Assessment of your answer

 Dear students, If you got 10 – 8 correctly, marvelous! It really shows
that you understood well all the things we have discussed.

If you got 7 – 6, Fantastic! You remember most of the things we have

discussed. Check those things you did not answer correctly and see why you forgot
their answer.

If you’re correct answers were 5 – 4 that was terrific. What you have
remembered were probably the ones close to your heart, I suggest that you read the
lesson again and try to understand and practice ones more

Finally, if you have a score between 3 – 1, it’s ok. But I suggest that you
read the lesson again and see where you have forgotten some details. After reading
parts where you met some difficult, try the test again and see if you will improve.
Good luck!

Good bye now, dear students, I hope to see you when we do the next
module.

Answer Key

Pre – test / Posttest Activity Self - check

1. a 1. C 1. /
2. c 2. E 2. Going - public
3. b 3. B 3. Stock, Share
4. d 4. D 4. /
5. b 5. A 5. /
6. a
7. c
8. a
9. b
10.c

Bibliography
 Books:

Feliciano R. Fajardo (1997). Management

Sampaloc, Manila: Rex Book Store, Inc.

Romulo B. Rocena, Ed. D. Et Al. Technology and Livelihood Education

for First Year

CSC Publishing Inc., Philippine Copyright 2003

Lorenzo Carriedo Jr. Et Al. Entrepreneurial Retail Operation

First Printing – June, 2000, Second Printing – June 2001

Internet:

http://www.yahoo.com
http://www.google.com
http://www.wikipedia.com
http://wps.prenhall.com/bp_bovee_eib_rev/0,8591,1072010-,00.html

METHODS OF TEACHING
OFFICE SYSTEM
 Prepared by:

Divina, Dona Marie D.

Edited by:

Ms. Diana Divina

Submitted to:

Prof. Sheryl Morales