Textbook Notes (368,652)
Canada (162,033)
RSM100Y1 (431)
Chapter 5

RSM100Y1 Chapter 5 Notes

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Rotman Commerce
Michael Khan

RSM100Y1 Textbook Notes Chapter 5  Small Business: an independent business with fewer than 100 employees and revenues less than $2 million, not dominant in its market.  Government agencies offer benefits to help small businesses compete with larger firms.  Small businesses account for more than 2/3 of employment in five Canadian industry categories: o Non-institutional health care o Construction o Accommodation and food o Forestry o Other services  25% of small businesses operate in Canadian goods-producing industries; the other 75% operate in service industries.  Small firms provide customized services which set them apart from large firms.  Home-based Business: firms operated from the residence of the business owner.  Small businesses account for: o 24% of the nation’s GDP. o $83 billion (20%) of Canada’s total value of exports.  Small businesses offer tons of new jobs every year. (50%+ of all new jobs are created by companies with fewer than 100 employees.  New industries can be created when: o Small businesses shift their focus to provide needed services to a larger corporate community. o Small businesses shift their focus to meet consumer interests and preferences. o Both the business world and consumers see a need for change.  Small businesses are constantly developing new and improved goods and service (innovation).  The most common difficulties for a small firm are: o Management Inexperience  Managers may not have the right people skills, much knowledge of finance, be able to track inventory or sales, be poor at judging their competition, or may simply not have enough time to do everything that needs to be done. o Inadequate Financing  Most small businesses – even those with minimal start-up costs – sometimes don’t turn a profit for months or even years. o Government Regulation  In a recent year, small- and medium-sized businesses in five sectors spent $1.17 billion filling out forms to meet 11 key government information requirements, such as filing income tax forms and paying federal and provincial sales taxes.  Business plan: a formal document that details a company’s goals, the methods it will use to achieve these goals, and the standards it will use to measure its achievements. (usually needed to obtain financing)  A typical business plan includes: o An executive summary – W5H. o An introduction – concept, purpose and objectives of the business. o Separate financial and marketing sections – target market, marketing plan, and detailed financial forecasts of the need for funds and when the firm is expected to break even. o Résumés of principals.  The business plan must address: o The company’s mission and the vision of its founders. o An outline of why the company is unique. o The customers. o The competition. o Financial evaluation of the industry and market conditions. o Assessment of the risks.  Business Development Bank of Canada (BDC): a government agency that assists, counsels, and protects the interests of small businesses in Canada.  The BDC offers individual counselling, courses, conferences, workshops, and a wide range of publications, all aimed to improve owner-managers’ managing skills.  The Small Business Administration (SBA) is the American equivalent.  Canada Small Business Financing Program (CSBFP): a program that encourages financial institutions to make their financing available to small businesses by guaranteeing payment of 85% of a loan if it isn’t paid back.  Business Incubator: a local program designed to provide low-cost, shared business facilities to small start-up companies (i.e. portions of an abandoned plant).  The Canadian Association of Business Incubation (CABI) is a national association of member organizations.  There are 83 operating business incubators whose clients have raised more than $93 million in revenue and created full- and part-time jobs for more than 13,000 people.  Venture Capital: money invested in a business by another business or a group of individuals in return for an ownership share. (DD)  Canadian VC investment in 2010 was $1.1 billion despite a slow economy.  Women start their own companies sometimes in the hopes of finding a better balance between family and work.  About 1/3 of all self-employed people in Canada are women.  Franchising: a contract-based business arrangement between a manufacturer or other supplier, and a dealer, such as a restaurant operator or retailer.  Contract spells out how the dealer will market the supplier’s product.  The franchise industry has more than $100 billion in sales each year.  Canada has approx. 76,000 individual franchise businesses.  Avg. franchise fee is $23,000 and the avg. franchisee investment is $160,000.  Franchisee: the individual or business firm purchasing a franchise.  Franchisor: the firm whose products are sold to customers by the franchisee.  Benefits of franchising: o A franchised business can move to new locations around the world. o Franchisors provide a support to franchisees (i.e. financing, business training, helping obtain a location etc.) o Franchisor has already set up a loyal following of customers (most cases). o Combines the freedom of business ownership with the support of a large company.  Downsides to franchising: o If a franchisee fails, the failure reflects on the franchisor’s brand and the bottom line. o If the franchise is mismanaged by the franchisor, it could negatively affect the franchisee o The franchisor loses control over every aspect of the business. o The franchisee has many cash expenses (i.e. initial investment, franchising fees, supplies etc.) o If a customer has a bad experience at one location, it will deter them from returning back to the franchise no matter where it is.  The Better Business Bureau, Industry Canada, the U.S. Federal Trade Commission, and the Canadian Franchise Association can all help a potential franchisee in making the correct choice of a franchisor.  Most businesses are organized as one of three legal structures: o Sole Proprietorship  A business ownership in which the sole proprietor’s status as an individual is not legally separate from his/her status as a business owner.
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