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Chapter 5

RSM100Y1 Chapter Notes - Chapter 5: Small Business Administration, Better Business Bureau, Startup Company

Rotman Commerce
Course Code
Michael Khan

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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
Home-based Business: firms operated from the residence of the business
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
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

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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
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.
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