Small Business

Professor Vishal K. Gupta is on the faculty of the Department of Management at Culverhouse College of Business of The University of Alabama. His previous academic positions were at University of Mississippi, State University of New York at Binghamton, and University of Nebraska at Omaha. He also has been a visiting professor at Bahrain Institute of Banking and Finance, and the Indian Institute of Management (at Kashipur and Shillong). He has published 2 academic books and over 75 research articles. His work is regularly discussed in the popular press, including the Wall Street Journal, New York Times, and Business Insider, among others. Before embarking on an academic career, Professor Gupta worked in the family business (YESCO), making industrial grinding machines. He earned a PhD in Business Administration (concentration in Strategic Management with an emphasis on Entrepreneurship) from University of Missouri. His pedagogical approach combines theory and practice, which also informs the way the material in this book is presented.

• Preface vii1 Understanding Small Business 11.0. Introduction 11.1. Describe Small Business 3Comprehension Check 71.2. Define Small Business Management 71.2.1. Problems with (Rapid) Growth 11Comprehension Check 131.3. Myths About and Benefits of Small Business Entrepreneurship 13Comprehension Check 171.4. Identify Various Forms of Entrepreneurship 17Comprehension Check 20Summary 20Live Exercise 21World of Books 21In the Movies 22Things to Remember 22Key Terms 23Experiential Exercise 232 Starting a New Business 242.0. Introduction 242.1. Motivations for Starting a New Venture 26Comprehension Check 292.2. Part-time and Full-time Startups 30Comprehension Check 322.3. From Idea to Opportunity 32Comprehension Check 392.4. The Universal Startup Model 39Comprehension Check 422.5. Analyze the State of Startup in the United States 43Comprehension Check 45Summary 46Live Exercise 46World of Books 46In the Movies 46Things to Remember 47Key Terms 48Experiential Exercise 483 Family Business 493.0. Introduction 493.1. The Basics of Family Business 513.1.1. Definition of Family Business 513.1.2. Family Business System 53Comprehension Check 543.2. Two Sides of the Family Business 543.2.1. Positives of a Family Business 553.2.2. Negatives of a Family Business 56Comprehension Check 593.3. Types of Family Businesses 59Comprehension Check 623.4. Succession Planning in Family Business 623.4.1. Enduring Family Firms 643.4.2. Best Practices for Family Firms 663.4.3. Next-Generation Challenge 673.4.4. Role of Offspring Gender 68Comprehension Check 71Summary 71Live Exercise 71World of Books 71In the Movies 71Things to Remember 72Key Terms 73Experiential Exercise 734 Franchising for Small Firms 744.0. Introduction 744.1. Meaning and History of Franchising 764.1.1. Historical Evolution 794.1.2. Forms of Franchising 81Comprehension Check 834.2. Considerations in Franchising 834.2.1. Advantages of Franchising 844.2.2. Disadvantages of Franchising 86Comprehension Check 884.3. Types of Franchise 884.3.1. Legal and Institutional Environment for Franchising 89Comprehension Check 954.4. Decision to Become a Franchisee 964.4.1. Assess Your Situation 974.4.2. Start Your Research 97Comprehension Check 100Summary 100Live Exercise 100World of Books 101In the Movies 101Things to Remember 101Key Terms 102Experiential Exercise 1025 Small Business Ownership Through Acquisition 1035.0. Introduction 1035.1. Business Acquisition and Its Two Sides 1055.1.1. Bright Side of Acquisitions 1075.1.2. Downsides of Acquisition 108Comprehension Check 1095.2. The Acquisition Process 1105.2.1. Step 1: Raising Capital 1105.2.2. Step 2: Identifying Targets 1115.2.3. Step 3: Funding the Buyout 1125.2.4. Step 4: Operating and Value Creation 113Comprehension Check 1145.3. Possible Acquisition Paths 1145.3.1. Self-funded Search 1145.3.2. Traditional Search Fund 1155.3.3. Sponsored Search 1165.3.4. Incubated Search 117Comprehension Check 1185.4. Valuing a Business 118Comprehension Check 120Summary 120Live Exercise 121World of Books 121In the Movies 121Things to Remember 121Key Terms 122Experiential Exercise 1236 Small Business Marketing 1246.0. Introduction 1246.1. What Is Small Business Marketing? 126Comprehension Check 1286.2. Products: Goods and/or Services 128Comprehension Check 1316.3. Capturing the Attention of the Market 1316.3.1. The Marketing Funnel 1326.3.2. Digital Marketing 135Comprehension Check 1396.4. Locating Your Business in the Right Place 1396.4.1. Is Your Customer the User? 1406.4.2. Getting Through to the User or Customer 140Comprehension Check 1436.5. Pricing Is Crucial! 144Comprehension Check 147Summary 148World of Books 148In the Movies 149Live Exercise 149Things to Remember 149Key Terms 150Experiential Exercise 1517 Small Business Accounting 1527.0. Introduction 1527.1. Why Accounting Matters 154Comprehension Check 1587.2. Basic Accounting Concepts 1587.2.1. Business Entity Concept 1587.2.2. Going Concern Concept 1597.2.3. The Accounting Equation 1597.2.4. Revenues and Expenses 1617.2.5. Cash Flow 162Comprehension Check 1637.3. Accounting System and Financial Reports 1637.3.1. Income Statement 1647.3.2. Cash Flow Statement 1647.3.3. Balance Sheet 1657.3.4. Statement of Retained Earnings 1667.3.5. Statement of Owner’s Equity 166Comprehension Check 1677.4. Key Ratios for Financial Statement Analysis 1677.4.1. Profitability Analysis 1687.4.2. Leverage Ratio 1707.4.3. Activity Ratios 1717.4.4. Liquidity Ratios 172Comprehension Check 174Summary 174World of Books 175In the Movies 175Live Exercise 175Things to Remember 175Key Terms 176Experiential Exercise 1778 Small Business Finance 1788.0. Introduction 1788.1. Introduction to Small Business Financing 180Comprehension Check 1828.2. Types of Funding 1828.2.1. Debt Funds 1828.2.2. Equity Funds 1848.2.3. Funding Growth Internally 185Comprehension Check 1868.3. Financing from Personal Resources 186Comprehension Check 1918.4. Formal Sources of Financing 1918.4.1. Financing from Debt 1918.4.2. Financing from Equity 1948.4.3. Other Financing Sources 197Comprehension Check 1998.5. Crowdfunding and Its Appeal 199Comprehension Check 202Summary 202World of Books 203In the Movies 203Live Exercise 203Things to Remember 203Key Terms 205Experiential Exercise 2059 Small Business and the Law 2069.0. Introduction 2069.1. Legal Structures for Small Businesses 2089.1.1. Proprietorship: Most Common Legal Form for American Businesses 2099.1.2. Partnerships: Formed by Many Hated by Many 2119.1.3. Corporation: They Are People Too! 211Comprehension Check 2159.2. Fundamentals of Contracts 2159.2.1. Types of Contracts 217Comprehension Check 2199.3. Introduction to Intellectual Property 2199.3.1. Trademark (or Service Mark) 2209.3.2. Trade Secret 2219.3.3. Copyright 2219.3.4. Patents 222Comprehension Check 2239.4. Basics of Bankruptcy Laws 224Comprehension Check 226Summary 226World of Books 227In the Movies 227Live Exercise 227Things to Remember 228Key Terms 229Experiential Exercise 22910 Ethics and Social Responsibility 23010.0. Introduction 23010.1. Why Behave Ethically? 230Comprehension Check 23510.2. Legal and Moral Criteria for Ethical Behavior 23610.2.1. Law and Morality as Two Criteria in Making Business Decisions 23710.2.2. Ethics and the Role of Time and Place 240Comprehension Check 24010.3. Should Ethics Be Taught? 241Comprehension Check 24310.4. Corporate Social Responsibility 243Comprehension Check 24710.5. Introduction to Ethical Frameworks 248Comprehension Check 251Summary 251World of Books 251In the Movies 251Live Exercise 251Things to Remember 252Key Terms 254Experiential Exercise 25411 Leadership and Its Challenges 25511.0. Introduction 25511.1. Qualities of Successful Entrepreneurs 25711.1.1. Passion 25711.1.2. Perseverance 25911.1.3. Humility 261Comprehension Check 26211.2. Leadership Styles of Entrepreneurs 263Comprehension Check 26611.3. Stress and Well-being 26611.3.1. Financial Stressors 26711.3.2. Interpersonal Stressors 26811.3.3. Self-regulation Problems 26811.3.4. Nature of Work 26911.3.5. Uncertainty 26911.3.6. Work–Life Conflict 269Comprehension Check 27211.4. Delegation and Professional Management 273Comprehension Check 275Summary 275World of Books 276In the Movies 276Live Exercise 276Things to Remember 277Key Terms 278Experiential Exercise 27812 Human Resources Management 27912.0. Introduction 27912.1. Making the Decision to Hire 28112.1.1. Using Independent Contractors 28312.1.2. Recruiting Employees 284Comprehension Check 28712.2. Finding New Employees 28712.2.1. Referrals 28812.2.2. Relatives and Friends 28912.2.3. Advertisements 29012.2.4. Internet Job Sites 29012.2.5. Social Media 29112.2.6. Employment Agencies 29112.2.7. Company Websites 29212.2.8. Other Sources 292Comprehension Check 294xx Contents12.3. Selecting and Training Employees 29412.3.1. Tools for Screening Applicants 29612.3.2. Training Employees 301Comprehension Check 30212.4. Rewarding and Disciplining Employees 30312.4.1. Wages 30312.4.2. Benefits 30412.4.3. Disciplining Employees 305Comprehension Check 306Summary 306World of Books 306In the Movies 306Live Exercise 307Things to Remember 307Key Terms 309Experiential Exercise 30913 Operations and Supply Chain Management 31013.0. Introduction 31013.1. Basics of Managing Operations 31213.1.1. Productivity 316Comprehension Check 31813.2. The Fundamental Concept of Inventory 31813.2.1. Just-in-Time Inventory Management 32013.2.2. No Inventory 322Comprehension Check 32313.3. Introduction to Scheduling 323Comprehension Check 32513.4. Issues of Quality 325Comprehension Check 328Summary 328World of Books 329In the Movies 329Live Exercise 329Things to Remember 330Key Terms 331Experiential Exercise 33114 Global Opportunities for Small Firms 33214.0. Introduction 33214.1. Motivation for Competing Internationally 333Comprehension Check 33814.2. Common Modes of International Expansion 33814.2.1. Types of Exporting 34014.2.2. Licensing 34114.2.3. Franchising 34214.2.4. Foreign Partnerships 343Comprehension Check 34414.3. Challenges to Overseas Expansion 34414.3.1. Demographic and Cultural Factors 34514.3.2. Government Policies and Regulatory Framework 34614.3.4. Political and Economic Risks 34714.3.5. Adverse Exchange Rate Shifts 348Comprehension Check 34914.4. Main Approaches to International Strategy 349Comprehension Check 35114.5. Contemporary Issues in Globalization 351Comprehension Check 354Summary 354World of Books 354In the Movies 354Live Exercise 355Things to Remember 355Key Terms 356Experiential Exercise 35715 Strategic Thinking for Small Firms 35815.0. Introduction 35815.1. Strategy of Small Business 360Comprehension Check 36215.2. Thinking Strategically! 362Comprehension Check 36415.3. SWOT Analysis 36415.3.1. Looking Outward 36615.3.2. Looking Inward 37015.3.3. Aligning Internal with External 37115.3.4. Common Mistakes in SWOT Analysis 373Comprehension Check 37415.4. Generic Strategies for Small Firms 374Comprehension Check 378Summary 378World of Books 378In the Movies 378Live Exercise 378Things to Remember 379Key Terms 380Experiential Exercise 38016 Business Planning for Small Firms 38116.0. Introduction 38116.1. What Is a Business Plan? 38216.1.1. To Provide Direction 38416.1.2. To Determine Feasibility 38416.1.3. To Attract Capital and Other Resources 385Comprehension Check 38616.2. What Is a Business Model? 38616.2.1. Coming Up with a Business Model 387Comprehension Check 39016.3. Writing a Business Plan 39016.3.1. Cover Page 39016.3.2. Table of Contents 39016.3.3. Executive Summary 39216.3.4. Company Description 39216.3.5. Environmental and Industrial Analysis 39316.3.6. Manufacturing and Operations 39616.3.7. Financial Analysis 39616.3.8. Critical Assumptions and Risks 39916.3.9. Appendix 400Comprehension Check 40116.4. Customizing the Business Plan 40116.4.1. Things to Watch Out for in Business Plans 402Comprehension Check 404Summary 405World of Books 405In the Movies 405Live Exercise 405Things to Remember 406Key Terms 407Experiential Exercise 40817 Harvesting the Business 40917.0. Introduction 40917.1. Approaches to Harvesting a Business 41017.1.1. Harvest Through Sale of the Firm 41217.1.2. Sales to Rivals 41417.1.3. Sales to Employees 41517.1.4. Sales to Other Buyers 416Comprehension Check 41817.2. Valuing a Firm 418Comprehension Check 42217.3. Challenges to Harvesting 42217.3.1. Anticipating the Harvest 42317.3.2. Post-harvest Planning 424Comprehension Check 42617.4. Harvesting by Going Public 426Comprehension Check 428Summary 428World of Books 428In the Movies 429Live Exercise 429Things to Remember 429Key Terms 431Experiential Exercise 431Index I-1