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Lecture 2
Ms. Elaine Yang
https://www.edmodo.com
https://edmo.do/j/528s5b
Group Code: anzpne
Prepared by Elaine Yang
1.
What comes to your mind when you think of a small

business? How does your concept differ from the definition
given in the lecture?
2.
Distinguish a small business and entrepreneurial venture. If

you were to start your own business, which would you wish to
be? Why?
3.
How do you explain the growing interest young people have

in small business? Relate this to your personal small business
experience.
4.
What are some problems facing small business? Again give

example for your experience.
5.
Discuss the four personal objectives that people seek when

starting a new business.
Explain he interrelationship between the service and profit

objectives.
6.
1. Evaluate Henry Gibsons approach to starting a new business.

2. Could there have been another source of funding? Explain.
3. How do you explain the fact that Big Wash has not been
robbed?
1. Discuss David and Gretas ability to spot an opportunity

2. How ambitious are this couple?
3. Can you identify some key entrepreneurial characteristics for
David and Greta? Are they the same for each person?
4. How important was fate in David and Gretas entrepreneurial
career?
5. How important are exit strategies in entrepreneurship?

6. Comment on whether David and Gretas businesses were
lifestyle or growth.
What are the findings of this paper?
http://www.ideapaint.com/
http://www.youtube.com/watch?v=yWRnaDYKCko
Entrepreneurial Venture
Main objectives are profitability and growth
Innovative strategic practices and products
Small Business
Independently owned and operated business
Principal purpose of furthering personal goals
Might never grow large
More relax and less aggressive
Entrepreneurship and business management are both
processes.
Entrepreneurship is the process of identifying
opportunities for which marketable needs exist and

assuming the risk of creating an organization to satisfy
them.
Small business management is the ongoing process of
owning and operating an established business.
Entrepreneur = between-taker or go-between
Originally referred to men who organized and managed
exploration expeditions and military maneuvers
An entrepreneur is a person who takes advantage of a
business opportunity by assuming the financial, material,

and psychological risks of starting or running a company.
Creation
Innovation
Risk assumption
General management
Performance intention
General
1.
Do you think you are ready to start a business?
2.
Do you have support for your business from family and

friends?
3.
Have you ever worked in a business similar to what you are

starting?
4.
Would people who know you say you are entrepreneurial?
5.
Have you ever taken a small business course or seminar?
Personal Characteristics
1.
Are you a leader?
2.
Do you like to make your own decisions?
3.
Do others turn to you for help in making decisions?
4.
Do you enjoy competition?
5.
Do you have willpower and self-discipline?
6.
Do you plan ahead?
7.
Do you like people?
8.
Do you get along well with others?
9.
Would people who know you say you are outgoing?
Personal Conditions
1.
Are you aware that running your own business may require
working more than 12 hours a day, 6 days a week, and maybe
Sundays and holidays?
2.
Do you have the physical stamina to handle a selfemployed workload and schedule?
3.
Do you have the emotional strength to deal effectively with

pressure?
4.
Are you prepared, if needed, to temporarily lower your

standard of living until your business is firmly established?
5.
Are you prepared to lose a portion of your savings?
Skills and Experience

1.
Do you know what basic skills you will need in order to have
a successful business?
2.
Do you possess those skills?
3.
Do you feel comfortable using a computer?
4.
Have you ever worked in a managerial or supervisory

capacity?
5.
Do you think you can be comfortable hiring, disciplining, and

delegating tasks to employees?
6.
If you discover you do not have the basic skills needed for
your business, will you be willing to delay your plans until
you have acquired the necessary skills?
LEARNING OBJECTIVES
Discuss problems involved in organizing/operating
small family-owned business
Explain how family relationships can affect business

Describe how to prepare the next generation to
enter the firm
Discuss the importance and method of preparing for
management succession
Describe the need for tax and estate planning in
small companies
90% of all US companies
30% - 2nd generation

12% - 3rd generation
3% - 4th generation
Written Mission Statement

Include Children In Decisions
Family Discussions

McGraw-Hill/Irwin
Start From Trust/Openness

Unanimous (all) Agreement On Values & Vision
Copies To All
Avoid:
Rushing Family
Favoring An Agenda
Forgetting Purpose
Photodisc
Kids Start Business & Get Capital From Parents

Parent Given Executive Position
Spouses Working Together
1/3 copreneurs
Needs Clear Chain Of Command
One should be clearly in charge in management
Monica Lau/Getty Images
FOB controlled by women are twice
efficient as those controlled by men
37% - female family business owners

Traditionally, leadership has passed
from father to son
Now more and more women are taking
over the family business
Express Interest
Get Involved
Outside Experience
Meet Women
Learn From Seniors
Define Yourself
Be Sensitive
Develop A Vision
Founder = Head
Some Family In High Positions

Instill Sense Of Ownership
Motivator, Cooperation
Deal With Incompetents

Compensate
Welfare or profit-making entity?
Recognize Limitations
Personality, emotion
Authority, responsibility, ability
1.
Business Appraisal
2.
Negotiate Buyout
3.
Decide What To Do With Stock
4.
Seek Tax Professionals
Preplanning written ownership agreement, pre-
or post nuptial agreement

Large Families
Stay-At-Home Mom (5.6 mil.)
Dadpreneurs (159,000)
Develop Hobbies As Business
Working Moms Establish Business
Economy More Difficult
Need Additional Income
Large Business No Longer Family-Friendly
Borrow Capital
Sell Stock
Selling Personal Assets
Other (loan shark ?)
Start Part/Full-Time Job

within or away
Start Entry or Higher-Level In Business
Not for senior management until he/she has 2 years working
experience with someone else
Rotate in varying positions

Give promotions only as they are earned
Devote at least half an hour each day face-to-face teaching and
training
Do not take business matters home

Give true responsibility
Plan Early & Carefully
Groom Successor
Doug Menuez/Getty Images
Written Plans to Guide Next Generation
Treat All Children Fairly

Training Should Be Given Early
Nonfamily Employees?
Family Concerns:
Communication
Conflict
Estate Taxes
More Than 1 Child Succession
Executive Committee
Choose Their Own Leader
Financial Security
Sudden Free Time
Founders Fiduciary
(guardian) Responsibility To
Nonfamily Employees
Self-Esteem
Friends Continue To Work
Founder Fair To Successor(s)
Fear Of Death
Successor Ready?
Reluctance To Release Power
Jealousy/ Rivalry To
Successor
Effect On Spouse
Source: Family Business Experts, www.familybusinessexperts.com
Coaching Skills?
Spouses Role In Business

Reluctance To Discuss Future Beyond Parents
Life
Fairness vs. Favoritism
Fear Of Parents Death
Personal Relationship With Founder
Differentiating Amongst Key Managers

Reluctance To Establish Formal Controls
Fear Of Change
Customers & Suppliers

Dependence On Founder
Trust/Confidence In Potential Successor
Sudden Departure
Dies
Becomes Incapacitated
Planned Departure
Leaves Company
Retires
Royalty-Free/CORBIS/
Stays In Family
Source Of Family Employment
Stature Maintained
Relax
Pleasure To See Successor Success
Strengthen Family Bonds

Assured Income
Lack Of Worry
Consult?
Release Famaily Tension
Relief Of Responsibility
Loss Of Family ID
Loss = Sadness
Greg Kuchik/Getty Images
Broaden Focus
Devote Time To:
Hobbies
Other Groups
Gradually Turn Over Control

Estate planning to minimize the tax burden of
the business owners heirs.
Estate Planning: Preparing for the orderly
transfer of the owners equity in the business

when death occurs
Business Standpoint
Reduce Cash Strain
Maintain Beneficiaries Interest

Smooth Transition
Keith Brofsky/Getty Images
Gifts
Stock Sales
Living Trusts
Family Limited Partnerships
Minimize Cost
Retain Control
Buy/Sell Agreement
PhotoLink/Getty Images
A family limited partnership allows business
owners to pass assets to heir with a minimum

of income and estate tax costs while retaining
control of assets during their lifetime.
Consult professionals
Lawyers, accountants, professional tax
planners
http://www.forbes.com/sites/robclarfeld/2012/04/25/7-major-
errors-in-estate-planning/
http://www.theedgemalaysia.com/personal-finance/238272-a-
trust-for-you-and-me-part-1.html
http://estateplanningmalaysia.blogspot.com/
1.
Why is management succession an important issue for any

small firm? For a family firm?
2.
Why is it often difficult to make reasonable decisions in a

family business? What problems are caused by a family
organization structure?
3.
What problems face a company when a key officer leaves

suddenly?
4.
If you start a business when you are in your twenties or

thirties, should you do anything about your replacement?
Explain.
5.
Suppose you have a successful business now but decide you

want to leave it. What might be some reasons for leaving it?
What alternatives do you have for the business?
6.
How important is estate planning? How can you do it?
Name the legal forms of ownership a small
business can have.
Explain the reasons for and against forming a
proprietorship / partnership / corporation.
Discuss some other legal forms a business
can take.
How to structure your company?
Future Size
Nature
Desired Control & Structure
Legal Vulnerability (loophole)
Tax Implications
Expected Profit (Loss)
Re-investment
Personal Cash Needs
McGraw-Hill/Irwin
2006 The McGraw-Hill Companies, Inc. All rights reserved.
The choice of legal form does not have to be final
Proprietorship
Partnership
Corporation
80%
70%
60%
50%
40%
30%
20%
10%
0%
Services
Trade
Construction
Finance/Ins. &
Real Estate
Manufacturing
Proprietorship
Partnership
Corporation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Services
Trade
Construction
Finance/Ins. &
Real Estate
Manufacturing
Structure
Typical Owner
Liability
Taxable Profits
Paperwork of
Origin
Proprietorship
Individual
Individual
Individual
None
General
Partnership
2 or more
Individual
Individual as
per partnership
agreement
Partnership
agreement
Limited
Partnership
2 or more 1
general partner
General partner
Individual as
per partnership
agreement
Partnership
agreement
Joint Venture
2 or more
companies
Business
purpose only
As per
agreement
Partnership
agreement
Corporation
No limit of
owner
Corporate entity
Corporate and
declared
dividends to
individuals
Charter, Articles
of Inc.
S Corporation
100 max
Corporate entity
Owners
Charter, Articles
of Inc.
Individual
liability only
Owners
Charter, Articles
of Inc.
Professional
All owners in
Service
same profession
Corporation
BUSINESS OWNED BY ONE PERSON
Insert
Figure 3.2
A VOLUNTARY ASSOCIATION OF 2 OR MORE PERSONS TO

CARRY ON AS CO-OWNERS
PARTNERSHIP ACT 1961

Partners Responsible For Other Partners
Actions
Liability:
Personal Property At Risk
All Debts Of Firm
Resolve Disputes Among Partners(?)

Extracting yourself from a bad partnership is like defusing
a bomb. Sudden moves can set the whole thing off.

Compromise should be the goal, and negotiation the
Prepared
by Elaine Yang
means.
Inc. Magazine
General Partnership: Each partner actively participates as an
equal in managing the business and being liable for the acts of
other partners.
Limited Partnership: One or more general partners conduct
the business, while one or more limited partners contribute

capital but do not participate in management and are not held
liable for debts of the general partners.
General
Partner
General
Partner
Partners Liable For

Each Others Actions
General
Partner
Manage With
Unlimited Liability
General
Partner
Limited
Partner
Limited
Partner
Limited
Partner
Liability = Capital
Contribution
A business formed and owned by a group of

people, called stockholders, given special
rights, privileges, and limited liabilities by
law.
Owners = shareholders
Board of directors oversee major policies and decisions

Made world safer for investment
Stockholders
Elects
Board Of
Directors
Appoints
Corporate
Officers
Limited Liability Company

Combines the advantages of a corporation, such as liability
protection, with the benefits of a partnership, such as tax

advantages
Limited Liability Partnership

Protect individual partners from personal liability for the
negligent acts of other partners or employees
What Is the Difference Between an LLC & an LLP?

http://smallbusiness.chron.com/difference-between-llc-llp-
3760.html
Family Limited Liability Partnership

Partners Related (Family)
Agriculture/Family Farms
Professional Service Corporation
Provides Licensed Professional Services
Doctors, Lawyers, & Accountants
Nonprofit Corporations
Civic, Charitable, Educational, Religious

Tax Exempt
Cooperative
Owned by and operated for the benefit of patrons using

its services
Joint Venture
Temporary partnership
Join in a single endeavor to make a profit
Fractional Ownership
Percentage share of an expensive asset
A cooperative ("coop") or co-operative ("co-op") is an
autonomous association of persons who voluntarily cooperate

for their mutual social, economic, and cultural benefit.
Cooperatives include non-profit community organizations and
businesses that are owned and managed by the people who

use its services (a consumer cooperative) or by the people who
work there (a worker cooperative) or by the people who live
there (a housing cooperative)
Hybrids such as worker cooperatives that are also consumer
cooperatives or credit unions, multi-stakeholder cooperatives.
https://www.ssm.com.my/en
1.
What are some basic questions to ask when deciding on the

legal form to choose for a small business?
2.
Define proprietorship, partnership, corporation, limitedliability company, cooperative, and joint venture.
3.
What are some advantages and disadvantages of a

proprietorship?
4.

partnership?
5.

corporation?

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Lecture 2

Ms. Elaine Yang

Prepared by Elaine Yang

What comes to your mind when you think of a small

Distinguish a small business and entrepreneurial venture. If

How do you explain the growing interest young people have

What are some problems facing small business? Again give

Discuss the four personal objectives that people seek when

Explain he interrelationship between the service and profit

Prepared by Elaine Yang

1. Evaluate Henry Gibsons approach to starting a new business.

Prepared by Elaine Yang

1. Discuss David and Gretas ability to spot an opportunity

4. How important was fate in David and Gretas entrepreneurial

5. How important are exit strategies in entrepreneurship?

Prepared by Elaine Yang

What are the findings of this paper?

Prepared by Elaine Yang

Prepared by Elaine Yang

Prepared by Elaine Yang

Prepared by Elaine Yang

Entrepreneurship and business management are both

Entrepreneurship is the process of identifying

opportunities for which marketable needs exist and

Small business management is the ongoing process of

owning and operating an established business.

Prepared by Elaine Yang

Entrepreneur = between-taker or go-between

Originally referred to men who organized and managed

exploration expeditions and military maneuvers

An entrepreneur is a person who takes advantage of a

business opportunity by assuming the financial, material,

Prepared by Elaine Yang

Do you think you are ready to start a business?

Do you have support for your business from family and

Have you ever worked in a business similar to what you are

Would people who know you say you are entrepreneurial?

Have you ever taken a small business course or seminar?

Prepared by Elaine Yang

Are you a leader?

Do you like to make your own decisions?

Do others turn to you for help in making decisions?

Do you enjoy competition?

Do you have willpower and self-discipline?

Do you plan ahead?

Do you like people?

Do you get along well with others?

Would people who know you say you are outgoing?

Prepared by Elaine Yang

Do you have the emotional strength to deal effectively with

Are you prepared, if needed, to temporarily lower your

Are you prepared to lose a portion of your savings?

Prepared by Elaine Yang

Skills and Experience

Do you possess those skills?

Do you feel comfortable using a computer?

Have you ever worked in a managerial or supervisory

Do you think you can be comfortable hiring, disciplining, and

Prepared by Elaine Yang

Prepared by Elaine Yang

Prepared by Elaine Yang

Prepared by Elaine Yang

small family-owned business