ENTREPRENEURSHIP

Lecture No: 17
Resource Person:
Malik Jawad Saboor
Assistant Professor
Department of Management Sciences
COMSATS Institute of Information Technology
Islamabad.
Previous Lecture Review

• Entrepreneurs in Action

• Video on Google Boys

 Objectives

• Guidelines for Preparing Business Plan

• Tips on Preparing Business Plan
• Explain the advantages and the disadvantages of
the three major forms of ownership
• The Sole Proprietorship
• The Partnership
• The Corporation.
 Guidelines for Preparing
a Business Plan

• Remember: No one can create your plan for you.

• Potential lenders want to see financial projections,
but they are more interested in the strategies for
reaching those projections.
• Show how you plan to set your business apart from
competitors; don’t fall into the “me too” trap.
• Identify your target market and offer evidence that
customers for your product or service exist.
 Tips on Preparing
a Business Plan
(Continued)

• Make sure your plan has an attractive cover. (First

impressions are crucial.)
• Rid your plan of all spelling and grammatical
errors.
• Make your plan visually appealing.
• Include a table of contents to allow readers to
navigate your plan easily.
• Make it interesting.
 Tips on Preparing
a Business Plan
(Continued)

• Your plan must prove that the business will make

money (not necessarily immediately, but
eventually).
• Use spreadsheets to generate financial forecasts.
• Always include cash flow projections.
• Keep your plan “crisp” – between 25 and 50 pages
long.
• Tell the truth – always.
 Presenting the Plan
• Demonstrate enthusiasm, but don’t be
overemotional.
• Know your audience thoroughly.
• “Hook” investors quickly with an up-front
explanation of the venture, its opportunities, and
its benefits to them.
• Hit the highlights; focus on the details later.
• Keep your presentation simple – 2 or 3 major
points.
 Presenting the Plan
(Continued)

• Avoid overloading your audience with

technological jargon.
• Use visual aids.
• Close by reinforcing the nature of the opportunity.
• Be prepared (with details) for potential investors’
questions.
• Follow up with every investor to whom you make
your presentation.
 Choosing a Form of Ownership
• There is no one “best” form of ownership.
• The best form of ownership depends on an
entrepreneur’s particular situation.
• Key: Understanding the characteristics of
each form of ownership and how well they
match an entrepreneur’s business and
personal circumstances.
 Factors Affecting the Choice
• Tax considerations
• Liability exposure
• Start-up and future capital
requirements
• Control
• Managerial ability
• Business goals
• Cost of formation
 Major Forms of Ownership

• Sole Proprietorship
• Partnership
• Corporation
 Advantages of the Sole Proprietorship

• Simple to create
• Least costly form to begin
• Profit incentive
• Total decision-making authority
• No special legal restrictions
• Easy to discontinue
 Disadvantages of the Sole Proprietorship

• Unlimited personal liability

• Limited skills and capabilities
• Feelings of isolation
• Limited access to capital
• Lack of continuity
 Liability Features of the Basic Forms of
Ownership

Sole Proprietorship
Claims
Claims of
of Sole
Sole Proprietor’s
Proprietor’s Creditors
Creditors

Sole
Sole Proprietor’s
Proprietor’s Personal
PersonalAssets
Assets
 Partnership
• An association of two or more people who co-
own a business for the purpose of making a
profit.
• Always wise to create a partnership
agreement.
• Best partnerships are built on trust and
respect.
 ELEMENTS OF GOOD PARTNERSHIP
AGREEMENT
• What is the financial contribution of each
partner?
• What is the division of work between the
partners?
• What constitutes income in the partnership?
• What property is included in the partnership
and how is it defined?
• How will/can partnership property be used by
individual partners?
 ELEMENTS OF GOOD PARTNERSHIP
AGREEMENT

• How will bank accounts be set up and how will

accounting and tax matters be handled?
• How will disputes related to the partnership be
resolved?
• What happens if one partner dies or becomes disabled
or incapacitated?
• What happens if one partner wants to leave the
partnership?
• How will sale of the business be handled?
 Advantages of the Partnership
• Easy to establish
• Complementary skills of partners
• Division of profits
• Larger pool of capital
• Ability to attract limited partners
 Types of Partners
• General partners
– Take an active role in managing a business.
– Have unlimited liability for the partnership’s debts.
– Every partnership must have at least one general
partner.
• Limited partners
– Cannot participate in the day-to-day management
of a company.
– Have limited liability for the partnership’s debts.
Advantages of the Partnership
• Easy to establish
• Complementary skills of partners
• Division of profits
• Larger pool of capital
• Ability to attract limited partners
• Little government regulation
• Taxation
Disadvantages of the Partnership
• Unlimited liability of at least one partner
• Capital accumulation
• Difficulty in disposing of partnership interest
• Lack of continuity
• Potential for personality and authority
conflicts
• Partners bound by law of agency
 Liability Features of the Basic Forms of Ownership

Partnership
Claims
Claims of
of Partnership’s
Partnership’s Creditors
Creditors

General
General Partnership’s General
General
Assets
Partnership’s Assets
Partner’s
Partner’s Partner’s
Partner’s
Personal
Personal Personal
Personal
Assets
Assets Assets
Assets
 Corporation
• A separate legal entity from its owners.
• Types of corporations:
• Publicly held – a corporation that has a large
number of shareholders and whose stock usually
is traded on one of the large stock exchanges.
• Closely held – a corporation in which shares are
controlled by a relatively small number of
people, often family members, relatives, or
friends.
 Advantages of the Corporation
• Limited liability of stockholders
• Ability to attract capital
• Ability to continue indefinitely
• Transferable ownership
 Liability Features of the Basic Forms of Ownership

Corporation
Claims
Claims of
of Corporation’s
Corporation’s Creditors
Creditors

BBaarrr r r
riieer
r
riieerr BBaar
Corporation’s
Corporation’sAssets
Assets

Shareholder’s
Shareholder’s Shareholder’s
Shareholder’s
Personal
PersonalAssets
Assets Personal
PersonalAssets
Assets
Disadvantages of the Corporation
• Cost and time of incorporating
• Double taxation
• Potential for diminished managerial
incentives
• Legal requirements and regulatory “red
tape”
• Potential loss of control by founder(s)
You Be The Consultant..

CASE
STUDY
YOU BE THE CONSULTANT
Louise Tallman spent much of her childhood playing and working in her
mother and aunt’s antique shop. Her interest, involvement, and love of
antiques led her to attend a school of art and design. Upon graduation,
Louise decided to start her own antique shop and is in the process of
completing her business plan.

Q1. What are the questions that you would pose to Louise in order to help her select the
form of ownership for her antique shop? Please explain the relevance of each question and
answer, to determination of the suggested form of ownership.
 Lecture Review

• Explain the advantages and the disadvantages

of the three major forms of ownership
• The Sole Proprietorship
• The Partnership
• The Corporation.

Reference: Essentials of Entrepreneurship & Small Business Management,

Zimmer, Scarborough &Wilson, 5th Edition