Small Business Essentials: Structure, Franchising, Location

Posted on Mar 29, 2025 in Economy

Defining Business Types

Entrepreneurial Venture

The principal objectives of the owner are profitability and growth.

Small Business

A small business is independently owned and operated and is not dominant in its field.

Profit Motive

Expecting to make a profit is the reward for taking the risk of starting and running the business.

Contribution of Small Business

Small businesses contribute significantly by:

  • Encouraging innovation and flexibility
  • Maintaining close relationships with customers and the community
  • Keeping larger firms competitive
  • Providing employees with comprehensive learning experiences
  • Developing risk-takers
  • Generating new employment
  • Providing greater employee job satisfaction

Characteristics of Small Business Owners

Typically, small business owners:

  • Desire independence
  • Have a strong sense of initiative
  • Are motivated by personal and family considerations
  • Expect quick and concrete results
  • Are able to react quickly
  • Are dedicated to their business
  • Enter business as much by chance as by design

Problems Facing Small Businesses

Common challenges include:

  • Recession / Current economy
  • Retirement or transition planning
  • Capital or financing issues
  • Managing unexpected growth
  • Succession planning
  • Inadequate financing and management
  • Burdensome government regulation and paperwork
  • Inadequate management skills

Ideas for Small Businesses

  • Career counseling
  • Catering
  • Computer and office machine repair
  • Day care
  • Educational services and products
  • Financial planning
  • Home health care
  • Marketing, promotion, and public relations
  • Senior fitness and recreation
  • Specialized delivery services

Selecting the Right Legal Form

Consider these factors when choosing a legal structure:

  • Vision regarding the size and nature of the business
  • The level of control desired
  • Business vulnerability to lawsuits
  • Tax implications of different ownership structures
  • Expected profit (or loss) and earnings reinvestment
  • Personal cash needs

Business Structures Explained

Proprietorship

A proprietorship is a business that is owned by one person.

Partnership

A partnership is a business owned by two or more persons who have unlimited liability for its debts and obligations.

Corporation

A corporation is a business formed and owned by a group of people, called stockholders, given special rights, privileges, and limited liability.

Understanding Franchising

What is Franchising?

Franchising is a marketing system whereby an individual owner (franchisee) conducts business according to the terms and conditions set by the franchiser.

Types of Franchising Systems

Product and Trademark Franchising

An arrangement under which the franchisee is granted the right to sell a widely recognized product or brand.

Business Format Franchising

A relationship in which the franchisee is granted the right to use an entire marketing system developed by the franchiser.

Reasons for Buying a Franchise

  1. In a franchise agreement, usually, each party desires the success of the other.
  2. The franchiser brings proven and successful methods of operation and business image to aid the franchisee.
  3. The franchisee receives guidance from experienced people.
  4. There are many franchises to choose from.
  5. A franchise combines your talent and desires with a proven model.
  6. The market niche is already identified.
  7. The business system may already be running successfully.

Reasons for Not Buying a Franchise

  • Not having enough money to cover all needs (including personal funds).
  • Potential for unsuccessful marketing by the franchiser or franchisee.
  • Issues affecting the franchisee’s understanding of their role and responsibilities.
  • High initial investment and ongoing costs.
  • The franchise model may not fit the owner‘s desires and direction.
  • It may not give the franchisee enough independence.

Marketing and Location Strategies

Niche Marketing

Niche marketing involves targeting a specific market segment by selling a specialized product or service to particular customers. For example, IKEA sells furniture targeting specific customer segments, or a supplier sells building materials primarily to contractors.

Market Research

Market research is the systematic gathering, recording, and analyzing of data related to the marketing of goods and services.

Choosing the Right Location

Company location is a major factor in success or failure. Ask yourself: Do I plan to have just one location or grow regionally or nationwide? Do I plan to focus on one product area or expand into several?

Location for Retail Stores

In choosing a site for a retail store, two interrelated factors are important: the type of store and the type of location.

General Factors Affecting Business Location

The more important general factors include:

  1. Access to a capable, well-trained, stable workforce.
  2. Availability of adequate and affordable supplies and services.
  3. Availability, type, use, and cost of transportation.
  4. Taxes and government regulations.
  5. Availability and cost of electricity, gas, water, and other utilities.

Note: Flexibility in office space has become important. With rentals usually locked into long-term leases, sometimes only a fraction of office space is consistently used. A trend is to outsource office space needs on a short-term basis.

Specific Factors for Various Businesses

The type of business – retailing, producing, or service – influences most location decisions because it determines the relative importance of the general factors mentioned above. For example, location relative to customers may be more important to a large department store, while location relative to employees might be more important to a manufacturing plant.