Business Theory Lesson 1

Why do I care?!?! Mostly likely you will run or work for a company God help you if you work in the public sector! You will need to know how to start a business You will need to know how the business you work for is organized

The World of Production «I’m an entrepreneur who, like all others, wants to make money. What can I do?» «I can’t simply take people’s money but I could give them something in exchange for it!!! For example…..» …Wine! People (consumers) love wine!» Recognize the need «Now all I need to produce wine (goods) is machinery and a workfoce» Consumption People using the goods (and enjoying them!) Exchange Selling the goods and getting money in return Distribution Getting the goods to the consumers Production Manufacturing the goods

Production: The making and supply of useful goods or services to satisfy people’s needs PRIMARY Industry Produces or exchanges raw materials, mining, or agricultural products SECONDARY Industry Manufactures or processs products TERTIARY Industry Not involved in production but sell services or goods QUATERNARY Industry Provides information and expertise

How do we produce a good? Land: Produces primary products (goods provided by nature) Labour: Energy, skills, and knowledge of the working population Capital: The money needed to buy machinery and pay labour.

Types of Business Units: Sole Trader Franchising Partnerships Cooperative Societies Joint Ventures Limited Companies Multinationals

Sole Trader Simplest and most common way of starting a business A sole trader operates a business on his/her own and responsible for all actions Examples include restaurant, plumber, café, butcher

Franchising Originated in USA and over 1/3 of retail businesses operate with a franchise agreement Great for expanding small businesses Great for avoiding wholesalers Franchisor offers the use of their trademark Usually in exchange for an initial payment or percentage of profits Franchisee can avoid spending money on advertising or sales promotion Brand familiarity

Partnerships Easier to raise capital than being a sole trader Generally have between 2-20 partners Share responsibility Profits Losses Based on a deed of partnership Can be unlimited (all partners are liable and actively run the business) Or limited (but at least one must be in charge) Sleeping partner (want money not power)

Cooperative Societies & Joint Ventures Co-ops are opwned and controlled by the people who work in it All provide money and make decisions No one can dominate All members have limited liability Joint Venture is formed by two or more companies Each invests capital Costs and profits are shared according to agreement

Limited Companies (Co.) Allow people to invest without risks of unlimited liability Company has a legal identity (can be sued and own property) Capital is invested into shares and provided by shareholders Profits are divided proportionately into dividends and paid to shareholders

Shareholders Shareholders have some control but do little day-to-day decision making Instead they elect a board of directors Board of director delegates to other directors CEO, CFO, COO, etc.

Private vs. Public LTDs Shares are sold publicly Anyone can invest Can raise much more capital than private LTDs New shareholders must be found privately Have less opportunity to raise large amounts of capital

Multinationals Operate in many countries (but ownership is based in one country) Parent company may be a holding company which has subsidieries in different countries Allows production to take place in various (usually developing) countries The largest ones can often influence market prices and every control governements

Holding and Subsidiery Companies

Confused? Of course you are!