Characteristics of Business Dr. T. Mitchell Bonneville High School Idaho Falls, Idaho

Management of Business Activities Products found in homes come from countless types and sizes of businesses. Any business that produces or distributes goods or services is called a business. Profit is the difference between earned income and costs. Each business must manage at least three major activities. –Production –Marketing –Finance

Types of Businesses Good producing businesses –Produce goods Mining Construction Farming

Types of Businesses Services businesses –Mostly labor to offer mostly intangible products. Wholesale and retail marketing Banking Medical offices Hotels Fitness centers

Types of Businesses Industry –All businesses doing similar work. Publishing industry –Producing and selling books and magazines Automobile industry –Manufacturers of cars and trucks –Producers of automobile products

Industry Growth

Innovation’s Impact on Management Management decisions are made in a dynamic environment. Managers need to know the impact of innovation. An innovation is something entirely new.

TYPES OF BUSINESS ORGANIZATIONS

Sole Proprietorships Most common type 70 percent of all businesses in the U.S. Generates less than 5 percent of all sales

Sole Proprietorships Advantages –Easy to open and close –Few regulations –Freedom and control –Owner keeps profits Disadvantages –Limited funds –Limited life –Unlimited liability

Partnerships A business operated by two or more people Agree on how profits and loses, and responsibilities, will be divided. Found in all types of businesses.

Partnerships General –Most common type –Each one is liable for all profits and losses –Can put personal savings at risk –Trade-off is sharing the risk and reward –Found in almost all types of business

Partnerships Limited Partnerships –At least one partner is not involved in the day-to-day operations –They are liable only for the funds invested –At least one partner is responsible for all liability for debts –There can be any number of limited partners who share in the profits

Partnerships Limited Liability Partnerships (LLP) –All partners are not responsible for the debts or liabilities of the other –Partners’ personal savings are not at risk –Medical partnerships, law firms, and accounting firms. –Fairly new form of business

Partnerships Advantages –Easy to open and close –Few regulations –Access to resources –Joint decision making –Specialization Disadvantages –Unlimited liability –Potential conflict –Limited life

Corporations Owned by individuals known as shareholders or stockholders Stockholders have a right to the profits but have limited liability risk Only risk is the value of the stock

Corporations Public company issues stock that can be freely bought and sold Private company retains control over stock sales Corporations make up 20 percent of businesses in the U.S.

Corporations

Advantages –Access to resources –Professional managers –Limited liability –Unlimited life Disadvantages –Start-up cost and effort –Heavy regulation –Double taxation –Loss of control

Business Consolidation Horizontal merger Vertical merger Conglomerate Multinational Corporation

Franchises Franchise –Made up of semi- independent businesses –Each business pays a fee to the parent company –Fast-food is the most common

Franchises Advantages –A level of independence –Parent company can provide training in running a business –They would provide quality goods, even decor Disadvantages –Big investment –No assurance of success –Have to share profit with parent company –Parent has some control over the business Meet operating rules

Cooperatives Not all businesses exist solely to earn money A cooperative is a business operated for the shared benefit of the owners, who are also customers Same goods and services Offer lower prices by reducing or eliminating profit –Consumer, require some kind of membership payment –Keep prices low by making purchases bulk goods at a discount –Service, offer their members a service –Producer, mainly owned and operated by the producers of agricultural produces

Nonprofits Several different types of nonprofits Purpose of benefiting society (Red Cross) Professional associations (American Bar Association) –Promote common interests –Business associations –Trade associations –Labor unions –Museums Structure resembles that of a corporation Must receive a government charter Unlimited life Raise most of their money from donations, grants and fees