Business Organization Chapter 5

6 Basic Activities of Business 1.Generate ideas 2.Raise capital (owners equity or loans) 3.Employing & Training personnel 4.Buy goods & services Necessary equipment Accounting, legal & advertising services 5.Marketing goods & services 6.Maintain business records

Types of Businesses Producers- create the products and services used by individuals and other businesses. –Extractors –Farmers –manufacturers

Intermediaries- businesses involved in selling the goods and services of producers to consumers and other businesses. –Retailers –Wholesalers

Service Business- carries out activities that are consumed by its customers. Dentists Physicians Attorneys Service businesses are the fastest growing part of the U.S. economy. Currently, 60% of all businesses are service-producing businesses.

Ownership Opportunities Sole Proprietorship Partnership Corporation Franchise

Sole Proprietorship A business owned and operated by one person. Most common form (approximately 70% of all U.S. businesses) SP usually have a special skill by which they can earn a living

Advantages & Disadvantages Entitled to all profits Easy to start Make all business decisions Taxed less than other forms COMPLETE CONTROL! Must provide $ & management Responsible for all debts Unlimited Liability-- Creditors can take your personal assets Difficult to expand

Partnership A business owned and controlled by two or more people who have entered into a written agreement. Least common form of U.S. businesses (10%)

Advantages & Disadvantages Combines skills of owners May offer more money (expansion) Taxed less heavily than a corporation Owners may not agree, yet the actions of one partner are legally binding Share debt Business is dissolved if one partner dies

Corporation A business that is chartered by a state and legally operates apart from the owner or owners. Most complicated form of business ownership Raise money through 2 methods: –Sell stock (represents legal ownership of a corporation) to stockholders –Sell bonds (a written promise to repay the amount borrowed)

Advantages &Disadvantages Limited liability Professional management Easy to expand Easy to enter or leave Owners receive dividends if profitable Complex to form Increased government regulation Higher taxes on corporation & individuals Detailed accounting & record keeping

Franchise An agreement to operate a business in the name of a recognized company.

Top 10 Franchises of 2006 Subway Quiznos Sub Curves UPS Store, The Jackson Hewitt Tax Service Dunkin' Donuts Jani-King RE/MAX Int'l. Inc. 7-Eleven Inc. Liberty Tax Service

Facts: More than 3,000 new businesses are started each week in the U.S. According to the U.S. Small Business Administration (SBA), over 50% of small businesses fail in the first year and 95% fail within the first five years.

Entre….what???? Entrepreneurship- The process of starting and managing your own business. Entrepreneurs- The people who organize, manage, and take the risk of owning and operating a business.

What Does It Take? Anyone can be an entrepreneur! However, successful entrepreneurs usually have the following characteristics: Focused & Goal Oriented Risk Takers Set high personal goals Independent Have a high level of self-confidence Creative

Preparing to be an Entrepreneur Education Most finish HS & have at least one degree Take classes that develop: –Academic abilities –Technology skills –An Understanding of business principles Business Skills EXPERIENCE!!!! –Cooperative Education –Internships –FBLA & DECA Learn from mistakes

The Changing U.S. Job Market Baby boomers dominate the workplace –Began retiring in 2010 Caucasians= 75% of workforce –Will drop to 70% by 2012 –Increase in Hispanic, Asian & African-American workers Women are becoming a larger portion of the workplace –By 2012, women will make up ½ of the workforce

Pressure on Employees Work longer hours –Less time with family Growing wage difference between upper management positions and entry level pay Less job security Increased education requirements

Business & The Economy The majority of U.S. businesses are small –78% of businesses employee only themselves –19% employee less than 20 –Responsible for nearly half of the U.S. GDP each year

Impact on a Community Pays wages/ employees Buys goods and services from other businesses Employees/owners need housing, food, etc Taxes are paid Large businesses often bring smaller businesses

The Success of a Business It’s more than a product or service, it takes…… Preparation Motivation Organization A clear purpose

The Success of a Business Business Plan- A written description of the business idea and how it will be carried out, including all major business activities. “The number one reason businesses fail is because they failed to make a business plan.” ~Entrepreneur Magazine

Fundamentals of a business plan Mission Statement- a short, specific written statement of the reason a business exists and what it wants to achieve. Goal- a precise statement of results the business expects to achieve. Policies- guidelines used in making consistent decisions. Procedures- descriptions of the way work is to be done. Provide guidance and direction to people working in the organization.

The organization of a business Organization Chart- a diagram that shows the structure of an organization, classifications of work and jobs, and the relationships among those classifications.

Other components…. Description of product or service Legal form of business Marketing plan Analysis of the market Analysis of competition Credentials of the owner Financial plan

Steps in Developing a Business Plan Gather and review information –Other business plans of similar businesses or competitors Develop the “game plan” Write the plan

Show me the money…. Friends –1 in 5 invest in a friend Family –Over 50% borrow from family members –Family & Friends invest over $100 billion in new businesses each year Work colleagues –8% have borrowed from co-workers

Venture Capital- money provided by large investors to finance new products and new businesses that have a good chance to be very profitable. Loans from banks –Business plan often required Credit given by businesses (prod & serv)

Types of financing Start-up financing- the amount of money needed to open the business. Includes the cost of buildings, equipment, inventory, supplies, licenses, etc. Short-term financing- the money needed to pay for the current operating activities of a business. Long-term financing- money needed for the main resources of a business such as land, buildings, and equipment.

Other help Small Business Administration- a government agency that helps small business owners develop business plans and obtain financing and other support for their companies.

Can you do it???? Primary Reasons Entrepreneurs Fail: Lack of adequate capital Low sales/slow business Higher than expected expenses Competitive pressure Too quick growth A larger time commitment than realized