Chapter 5: Business Organizations

5-1: BUSINESS IN THE U.S. ECONOMY Key Terms: Contingent workers Intermediary Service Business

The Changing U.S. Job Market Employment Data In 2007, 144 million people had jobs 2014 estimated 165 million “baby boomers” were born 1946-1964 (dominate labor market until they retire in late 2010s) Average age of worker in 2020 will be over 50 Currently, white non-Hispanic make up 70% Will drop to 66% by 2014 By 2014, almost half (47%) of jobs will be women

Pressure on Employees Downsizing by many companies Take on new tasks / work extra hours Pay decreased Now, 7 of 10 parents felt they didn’t spend enough time with their kids Increase number of contingent workers No contract for long-term employment 5% (6 million) made up of contingent workers Take because they cannot find permanent employment

Business and the Economy Make the goods and services you use daily Almost 24 million businesses produce things for our daily use

Size of Businesses Must U.S. businesses are small 19.5 million have no employees except owner 4.5 million have less than 20 people 26,000 have 20-100 people 107,000 have 100+ workers

Roles of Business Provide employment for millions of people Employee wages are used to purchase goods Most businesses pay taxes to federal and state Taxes spent on streets, police/fire, schools, hospitals ** make/distribute products needed by consumers, government and other businesses**

Impact on a Community When a new business opens, provides jobs Buys goods from other businesses in area When larger businesses open, others will relocate Contribute more jobs and income

Business Activities Generate Ideas (improve/develop new ideas) Raise Capital (need $ to operate and hire) Employ/Train Personnel (recruiting, training) Buy Goods/Services (to be used for their product) Marketing Goods/Services (getting word around) Maintain Business Records (track performance)

Types of Businesses Producers Create the products Use resources to make something for people Extractor: takes resources from nature for products (pump oil, mine coal, cut timber) Farmers: cultivate land, grow crops, raise livestock Manufacturers: get supplies from other producers and turn them into products; sell products to others

Intermediaries Businesses involved in selling goods of producers to other businesses Most common types are retailers/wholesalers Include: advertising agencies, storage centers, sales offices

Service Businesses Does not make products; provide something intangible—not able to touch/hold Include: dentists, doctors, lawyers, painters, pet sitters, furniture movers, internet providers Fastest growing part of economy Over 60% of employment is in service businesses

5-1 Assessment The largest number of U.S. businesses employ >100 people 50-100 people 10-20 people No employees except owner Which is NOT one of the common business activities Producing goods/services Employing/training personnel Marketing goods/services Maintain business record A retailer is an example of Extractor Producer Intermediary Service business

5-2 Forms of Business Ownership Key Terms Proprietorship Partnership Corporation Partnership agreement Articles of incorporation Franchise

Business Ownership (3 forms) Proprietorship ** most common** Business owned and run by 1 person Easiest to start and end (+) Sole control over all business decisions (-) Also responsible for all debts incurred Don’t need any government license or permits Register business name with state, local and federal government

Partnership Owned/controlled by 2 or more people in an agreement Partners share in profits Each is responsible if business fails Can be verbal or written Partnership agreement: written among all owners; rules/guidelines of ownership and operations (+) can split investment and work required (-) no protection for personal assets of any partner

Corporation Owned by shareholders (stocks) and managed by board directors Started by legal documents turned in to state Most have several owners More difficult to start; board directors/shareholders make decisions Must follow the laws of the state they are in Articles of Incorporation: written, legal document that defines ownership/operating procedures for business Must create corporate bylaws (procedures for business) (+) business can easily expand/grow and new owners be added (-) decision making shared among many managers/owners

Other Forms of Ownership Specialized Partnerships and Corporations Limited liability partnership (some people invest but have no say in day to day decisions, won’t lose any money) Joint Ventures (two or more businesses join together for a short time for a specific project) S-Corporation (all income goes through owners based on how much money each person invested) Limited Liability Company (LLC-combo or partnership/corporation; owners are protected from losses, no bylaws are needed) Nonprofit Corporation (benefits public; do not pay taxes, raise funds)

Cooperatives and Franchises Cooperative is owned by its members, serves the needs of its people Members form this so they can buy things cheaper as a group as they can individually Franchise (written contract that gives permission to a business to sell its products in a certain way. ) Franchiser: the company who gives the rights to use Franchisee: the company who pays for rights to run company EX: Jiffy Lube, Century21, Merry Maids, Others??

5-2 Assessment The form of ownership that gives 1 person sole control over all business decisions: T/F All investors in a partnership have full responsibility for debts of business The people who make the majority of policy and financial decisions in a corporation are: A special form of business organization that combines corporation and partnership:

5-3 Organizational Structure for Business Key Terms Mission statement Goal Policies Procedures Organization chart

Design an Effective Business Organization Many new businesses fail in the first few years FEW businesses stay successful during lifetime of the owner Need: skilled managers, good employees, enough resources, effective procedures

Setting Direction Mission Statement: short, specific written statement of why business exists and what it wants to achieve Set Goals: exact statement of results the business expects to achieve Sets Policies/Procedures Guidelines used in making consistent decisions Description of the way work needs to be done

Effective Organization Responsibility (obligation to complete specific work) Authority (right to make decisions about how responsibilities should be accomplished) Accountability (taking responsibility for results achieved) Unity of Command (clear relationship and definition of the leader for all staff to know) Span of Control (# employees assigned to a certain task or manager)

Types of Organizational Structure Who reports to who? Organizational Chart: diagram that shows the structure of an organization, classifications of jobs and how they are related (p117) Functional Organizational Structure-work is arranged into production, operations, marketing, human res. All people within category will work together Little contact with people in other categories Matrix Organizational Structure-work organized by specific projects, products or customer groups People with diff backgrounds may work together to help same customer or complete same project

5-3 Assessment T/F The direction for a business comes from its policies and procedures The obligation to complete work is called: Which is NOT shown on organizational chart: Structure of organization Work relationships Job descriptions Classifications of jobs