Chapter 6.1 Types of Business Ownership Describe the advantages and disadvantages of the three major forms of business organizations Describe how cooperatives and nonprofits are like and unlike corporations and franchises

Key vocabulary Sole proprietorship Unlimited liability Partnership Corporation Limited liability Cooperative Nonprofit organization Franchise

Business math Linda is investing for retirement 30 years from now. She wants 70% of her money in stocks, 20% in bonds, and the remaining 10% in a money market fund. Stocks now compromise 80% of her portfolio so she needs to rebalance her portfolio If her portfolio is worth $100,000, what percent of her stock holding should she sell in order to rebalance her portfolio? What is the value of the stocks, bonds, and money market accounts of the following portfolio? The account is worth $187,000, it is divided into 45% stocks, 40% bonds, and 15% money market?

Organizing a Business The three main types of businesses are Sole Proprietorship Partnership Corporations The type of business is usually determined in the early stages of the business plan and the needs of the business

Sole proprietorships ¾ of all businesses in the US are classified as sole proprietorships These are characterized as businesses being owned by one person While accounting for almost ¾ of all businesses formed in the US, they only account for 5% of the total revenue generated by all businesses

Advantages to Sole Proprietorships Easy to form Maybe as simple as a license and a permit Fully in charge of the business You are the Man or Woman now and people work for you You get to keep all profits They will be reported as income on personal taxes Lower taxes compared to corporations Tax rate is determined by personal income bracket

Disadvantages to Sole Proprietorships Unlimited Liability- the owner is personally responsible for the company’s debts If you have more debt than income then the owner has to make up the difference Limited access to credit Credit worthiness is determined by personal credit score Running out of money is why most small businesses fail Lack of skills to run a business Best baker in the world can’t balance the books The company ends when the owner dies

Business math The neighborhood bakery makes bread, cakes, cookies, and pies. At the end of the day, the prices of all the leftover products are reduced by 75%. If bread sells for $0.87 at the end of the day, what was its original price?

Partnerships Is characterized as a business owned by two or more people who share in the risks and rewards of that business Important to create a partnership agreement stating how profits, losses, and the work load will be divided

Advantages to Partnerships Very easy to start Partners may only need a license to start the business Easier than Proprietorships to get capital Usually more start-up capital with more partners Banks are more willing to lend money to partnerships Income is taxed on a personal level More people= more skills and knowledge

Disadvantages to a Partnership All partners share the same business risk Partnership ends, when a partner leaves or when a new partner is added Unlimited financial and legal liability among the partners

Critical Thinking Why might two people decide to form a partnership instead of a sole proprietorship? Working as a team member is similar to being in a partnership. What are some of the advantages and disadvantages of working with others?

Corporations Is a company that is registered by a state and operates apart from its owners To form a corporation, the owners/ managers must get a corporate charter from the state where their main office will be located. A corporate charter is a license to run a corporation To raise money, the business can issue stock The company must have a board of directors

Advantages of a Corporation Limited Liability for the firm’s owners, they are only responsible for the money they invested Can raise large amounts of capital quickly by issuing stock The business will not end if the owner/ CEO dies

Disadvantages of a Corporation Double taxation The corporation pays taxes on its income, and investors pay taxes on their dividends S corporations do not have this feature but we will cover this later More regulated by the government and international law Difficult and very costly to start

Creating a database In Excel, compile a database of at least 10 businesses from Gloucester county. Include fields for the name, address, telephone number, and the category of business. Find at least one business that is a producer, a processor, a manufacturer, an intermediary, and a retail or service business.

Other Ways to Organize a Business Cooperative- a business owned and operated by its members Small farms pooling their resources of buying and selling materials Allows for cheaper advertising and costs in the long run An example would be Ocean Spray Nonprofit organization- a nonprofit that focuses on providing a service but not to make a profit Must be registered with the government No profit= no taxes Franchise- contractual agreement to use the name and sell the products and services of a company in a designated geographic area You have to invest money or pay franchise fees, or pay a portion of profits back to the organization

Review What is the difference between a sole proprietorship and a partnership? If a partner makes a bad decision, what responsibility do the other owners have? Why are cooperatives formed?

Chapter 6.2: Types and Functions of Business Differentiate the six types of business Describe the five functions of business Discuss how the five functions of business relate to each other

Key vocabulary Producer Processor Manufacturer Intermediary Wholesaler Retailer Production Procurement Marketing Management Finance Accounting

Types of Businesses Producers- a business that gathers raw goods Materials gathered in their original state from natural resources such as land or water Agriculture, Mining, Fishing, and Forestry Processors- changes raw materials into more finished products Examples include- sugar cane, gasoline, and steel Manufacturers- makes finished products out of processed goods Examples include- cars, CDs, and computers

Intermediaries and Wholesalers Intermediaries- a business that moves goods from one business to another. It will buy the goods, store them and then resell them to another business Wholesaler- a distributor of goods A clothing wholesaler will buy thousands of jackets, then divide them into different stores in much smaller quantities to sell directly to consumers

Retail and Service Businesses Retailer- purchases goods from a wholesaler and sells them to consumers. Service stations, music stores, and auto dealers are examples Service businesses perform a task. Medical clinics, law firms, taxi companies, and copy shops These types of businesses provide about 75% of all jobs

Function of Business The five main functions of business Production and Procurement Marketing Management Finance Accounting

Production and Procurement Production- the process of creating, expanding, manufacturing, and improving goods and services Procurement- is the buying and reselling of goods that have already been produced

Marketing The process of planning, pricing, promoting, selling and distributing ideas, goods, and services Trying to convince some one to buy the product or try a service Use market research and trends to figure out plan

Management The process of achieving company goals by planning, organizing, leading, controlling and evaluating the effective use of resources

Finance and Accounting Finance- the business or art of money management Accounting- involves maintaining and checking records, handling bills, and preparing financial reports for a business.

Critical Thinking Identify what happens during the production, processing, and delivery stages within each type of business responsible for a loaf of bread. Explain how a producer, processor, and a manufacturer are not involved in producing a service. How can accountants in a firm provide an idea of the general health of the company?

How the Functions of Business are Independent The 5 functions of business are interdependent Without one, the others would fall apart If you focus too much on one area, the other areas could fail If you cannot manage all 5, consider outsourcing one or more of the nonessential duties.

Science and tech trends On page 102 of your textbook read the scenario Go to the following links to assist you in your research http://www.computerhistory.org/exhibits/ http://vmoc.museophile.com/ http://www.cbi.umn.edu/ http://photos.si.edu/infoage/infoage.html Create a PowerPoint presentation describing a person, invention, or time period that interests you.

Career opportunities Go to the Occupational Outlook Handbook and search for “top executive” in the Ooh search/ A-Z index. Write a one page report about the occupation and what you can do to prepare for this position in the future.

Review What is the difference between a producer and a processor? Identify the 5 functions of business Give an example of how the accounting and finance functions can affect a businesses' marketing and production processes.