1. Business Theory
Lesson 1

2. 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

3. 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

4. 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

5. 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.

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

7. 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

8. 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

9. 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)

10. 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

11. 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

12. 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.

13. 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

14. 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

15. Holding and Subsidiery Companies

16. Confused? Of course you are!