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Published byMadeline Hood Modified over 9 years ago
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Types of business ownership Chapter 4
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Academic Preparation To take business classes in high school To go to college and get a degree in business Co-oping or Internship Attending workshops, seminars, trade shows
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What do successful entrepreneurs do before opening a new business? Identify the wants and needs of the marketplace. Will their business be able to satisfy? Set financial goals - (how much money you want to make, when you want to pay off your debts) Set nonfinancial goals – personal satisfaction receive (helping community, personal independence, doing something you like)
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Sole Proprietorship (most common form of business) One person is in control of the business –Advantages: Very little government control – Receives all of the profits –Relatively easy to start –Taxed less –Disadvantages: You are solely responsible – unlimited liability –Limited money –Make all decisions yourself
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Partnership Advantages –Have someone to share in decision-making and management responsibilities –You don’t have to come up with all of the money/capital by yourself –Less taxation than corporation –Losses will be shared by all partners –Face very little government regulation
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Disadvantages May have disagreements on business operation May be held liable for partner’s mistakes All partners must assume the liability (unless wrote up different) Death of partner may dissolve the partnership
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Corporation (chartered through a state and legally operates apart from owners) Advantages: –Can get money through sale of stock –Limited liability –Can easily enter and leave business (sell stock) –Areas can be managed by experts Disadvantages: –Complex to form –Increased government regulation –Higher taxes on profits –Major accounting /recordkeeping
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What is a business plan??? A written document that describes all the steps necessary in opening and operating a business (used to guide your business)
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Franchise Legal agreement that gives an individual a legal right to market a company’s product or services in a particular area
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Operating Costs Initial franchise fee – right to run business Start-up costs – costs to rent facility, equipment costs, inventory Royalty fees – weekly or monthly payments to owner to seller of franchise Advertising fees – fees paid to support advertising of franchise as a whole
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Advantages of franchise Have an established product or service Franchisors offer management, technical, and other assistance Equipment and supplies may be less expensive (get better contract deals) Guarantee of consistency attracts customers
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Disadvantages of franchise Can cost a lot of money Don’t get as much of profits Less freedom to make decisions Dependent on performance of other franchises Franchisor my terminate the franchise agreement or not renew it
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Things to consider??? Will I have an exclusive territory? What are the costs and royalty fees? How profitable have other franchises been? How long has franchisor been in business? What services will the franchisor offer me? What happens if I cancel the agreement?
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Financial and Nonfinancial Goals Set goals –Financial – how much money make, how long to make a profit –Non-financial – personal satisfaction, independence Three main skills needed by entrepreneurs? Independent Persistent Organized Good decision-makers
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What is scarcity? There are limited resources and unlimited wants and needs in our economy – forces us to have to make choices –Resources of a business: Land – physical property owned Labor – people working Capital – money and resources used to make a product (could be buildings, equipment, etc.) Entrepreurship – people owning their own business
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Command Economy/Market Economy Market economy (United States) –Not a lot of government control –The consumer decides what gets produced, how its produced, and for whom Command economy (North Korea) –Government controls the factors of production and makes all the economic decisions (What, How, and for Whom)
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Government affects what gets produced by? Allowing competition Having regulations to protect the consumer Promote business ownership
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Advantages to buying an existing business The business already has customers, suppliers, and procedures The seller may train the new owner There are prior records of revenues, expenses and profits. May be easier to get financing (less risk for the bank)
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Disadvantages of buying an existing business. The business may not be making a profit. You may inherit serious problems. (poor reputation, trouble with suppliers, etc.) Capital is required
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Before buying a new business what should you find out/do??? Visit during business hours Make sure business meets your objectives Get a complete financial accounting report for the last 3 years Ask for important information in writing. Meet with a business broker to help with whether or not it is a good investment.
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Advantages of entering a family business? Pride and sense of mission working with family Some enjoy working with relatives. Like keeping the business in the family
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Disadvantages of working with family Senior management positions – held by family members regardless of their ability May be hard to retain good employees who are not members of family Family politics may affect decision-making Sometimes distinction between family-life and business is blurred
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