1. Business and Its Environment 1

2. Business Activities  Business  An organization that produces or distributes a good or service for profit  Profit = Earned Income – Costs  3 Major Business Activities  Production  Making a product or providing a service  Product vs Service  Marketing  The process of planning and executing the conception, pricing, promotion and distribution of ideas, products, services to create exchanges that satisfy individual and organizational objectives  Finance  Business activity that deals with all money matters related to running a business 2

3. Types of Businesses Industrial Businesses  Produces goods used by other businesses or organizations to make things  Example: gas and coal extracted are used by industrial businesses in their production  Construction  Bridges  Airplanes  Farmers Commercial Businesses  Engaged in marketing, in finance and in providing services as their primary business activities  Examples:  Wholesalers and retailers  Banks and investment companies  Medical offices, fitness centers, hotels 3 Service Businesses A type of commercial business that uses mostly labor to offer mostly intangible products to satisfy consumer needs

4. Industry  All businesses within a category doing similar work  Examples:  Producing and selling books, magazines, newspapers, and other printed documents prepared by authors  Automotive industry  Government  Public services 4

5. Business Entities  A business entity is a commercial, corporate and/or other institution that is formed and administered as per commercial law in order to engage in business activities, usually the sale of a product or a service.  Federally Incorporated  Banks  Federal Credit Union, Federal Savings Bank  NOT State Banks (Tioga State Bank) 5

6. Business Entities Continued… Advantages  It is easy to organize and needs only small amounts of capital to start and run.  It permits a high degree of flexibility for the owner since he/she is the boss of the business establishment.  Due to the owner's unlimited liability, some creditors are more willing to extend credit.  The owner receives all the profit of the business.  There is secrecy in sole proprietorship. Disadvantages  Has limited resources. Banks are reluctant to grant loans: higher mortality rate  Unlimited liability for business debts. Responsible for paying all debts and damages of their business.  Business and Personal property can be liquidated to settle debts  The continuation of the business is difficult if illness and/or death occurs because a new owner must typically accept all liabilities of the business 6 Sole Proprietorship: A business owned and run by one individual and in which there is no legal distinction between the owner and the business. May use a trade name or business name other than his/her own name

7. Business Entities Continued… Advantages  It is easy to organize and needs only small amounts of capital to start and run.  Larger amount of resources - $ secrecy  Diverse skills and expertise: minimal management costs as per expertise  It permits a high degree of flexibility and changes can be made swiftly  Sharing of risk – not solely liable  Prompt Decision making  Protection of minority interest  Direct relationship of effort and reward Disadvantages  Has limited resources. Banks are reluctant to grant loans: higher mortality rate  Unlimited liability for business debts. Business and Personal property can be liquidated to settle debts  The continuation of the business is difficult if illness and/or death occurs  Authoritative Risks, Lack of harmony  Public confidence  Cautiousness due to risks 7 General Partnership: Formed by two or more persons All partners are jointly liable for the debts of the partnership Created by agreement rather than being created by a public filing

8. Business Entities Continued… Advantages  Limited partners share in the profits and losses without involvement in operations  The partnership's debt is limited to the amount of money or property that individual partner contributed.  The general partners take charge and don't need to consult the limited partners for most business decisions.  Limited partners can be replaced or leave without dissolving the limited partnership.  Investment opportunities without involvement Disadvantages  Limited partners have minimal, if any, roles in decision making  Transfer of partnership can be vetoed by any and/or all partners 8 Limited Partnership (LP): A partnership where at least one partner has unlimited liability and one or more partners have limited liability. The limited partners in the relationship are usually purely investors who do not have the same day-to-day responsibilities as the general partners. * Common among law firms, accounting firms

9. Business Entities Continued… Advantages  Much less risky for the general partners as individual assets are protected  Partners can choose investors  All owners have same management rights Disadvantages  Investment opportunists are wary due to the lack of liability placed on the partners  General partners still maintain liability  Limited to certain professions 9 Limited Liability Partnership: A partnership where a partner’s liability for the debts of the partnership is limited except in the case of liability for acts of professional negligence or malpractice

10. Business Entities Continued… Advantages  Can either be claimed on personal taxes or taxed as a corporation  Personal assets are protected for all involved  Shared profits as per the percentage of investment/involvement Disadvantages  Limited life: if a person leaves, the company must shut down and start a new LLC to bring the business back to operations  Members are subject to self- employment taxes 10 Limited Liability Company (LLC): A form of business whose owners enjoy limited liability but which is not a corporation

11. Business Entities Continued… Advantages  Liability is limited to the company’s assets  Taxes are separate from your own personal taxes  Considered its own entity, thus if any given person leaves, the company continues without pause Disadvantages  Largest amount of documentation  Must provide all financial information and file annual reports  Costly to incorporate within the state of operation  Can be doubly taxed: once on income and once on dividends paid to shareholders 11 Corporation, Incorporated: Created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock. Shareholders elect a board of directors (generally receiving one vote per share) who appoint and oversee management of the corporation.

12. Business Entities Continued… Advantages  Any advantages previously mentioned depending on entity  Can potentially keep DBA name if incorporating  Allows a single entity to operate under several names without having to change Disadvantages  Any disadvantages previously mentioned depending on entity  Potential lack of legal rights to the name  Name is geographically limited 12 Doing Business As (DBA): Denotes a business name used by a person or entity that is different from the person’s or entity’s true name Can be sole proprietorships and/or corporations to preserve brand names

13. Review  Provide 1 example for each:  industrial business  commercial business  service business  How do commercial businesses support industrial businesses?  What is the difference between a Partnership and Limited Partnership?  How is a corporation different from any other business entity?  What is the biggest advantage of obtaining a DBA under a main corporation? 13

14. Changes Affecting Businesses 14

15. Innovation  Business is always changing  Transportation – horse to steam engine to gas engine to airplanes, etc.  Innovation  Something entirely new  Products offered  Operations  Computers and internet is one of the greatest innovations to aid in business operations  Where good ideas come from Where good ideas come from 15

16. Global Competition  The United States led in innovation  In the past half decade, other countries have become more industrialized, learned how to invent, and produce new products for consumers  How has this affected American Business?  Global Competition  Ability of businesses from one country to compete with similar businesses in other countries  Biggest challenge to the US today  Why? 16

17. Focus on the internal things  Know what is working: where you are doing well and where you are not  Effectiveness – making the right decisions about what products and/or services to offer customers and the best ways to produce and deliver them  Efficiency – producing products and/or providing services quickly, at low cost, without wasting time and materials  Low cost at the quality that customers expect = success  Good managers focus on both effectiveness and efficiency 17

18. Achieving effectiveness  Common sense and skill  Knowing what customers want is critical to business success and to achieving effectiveness  Styles, colors, purpose driven, meeting the needs of customers.  Knowledge of the business is equally critical  Domestic Goods  Products made by the native country (US Made)  Foreign Goods  Products made by first in other, outside countries 18

19. Achieving Effectiveness Continued…  How can information management aid in domestic versus foreign goods?  Example: Automobile Industry  Total Quality Management (TQM)  A commitment to excellence that is accomplished by teamwork and continual improvement of work procedures and products  Managers and employees receive a great deal of training on the topic of quality from experts 19

20. Achieving Efficiency  Efficiency is measured by output  Output – the quantity produced within a given time  Productivity – refers to producing the largest quantity in the least amount of time by using efficient methods and modern equipment  Workers are more productive when they are well equipped, well trained, and well managed 20

21. Achieving Efficiency Continued…  Efficiency, including productivity, can be achieved in 3 ways:  Specialization of effort  Better technology and innovation  Reorganization 21

22. Achieving Efficiency Continued…  Specialization  In any business with more than a few employees, work can be performed more efficiently by having workers become specialists  What specialties can be found in an auto mechanic shop?  Experts in their field  Specialization improves efficiency  What happens when a worker leaves? 22

23. Achieving Efficiency Continued…  Technology and Innovation  Efficiency can be improved through the application of advanced technology  Included Equipment, manufacturing processes, materials  Due to the innovations of new technology, better-quality goods and services are built faster and at a lower cost 23

24. Achieving Efficiency Continued…  Reorganization of Work  How can you be efficient if you have to reorganize?  Downsize  Reducing the amount and variety of goods and services produced and the number of employees needed to produce them  Due to foreign firms, better ways were needed to compete, through lowering costs and equal/better quality and productivity 24

25. Achieving Efficiency Continued…  Reorganization of work  Employees are one of the most important resource  Empowerment - letting workers participate in determining how to perform their work tasks and offer ideas on how to improve the work process of the company  Through empowerment quality of work improved and efficiency of production increased  How would we empower as managers?  Inside the Mind of Google Documentary 25

26. Achieving Efficiency Continued…  Re-engineering  Redesigning the workflow throughout the organization  Elimination of processes, decreasing processes, introduction of technology/innovative processes to replace other processes  Globalization has aided in the re- engineering processes as well. How?  Major focus is still on quality and customer’s needs 26

27. Review 1.The ability of businesses from one country to compete with similar businesses in other countries is known as ____________________ 2.Name the 3 ways companies can achieve efficiency. 3.Why were Japanese automobile manufacturers able to compete effectively with U.S. manufacturers who were considered world leaders? 4.Provide one reason why quality increases when employees are empowered to make decisions about their work. 27

28. The Contributions of Business 28

29. Gross Domestic Product  GDP  The total market value of all goods and services produced in a country in a year  When products and services are purchased, the total dollar amount is reported to the federal government  Compared year to year and against other countries to measure success 29

30. GDP Continued…  Calculate GDP  GDP = C + I + G + (X – M)  Private Consumption  Capital Investments  Government Spending  Exports  Imports 30

31. GDP Continued… 31

32. GDP Continued… 32

33. GDP Continued… Exports Exports of goods and services decreased $1.1 billion in July 2013 to $189.4 billion, reflecting a decrease in exports of goods. Exports of services were virtually unchanged.  The largest decreases in exports of goods were in capital goods and in consumer goods.  The small change in exports of services reflected an increase in other private services, which includes items such as business, professional, and technical services, insurance services, and financial services, that was offset by decreases in passenger fares and in other transportation, which includes freight and port services. 33

34. GDP Continued… Imports Imports of goods and services increased $3.5 billion in July 2013 to $228.6 billion mostly reflecting an increase in imports of goods. Imports of services also increased.  The largest increases in imports of goods were in industrial supplies and materials, in automotive vehicles, parts, and engines, and in consumer goods.  The increase in imports of services mostly reflected an increase in other transportation. 34

35. GDP Continued…  What would keep the GDP from being totally accurate?  Unlawful operations and/or what does not occur as part of normal business operations (estimated at 5 – 20 percent)  Examples:  Pay for mowing or shoveling in cash  Drugs/street transactions  Copyright Piracy  All of the above is called the underground economy  Income that is not reported in the GDP 35

36. GDP Continued… 36

37. Individual Well-Being  Another measurement of a nation’s wealth  Increased income = improvement on level of living  Examples?  Investment in self-improvement  Examples?  FYI (averages):  Without a HS diploma: $25,000  With a HS diploma: $37,000  College Degree: $65,000 37

38. Business Ownership 38

39. Entrepreneur  Someone who starts, manages, and owns a business  Few government controls  Barriers to entry are influenced greatly by the market  Small Business  Term used to describe companies that are operated by one or a few individuals  Local examples?  Can be a physical location or solely internet based 39

40. Growth of Franchise Business  Franchise  A legal agreement in which an individual or small group of investors purchases the right to sell a company’s product or service under the company’s name and trademark  Examples?  Franchisor  The “parent” company of a franchise agreement that provides the product or service  Franchisee  The distributor of a franchised product or service 40

41. Growth of Franchise Business  Typical Franchise Agreement:  Franchisee pays an initial fee  Franchisee pays a percentage of sales (usually 3- 8%)  Franchisor aids in selecting a location  Franchisee gets exclusive rights to sell the franchised product or service in a specified geographical area  Franchisor provides tested policies and procedures to follow, special training, and advice in how to operate the business efficiently  Greater success rates than non-franchised new businesses 41

42. Risk of Ownership  An entrepreneur assumes the risk of success or failure  Risk – the possibility of failure  Involves competition, changes in prices, styles, and economic conditions  The greater the risk, the greater the risk of failure  Managerial effectiveness is crucial to the success of a business 42

43. Risk of Ownership Continued … Which of these can be controlled? Which of these cannot be controlled? 43

44. Obligations of Ownership  Agree or disagree?  Anyone who starts a business has an obligation to the entire community.  Customers  Employees  Suppliers  Competitors 44

45. Obligations of Ownership Continued…  Responsibilities of business owners:  To Customers  They may have the best at the lowest cost, consistent with fairness to all those engaged in production and distribution  To Employees  Their welfare will not be sacrificed for the benefit of others, and in their employment relations, their rights will be respected  To Management  It may be recognized in proportion to its demonstrated ability, considering always the interest of others 45

46. Obligations of Ownership Continued…  Responsibilities of business owners continued…  To Competitors  There will be avoidance of every form of unfair competition  To Investors  Their rights will be safeguarded and they will be kept so informed that they can exercise their own judgment respecting their interests  To the Public  The business will strive in all its operations and relations to promote the general welfare and observe faithfully the laws of the land 46

47. Obligations of the Community  Society should be aware that owners face risks while trying to earn a profit  Consumers should be aware that prices of goods and services are affected by expenses that arise from operating a business  Employees should realize that a business cannot operate successfully unless each worker is properly trained and motivated to work 47

48. Intrapreneurship  Intrapreneur  An employee who is given funds and freedom to create a special unit or department within a company in order to develop a new product, process, or service.  Benefits:  Internal innovation  Employee freedom with little to no upper management interference 48

49. Review 1.When cash is paid for a good or service that is not reported on taxes, this is called the _____________________________________ 2.The __________________ will help the ________________ in finding a location for the business, provide operating procedures and policies, and allow the use of the company’s name and trademark. 3.What factors do you believe have contributed to the very large GDP of the US compared to most other countries? 4.What are a business’s responsibilities to the community in which it operates? 5.What are the community’s responsibilities to businesses? 49

50. Review Continued… 6.How do commercial businesses support industrial businesses? 7.What is the difference between a Partnership and Limited Partnership? 8.How is a corporation different from any other business entity? 9.What is the biggest advantage of obtaining a DBA under a main corporation? 50

51. Review Continued 10.The ability of businesses from one country to compete with similar businesses in other countries is known as ____________________ 11.Name the 3 ways companies can achieve efficiency. 12.Why were Japanese automobile manufacturers able to compete effectively with U.S. manufacturers who were considered world leaders? 13.Provide one reason why quality increases when employees are empowered to make decisions about their work. 51