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Bm 1.2 Types Of Organizations

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IB Business and Management (Standard Level) …

IB Business and Management (Standard Level)
All material taken from the IB Business and Management Textbook:
"Business and Management", Paul Hoang, IBID Press, Victoria, 2007

Published in: Business

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  • 1. Business and Management : 1.2 Types of Organizations
    • Lesson 1 : Identifying Market Opportunities
    • Lesson 2 : Problems Faced By Start-Ups
    • Lesson 3 : Profit Based Organizations
  • 2. 1. Focus Question
    • What are market opportunities?
    • How can we identify market opportunities?
  • 3. 2. What is Market Opportunity?
    • Newly identified need , want , or demand trend that a firm can exploit because it is not being addressed by the competitors .
    • .…
  • 4. 3a. Identifying Market Opportunities
    • Can come about in several ways:
    • 1. Identifying a gap in the market .
      • Small businesses and new firms tend to thrive in niche markets .
        • What is a niche market ?
          • A niche refers to a small or unfilled market segment .
        • What is a market segment?
          • Identifiable group of individuals, families, firms, or organizations, sharing one or more characteristics or needs in an otherwise homogenous market.
      • Big Businesses usually do not enter niche markets because the market is usually too small and thus they do not make…
        • What don’t they make ?
          • PROFITS!!! That’s right!!!
  • 5. 3b. Identifying Market Opportunities
    • 2. Innovative Ideas and Creations :
      • Entrepreneurs come up with new products to meet customer needs.
        • Do you know of any examples?
      • The key benefit to this approach is that the owners have good market and product knowledge.
      • In doing so, they can differentiate their product and market their unique selling point .
        • So…what is differentiation?
          • Result of efforts to make a product or brand stand out as a provider of unique value to customers in comparison with its competitors.
  • 6. 3c. Identifying Market Opportunities
    • 3. Developing the entrepreneur’s personal qualities and skills :
      • Most successful business people build their businesses on their personal interests.
    • 4. Market Research :
    • Is imperative if business start-ups are to have any chance of survival.
    • The benefits of conducting thorough market research will allow owners to better understand the nature of industry and their customers’ needs and wants.
    • This will lead to the business’s chances of success.
  • 7. Lesson 2 : Problems Faced By Start-Ups
  • 8. 1. Focus Question
    • What are the problems faced by
    • start-ups?
  • 9. 2a. The Problems
    • Lack of Finance Capital :
      • Need finance for the purchasing or rental of fixed assets .
        • Such buildings and machinery.
      • Lack of credentials or experience in securing external funding.
      • High interest rates on loans.
      • Could remortgage your home to increase your cash flow.
        • Is this a good idea?
          • Why not?
  • 10. 2b. The Problems
    • 2. Cash Flow Problems :
      • Obtaining working capital is a major problem.
        • What is working capital ?
          • Money needed for the daily running of the business.
        • You maybe holding a lot of stock which you can not turn into cash right away.
        • Your customers may have 30-90 day credit, which means you will not get paid until then.
      • This will result in budgetary problems .
    • Poor cash flow management is the biggest cause why business fail!
  • 11. 2c. The Problems
    • 3. Marketing Problems :
      • If you fail to meet customer needs, and have poor sales.
      • Supply the right product to the right market is extremely important.
    • The key to small business is to identify a niche and then fill it.
      • How has amazon.com done this?
  • 12. 2d. The Problems
    • 4. Unestablished customer base :
      • Attracting customers…is it easy to do?
        • NO!
        • You need to build customer loyalty.
        • This requires lots of money and marketing-know-how.
  • 13. 2e. The Problems
    • 5. People Management Programs :
      • Need experience in hiring people.
      • You need to know the idea organizational structure that suits your needs.
  • 14. 2f. The Problems
    • 6. Legalities :
      • Don’t want to be sued?
      • Make sure all the legal matters are taken care of, for example:
        • Registration
        • Insurance
        • Consumer protection laws
        • Copyrights
        • Etc.
  • 15. 2g. The Problems
    • 7. Production Problems :
      • It is hard to forecast levels of demand.
      • You are more likely to overproduce or under produce.
        • Overproducing leads to stockpiling, wastage, and increased costs.
        • Under producing leads to customer dissatisfaction and loss of potential sales.
  • 16. 2h. The Problems
    • 8. High Costs of Production :
      • High costs means that your assets needed for production are expensive.
      • Small businesses will be at a disadvantage as they can not benefit from economies of scale .
        • What is that you are wondering?
          • Well…economies of scale , allow a business to benefit from lower average cost of production due to larger scale of production.
            • Still confused????
            • Being or producing in bulk is cheaper / you get a discount.
  • 17. 2i. The Problems
    • 9. Poor Location :
      • What did we say before? What is the most important decision a business can make?
        • Location, Location, Location.
      • Located in a busy area, will cost the most.
      • Fixed costs , such as rent or mortgage payments will be a challenge to keep these costs down.
        • For this reason many small business owners start their business from their homes.
  • 18. 2j. The Problems
    • 10. External Influences :
      • For example oil crisis, economic recessions.
    • So in conclusion :
      • Why do people set up their own businesses?
        • Personal desires.
      • So why do so many businesses fail?
        • Management incompetence.
        • A lack of cash in the business.
        • Poor cost control.
    • How can you relate what you have just learned to your own personal life?
  • 19. Lesson 3 : Profit Based Organizations
  • 20. 1. Focus Question
    • What are the three main types of business?
    • What are their advantages and disadvantages?
    • Which one would you like to open up?
  • 21. 2a. Three Main Types of Businesses
    • Businesses that operate in the private sector aim to do what?
      • MAKE A PROFIT !!!
    • What are the three main businesses operating in the private sector aiming to make a profit?
      • Sole Traders
      • Partnerships
      • Companies
    • So…what are sole traders?
  • 22. 2b. Three Main Types of Businesses
    • Sole Traders:
      • A.K.A sole proprietor is an owner of a business;
      • a self-employed person such as a grocer, plumber, or taxi driver.
        • He or she directs the affairs of the enterprise,
        • bears its risks and losses, and
        • takes the profits and benefits.
      • They are the most common type of business .
        • Usually, small family-run businesses.
        • Start-up capital is usually obtained from personal savings and borrowing.
  • 23. 2c. Three Main Types of Businesses
    • The sole trader is considered unincorporated .
      • What does this mean?
        • This means that the owner is legally the same as the business.
          • Confused?
            • The owner is treated as a single legal entity .
      • So what this means is …
        • If the business fails or is sued, then creditors and prosecutors can take the owner to court.
      • Since there is no difference between the owner and the business, the sole trader could lose everything.
    • Simple put…the sole trader is responsible for all the debts of the business.
      • Sound like fun???
  • 24. 2d. Three Main Types of Businesses
    • Advantages :
      • Few legal formalities :
        • easy to setup
        • Start-up costs are usually much lower than the other forms of business.
      • Profits :
        • Sole trader is the only owner so he receives all the profits
      • Being your own boss :
        • You make the rules, decision making is quicker
        • Flexibility
      • Personalized service :
        • Get to know your customers on a more personal level.
        • Create better working relationships
      • Privacy :
        • Do not have to make their financial records public.
  • 25. 2e. Three Main Types of Businesses
    • Disadvantages :
      • Unlimited liability :
        • This means there is no limit to the amount of debt that a sole trader is legally responsible to pay if the business fails.
          • Any lose made by the business must be paid back by the owner.
          • You risk losing everything, including the shirt off your back.
      • Limited sources of finance :
        • May be difficult to raise finance to establish the business.
        • Difficult to expand the business due to lack of finance.
      • High risks :
        • Largest risk of business failure.
        • Face major competition
      • Workload and stress :
        • The success depends on the abilities and commitment of the owner.
        • Have to do their own accounts, marketing, HR, and management and operations.
  • 26. 2f. Three Main Types of Businesses
    • Disadvantages :
      • Lack of continuity :
        • If the owner is not present the business may fail.
      • High costs of production :
        • Not able to exploit the benefits of large scale production.
  • 27. 2g. Three Main Types of Businesses
    • 2. Partnerships :
      • Is a profit-seeking business owned by two or more persons.
      • The maximum number by law is 20 persons.
      • They are mainly financed by personal funds from each partner.
      • They can also raise funds from partners who do not actively take part in the company – this is known as what?
        • Silent partner 
          • They are eligible for a share of the organization’s profits.
      • One partner must have unlimited liability, as partnerships are unincorporated businesses.
        • Every party has a share of the liability.
        • Contracts are usually made between partners.
  • 28. 2h. Three Main Types of Businesses
    • 2. Partnerships :
      • If you would like to draw up contracts between the partners it is called Deed of Partnership or Partnership Deed.
        • It will include :
          • Amount each partner contributed (financial)
          • The roles and responsibilities of each partner.
          • How profits and losses will be shared.
          • Conditions for bringing in new partners.
          • Clause for withdrawal of a partner.
          • Procedure for ending the partnership.
  • 29. 2i. Three Main Types of Businesses
    • Advantages :
      • Financial strength :
        • More people to invest in the business.
        • Easier to setup.
      • Division of Labor & Specialization
        • More people with different skills and abilities to draw upon.
      • Financial records :
        • Do not have to publicize their records.
        • Can enjoy some financial privacy.
  • 30. 2j. Three Main Types of Businesses
    • Disadvantages :
      • Unlimited liability :
        • Everyone is responsible for all debts
      • Decision making process :
        • Will be longer due to the large number of people involved.
      • Lack of continuity :
        • May exists if someone dies or leaves the business.
        • Might want to have a clause in the contract to avoid unnecessary lawyer fees.
      • Trust :
        • Everyone must trust each other to do business.
      • Raising capital :
        • May face difficulty in raising capital.
  • 31. 2k. Three Main Types of Businesses
    • 3. Companies (Corporations):
      • Companies are owned by whom?
        • Shareholders.
          • Who are the shareholders?
            • Individuals or other businesses.
            • Invested their money to provide capital for a company.
      • Sometimes called joint-stock companies…why ?
        • Because the shares / stocks are jointly held by many people or organizations.
        • Common term for a company is corporation.
  • 32. 2l. Three Main Types of Businesses
    • Companies are incorporated businesses.
      • What does this mean?
        • Legal difference.
        • The company is acting as a separate entity.
          • It has its own legal rights and duties.
            • They have limited liability.
            • Shareholders are not responsible for a company’s debts.
            • They will not lose personal belongings.
            • The maximum they can lose is how much they have invested.
    • Can you imagine if you were to share in a large multinational company’s debt?
  • 33. 2m. Three Main Types of Businesses
    • Setting up a limited company :
      • Is complicated and expensive.
      • Lots of rules and regulations to follow.
        • One reason is to protect the investor.
      • A board of directors is elected by the shareholders.
        • They will run the company.
        • Usually elected based on their skills and expertise.
        • Each share equals one vote.
    • What does the term “ limited company ” mean?
      • To let you know that the companies liability is limited 
        • Two types private limited companies and public limited companies.
  • 34. 2n. Three Main Types of Businesses
    • Private Limited Companies:
      • Can not raise share capital from the general public.
        • Shares are sold privately to family and friends.
        • Usually these companies have Ltd. After its name.
          • Eg. ABC Ltd.
        • Shares in these companies can not be traded without the agreement of the Board of Directors.
          • Why not?
            • To maintain control of the company.
        • Main advantage of these types of companies is that the owners have greater control.
        • Also, these companies are cheaper to set up.
  • 35. 2o. Three Main Types of Businesses
    • Pubic Limited Companies:
      • Are able to advertise and sell its shares to the general public via what?
        • The stock exchange.
      • One disadvantage is the dilution of control
        • Issuing more shares, company will have more owners, this weakens the owners ability to control the business.
      • Also they are exposed to takeover bids .
        • Whereby other companies purchase the majority of the stock in the company.
    • REMEMBER :
      • All companies are businesses, but not all businesses are companies.

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