Unit 4 Business Ownership & Operations Notes

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Unit 4 Business Ownership & Operations Notes

  1. 1. Mr. ElsesserIntroduction to Business
  2. 2. Answer thesequestions… What are 3 different types ofbusinesses? Can you provide any examples? How are your examples similar or different?
  3. 3. Sole ProprietorshipPartnershipCorporation  As your business expands, you can change the form of ownership.
  4. 4. Figure 6.1U.S. SoleProprietorships,Partnerships, andCorporations
  5. 5. Sole Proprietorship• A sole proprietorship is a business owned by only one person. • About three-quarters of all businesses in the United States are sole proprietorships. • Ex: Florists, Auto Repair, farms, home-based businesses
  6. 6.  It’s Easy to Start:  You may only need a license or permit Proprietors are their own Boss:  Come & Go as you please! Do it your way! Proprietors keep all the profits:  Everything is yours…spend it as you wish! Low Taxes:  Only pay taxes on your personal profits!
  7. 7.  Unlimited Liability  May Run Out of Money  Owners are responsible for  You have to buy your own the company’s debts. supplies, pay for advertising, rent office space and pay Limited Access to Credit taxes  Business owners might have to use their own capital and borrow against their own Business Ends when the savings. owner dies.  USUALLY A REASON FOR FAILURE  May lack necessary skills  Might have to hire more people.
  8. 8.  Is started by forming a partnershipagreement:  Partnerships:  A business owned by two or more people who share its risks and rewards.  Ex: Law Firms, restaurants, construction
  9. 9. Key Questions of Starting a Partnership You must decide:  How much money will each of you invest?  How will you share the profits?  How will you share the work?  How will you end the partnership?  If one partner decides to leave the business, the partnership legally ends
  10. 10.  Very Easy to Start  May only need a license to start. Only Taxed Once  Only pay taxes on all your personal profits. Easier to Obtain Capital  All partners contribute money to start business.
  11. 11.  Diversity in Skills  Each partner may bring different skills to the business. Easier to Obtain Credit  Banks more willing to lend money to partnerships. Not Dependent on a Sole Person  Business can survive if owners leave.
  12. 12.  Business Risk is Shared  Unlimited Legal  Owners are responsible Liability for the company’s debts.  All owners can be held personally responsible for Unlimited Financial contracts and accidents.Liability  All business owners might  Partners may not get have to use their own along capital and borrow against their own savings.  If a partner makes a mistake, all are responsible.
  13. 13.  Late one night you are working in your kitchen meltingpeanut butter and gummy bears together and youaccidently come up with a new product you decide tocall “Gummy Butter.” The next day at school you havesamples of the butter for your friends to try. It is a HUGEHIT! Later, you hear your friend Sally Creamcheesetalking to her boyfriend Moose about how she wouldlike to be your partner in producing this new venture. What should you do?  Make “Gummy Butter” a sole proprietorship or go with Sally and make it a partnership?  Explain your answer.
  14. 14. A Quick Summary… Similarities and Differences BetweenPartnerships and Sole ProprietorshipsPartnerships Both Sole Proprietorships Shared Quicker decision Pride in decision making owning and making running business Owner keeps Increased Easy to set up all profits diversity of Low taxes experience Owner is Unlimited liability for debts own boss Shared losses Huge time Relatively easy Combined demands to get credit funds
  15. 15.  To form a corporation, owners must get acorporate charter from the state where theirmain office will be located:  Corporation:  A company that is registered by a state and operates apart from its owners.  Ex: Dept. Stores, Banks, Technology Companies
  16. 16. How To Start a Corporation You must:  File a corporate charter with the state your headquarters is in.  A Corporate Charter is a license to run a corporation.  Must file a Certificate of Incorporation through the Department of State’s Division of Corporations.  Corporation will need a federal taxpayer ID #.
  17. 17.  Easy to Raise Money and Collect Profits  Stock is sold to raise money.  Do this as often as you need too.  Stockholders own the corporation  Stockholder gets share of profits for every share owned  Also a “vote” per share for how company is run. Board of Directors Control the Corporation  You don’t run the overall direction of company. Corporation does not end if owners sell shares Corporation does not end if owners sell shares.
  18. 18.  Double Taxation:  All income is taxed.  Stockholders pay taxes on profits issued to them. More Government Regulation  Much “Red Tape” to navigate—time consuming. Difficult and Costly to Start  Start-up process with the state is expensive.
  19. 19. CooperativeFranchiseNon-Profit Organization
  20. 20.  The purpose of a cooperative is to save money oncertain goods and services.  Cooperative:  An organization that is owned and operated by its members.  Exists as a separate entity from individual business.  Pay lower taxes than corporations  Run by Board of Directors.  Members pool their resources to save money.
  21. 21.  To run a franchise you have to invest money orpay a franchise fees or share your profits with thefranchisor.  Franchise:  A contractual agreement to use the name and sell the products or services of a company in a designated geographic area.  Franchisor offers well-known name and business plan  If you want to start a business but lack business expertise, a franchise would be a good choice.
  22. 22.  A non-profit organization does not pay taxesbecause it does not make a profit.  Non-Profit Organization:  A type of business that focuses on providing a service and not making a profit  Does not pay taxes.  Relies on government grants and donations  Donors deduct donations from their taxes.
  23. 23. 1. What is the difference between a sole proprietorship and a partnership? 1. A sole-proprietorship is owned by one person. A partnership is owned by two or more people.2. If a partner makes a bad decision, what responsibility do the other partners have? 1. All partners share responsibility for a bad decision.3. Why are cooperatives formed? 1. So that the members have advantages in buying and selling products and services.
  24. 24. Identify types ofbusinesses.Identify someDifferent functions ofbusinesses.
  25. 25.  There are many different types of businesses that requireseveral different functions that enable each to operate on a dailybasis. Types of Functions of Businesses Businesses • Producers • Production and • Processors Procurement • Manufactures • Marketing • Intermediaries and • Management Wholesalers • Finance and • Retailers and Service Accounting Businesses
  26. 26.  There are 5 types of Business: 1. Producer: A business that gathers raw goods from their natural state. Ex: Agriculture, Mining, Fishing or Forestry
  27. 27.  There are 5 types of Business: 2. Processor:  A business that changes raw materials into more finished products. Ex: Turning wheat into flour. Crude oil into gas.
  28. 28.  There are 5 types of Business: 3. Manufacturers:  A business that makes finished products out of processed goods and gets them ready for sale. Ex: A bakery makes bread out of flour
  29. 29.  There are 5 types of Business: 4. Intermediaries and Wholesalers:  Intermediary:  A business that moves goods from one business to another.  Ex: They buy them, store them, & resell them.
  30. 30.  There are 5 types of Business: 4. Intermediaries and Wholesalers:  Wholesalers:  A wholesaler, also known as a distributor, distributes goods—moves them from one business to another.
  31. 31. IntermediariesWholesalers buy goods from manufacturers inhuge quantities and resell them in smallerquantities to their customers, usually othercompanies.
  32. 32.  There are 5 types of Business: 5. Retailers and Service Businesses:  Retailers:  A business that purchases goods from a wholesaler and sells them to consumers—the final buyers.
  33. 33.  There are 5 types of Business: 5. Retailers and Service Businesses:  Service Businesses:  Businesses that perform tasks rather than provide goods.  Employ about ¾ of nation’s workforce. Ex: Car Repair and Hairdressers.
  34. 34. Service BusinessesSome servicebusinesses meet needs,such as medical clinicsand law firms.Some provideconveniences,such as taxicompaniesand copyshops.
  35. 35.  There are 5 Functions of Business: 1. Production and Procurement:  Production:  The process of creating, expanding, manufacturing, or improving goods and services.  Procurement:  The buying and reselling of goods and services that have already been produced.
  36. 36.  There are 5 Functions of Business: 2. Marketing:  The process of planning, pricing, promoting, selling, and distributing ideas, goods and services. 3. Management:  The process of achieving company goals by organizing, directing, controlling, and evaluating the effective use of resources.
  37. 37.  There are 5 Functions of Business: 4. Finance:  Requires analyzing financial statements to make future decisions.  The business or art of money management. 5. Accounting:  Includes the maintaining and checking of records, handling bills, preparing financial reporting for a business  Must have a high attention to detail and accuracy.
  38. 38.  How are the Functions of Business areInterdependent… The functional areas of a business depend on each other. Sometimes the functional areas of a business conflict with each other.
  39. 39. Example of How Functional Areas Depend on Each OtherA furniture maker’s sales are decreasing.The accounting and finance department notice decreasing sales.If the furniture is too highly priced, more efficient procedures will have to beimplemented.A new marketing plan is created.The accounting and finance department will monitor the effects of newmarketing efforts.
  40. 40. Example of How Functional Areas Conflict with Each OtherManagement wants to increase sales by 20 percent within three years.The production department suggests improving quality.The marketing department requests more funds for projects.Accounting says there is not enough money for either plan.The final plan involves ideas from all the functions of business.
  41. 41. 1. What is the different between a producer and a processor? 1. A producer gathers or creates raw products. A processor changes raw products into more finished products.2. Identify the five functions of business. 1. Production and procurement, marketing, management, finance, and accounting.3. Give an example of how the accounting and finance functions can affect a business’s marketing/production processes. 1. If the financials show little profit, new marketing plans may be developed and new production procedures may be implemented.

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