Chapter 2 notes new book

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Chapter 2 notes new book

  1. 1. Chapter 2 Objectives: Methods of going into business Legal forms of business
  2. 2.  1919: J.W. Longaberger took a job with the Dresden Basket Factory  Great Depression: The factory closed, and J.W. got a job at a paper mill, but kept making baskets nights & weekends  1936: J.W. and his wife Bonnie purchased the Dresden Basket Factory, which they ran with their 12 children. Longaberger Baskets
  3. 3.  1934: Dave Longaberger born  Stuttered, had epilepsy, spent 3 years in 5th grade  Very ambitious – family called him the “25 cent millionaire” – worked in a grocery store, – shoveled snow, – delivered papers, – mowed grass, – hauled trash, – ran the projectors at the local movie house Longaberger Baskets
  4. 4.  1963: Dave Longaberger and his wife bought & ran “Harry’s Dairy Bar”.  Bought A&P and ran it  Dave noticed department stores selling imported baskets, and asked his father, J.W., to make some baskets–they sold well.  1971: Opened J.W.’s Handwoven Baskets  1978: Figured out that the best way to sell the baskets was home shows Longaberger Baskets
  5. 5.  1984: Dave’s daughter Tami joined the family business.  1994: Tami became president  Today, 45,000 “home consultants” sell Longaberger baskets. Longaberger Baskets
  6. 6. Monty Tech Entrepreneur of the Week: Josh Miner - Miner Leaks  LinkedIn  Plumbing Class of 2002
  7. 7. Methods of Going Into Business  Buy an existing business  Start from scratch  Buy a franchise  Reminder: –Entrepreneur interviews due Friday
  8. 8. Advantages of buying an existing business?
  9. 9. Buy an Existing Business - Advantages  Proven record  Established clientele  Established location  Bank and supplier relationships  Trained employees  Established facilities  Low purchase price
  10. 10. Disadvantages of Buying an Existing Business?
  11. 11. Buy an Existing Business - Disadvantages  Poor record?  Ill will?  Wrong location?  Poor physical condition?
  12. 12. How do you find a business to buy?  Advertised in classified (“Business opportunities” section)  Business broker  Chamber of Commerce  Small Business Administration  Bankruptcy announcements  Word of mouth
  13. 13. Steps to Purchase a Business  Write specific objectives about the kind of business you want to buy and identify businesses for sale that meet your objectives.  Meet with brokers to investigate specific opportunities.  Visit during business hours.  Ask for complete financial accounting for the past 3 years.
  14. 14. Purchase Steps  Ask for important information in writing – Complete list of assets to be transferred – Statement about any past or pending legal action against the business – A copy of the business lease or mortgage – List of all suppliers  Determine how you would finance the business.  Get expert help to determine a price to offer for the business.
  15. 15. Advantages of Starting From Scratch?
  16. 16. Start from Scratch - Advantages  Freedom to make decisions  Opportunity to develop image  Choice of location  Choice of physical facilities
  17. 17. Disadvantages of Starting from Scratch?
  18. 18. Start from Scratch - Disadvantages  No record  No established clientele  Time-consuming tasks – Training new employees – Installing machinery, display cases, furniture – Ordering goods  Difficulty in obtaining a loan
  19. 19. Buy a Franchise  Franchise: contract  Franchisee: person who purchases the name/concept  Franchiser: corporation who sells the name/concept
  20. 20. Advantages of Purchasing a Franchise?
  21. 21. Advantages of a Franchise  Start-up help  Advertising  Financial assistance  Established brand name  Proven method  Equipment and supplies may be less expensive
  22. 22. Disadvantages of Purchasing a Franchise?
  23. 23. Disadvantages of a Franchise  Limited control  Franchise fees – Initial franchise fee – Royalty fees (weekly or monthly)  Potential image problem  The franchisor can terminate the franchise agreement
  24. 24. Evaluation of a franchise  What can a franchise do for me that I can’t do for myself?  What is the future for this product or service?  How is the contract?  Are there enough potential customers?  Is this a good fit for me, financially and the type of business?
  25. 25. Sidelines  Work full time and run a business  Advantage: financial security  Disadvantage: less time to make business successful
  26. 26. Family Business  Do you have a business in your family?  What are advantages of a family business?  What are disadvantages of a family business?
  27. 27. Home-based Businesses  Advantage: – cheaper – More convenient  Disadvantages: – Sometimes perceived as less professional – Lack of privacy
  28. 28. Legal Forms of Business  Sole Proprietorship  Partnership  Corporation  S Corporation  Limited Liability Corporation
  29. 29. Advantages of a Sole Proprietorship  Easy to start  All profits to owner  Complete control & flexibility  Secrecy  Single taxation  Easy dissolution
  30. 30. Disadvantages of a Sole Proprietorship  Unlimited liability  Limited life of business  Difficulty in obtaining capital  Little incentive for employees
  31. 31. Advantages of a Partnership  Easy startup – Articles of Partnership – Partnership Agreement (see p. 38)  Added capital  Combined management skills  Single taxation  Employee incentives
  32. 32. Disadvantages of a Partnership  Unlimited liability  Limited life of business  Divided authority  Frozen investment
  33. 33. Corporation  An enterprise that has the legal rights, duties, and powers of a person  Charter – written document outlining the conditions under which the corporation will operate  Stockholders – owners of a corporation  Stock – shares of ownership in a corporation
  34. 34. Corporation  Board of Directors – meet several times a year to elect senior officers, determine their salaries, set corporation’s rules for conducting business  Dividends – distributions of profit to shareholders by corporations
  35. 35. Advantages of a Corporation  Limited Liability  Continuous life  Easy transfer of ownership  Ability to attract funds  Specialized management
  36. 36. Disadvantages of a Corporation  Government regulation  Little secrecy  Charter restrictions  Complicated and expensive formation  Double taxation
  37. 37. S Corporation  A corporation that chooses Subchapter S status for tax purposes  Must meet the following requirements: – No more than 35 shareholders – Only one class of stock – All shareholders are U.S. residents – All shareholders are individuals – Corporation operates on a calendar year financial basis
  38. 38. Advantages of an S Corporation  Limited liability  Single taxation – income passes through to individual shareholders and are reported on their tax returns
  39. 39. Disadvantages of an S Corporation  Owners may be required to pay taxes on earnings even if they have not taken any money out of the business
  40. 40. Limited Liability Corporation  Same advantages & disadvantages as an S Corporation, but easier to set up  When you’re ready to start a business for real, SEE A LAWYER and understand the current situation!!!
  41. 41. Form 2 – Write a paragraph on each question:  Do you plan to buy an existing business, start a business from scratch, or buy a franchise? What are the advantages and disadvantages of this choice?  What legal organization will you choose for your company? What are the advantages and disadvantages of this choice?

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