Chapter 5 Forms of Business Ownership and Organization
Learning Goals1 Distinguish between small and large businesses. 7 Outline the three main legal forms of business ownership and summarize Discuss the contributions of small the features of businesses owned by2 businesses to the economy. employees and families, as well as not-for-profit organizations.3 Discuss the survival rate of small businesses. 8 Describe public and collective (cooperative) business ownership.4 Describe the features of an effective 9 Identify types of corporations and business plan. the levels of corporate management.5 Describe funding opportunities for small 10 Describe mergers, acquisitions, and businesses, including the role of the Small Business Administration. joint ventures.6 Explain how franchising can provide opportunities for both franchisors and franchisees.
Most Businesses are Small Businessess 90% of firms with employees have fewer than 20 people on staff. s 98% have fewer than 100 employeess More than 20 million people in the United States earn business income without employees. s Almost ½ the sales in the United States are made by small businesses.s Small businesses generated 60%--80% of new jobs over the last decade.s Small businesses are a launching pad for entrepreneurs and encourage the prevalence of minorities.
W is Small Business? hats The Small Business Administration defines a small business to be a firm that is independently owned and operated and is not dominant in the field. s Manufacturing business: fewer than 500 workers s Wholesalers: fewer than 100 workers s Retailers: less than $6 million in annual sales s Agricultural business: less than $750,000s Small businesses’ sizes range from $500,000 to $25 million in sales and from 100 to 1,500 employees.
Home-Based Businessess 52% of small businesses s 16 millions Allows for more control of businesss Allows for more control of personal times Keeps start-up and operating expenses lows Owner can feel isolated and business has less visibility to customers
Contributions of Small Businesss Create New Jobss Account for 30% of U.S. Exportss Offer Customized Servicess Create New Industriess Encourage Innovation
Small Business Failures 3 in 10 businesses close permanently within two years.s 50% of businesses fail within five years.s By the 10-year mark, 82% of all small businesses have closed permanently.
Reasons W Small Business Fail hys Management Shortcomingss Inadequate Financings Government Regulation
Increasing the Likelihood of Small Business Successs Creating a Business Plan s Written documentation that provides orderly statement of goals, methods, and purpose s Discusses the company’s mission and vision s Analyzes unique advantage, customers, and competition
Small Business Administrations Government agency concerned with helping small business firmss Financial Assistance s Loan Guarantees s Microloans s Small Business Investment Companies (SBICs) s Active Capital: SBA Loans
Other Specialized Assistances Set-Aside Programs s Government Contracts (over 23%) s 5% for women and minorities s Assistance in Financing Government Procurements Business Incubators s Local community initiatives to share resources for small start-ups s SCORE: Counselors to America’s Small Busines s Small Business Development Centers (SBDC)
Opportunities for Women & Minoritiess More than 40% of U.S. businesses are owned by women (10 million businesses)s The number of businesses owned by minorities outpaced the growth in the number of U.S. businesses overall.s Women and minorities still face challenges: s Smaller-scale operations s Challenges finding investors s Access to capital
The Franchising Alternatives A contractual business agreement between a manufacturer or another supplier and a dealer to produce and market the supplier’s good or service. s Links to franchising opportunities: s Subway s Entrepreneur
The Franchising Agreements Franchising agreements exist between franchisee and franchisor.s 50% of all retail saless 760,000 businessess 18 million jobss $500 billion in payrolls Near $2 trillion in saless New franchise opens every 8 minutess Franchising overseas is a growing trend
Benefits and Problems of FranchisingADVANTAGES DISADVANTAGESs Prior Performance s Franchise Fees Record s Future Paymentss Recognizable Company (Royalties) Name (Brand) s Linked to Reputations Proven Business Model and Managements Tested Management s Franchise Agreement Program Restrictionss Savings through Volume s Tight Control Purchases
Legal Structures to Meet Changing Needss Financial Situations Management Skills and Limitationss Management Styles and Capabilitiess Exposure to Liability
Types of Corporationss Domestic, foreign, aliens S Corporations Limited Liability Companiess Employee-Owned Corporationss Not-for-Profit Corporations
Public and Collective Ownerships Public ownership – a unit or agency of government owns and operates an organization. Parking structures, water systems, turnpike authority.s Customer-Owned Businesses – collective ownership of a production, storage, transportation or marketing organization is a cooperative.
Corporate Managements Stockholders – acquire stocks in exchange for ownership s Preferred Stock s Common Stocks Board of Directors – elected by stockholders to oversee corporations Corporate Officers & Management – make major corporate decisions and handle ongoing operations
W Businesses Join Forces hens Mergers and Acquisitions (M&A) s Merger – combination of two or more firms to form one company s Vertical s Horizontal s Conglomerate s Acquisition – procedure in which one firm purchases the property and assumes the obligations of anothers Joint Venture – partnership between companies for a specific purpose