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What You Need to Know about Forms of Business Ownership

What You Need to Know about Forms of Business Ownership. Starting your own business. Yes, decide what type you want to be and why… Sole proprietorship – just get started! Partnership – pair up with a friend Corporation - function separate from owners. Advantages Ease of start/end

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What You Need to Know about Forms of Business Ownership

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  1. What You Need to Know about Forms of Business Ownership

  2. Starting your own business • Yes, decide what type you want to be and why… • Sole proprietorship – just get started! • Partnership – pair up with a friend • Corporation - function separate from owners

  3. Advantages Ease of start/end Be your own boss Pride of ownership Leave legacy Retain profit No special taxes Disadvantages Unlimited liability Limited financial resources Difficulty in managment Time commitment Few fringe benefits Limited growth Limited life span Sole Proprietorship

  4. General Limited Master Limited Limited Liability Types of Partnerships

  5. Partnership Advantages More financial resources Shared mgmt. Longer survival No Special Taxes • Disadvantages • Unlimited liability • Division of profits • Disagreements among partners • Difficult to terminate

  6. Types of Corporations • Regular “C” • S Corporation • Limited Liability Companies

  7. Corporations • Private- Not Traded on Any Stock Exchange • Public- Shares Are Traded on 1 or More Stock Exchanges • Non-Profit- Performs Public Service, Has Special Tax Considerations To Encourage Formation

  8. Corporation Advantages More money for investment Limited liability Separation of ownership/mgmt. Ease of ownership change Perpetual life Size • Disadvantages • Initial cost • Paperwork • Two tax returns • Termination difficult • Stockholder & Board Conflict • Double taxation

  9. How Owners Affect Management

  10. No more than 75 shareholders Individual or Estates U.S. citizens or residents 1 class of stock <25% of income can be passive Slower-growing companies Benefits change with new tax rules S Corporations

  11. Advantages Limited Liability Tax Choice Flexible Ownership Rules Flexible Profit & Loss Distribution Operating Flexibility Disadvantages No Stock Limited Life Span Fewer Incentives Taxes Paperwork Limited Liability Companies

  12. Why Mergers Don’t Work • Companies Overpay to Acquire Another Firm • Acquiring Company Overestimates Cost Savings and Synergies • After Merger, Managers Disagree About Integrating Operations • After Merger, Cost Cutting Obsession Hurts Business, Costing Top Employees & Customers

  13. GM’s Ownership In: Source: USA TODAY

  14. Horizontal Vertical Conglomerate Types of Mergers

  15. Leveraged Buyout Individual + Loan = Purchase of Company Purchase Loan Company = Collateral

  16. Franchise System • Franchise Agreement • Franchisor • Franchisee

  17. Franchise Contract Franchisor, Inc. Branded Product/Service Performance Monitoring $$$$$ Franchisee

  18. Assigns Territory May Provide Financial Aid/Advice Offers Merchandise/ Supplies at Competitive Price Provides Training/Support Business Expansion Using O.P.M. Franchisor

  19. Franchisee • Pays Up-Front Costs • Makes Monthly Payment to Franchisor • Runs Business by Franchisor’s Rules/Procedures • Buys Materials from Franchisor/ Approved Supplier

  20. Fastest Growing Franchises Source: Entrepreneur, 2003

  21. Advantages Management & marketing assistance Personal ownership Recognized name Financial advice & assistance Lower failure rate Disadvantages High start-up costs Shared Profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors Franchises

  22. Cost of Fast-Food Franchise

  23. How to Avoid aFranchise Lemon • Research officers & their business experience • Get summary of any bankruptcy & litigation • Estimate all costs to set up franchise • Review franchise contract & three most recent financial statements

  24. Benefits of aHome-Based Franchise • Flexible work hours • Quality lifestyle • Doing the work of your choice • Opportunity to expand using technology • Self-motivation .

  25. Franchising & E-Commerce • Technology- Faster Customer Service • Access to International Markets

  26. Cooperatives • Farm Cooperative • Owned & Controlled by People Who Use It • Pool of Resources • Economic Power

  27. Small Business Revival • Shift to Services • CAD/CAM Lessening Advantages of Big Manufacturing • Maturation of Baby Boomers • More Women in Workforce 1970 1980 1990 2000

  28. Entrepreneurship • Definition • Characteristics of Successful Entrepreneurs • Intrapreneur • Micropreneur vs. Home-Based Corporation Entrepreneur

  29. Small Business- Advantages • Personalized Service/ Personal Contact • Flexibility • Lower Costs • Innovation Opportunities

  30. Small Business-Disadvantages • Limited Experience • Long Hours • Insufficient Capital • High Failure Rate

  31. Why People Start Their Own Businesses Source: BFIB/VISA Card Primer

  32. Reasons Women Leave Jobs in Big Companies to Start Business Source: FSB, March 2001

  33. Self- Perception of Small Business Owners Source: USA Today, 5/20/03

  34. Who Starts New Businesses? 18 - 24 8% 25 - 34 71% 35 - 44 13% 45 - 54 6% 55+ 2% AGE AT START-UP

  35. Entrepreneurial Attributes • Self-Directed & Self-Disciplined • Self-Nurturing • Action-Oriented • Highly Energetic • Tolerant of Uncertainty

  36. Hours per Week Entrepreneurs Worked 1st Year 1 - 39 hours 8% 40 - 49 hours 15% 50 - 59 hours 23% 60 - 69 hours 28% 70 - 79 hours 13% 80 + hours 12%

  37. Reasons for Growth of Home-Based Businesses • Technology • Downsizing • Attitudes • Tax Advantages

  38. Most Common Types ofHome-Based Businesses Source: Independent Insurance Agents of America

  39. Challenges New Customers Time Management Work vs. Family City Ordinances Risk Focus Find Opportunity Results vs. Routine Profit vs. Paycheck New Ideas Long Term vs. Short Term Home Office Owners

  40. Government Efforts • Immigration Act of 1990- Investor Visa • Enterprise Zones • Incubators

  41. What Is Small Business? • Independent • Not Dominant • < 500 Employees

  42. U.S. Small Businesses • 20 Million Full/Part-Time Businesses • 75% of New Jobs • 45% of Gross Domestic Product • Jobs • 80% of Americans = 1st Job in Small Business • 75% of New Jobs = Small Business • Women-Owned Growing Rapidly

  43. Learn from Others Get Experience Take Over Successful Firm Small Business Success

  44. Successful Business Management Requirements • Business Plan • Adequate Funding • Lenders/Investors • “Angels” • Venture Capitalists • Professional Advice/Help • Know Your Customer • Manage Human Resources • Keep Good Records

  45. Small Business Strategies • Examine Marketing & ID Areas for Growth • Profile Best Customers & Market to Similar Prospects • Invest in Sales Training & Technology • Refresh Business Perspective With Outside Views • Streamline Business & Eliminate Waste

  46. React/Not Overreact Understand Financial Situation Find Professional Help Develop “Recovery Plan” Be Visible Confident Leader Remind Employees of Stake in Business Don’t Get Stung By Killer “Bankruptcy” Saving a Business in Trouble

  47. Capital Sources of Successful Entrepreneurs SOURCE:FSB, March 2001

  48. I don’t know enough about you or your business. You haven’t clearly stated why you need the money. Your numbers don’t support the loan request. Your collateral is lacking. Your business does not support the loan on its own merits. Reasons for aBanker to Say “No”

  49. Small Business Collaborators • Small Business Administration (SBA) • Microloan program • SBICs • SBDCs • Service Corps of Retired Executives (SCORE) • Active Corps of Executives (ACE)

  50. Ways to Improve Banking Relationships • Provide Bank With Business Plan, Brochures, Business Cards, etc. • Describe Business, Financial Situation, Plans • Ask About Scope of Bank Services • Express Interest In Banker’s Background- Family, Hobbies, etc. • Follow Up With Phone Calls, Visits Source: St. Louis Business Monthly, August 2002

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