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Forms of Business Ownership

Forms of Business Ownership. Business 40 Week 4 Carole K. Meagher 9 February, 2005. Agenda. Roll call, introductions, project ideas DVD Article analysis Before you leave tonight… I need a roster with your group and project idea Week 4 Lead-in. “Joe to Go”. Cluster into your groups

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Forms of Business Ownership

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  1. Forms of Business Ownership Business 40 Week 4 Carole K. Meagher 9 February, 2005

  2. Agenda • Roll call, introductions, project ideas • DVD • Article analysis • Before you leave tonight… • I need a roster with your group and project idea • Week 4 Lead-in

  3. “Joe to Go” • Cluster into your groups • Think about your own project while watching this DVD • Best practices/Good ideas you’ll borrow? • Lessons learned you’ll watch out for?

  4. 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

  5. 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

  6. General Limited Master Limited Limited Liability Types of Partnerships

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

  8. Types of Corporations • Regular ‘C’ • S Corporation • Limited Liability Companies

  9. 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

  10. 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

  11. How Owners Affect Management

  12. 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

  13. 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

  14. 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

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

  16. Horizontal Vertical Conglomerate Types of Mergers

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

  18. Franchise System • Franchise Agreement • Franchisor • Franchisee

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

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

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

  22. Fastest Growing Franchises (2002) Source: Entrepreneur, 2003

  23. 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

  24. Cost of Fast-Food Franchise

  25. 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

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

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

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

  29. Count off by 3s… • Why did Demos decide to start White Wave? What did he think he could do differently/better? • Why did Engles want to acquire White Wave? In other words, why was WW growing and Dean foods not growing? • Why did Engles keep Demos and his team around? Couldn’t he just run the operation with his own people?

  30. Break…

  31. 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

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

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

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

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

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

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

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

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

  40. 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%

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

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

  43. 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

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

  45. What is Small Business? • Independent • Not Dominant • < 500 Employees

  46. 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

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

  48. 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

  49. 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

  50. 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

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