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Forming A Business Unit

Forming A Business Unit. Ass . Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University. Chapter Objectives. D efine small and large businesses and identify the industries in which most small firms are established. Discuss the economic and social contributions of small business.

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Forming A Business Unit

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  1. Forming A Business Unit Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University

  2. Chapter Objectives • Definesmall and large businesses and identify the industries in which most small firms are established. • Discuss the economic and social contributions of small business. • Compare the advantages and disadvantages of small businesses. • Explain how franchising can provide opportunities for both franchisors and franchisees. • Summarize the fourbasic forms of business ownership and the advantages and disadvantages of each form.

  3. Size of Business • Whatmakes a businesssmall, mediumorlarge? • Quantitativefactors: thesales, theamount of capitaland son on. • Qualitativefactors: the legal formation of businessunit, thebusinessunitsdegree of penetrationwithlocalmarkets, nationwideorworldwideandsoon.

  4. Variables affecting the size of your business include: • How easily can you set up this type of organization? • How much financial liability can you afford to accept? • What financial resources do you have? • How manypeople do youempoly?

  5. Most Businesses Are Small orMediumSizedBusinesses • What is a SmallorMediumSized Business (SME)? • A firm is independently owned and operated, • it is not dominant in its field • It has relativelysmallannualsalesandprofits • It has limitednumber of employees. InTurkey, morethan96 percent of total businessesaresmallormediumsizedbusinesses (KOBİ)

  6. Major Industries Dominated by Small Businesses

  7. Contributions or Small orMediumSizedBusinessto the Economy • Creating New Jobs • Creating New Industries • Attracting New Industries

  8. Advantages of SME’s • Easyto form • Facinglowcosts • Coveringtheisolated market niches • Effective in owner – workerrelations • Effective in customerservices • Flexible • Innovativeandcreative

  9. Disadvantagesof SME’s • Weakness in competingwithlargebusinesses • Limited growthorunconsciousgrowth • Limited financing • Lack of ManagerialSkill (Inadequate Management)

  10. Business Plan • Creating a Business Plan • Business plan—written document that provides an orderly statement of a company’s goals, the methods by which it intends to achieve those goals, and standards by which it will measure achievements. • Typically includes following components: • Executive summary • Introduction • Marketing • Financials • Resumes of principles

  11. Business Plan • Beforewriting the business plan, several questions need to be answered, including: • How would you explain your business idea to a friend? • What purpose does your business service? • How does your idea differ from those of existing business? • What is the state of the industry you are entering? • Who will be your customers? • How will you market your goods or services? • How much will you charge? • How will you finance your business? • Where do youwanttoopenyourbusiness? • What characteristics qualify you to run this business?

  12. Three AlternativesforSME’s • Start up a newcompany • Buy an existingcompany • Franchising

  13. The Franchising Alternative • The Franchising Sector • Franchising—contractual agreement that specifies the methods • Franchising growing rapidly • Franchising is also popular overseas

  14. The Franchising Alternative • Franchising Agreements • Franchisee: small business owner who contracts to sell the goods or service of the franchisor in exchange for some payment • Franchisor: owner of the franchise. Franchisor typically provides name recognition, building plans, site selection help, accounting systems, and other services

  15. The Franchising Alternative • Benefits of Franchising • Advantages include: • Recognizable company name • Business model that has proven successful • Tested management program • Business training • Selectinglocation

  16. The Franchising Alternative • Problems of Franchising • Disadvantages include: • High start upcost • High royalityfee • Coattaileffect • No individualfreedom

  17. Advantages of Large Business • High budgetforResearch & Development (R&D) • Costefficiencybecause of largescaleproduction • Financial strenght • Capablemanagement • Efficiency in production

  18. Disadvantagesof LB’s • Inflexibility • Gainingmorepoliticalpower in society. • High start upcost.

  19. Types of Business AccordingtoTheirFuctions • Businessesareclassifiedintothreegroups. Theseare: • Manufacturingcompanies: theyproducetangibleproducts ( commoditiesproducts) such as electronicgoods, cars, textilesandso on. • Service companies; theyproduceintangibleproductsthroughdirectcontactbetween employees andcustomerssuch as hotels, lawfirmsandso on. • Marketing andsalescompanies; Theysellproductsthatareproducedbydifferentfirm. Theyareintermadiariesbetweenmanufacturerandcustomer. Manypeopleseethiskind of businesses as service businesses

  20. Types of Business AccordingtoEqutiyOwnership • Domestic Business • PrivateBusines • Business withgovernmentorpublicownership • Mixed Business • Foreign Business • PrivateBusines • Business withgovernmentorpublicownership • Mixed Business

  21. Legal Structure of Private Business • Therearefour legal structure of privatebusinesses. Theseare: • Sole Proprietorship • Partnership • Corporations • Cooperatives

  22. Alternatives for Organizing a Business • Sole Proprietorships • Sole proprietor—form of business ownership in which the company is owned and operated by one person.

  23. TheAdvantages of Sole Proprietorship Theadvantagesof Sole Proprietorships • easy to form and dissolve • management flexibility • the owner retains allprofits

  24. TheDisadvantages of Sole Proprietorship Thedisadvantagesof Sole Proprietorships • the owner’s financial liability for all debts of the business (Unlimitedliability) • Limited financialresources • Lack of managerialskill • Limited life span

  25. Alternatives for Organizing a Business • Partnerships • Partnership—form of business ownership in which the company is operated by two or more people

  26. TheAdvantages of Partnership Theadvantagesof Partnership • easy to form • complementarymanagerialskills • Widerfinancialcapacity

  27. TheDisadvantages of Partnership Thedisadvantagesof Partnership • unlimited financial liability by the owners • if one partner wants to leave,the other partner may have to purchase the remaining portion of the company, or risk sale to someone else • upon death of one partner, a new partnership must be formed • difficulttodissolve • Business profıtsaresharedamongpartners

  28. Alternatives for Organizing a Business • Corporations • Corporations—business that stands as a legal entity with assets and liabilities separate from those of its owner(s).

  29. TheAdvantages of Corporation Theadvantagesof Corporation • Limited liability • they can generallydraw upon the specialized skills of many employees • Unlimited life span • Expanded (Unlimited)financial capabilities

  30. StockOwnershipandStockholderRights • Stock Ownership and Stockholder Rights • Preferred stock owners have limited ornovoting rights; receive dividends before others • Common stock owners have voting rights but only residual claims on assets and are the last to receive any income distributions

  31. TheDisadvantages of Corporation Thedisadvantagesof Corporation • Doubletaxation – the corporation pays state and local taxes, and then the owners have to pay income tax on stock dividend earnings • difficultto form anddissolve. • excesspaperwork

  32. Comparing the Three Major Forms of Private Ownership

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