Types of business ownership

1. Types of business ownership Chapter 4

2. Academic Preparation • To take business classes in high school • To go to college and get a degree in business • Co-oping or Internship • Attending workshops, seminars, trade shows

3. What do successful entrepreneurs do before opening a new business? • Identify the wants and needs of the marketplace. Will their business be able to satisfy? • Set financial goals - (how much money you want to make, when you want to pay off your debts) • Set nonfinancial goals – personal satisfaction receive (helping community, personal independence, doing something you like)

4. Sole Proprietorship (most common form of business) • One person is in control of the business • Advantages: Very little government control • Receives all of the profits • Relatively easy to start • Taxed less • Disadvantages: You are solely responsible – unlimited liability • Limited money • Make all decisions yourself

5. Partnership • Advantages • Have someone to share in decision-making and management responsibilities • You don’t have to come up with all of the money/capital by yourself • Less taxation than corporation • Losses will be shared by all partners • Face very little government regulation

6. Disadvantages • May have disagreements on business operation • May be held liable for partner’s mistakes • All partners must assume the liability (unless wrote up different) • Death of partner may dissolve the partnership

7. Corporation (chartered through a state and legally operates apart from owners) • Advantages: • Can get money through sale of stock • Limited liability • Can easily enter and leave business (sell stock) • Areas can be managed by experts • Disadvantages: • Complex to form • Increased government regulation • Higher taxes on profits • Major accounting /recordkeeping

8. What is a business plan??? • A written document that describes all the steps necessary in opening and operating a business (used to guide your business)

9. Franchise • Legal agreement that gives an individual a legal right to market a company’s product or services in a particular area

10. Operating Costs • Initial franchise fee – right to run business • Start-up costs – costs to rent facility, equipment costs, inventory • Royalty fees – weekly or monthly payments to owner to seller of franchise • Advertising fees – fees paid to support advertising of franchise as a whole

11. Advantages of franchise • Have an established product or service • Franchisors offer management, technical, and other assistance • Equipment and supplies may be less expensive (get better contract deals) • Guarantee of consistency attracts customers

12. Disadvantages of franchise • Can cost a lot of money • Don’t get as much of profits • Less freedom to make decisions • Dependent on performance of other franchises • Franchisor my terminate the franchise agreement or not renew it

13. Things to consider??? • Will I have an exclusive territory? • What are the costs and royalty fees? • How profitable have other franchises been? • How long has franchisor been in business? • What services will the franchisor offer me? • What happens if I cancel the agreement?

14. Financial and Nonfinancial Goals • Set goals • Financial – how much money make, how long to make a profit • Non-financial – personal satisfaction, independence • Three main skills needed by entrepreneurs? • Independent • Persistent • Organized • Good decision-makers

15. What is scarcity? • There are limited resources and unlimited wants and needs in our economy – forces us to have to make choices • Resources of a business: • Land – physical property owned • Labor – people working • Capital – money and resources used to make a product (could be buildings, equipment, etc.) • Entrepreurship – people owning their own business

16. Command Economy/Market Economy • Market economy (United States) • Not a lot of government control • The consumer decides what gets produced, how its produced, and for whom • Command economy (North Korea) • Government controls the factors of production and makes all the economic decisions (What, How, and for Whom)

17. Government affects what gets produced by? • Allowing competition • Having regulations to protect the consumer • Promote business ownership

18. Advantages to buying an existing business • The business already has customers, suppliers, and procedures • The seller may train the new owner • There are prior records of revenues, expenses and profits. • May be easier to get financing (less risk for the bank)

19. Disadvantages of buying an existing business. • The business may not be making a profit. • You may inherit serious problems. (poor reputation, trouble with suppliers, etc.) • Capital is required

20. Before buying a new business what should you find out/do??? • Visit during business hours • Make sure business meets your objectives • Get a complete financial accounting report for the last 3 years • Ask for important information in writing. • Meet with a business broker to help with whether or not it is a good investment.

21. Advantages of entering a family business? • Pride and sense of mission working with family • Some enjoy working with relatives. • Like keeping the business in the family

22. Disadvantages of working with family • Senior management positions – held by family members regardless of their ability • May be hard to retain good employees who are not members of family • Family politics may affect decision-making • Sometimes distinction between family-life and business is blurred