intro to business - overview of business types

Slide 1:

B. OVERVIEW OF SMALL BUSINESS 3.00 Explain the legal environment of small business. 3.01 Compare forms of business ownership. (The logos used in this PowerPoint were copied directly from corporate websites. They have not been altered in any way.) 1 Powerpoint accessed from: www.dougcreamer.com/EDHS/smallbus/sbe301.ppt some slides have been added and altered by Mrs. Gettig

QUESTION:

QUESTION How many of you would like to run your own business someday? What type of information do you need to think about when before starting your own business? 2

How many of you belong to a club or organization?:

How many of you belong to a club or organization? If you were to hold a car wash, what is the first thing that must be done? 3

Car Wash:

Car Wash Where will the car wash be held? What are the best hours for the car wash? What supplies will be needed and who will get them? How much should be charged? 4

Car Wash:

Car Wash Committees may be formed, and someone may be appointed as the project chairperson. Committee members might look into: location List and get supplies needed Decide how much to charge Someone to keep financial records Find people to work the car wash 5

Car Wash:

Car Wash Organization is necessary if the car wash project is to be successful and earn a profit for the club. 6

Business:

Business In a similar way, a business also must organize to produce goods and services for the consumer. Many questions need to be answered. Who will make the decisions? Who will buy the goods to sell? Who will keep the records of what is bought and sold? Who will get the profits? Who will bear the loss, if any? What type of business structure is best? 7

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Three basic forms of business ownership Sole proprietorship Partnership Corporation 8

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Sole proprietorship A business owned and operated by one person. Approximately 76 percent of all businesses in the U.S. are sole proprietorships. 9

Sole Proprietorship:

Sole Proprietorship Most are small firms such as: Jewelry stores Restaurants Gas stations Hair-styling salons Can you think of any? 10

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Advantages of sole proprietorships Easy and inexpensive to create. Owner makes all business decisions. Owner receives all profits. Least regulated form of business ownership. Business itself pays no taxes. 11

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Disadvantages of sole proprietorships Owner has unlimited liability for all debts and actions of the business. Unlimited liability : The debts of the business may be paid from the personal assets of the owner. Difficult to raise capital. Sole proprietorship is limited by his/her skills and abilities. The death of the owner automatically dissolves the business. 12

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Partnership A form of business ownership in which two or more people share the assets, liabilities, and profits. 13

Partnership:

Partnership Example: Law firm Company 14

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Advantages of partnerships Shared decision making and management responsibilities. Easier to raise capital than in a sole proprietorship. Few government regulations. Business losses are shared by all partners. 15

Partnership:

Partnership By written agreement, these partners share the profits or losses. 16

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Disadvantages of partnerships Partnerships may lead to disagreements. Some entrepreneurs are not willing to share responsibilities and profits. Some entrepreneurs fear being held legally liable for the error of their partners. Each owner has unlimited liability. 17

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Corporation A business owned by a number of people and operated under written permission from the state in which it is located. 18

Corporation:

Corporation Large companies: IBM Texaco General Motors Hershey Even if you own one share of stock in a corporation, you are one of its owners. 19

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Advantages of corporations Can raise money by issuing shares of stock called stockholders. Offers owners limited liability. Limited liability : Owners are liable only up to the amount of their investments. People can easily enter or leave the business by buying or selling their shares of stock. The business can hire experts to professionally manage each aspect of the business. 20

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Disadvantages of corporations Legal assistance is needed to start a corporation. Start-up is costly. Corporations are subject to more government regulations than partnerships or sole proprietorships. A lot of paperwork is involved in running a corporation. Income is taxed twice. 21

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Alternate approaches to starting a business Buy an existing business. Enter a family business. Own a franchise business. 22

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Advantages of buying an existing business Existing businesses already have customers, suppliers, and procedures. Seller of the business may be willing to train the new owner. There are existing financial records. Financial arrangements may be easier. 23

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Disadvantages of buying an existing business Business may be for sale because it is not making a profit. Problems may be inherited with the purchase of an existing business. Many entrepreneurs may not have the capital needed to purchase an existing business. 24

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Advantages to entering a family business There is a certain sense of pride and accomplishment that comes from being part of a family endeavor. A business can remain in the family for generations. Some people enjoy working with relatives. The efforts of running a family business give one the benefit of knowing that their efforts are helping those whom they care about. 25

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Disadvantages to entering a family business Senior management positions are often held by family members who may not be the best qualified. It may be difficult to retain qualified employees who are not members of the family. Family politics may affect decisions regarding the business. It is often difficult to separate business life and private life in family-run businesses. It is often difficult to set policies and procedures and to make decisions. 26

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Own a franchise business Franchise : A legal agreement that gives an individual the right to market a company’s products or services in a particular area. Franchisee : A person who purchases a franchise agreement. Franchisor : The person or company who sells a franchise. Initial franchise fee : The fee the franchise owner pays in return for the right to run the business. 27

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Advantages of purchasing a franchise business An established product or service is being provided. Franchisors often offer management, technical, and other assistance. Equipment and supplies may be less expensive. A guarantee of consistency attracts customers. 28

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Disadvantages of purchasing a franchise business The cost of franchises may be high, which can reduce profits. Franchise owners are limited in the decisions they can make regarding the business. The performance of other franchises impact on the franchisee. The franchise agreement may be terminated by the franchisor. 29