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Back to Table of Contents pp. 84-97 Chapter 6 Business Ownership and Operations

Transcript of Introduction to Business - Davis School District · Chapter 6 Introduction to Business, ... •...

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Back to Table of Contents

pp. 84-97

Chapter 6

Business Ownership

and Operations

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 2 of 27

Why It’s Important

You need to understand business ownerships and operations before starting a business.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 3 of 27

Types of Business Ownership

The three different ways you can own

a business are:

• Sole proprietorship

• Partnership

• Incorporation

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 4 of 27

Sole Proprietorship

A sole proprietorship is a business

owned by only one person.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 5 of 27

Sole Proprietorship

The advantages to having your own

business are:

• It’s easy to start

• You get to be your own boss

• You get to keep all the profits

• The taxes are usually low

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 6 of 27

Sole Proprietorship

The disadvantages to having your own

business are:

• You have to pay for everything

yourself

continued

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 7 of 27

Sole Proprietorship

• You might have to use your personal

savings or borrow money from the

bank

• You might lack business skills

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 8 of 27

Sole Proprietorship

A serious disadvantage to owning a

sole proprietorship is that you have

unlimited liability, or full responsibility

for your company’s debts.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 9 of 27

Partnership

A partnership is a business owned by

two or more persons who share the

risks and rewards.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 10 of 27

Partnership

To start a partnership you need to

draw up a partnership agreement,

which is a contract that outlines the

rights and responsibilities of each

partner.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 11 of 27

Partnership

The advantages to partnership are:

• You might need only a license to

start and have to pay taxes only on

your personal profits.

• Each of your partners can contribute

money to start the business.

continued

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 12 of 27

Partnership

• Banks are often more willing to lend

money to partnerships than sole

proprietorships.

• Your partners can bring different

skills to the business.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 13 of 27

Partnership

The disadvantages to partnership are:

• You not only share the risks with

your partners, you also share the

profits.

continued

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 14 of 27

Partnership

• You might not get along with your

partners.

• You share unlimited legal and

financial liability with your partners.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 15 of 27

Making a Business Decision

1. What are the advantages and

disadvantages of “going solo” in a

business venture?

2. How can having a partner help launch and

grow a business? Are there any

drawbacks?

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 16 of 27

Corporation

A corporation is a business owned by

many people but treated by law as one

person.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 17 of 27

Corporation

To form a corporation, you need to get

a corporate charter from the state your

headquarters is in.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 18 of 27

Corporation

To raise money, you can sell stock, or

shares of ownership in your

corporation.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 19 of 27

Corporation

For each share of common stock, the

stockholder gets a share of the profits

and a vote on how the business is run.

You also must have a board of

directors who control the corporation.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 20 of 27

Corporation

A major advantage of a corporation is

its limited liability.

If your company loses money, the

stockholders lose only what they

invested.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 21 of 27

Corporation

Another advantage is that the

corporation doesn’t end if the owners

sell their shares.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 22 of 27

Corporation

A disadvantage of a corporation is that

you often have to pay more taxes.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 23 of 27

Corporation

The government closely regulates

corporations.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 24 of 27

Corporation

It is more difficult to start a corporation

than a sole proprietorship or a

partnership and running a corporation

can be much more complicated.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 25 of 27

Franchise

A business relationship between two parties

which gives the franchisee:

• The right to sell a product or service using the

trademark or trade name of the franchiser

• The right to market a product or service using

the operating methods of the franchiser

• The obligation to pay the franchiser fees for

these rights.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 26 of 27

Franchise

• Product Distribution Franchises sell the

franchisers products only (supplier-dealer)

• Business Format Franchises not only use a

franchiser’s product, service, and trademark,

but also the complete method for conducting

the business (marketing plan)

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 27 of 27

FranchisePros of Franchise Businesses

• Established Brand and Customer Base. By far, the biggest advantage of buying into an established

franchise is the strength of the brand and loyalty of its customers.

• Marketing Support. Franchises often have the support of a national campaign, as well as prepared

marketing materials for a local campaign.

• Reputable Suppliers. Franchisors often have established relationships with suppliers for all the

materials franchisees need.

• Business Support. There's a saying in franchising: "You're in business for yourself, but not by

yourself" because you have a network of support.

• Training. Some of the better (and more expensive) franchise operations offer management and

technical training.

• Financial Assistance. Some franchisors provide loans and other assistance to help franchisees.

• Access to Proprietary Methods. There's no need to reinvent the wheel as franchisees get access to

all the trade secrets.

• Ongoing Research and Development, New Products. Franchisees can stick to improving their

operations and let the franchisor spend the time and money developing new products.

• The Boss is You. As with owning any business that you own, you are in control of your destiny.

• Reduced Risk. For all of these reasons, starting a franchise of an established brand often has less

risk than starting a business from nothing.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 28 of 27

FranchiseCons of Franchise Businesses

• Initial Payout (Franchise Fee and Start-up Costs). Some of the bigger franchise operations can

involve a very large initial costs, often more than what it would cost to start your own business.

• Royalty Payments. For as long as you are a franchisee, you will have to pay some percentage of

the monthly gross back to the franchisor, reducing your profit potential.

• Marketing/Advertising Fees. To receive the wonderful marketing support from the franchisor,

franchisees must pay these fees, according to some contracts.

• Limited Creativity/Flexibility. Most franchise contracts have very explicit standards, allowing little or

no alterations or additions to the brand, stifling any creativity on the part of the franchisee. You

must use their system, follow their rules.

• Sole Sourcing. Some franchise contracts stipulate that franchisors must buy supplies only from an

approved list of suppliers, possibly at a higher cost.

• Locked into Operation by Long-Term Contract. If you don't do as much research as you should

have and find yourself with the wrong franchise, you may be stuck for many years.

• Dependent on Franchisor Success. The reputation of your franchise is only as good as that of the

franchisor, so any difficulties that the franchisor encounters will have a direct impact on you.

• False Expectations. Opening a franchise rather than starting your own business offers no

guarantees of success. You still need to be a sharp businessperson to make it work.

• Risk. There's always risk in starting any new business.

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 29 of 27

Fast Review

1. What are some of the advantages

of a sole proprietorship?

2. What is the difference between a

sole proprietorship and a

partnership? continued

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Chapter 6

Introduction to Business, Business Ownership and Operations Slide 30 of 27

Fast Review

3. If a partner makes a bad business

decision, what responsibility do the

other partners have?

4. What are the disadvantages of a

corporation?