Unit 4 Business Ownership & Operations Notes

Unit 4: Business Ownership

and OperationsMr. Elsesser

Introduction to Business

BRAINSTORM:Answer these questions…What are 3 different types of businesses?

Can you provide any examples?How are your examples similar ordifferent?

Organizing Types of Business Ownership

Sole ProprietorshipPartnershipCorporation

As your business expands, you can change the form of ownership.

U.S. Sole Proprietorships, Partnerships, and Corporations

Figure 6.1

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Sole Proprietorship

• A sole proprietorship is a business owned by only one person.

• About three-quarters of all businesses in the United States are sole proprietorships.

• Ex: Florists, Auto Repair, farms, home-based businesses

Advantages of a Sole Proprietorship…

It’s Easy to Start:You may only need a license or permit

Proprietors are their own Boss:Come & Go as you please! Do it your way!

Proprietors keep all the profits:Everything is yours…spend it as you wish!

Low Taxes:Only pay taxes on your personal profits!

Disadvantages of a Sole Proprietorship

Unlimited Liability Owners are

responsible for the company’s debts.

Limited Access to Credit

Business owners might have to use their own capital and borrow against their own savings. USUALLY A REASON FOR

FAILURE

May Run Out of Money You have to buy your

own supplies, pay for advertising, rent office space and pay taxes

Business Ends when the owner dies.

May lack necessary skills

Might have to hire more people.

Partnerships…Is started by forming a partnership agreement:

Partnerships: A business owned by two or more

people who share its risks and rewards.

Ex: Law Firms, restaurants, construction

Key Questions of Starting a Partnership

You must decide: How much money will each of you invest? How will you share the profits? How will you share the work? How will you end the partnership?

If one partner decides to leave the business, the partnership legally ends

Advantages of Partnerships…Very Easy to Start

May only need a license to start.

Only Taxed OnceOnly pay taxes on all your personal profits.

Easier to Obtain CapitalAll partners contribute money to start business.

Advantages of Partnerships…Diversity in Skills

Each partner may bring different skills to the business.

Easier to Obtain CreditBanks more willing to lend money to partnerships.

Not Dependent on a Sole PersonBusiness can survive if owners leave.

Disadvantages of a Partnership

Business Risk is Shared

Owners are responsible for the company’s debts.

Unlimited Financial Liability

All business owners might have to use their own capital and borrow against their own savings.

Unlimited Legal Liability

All owners can be held personally responsible for contracts and accidents.

Partners may not get along

If a partner makes a mistake, all are responsible.

What would you do?Late one night you are working in your kitchen melting peanut butter and gummy bears together and you accidently come up with a new product you decide to call “Gummy Butter.” The next day at school you have samples of the butter for your friends to try. It is a HUGE HIT! Later, you hear your friend Sally Creamcheese talking to her boyfriend Moose about how she would like to be your partner in producing this new venture.

What should you do? Make “Gummy Butter” a sole proprietorship or go with Sally

and make it a partnership? Explain your answer.

A Quick Summary…Similarities and Differences Between

Partnerships and Sole Proprietorships

Increased diversity of experience

Shared losses

Combined

funds

Both

Pride in owning and

running businessEasy to set up

Low taxesUnlimited liability

for debtsHuge time demands

Quicker decision making

Owner keeps all profits

Owner is own boss

Relatively easy to get credit

Partnerships Sole Proprietorships

Shared decision making

Corporations…To form a corporation, owners must get a corporate charter from the state where their main office will be located:

Corporation: A company that is registered by a state

and operates apart from its owners. Ex: Dept. Stores, Banks, Technology

Companies

How To Start a Corporation

You must: File a corporate charter with the state your

headquarters is in. A Corporate Charter is a license to run a corporation.

Must file a Certificate of Incorporation through the Department of State’s Division of Corporations.

Corporation will need a federal

taxpayer ID #.

Advantages of Corporations…Easy to Raise Money and Collect Profits

Stock is sold to raise money. Do this as often as you need too.

Stockholders own the corporation Stockholder gets share of profits for every share owned

Also a “vote” per share for how company is run.

Board of Directors Control the Corporation You don’t run the overall direction of company.

Corporation does not end if owners sell shares

Corporation does not end if owners sell shares.

Disadvantages of Corporations…Double Taxation:

All income is taxed.Stockholders pay taxes on profits issued to them.

More Government RegulationMuch “Red Tape” to navigate—time consuming.

Difficult and Costly to StartStart-up process with the state is expensive.

Longfellow Deeds Explains Corporations…(start at 1:18)

Other Ways to Organize Business Ownership

CooperativeFranchiseNon-Profit Organization

Cooperative…The purpose of a cooperative is to save money on certain goods and services.

Cooperative: An organization that is owned and operated by

its members. Exists as a separate entity from individual

business. Pay lower taxes than corporations Run by Board of Directors. Members pool their resources to save money.

Franchise…To run a franchise you have to invest money or pay a franchise fees or share your profits with the franchisor.

Franchise: A contractual agreement to use the name and

sell the products or services of a company in a designated geographic area.

Franchisor offers well-known name and business plan

If you want to start a business but lack business expertise, a franchise would be a good choice.

Non-Profit Organization…A non-profit organization does not pay taxes because it does not make a profit.

Non-Profit Organization: A type of business that focuses on providing

a service and not making a profit Does not pay taxes. Relies on government grants and donations Donors deduct donations from their taxes.

Section Review1.What is the difference between a sole

proprietorship and a partnership?1.A sole-proprietorship is owned by one

person. A partnership is owned by two or more people.

2.If a partner makes a bad decision, what responsibility do the other partners have?1.All partners share responsibility for a

bad decision.

3.Why are cooperatives formed? 1.So that the members have advantages

in buying and selling products and services.

BRAINSTORM:Identify types of businesses.Identify some Different functions of businesses.

Examining How Business Works

There are many different types of businesses that require several different functions that enable each to operate on a daily basis.

Types of Businesses

Functions ofBusinesses

• Producers• Processors• Manufactures• Intermediaries and

Wholesalers• Retailers and Service

Businesses

• Production and Procurement

• Marketing• Management• Finance and

Accounting

Types of BusinessesThere are 5 types of Business:

1.Producer:A business that gathers raw goods from their natural state.Ex: Agriculture, Mining, Fishing or Forestry


2. Processor: A business that changes raw

materials into more finished products.Ex: Turning wheat into flour. Crude oil into gas.


3. Manufacturers: A business that makes finished

products out of processed goods and gets them ready for sale. Ex: A bakery makes bread out of flour


4. Intermediaries and Wholesalers:

Intermediary: A business that moves goods from one

business to another. Ex: They buy them, store them, & resell

them.


4. Intermediaries and Wholesalers:

Wholesalers: A wholesaler, also known as a

distributor, distributes goods—moves them from one business to another.

Intermediaries

Wholesalers buy goods from manufacturers in huge quantities and resell them in smaller quantities to their customers, usually other companies.


5. Retailers and Service Businesses:

Retailers: A business that purchases goods from

a wholesaler and sells them to consumers—the final buyers.


5. Retailers and Service Businesses:

Service Businesses: Businesses that perform tasks rather

than provide goods. Employ about ¾ of nation’s workforce.

Ex: Car Repair and Hairdressers.

Service Businesses Some service businesses meet needs, such as medical clinics and law firms.

Some provide conveniences, such as taxi companies and copy shops.

Functions of BusinessesThere are 5 Functions of Business:

1. Production and Procurement: Production:

The process of creating, expanding, manufacturing, or improving goods and services.

Procurement: The buying and reselling of goods and

services that have already been produced.


2. Marketing: The process of planning, pricing,

promoting, selling, and distributing ideas, goods and services.

3. Management: The process of achieving company

goals by organizing, directing, controlling, and evaluating the effective use of resources.


4. Finance: Requires analyzing financial statements to

make future decisions. The business or art of money management.

5. Accounting: Includes the maintaining and checking of

records, handling bills, preparing financial reporting for a business

Must have a high attention to detail and accuracy.

Functions of BusinessesHow are the Functions of Business are Interdependent… The functional areas of a

business depend on each other.

Sometimes the functional areas of a business conflict with each other.

Example of How Functional Areas Depend on Each

Other

Example of How Functional Areas Depend on Each Other

A furniture maker’s sales are decreasing.

The accounting and finance department notice decreasing sales.

If the furniture is too highly priced, more efficient procedures will have to be implemented.

A new marketing plan is created.

The accounting and finance department will monitor the effects of new marketing efforts.

Example of How Functional Areas Conflict with Each

Other

Example of How Functional Areas Conflict with Each Other

Management wants to increase sales by 20 percent within three years.

The production department suggests improving quality.

The marketing department requests more funds for projects.

Accounting says there is not enough money for either plan.

The final plan involves ideas from all the functions of business.

Section Review1. What is the different between a producer and a

processor?1. A producer gathers or creates raw products. A

processor changes raw products into more finished products.

2. Identify the five functions of business.1. Production and procurement, marketing,

management, finance, and accounting.

3. Give an example of how the accounting and finance functions can affect a business’s marketing/production processes. 1. If the financials show little profit, new marketing

plans may be developed and new production procedures may be implemented.

Unit 4 Business Ownership & Operations Notes

Education

Transcript of Unit 4 Business Ownership & Operations Notes