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Business OrganizationBusiness Organization

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Changing U.S. Job MarketChanging U.S. Job MarketThere are striking changes in employment & careers in the United States.There are striking changes in employment & careers in the United States.

Decline of jobs in manufacturing & agricultureDecline of jobs in manufacturing & agriculture

Employment Data – From 1996-2006, total employment grew by nearly 14 Employment Data – From 1996-2006, total employment grew by nearly 14 percent.percent.

Baby boomers are reaching retirement age. A mini-boom of younger Baby boomers are reaching retirement age. A mini-boom of younger workers will cause the 20-30 year old age group to grow faster than the workers will cause the 20-30 year old age group to grow faster than the overall labor force.overall labor force.

Other groups that will grow include: Asian, Hispanic, & African-American Other groups that will grow include: Asian, Hispanic, & African-American workers.workers.

By 2014, nearly one-half of all jobs will be held by women. In the 1960’s, it By 2014, nearly one-half of all jobs will be held by women. In the 1960’s, it was 35%.was 35%.

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Pressures on EmployeesPressures on EmployeesEconomic stress has led to downsizing of the number of people employed Economic stress has led to downsizing of the number of people employed by many companies.by many companies.

Companies streamlined production & implemented other cost-cutting Companies streamlined production & implemented other cost-cutting proceduresprocedures

Businesses required employees to take on new tasks and work extra hours.Businesses required employees to take on new tasks and work extra hours.

Some full-time jobs were reduced to part-time.Some full-time jobs were reduced to part-time.

Wage rates decreased. Many people were forced to find second jobs to Wage rates decreased. Many people were forced to find second jobs to meet their economic needs.meet their economic needs.

7/10 parents feel they are not able to spend enough time with their children.7/10 parents feel they are not able to spend enough time with their children.

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Contingent workerContingent worker

A worker who has no explicit or implicit contract for long-A worker who has no explicit or implicit contract for long-term employmentterm employment

5% of workforce is made up of contingent workers.5% of workforce is made up of contingent workers.

Estimates say that number will double in 10 years.Estimates say that number will double in 10 years.

Some people take contingent work because they cannot Some people take contingent work because they cannot find permanent employmentfind permanent employment

Others choose contingent work because they like the Others choose contingent work because they like the flexibility it offers.flexibility it offers.

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Business & the EconomyBusiness & the EconomySize of Businesses – Most businesses are quite small.Size of Businesses – Most businesses are quite small.

– 19.5 million businesses have no employees other than the owner. 19.5 million businesses have no employees other than the owner.

– 4.5 million companies employ less than 20 people. 4.5 million companies employ less than 20 people.

– 26,000 employ 20-100 people. 26,000 employ 20-100 people.

– About 107,000 large U.S. businesses employ 100 or more workers.About 107,000 large U.S. businesses employ 100 or more workers.

Role of businessesRole of businesses

– Provide employmentProvide employmentWages are used to purchase goods & servicesWages are used to purchase goods & services

– Profits are used to compensate owners & investorsProfits are used to compensate owners & investors

– Most businesses pay taxes to federal, state, & local governmentsMost businesses pay taxes to federal, state, & local governments

– Governments spend these taxes to provide servicesGovernments spend these taxes to provide services

– Most important roleMost important role- make & distribute products & services needed by consumers, government, & other - make & distribute products & services needed by consumers, government, & other businesses.businesses.

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Impact on a communityImpact on a communityWhen a new business opens, it pays wages to its workersWhen a new business opens, it pays wages to its workers

It also buys goods & services from other businesses in the areaIt also buys goods & services from other businesses in the area

This money has not been in the community beforeThis money has not been in the community before

Employees & businesses in turn spend much of the money to purchase things they Employees & businesses in turn spend much of the money to purchase things they needneed

The money spent may result in the need for more employees in the community.The money spent may result in the need for more employees in the community.

They will need housing, automobiles, food, & entertainment.They will need housing, automobiles, food, & entertainment.

They will pay taxes to the community to support needed community services.They will pay taxes to the community to support needed community services.

When a large business opens in an area, other businesses will often locate there to When a large business opens in an area, other businesses will often locate there to support the larger business.support the larger business.

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Business activitiesBusiness activities

All business perform six basic activities:All business perform six basic activities:

1.1. Generating ideasGenerating ideas

2.2. Raising capitalRaising capital

3.3. Employing & training personnelEmploying & training personnel

4.4. Buying goods & servicesBuying goods & services

5.5. Marketing goods & servicesMarketing goods & services

6.6. Maintaining business recordsMaintaining business records

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1. Generating Ideas1. Generating Ideas

Someone must have an idea for a new product or Someone must have an idea for a new product or service or a new way to carry out a business process.service or a new way to carry out a business process.

A business must continue to improve & develop new A business must continue to improve & develop new ideas in order to remain successful.ideas in order to remain successful.

Businesses must remain competitive with other firms that Businesses must remain competitive with other firms that sell similar goods & services.sell similar goods & services.

Many companies have a research & development Many companies have a research & development department that works full-time to discover new product, department that works full-time to discover new product, service, & operating ideas.service, & operating ideas.

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2. Raising Capital 2. Raising Capital

Businesses need financial resources to operate.Businesses need financial resources to operate.

They use these financial resources to buy buildings & equipment, They use these financial resources to buy buildings & equipment, hire & train workers, and complete day-to-day business operations.hire & train workers, and complete day-to-day business operations.

A large amount of capital is needed to start most businesses.A large amount of capital is needed to start most businesses.

Some capital comes from owners. Most is obtained through loans Some capital comes from owners. Most is obtained through loans from financial institutions or investors.from financial institutions or investors.

A business needs more capital as it develops & grows. Some of the A business needs more capital as it develops & grows. Some of the capital will come from reinvested profits.capital will come from reinvested profits.

A business will need to continue to work with banks & attract A business will need to continue to work with banks & attract additional investors to have enough money for ongoing operations.additional investors to have enough money for ongoing operations.

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3. Employing & Training Personnel3. Employing & Training Personnel

Businesses need human resources. Even businesses Businesses need human resources. Even businesses that begin with no employees other than the owner will that begin with no employees other than the owner will add part- and full-time employees as they grow.add part- and full-time employees as they grow.

Businesses have procedures for recruiting, hiring, & Businesses have procedures for recruiting, hiring, & training employees.training employees.

They pay wages, benefits, & employment taxes.They pay wages, benefits, & employment taxes.

New employees receive training in order to perform their New employees receive training in order to perform their jobs correctly. Further training will be necessary when jobs correctly. Further training will be necessary when procedures change, new tasks are added, or technology procedures change, new tasks are added, or technology is introduced.is introduced.

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4. Buying Goods & Services4. Buying Goods & Services

All businesses buy goods & services. They use many of All businesses buy goods & services. They use many of their purchases for their own operations.their purchases for their own operations.

Other purchases are resold.Other purchases are resold.

A retailer buys an assortment of products to sell to A retailer buys an assortment of products to sell to customers. customers.

It must also buy the display equipment, computers, and It must also buy the display equipment, computers, and cleaning supplies used to operate the business.cleaning supplies used to operate the business.

Businesses purchase services from other companies as Businesses purchase services from other companies as well. (ex. Advertising, legal and accounting services, lawn well. (ex. Advertising, legal and accounting services, lawn care, maintenance, & security)care, maintenance, & security)

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5. Marketing Goods & Services5. Marketing Goods & Services

Activities directed at providing the goods & Activities directed at providing the goods & services wanted by a business’s services wanted by a business’s customers.customers.

Without marketing, even the best products Without marketing, even the best products & services may remain unsold.& services may remain unsold.

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6. Maintaining Business Records6. Maintaining Business Records

There must be some type of record-keeping There must be some type of record-keeping system.system.

Records are needed to track performance & Records are needed to track performance & make decisions.make decisions.

Customers need information about orders & Customers need information about orders & payments.payments.

Businesses are required by government to keep Businesses are required by government to keep records & submit information.records & submit information.

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Types of businessesTypes of businesses

Three major categories:Three major categories:

1.1. ProducersProducers

2.2. IntermediariesIntermediaries

3.3. Service businessesService businesses

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1. Producers1. Producers

Create the products & services used by Create the products & services used by individuals & other businesses.individuals & other businesses.

Responsible for using resources to make Responsible for using resources to make something that is needed by others.something that is needed by others.

ExtractorExtractor- a business takes resources - a business takes resources from nature for direct consumption or for from nature for direct consumption or for use in developing other products.use in developing other products.

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Producers (cont)Producers (cont)

FarmersFarmers- cultivate land & use other natural - cultivate land & use other natural resources to grow crops & raise livestock for resources to grow crops & raise livestock for consumption.consumption.

ManufacturersManufacturers- get supplies from other - get supplies from other producers & convert them into products. They producers & convert them into products. They sell their products to consumers & other sell their products to consumers & other business.business.

Business activities start with producers.Business activities start with producers.

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2. Intermediaries 2. Intermediaries

Businesses involved in selling the goods & Businesses involved in selling the goods & services of producers to consumers & other services of producers to consumers & other businesses.businesses.

Most common types: retailers & wholesalersMost common types: retailers & wholesalers

Many other businesses focus on one or a few Many other businesses focus on one or a few activities that assist in distributing & selling activities that assist in distributing & selling products & services.products & services.

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3. Service Businesses3. Service Businesses

Some businesses offer something that is intangible, Some businesses offer something that is intangible, meaning it has no physical qualities.meaning it has no physical qualities.

Carries out activities that are consumed by its customers.Carries out activities that are consumed by its customers.

Products are not offered for sale.Products are not offered for sale.

Ex. Dentists, lawyers, physicians, web-designersEx. Dentists, lawyers, physicians, web-designers

Fastest growing part of our economyFastest growing part of our economy

60% of all U.S. employment is now in service-producing 60% of all U.S. employment is now in service-producing businesses.businesses.

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Forms of Business ownershipForms of Business ownership

Three major forms of business ownershipThree major forms of business ownership

1.1. ProprietorshipProprietorship

2.2. PartnershipPartnership

3.3. Corporation Corporation

There are also several other specialized forms of There are also several other specialized forms of ownership.ownership.

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1. Proprietorship1. Proprietorship

Business owned and run by just one personBusiness owned and run by just one person

Easiest form of business to start and endEasiest form of business to start and end

Very few legal requirements regarding the business Very few legal requirements regarding the business ownership or capital needs that must be metownership or capital needs that must be met

Sole control over all business decisions. Owner receives Sole control over all business decisions. Owner receives all profits made by business. Can determine how profits all profits made by business. Can determine how profits are used.are used.

Owner is also responsible for debts. If the business fails, Owner is also responsible for debts. If the business fails, they have unlimited liability for paying off the debt.they have unlimited liability for paying off the debt.

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2. Partnership2. Partnership

Business owned & controlled by two or more Business owned & controlled by two or more people who have entered into an agreement.people who have entered into an agreement.

Quite easy to start. Owners are both responsible Quite easy to start. Owners are both responsible for key business decisions & functions.for key business decisions & functions.

Partners share both investments & profits based Partners share both investments & profits based on the terms of the partnership agreement.on the terms of the partnership agreement.

Each partner is liable for all of the debts of the Each partner is liable for all of the debts of the business should it fail.business should it fail.

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3.Corporation3.CorporationSeparate legal entity formed by documents filed with a state.Separate legal entity formed by documents filed with a state.

Owned by one or more shareholders and managed by a board of directors.Owned by one or more shareholders and managed by a board of directors.

Most corporations have Most corporations have severalseveral owners who invest in the business by owners who invest in the business by purchasing shares of stock.purchasing shares of stock.

More difficult to form than either proprietorships or partnershipsMore difficult to form than either proprietorships or partnerships

More legal requirements.More legal requirements.

Not all owners have direct involvement in decision-making & access to Not all owners have direct involvement in decision-making & access to profits unless the board of directors approves it.profits unless the board of directors approves it.

Corporations protect the liability of stockholders to only the amount of Corporations protect the liability of stockholders to only the amount of money they have invested.money they have invested.

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Choosing a form of Choosing a form of business ownershipbusiness ownership

When a new business is started, the owner When a new business is started, the owner should carefully consider the form of ownership.should carefully consider the form of ownership.

While it is possible to change the form of While it is possible to change the form of ownership for an existing business, it is best to ownership for an existing business, it is best to decide which form is used both for the long-term decide which form is used both for the long-term future of the business as well as for its first few future of the business as well as for its first few years.years.

Choosing a proprietorshipChoosing a proprietorship

Most businesses begin as a proprietorshipMost businesses begin as a proprietorship

They remain in that form for the life of the owner.They remain in that form for the life of the owner.

Prefer the freedom of working for themselves rather than another person.Prefer the freedom of working for themselves rather than another person.

Many new business owners have limited knowledge of the forms of Many new business owners have limited knowledge of the forms of ownership and want to begin the business as easily as possible.ownership and want to begin the business as easily as possible.

A business license is needed to start up.A business license is needed to start up.

You will need to account for the income & expenses & pay taxes on the You will need to account for the income & expenses & pay taxes on the profits of the business.profits of the business.

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Proprietorship (cont)Proprietorship (cont)

Provides tax advantages for the owner. Provides tax advantages for the owner.

– All income is taxed as a part of your personal incomeAll income is taxed as a part of your personal income

– Many business expenses can be used to reduce the Many business expenses can be used to reduce the incomeincome

Any debts of the business are the responsibility of the Any debts of the business are the responsibility of the owner.owner.

Personal assets not connected to the business will need to Personal assets not connected to the business will need to be used to pay business debts if the business assets are be used to pay business debts if the business assets are not adequate to cover those debts.not adequate to cover those debts.

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Choosing a partnershipChoosing a partnership

Partnership agreementPartnership agreement- written agreement among all owners that - written agreement among all owners that details the rules & procedures that guide ownership &operations.details the rules & procedures that guide ownership &operations.– Shows how profits & losses will be divided among the partners.Shows how profits & losses will be divided among the partners.– Defines the authority and responsibilities granted to each personDefines the authority and responsibilities granted to each person– Defines how the partnership can be dissolvedDefines how the partnership can be dissolved– Most states require that partnerships register a business name as well as the Most states require that partnerships register a business name as well as the

name of each person in the partnership.name of each person in the partnership.

CharacteristicsCharacteristics– Two or more people can contribute to the investment needed to start the Two or more people can contribute to the investment needed to start the

business as well as the expertise required to run a business.business as well as the expertise required to run a business.– Each partner is responsible for decisions made by all other partners.Each partner is responsible for decisions made by all other partners.– There is no protection for the personal assets of any partner.There is no protection for the personal assets of any partner.– If a partner chooses to leave the partnership or dies, the partnership normally If a partner chooses to leave the partnership or dies, the partnership normally

must be dissolved.must be dissolved.

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Choosing a corporationChoosing a corporation

Subject to many more laws and are more difficult to form than either Subject to many more laws and are more difficult to form than either proprietorships or partnerships.proprietorships or partnerships.

They must follow the laws of the state in which they are organized.They must follow the laws of the state in which they are organized.

An An articles of incorporationarticles of incorporation must be filed must be filed

– Written legal document that defines ownership & operating procedures Written legal document that defines ownership & operating procedures and conditions for the business.and conditions for the business.

– Corporate bylawsCorporate bylaws must be created. must be created.

– A board of directorsA board of directors must be named. must be named.

These people make the major policy & financial decisions for the These people make the major policy & financial decisions for the business.business.

– Shares of stock are sold to generate added revenueShares of stock are sold to generate added revenue

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Corporation (advantages)Corporation (advantages)

Limited liabilityLimited liability

People can invest in the business and receive People can invest in the business and receive some of the profit without having to take part in some of the profit without having to take part in the day-to-day management and operations.the day-to-day management and operations.

Business can be easily expanded & ownership Business can be easily expanded & ownership can be changed by the sale of stock.can be changed by the sale of stock.

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Other forms of ownershipOther forms of ownership

Specialized partnerships & corporationsSpecialized partnerships & corporations

– Limited liability partnershipLimited liability partnership

Identifies some investors who cannot lose more than the amount Identifies some investors who cannot lose more than the amount of their investmentof their investment

They are not allowed to participate in the day-to-day They are not allowed to participate in the day-to-day management of the business.management of the business.

– Joint ventureJoint venture

Unique business organized by two or more other businesses to Unique business organized by two or more other businesses to operate for a limited time and for a specific projectoperate for a limited time and for a specific project

It’s a type of partnershipIt’s a type of partnership

S-CorporationS-Corporation

Offers the limited liability of a corporation.Offers the limited liability of a corporation.

All income is passed through to the owners based on their investment & All income is passed through to the owners based on their investment & is taxed on their individual tax returns.is taxed on their individual tax returns.

Limited liability companyLimited liability company– Provides liability protection for owners.Provides liability protection for owners.– Simpler set of organizing & operating requirements than a Simpler set of organizing & operating requirements than a

corporation.corporation.

Non-profit corporationNon-profit corporation– Group of people who join to do some activity that benefits the public.Group of people who join to do some activity that benefits the public.– Work in areas such as education, health care, charity, or the arts.Work in areas such as education, health care, charity, or the arts.

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Cooperatives & franchisesCooperatives & franchises

CooperativeCooperative – owned by members, serves – owned by members, serves their needs, & is managed in their interest.their needs, & is managed in their interest.– ex. Sam’s Club, Credit Unionsex. Sam’s Club, Credit Unions

FranchiseFranchise- written contract granting - written contract granting permission to operate a business to sell permission to operate a business to sell products & services in a set way.products & services in a set way.

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Designing an effective Designing an effective business organizationbusiness organization

Creating a successful business isnt’ easyCreating a successful business isnt’ easy

Many new businesses fail in the first few yearsMany new businesses fail in the first few years

Successful businesses need more than a good product or Successful businesses need more than a good product or serviceservice

Need skilled managers, well-prepared & motivated Need skilled managers, well-prepared & motivated employees, adequate resources, and effective procedures are employees, adequate resources, and effective procedures are needed.needed.

An effective business begins with a clear purpose.An effective business begins with a clear purpose.

Setting directionSetting direction

Mission statementMission statement– Short, specific written statement of the reason a business exists Short, specific written statement of the reason a business exists

and what it wants to achieve.and what it wants to achieve.

GoalGoal– Precise statement of results the business expects to achieve.Precise statement of results the business expects to achieve.

PoliciesPolicies– Guidelines used in making consistent decisionsGuidelines used in making consistent decisions

ProceduresProcedures– Descriptions of the way work is to be done.Descriptions of the way work is to be done.

Effective policies & procedures provide guidance and direction to Effective policies & procedures provide guidance and direction to people working in the organization.people working in the organization.

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Principles of Principles of effective organizationeffective organization

1.1. Responsibility, authority, & accountabilityResponsibility, authority, & accountability

2.2. Unity of commandUnity of command– Clear, reporting relationship for all staff of a Clear, reporting relationship for all staff of a

business.business.

3.3. Span of controlSpan of control– # of employees who are assigned to a particular # of employees who are assigned to a particular

work task & manager.work task & manager.– Organizations need to make sure that workers have Organizations need to make sure that workers have

a balance of supervision and freedom to do their a balance of supervision and freedom to do their work.work.

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Types of organizational structuresTypes of organizational structures

When more than one person works for a company, there When more than one person works for a company, there will need to be an agreement on what work each person will need to be an agreement on what work each person will do & if one person has authority over the work of will do & if one person has authority over the work of others.others.

Organization chartOrganization chart– Diagram that shows the structure of an organization, Diagram that shows the structure of an organization,

classifications of work and jobs, & the relationships classifications of work and jobs, & the relationships among those classifications.among those classifications.

Functional Functional organization structureorganization structure

Work is arranged within main business functions such Work is arranged within main business functions such as production or marketingas production or marketing

All of the people with related jobs work together.All of the people with related jobs work together.

Adv – people work with others that have the same skillsAdv – people work with others that have the same skills

Disadv – people become more focused on their specific Disadv – people become more focused on their specific function than on the success of the whole business.function than on the success of the whole business.

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Matrix organizational structureMatrix organizational structure

Work is structured around specific projects, Work is structured around specific projects, products, or customer groupsproducts, or customer groups

Expertise is needed from various groups to better Expertise is needed from various groups to better serve the customerserve the customer

Assignment may be temporary or long-termAssignment may be temporary or long-term

Effective leadership is needed to avoid confusion & Effective leadership is needed to avoid confusion & inefficiencyinefficiency

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