the story of 5 entrepreneurs…. business management january 31, 2012

From Garage toFortune 500

The story of 5 entrepreneurs…

Characteristics of Business

Business ManagementJanuary 31, 2012

Define entrepreneurship.Explain the risks and rewards of entrepreneurship through a SWOT analysis.

Explain the nature of business activities.

Describe the general types of businesses.

Compare the characteristics of different types of business ownership.

Today’s Objectives

Entrepreneurship

EntrepreneurshipEntrepreneurship is the process of starting and managing your own business.

An entrepreneur is someone who attempts to earn money and make profits by taking the risk of owning and operating their business.

Think About It…

What personality traits, qualities, or skills are needed in

order to be a successful

entrepreneur?

Characteristics of EntrepreneursRisk takerDecision makerHard workerAmbitiousGoal setterEnjoys challengesCan adapt to changes

Strengths Weaknesses

Opportunities Threats

SWOT Analysis

Nature of Business

An organization that produces or distributes a good or service for profit is called a business.

Profit (the difference between earned income and costs) is the goal of business ownership!

What is Business?

Every business engages in at least three major activities.

1.Production making a product or providing a service

2.Marketing activities between the business and customers (buying / selling)

3.Finance deals with all of the money matters involved in running a business

Business Activities

Types of Businesses

Produce goods used by other businesses or organizations to make things◦Mining coal◦Extracting oil◦Constructing

buildings◦Building businesses◦Manufacturing

airplanes◦Assembling

televisions◦Growing crops /

raising livestock

Industrial Businesses

Sell products or services to the end consumer

Engaged in marketing (wholesalers and retailers), in finance (banks and investment companies), and providing services (medical offices, fitness centers, hotels)

Commercial Businesses

Service Businesses – type of commercial business that use mostly labor to offer intangible products to satisfy consumer needs

Industry – refers to all businesses within a category that do similar work (i.e., the automotive industry)

Other Key Terms

Service Businesses

Industries

Types of Business Ownership

o Sole Proprietorship

o Partnershipo Corporation• LLC• S-Corporation• Nonprofit

Corporation• Quasi-public

Corporationo Organizational Alliances• Joint Ventures• Cooperatives

o Franchise

Types of Business Ownership

Importance of Small Business Small businesses provide 55% of jobs.

There are 1/2 million businesses started each year – only the strong survive!

Within the first three years, one out of every four to five businesses will close.

About half cease operations within 6 to 7 years.

Sole ProprietorshipsAbout 3/4 of all businesses in the United States are sole proprietorships.

A sole proprietorship is a business owned by one person.

Sole proprietors usually have a special skill by which they can earn a living (i.e. plumbers, contractors, wedding planners, etc.).

Sole Proprietorships Owner is boss Owner receives

all profits Personally know

employees & customers

Makes all decisions

May lack necessary skills & abilities

May lack funding

Owner bears all losses (unlimited liability)

Business ends upon death of the owner

Advantages Disadvantages

Partnerships A partnership is a business

owned by two or more people who share its risks and rewards.

A partnership agreement outlines the rights and responsibilities of each partner.

PartnershipsSkills & abilities pooled

Sources of capital increase◦Investment◦Credit

Unlimited liability

Disagreement among partners

All partners share risk◦May be held

responsible for partner’s mistakes

Difficulty in withdrawing from partnership

Advantages Disadvantages

Did You Know? Only 15 – 20 percent of all

businesses in the United States are corporations.

Corporations are responsible for 80% of all business that is conducted in the United States.

CorporationsA corporation is a company that is registered by a state and operates apart from its owners.

The owner must get a corporate charter (business license) from the state where the main office will be located.

To raise money, the owners can sell stock (shares in the company) to stockholders.

The company must have a board of directors to govern the corporation.

CorporationsDouble taxation

◦Company taxed on income

◦Stockholders taxed on profits

Government regulations

Complex business to run◦Stockholders’ records

◦Charter restrictions

Advantages Disadvantages

Available sources of capital

Limited liability of stockholders

Permanency of existence

Ease in transferring ownership

Other Types of CorporationsLLCS-corporationsNonprofit corporationsQuasi-public corporations

Limited Liability Company

Also known as LLC

Relatively new form of ownership

Hybrid of a partnership and corporation

◦Owners protected from personal liability

◦Profits / losses pass directly to owners without taxation to the company itself

Subchapter S Corporation

One type of corporation

Small business that is taxed like a partnership or sole proprietorship but has up to 35 shareholders

Does not pay taxes, does not exist to make a profit

In the United States, nonprofits provide nearly 1/3 of the GDP.

Examples include:◦Loudoun County Public Schools◦United Way◦Educational Testing Service (the SATs)

◦Hospitals

Nonprofit Corporations

Businesses that are important to society but lack the profit potential to attract investors

Usually operated by local, state, or federal government

Government provides financial support (subsidy)

Government imposes regulatory controls

Examples include:◦Interstate highways (Massachusetts & PA

turnpike … state-owned)◦Local water & sewer systems (Loudoun

Water)◦Los Angeles County Museum of Art

Quasi-Public Corporations

Organizational Alliances

Joint VentureCooperatives

Agreement among two or more businesses to work together to provide a good or a service

Each business shares the costs of doing business as well as the profits

Many web-based companies rely extensively on joint ventures.

Also commonly seen when businesses expand into foreign countries

Joint Ventures

Business owned and operated by its user-members for the purpose of supplying themselves with goods and services

Operates similarly to a corporation (stockholders, charter)

Provides members with cost and profit advantages

Popular in agriculture for buying & selling crops

Cooperatives

Franchises!

Franchises A franchise is a legal agreement to use the name and sell the products of a parent company in a designated geographic area.

Franchisee: person who buys the rights to operate the business

Franchisor: recognized company that allows independent owners to use their name

The franchisee pays the franchisor an annual fee and a share of the profits.

Franchises

Owner receives thorough business training

Uses a tested management system

Owner is guaranteed a certain geographic area

Usually widely recognized names

High initial costOwner has to follow strict rules and regulations

Judged by performance of peers

AdvantagesDisadvantage

s

Did You Know? Many businesses start as

one form of business ownership, but move into other forms later.

Example: Ben & Jerry’s started as a partnership, became a Subchapter S Corporation, and then eventually became the corporation we know today.

3… things you learned2… examples that stood out

1… question you still haveTHE END