Understand the purpose and the functions of Understand the purpose and the functions of businessbusiness

Purpose and Functions of Business

Purpose of BusinessPurpose of Business

Businesses fulfill the needs and wants of consumers. Consumers use goods and services Customers purchase goods and

services Businesses sell goods, services or

both to consumers Goods—clothing, cars, computers, CDs Services—hairdresser, dry cleaner,

lawn care, babysitting

Motivation to start a Motivation to start a businessbusiness

Profit motive—desire to make money; see the opportunity to make money in the marketplace.

Opportunity to meet wants and needs of consumers

Opportunity to increase competition in the marketplace

Businesses are investment opportunities for individuals—future income

Functions of BusinessFunctions of Business

Accounting—recording and reporting financial activity and transactions Examples

Paying bills Collecting money from customers Paying taxes Preparing employee payroll checks Reconciling bank statements Investing cash Purchasing inventory

Functions of BusinessFunctions of Business

Management

Makes sure that the entire organization meets its goals and obligations

Effectively works with people in the organization

Uses available resources to accomplish the organizations’ goals

Functions of BusinessFunctions of Business

Marketing Satisfies the needs and wants of

consumers through exchange Based on four “P’s”

ProductPrice (establishing the price of the

product)Placement (placing the product in

attractive and convenient sales locations)

Promotion (advertising)

Functions of BusinessFunctions of Business

Information Technology Uses technology to share

knowledge, facts, and data to others (co-workers, customers, and suppliers)

ExamplesMaintains e-mail accountsMaintains software applicationsMaintains processing systemsMaintains hardware for all

technology used

Functions of BusinessFunctions of Business

OperationsConsidered the “back office”

Involves behind the scenes paperwork required to complete all transactions

Found in both the service and the manufacturing sector

Functions of BusinessFunctions of Business

Human Resources Manages “people” relations within the

company Helps workers develop the skills and

knowledge needed to be successful on the job

Responsible for hiring and firing of employees

Selects employee benefits and enrolls all employees in the benefits (insurance, retirement, etc.)

Helps employees pursue educational opportunities

Types of Business Types of Business OrganizationOrganization

Compare the main types of business organization:Compare the main types of business organization:Sole proprietorship, partnership, corporation, and Sole proprietorship, partnership, corporation, and franchisefranchise

Sole ProprietorshipSole Proprietorship Owned by one person

Examples Floral shops Bookstores Farms

Advantages Easy to start Owner is his/her own

boss Owner keeps all profits

Disadvantages Owner must pay for

everything needed for the business

Difficult to obtain capital needed to start

Owner might lack business skills

Unlimited liability—owner has full responsibility for company’s debts and can lose entire investment as well as personal assets

PartnershipPartnership Owned by two or more

people Examples

Law firms Medical practices Auto Body Repair

Advantages Relatively easy to start Easier to obtain capital

than in a sole proprietorship

Partners share skills and talents

Partners share risks

Disadvantages Partnership agreement

is needed to start Partners might not get

along well Partners must share

profits Partnership must be

reorganized if one partner quits

Partners share unlimited liability—all partners share the responsibility of a bad decision made by one partner (including debts)

CorporationCorporation

Owned by many people—stockholders, but treated by law as one person (can own property, pay taxes, make contracts)

Advantages Corporations can raise

money by selling stock Limited liability—

stockholders can only lose what they have invested

Corporation continues when stockholders sell stock

Corporation can always make money by selling more stock

Examples Nike IBM Google

Disadvantages Corporations are taxed

on their profits Government closely

regulates corporation More difficult to start a

corporation Must obtain a

corporate charter from the state in which headquarters is located

FranchiseFranchise

Franchise is a contractual agreement to sell a company’s products or services in a specific geographic area

Advantages Easy to start Franchisee can rely on

good name and expertise of the parent company

Franchisee can get needed guidance in operating the business from franchisor

Disadvantages Some franchisors are

strict about how the business is run

Franchise is limited in what products or services can be sold

Franchise must operate like every other franchise

Examples Taco Bell Blockbuster McDonald’s