BEING A BUSINESS OWNER Section 4.2

READ TO LEARNThe four main ways to become a business owner and the advantages and disadvantages of each

The different forms of legal business ownership

READ TO LEARNHow to prepare to finance a new business

Factors that can affect business success

MAIN IDEA Knowing the factors that affect a business’s success will help you to launch a successful business

KEY CONCEPTSGoing into BusinessOwning a BusinessOperating Your Business

KEY TERMSStart up costsLeaseGoodwillMarket outlookFranchiseSole proprietorshipPartnershipcorporation

Operating expensesIncome statementRevenueGross ProfitNet Profit

GOING INTO BUSINESSStart a New Business

Buy an Existing

Business

Buy a Franchise

Join a Family

Business

Four Main Ways to Go

into Business

STARTING A NEW BUSINESSRewards

You do not inherit a previous owner’s mistakes

You can develop your own reputation

You can build the business your way

You get personal satisfaction

ChallengesStarting a new business

requires more time and effortStart-up costs can be highBorrowing money may be

difficultRisk can be high

STARTING A NEW BUSINESSExamples of start up costs include:Renting or buying spaceBuying equipment and suppliesBuying insurance

Key Term: Start-up Costs: The expenses involved in going into business

BUYING AN EXISTING BUSINESSBefore buying an existing business, determine whether the problems of the business can be fixed, and at what costs

BUYING AN EXISTING BUSINESS

AdvantagesYou can save on start-up costs by taking advantage of the previous owner’s business agreementsYou may be able to purchase the existing equipmentIf the business was successful, you can build on that successYou can benefit from existing positive reputation and a trained staff

BUYING AN EXISTING BUSINESS

DisadvantagesThe location might be poorThe competition might be taking business awayThe potential for future sales may be poorExpensive repairs might be necessaryThe business may have a poor reputation

BUYING AN EXISTING BUSINESSWhen buying an existing business, you may be able to keep the existing lease.

Key Term: Lease – a contract to use something for a specified period of time

BUYING AN EXISTING BUSINESSWhen buying an existing business, you may be able to take advantage of existing goodwill of existing customers.

Key Term: Goodwill - Loyalty

BUYING AN EXISTING BUSINESSWhen buying an existing business, you should be aware of the market outlook

Key Term: Market Outlook – The potential for future sales

BUYING A FRANCHISEBuying a franchise offers specific advantagesYou agree to pay a percentage of your profits to the parent company

Key Term: Franchise – The legal right to sell a company’s goods and services in a particular area

BUYING A FRANCHISEAdvantagesYou get a recognized product nameYou have established procedures and management systemsYou benefit from a business reputation and customer goodwillYou receive training and support servicesYou benefit from the company’s advertisingFinancing can be more easily obtained

BUYING A FRANCHISEDisadvantagesProfits are shared with the parent companyYou must follow the parent company guidelines There may be less personal satisfaction

JOINING A FAMILY BUSINESSAdvantagesRelatives can help you finance the businessFamily members are loyal and trust each otherFamily members work as a teamRelatives can teach you the businessCustomers are likely to give you the same trust and goodwill

JOINING A FAMILY BUSINESS

DisadvantagesNot all families work well togetherDifficulties at work can affect family relationships

OWNING A BUSINESSAs a business owner, you will have to decide if you will run the business yourself, or if you will share the work and risks.

FORMS OF LEGAL OWNERSHIP

Sole Proprietorship

Corporation Partnership

Three basic forms of legal ownership

FORMS OF LEGAL OWNERSHIPMost businesses begin as a sole proprietorship.

The owner is responsible for all the business’s assets and debts

Key Term: Sole Proprietorship- when the business is completely owned by one person

FORMS OF LEGAL OWNERSHIPIn a partnership, all partners are liable for the debts of the business

Key Term: Partnership- a legal arrangement in which two or more people share ownership

CORPORATIONIn a corporation, shareholders earn a profit based on the number of shares they own

Key Term: Corporation – a business chartered by a state that legally operates apart from the owner(s)

OPERATING YOUR BUSINESSWhatever type of business you launch, you will need money to finance …. Financing

FINANCINGA business plan gives specific information about your business

Information in a Business Plan• Product Description• Business location• Number of employees• Salaries• Description of the

competition• Marketing plan• Timetable

FINANCINGA financial plan spells out your start-up costs, operating expenses, and other costs for the first few months

Key Term: Operating Expenses- the costs of doing business, such as the costs of manufacturing and selling the product

ONGOING OPERATIONSFinancial records are needed for tax purposes and for seeding additional financingThe income statement is an essential business record

Key Term: Income statement-

A summary of a business’s income and expenses during a specific period

ONGOING OPERATIONSThe first item in an income statement is revenueAnother item in the income statement is gross profitThe net profit is an important part of the income statement

Key Terms: Revenue – The income from sales

Gross Profit – The difference between the cost of goods and their selling price

Net Profit – The amount left after operating expenses are subtracted from the gross profit

ONGOING OPERATIONS The balance sheet summarizes a business’s assets, liabilities, and owners equity

Assets are anything of monetary value

Liabilities are debts a business owes Net worth is the difference between assets and liabilities A cash flow statement is a monthly plan that shows when you anticipate cash coming into the business and when you expect to pay out cash

SUCCEEDING IN BUSINESS

Financing Location

Management

Competition

Factors of Succeeding in Business

LOCATION Factors that contribute to a successful business location include:The type of businesses in the areaThe condition of the streets and buildings The cost of propertyThe location of competitionThe location of your customers

COMPETITIONTo compete successfully, you must be familiar with your competitor’s product or service

You must also produce a better product than your competitors

MANAGEMENTPoor management is one of the main reasons for business failure

Skills Needed for ManagementReading WritingListeningSpeakingMath

EXIT TICKET 1. Name the four ways to become a business owner. Which one would you choose? Why?

2. Explain the differences between a partnership and a corporation

3. Describe one of the documents you would need to prepare to apply for a business loan.