The story of 5 entrepreneurs…

Business Management

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.

Entrepreneurship 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.

What personality traits, qualities, or skills are

needed in order to be a successful

entrepreneur?

Risk taker Decision maker Hard worker Ambitious Goal setter Enjoys challenges Can adapt to changes

Strengths Weaknesses

Opportunities Threats

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!

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

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

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)

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)

Service Businesses

Industries

o Sole Proprietorship

o Partnership o Corporation

• LLC • S-Corporation • Nonprofit

Corporation

• Quasi-public Corporation

o Organizational Alliances

• Joint Ventures • Cooperatives

o Franchise

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.

About 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.).

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

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.

Skills & 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

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.

A 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.

Double 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

LLC S-corporations Nonprofit corporations Quasi-public corporations

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

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

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

Joint Venture Cooperatives

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

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

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.

Owner receives thorough business training

Uses a tested management system

Owner is guaranteed a certain geographic area

Usually widely recognized names

High initial cost Owner has to

follow strict rules and regulations

Judged by performance of peers

Advantages Disadvantages

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.

THE END