Chapter 7 The Business of Free Enterprise Anticipatory

Chapter 7 The Business of Free Enterprise

Anticipatory Set § Have you ever heard the phrase you don’t have to reinvent the wheel? What does it mean to you?

Objective § Our objective today is Learn what an Entrepreneur is and what types of businesses exist.

Entrepreneur § Someone who not only starts their own business, but invents or introduces a new product or idea. § A) they are usually a risk taker § B) Examples § Henry Ford § Ray Krock § Bill gates

Who becomes an Entrepreneur? § A) Improve a product or process by finding new ways to sell or use a product (kitty litter) Ed Lowe § B) Unexpected opportunities (Post-it. Note) § C) Spotting New Markets (Kinko’s Fed Ex) § D) Start at an early age (babysitting) § E) Identifying population trends

Small Business § Most entrepreneurs start with a small business § A small business is a business earning 3. 5 million or less and employing no more than 500 people. § But they do have some key advantages…

Advantages § § § 1) ability to satisfy small markets 2) their ability to adapt to change 3) imagination and flexibility are welcomed § 4) you are the boss § 5) job security

Disadvantages § **Most fail within a few weeks of getting started § 1) Poor Management § Most people are unprepared for the heavy workload 2) Inadequate finances § A) don’t have enough money when getting started § 1. insufficient capital, 2) slow sales, 3) heavy debt

§Day two

Where To Start § Anticipatory set: § If you had to start a business tomorrow what would it be?

Where to Start § Objective: today we are going to talk about how small businesses get started and how they contrast with other types of businesses

Where to Start § You can go to Small Business Administration § They provide counseling, literature, advice § There are entrepreneurial programs offered by colleges § You can get on the job training (getting paid while you learn)Steamfitters Local Union 420 Website Apprenticeship § You can learn from successful family members

Forms of Business Organizations § 1) Sole proprietors- When 1 Person owns & operates a business § A. most common type of business (73% of all businesses) § B. Oldest form of business § C. Most simple to form (fewest government restrictions)

Advantages of Sole Proprietors § § § 1. You are your own boss 2. Keep all of the profits 3. Tax advantage over corporations 4. Make all the decisions 5. You can establish a personal relationship with your customers

Disadvantages § § § Unlimited Liability Total business responsibilities One source of capital Limited life Tough to achieve specialization

Partnerships § 1. When 2 or more people own a business (roughly 7%) § 2. Two types of partners § A. Active partner-contributes both time & money § B. Silent partner-contributes money only

Advantages § 1. Two or more sources of capital & better fund raising ability § 2. Share the business responsibilities § 3. Easy to organize with a better chance to specialize

Disadvantages § § 1. Unlimited liability 2. Limited life 3. Dishonest partner 4. You are responsible for your partners mistakes § 5. Must split the profits § 6. Finances are still very limited

Student Input § Answer the questions on page 106 and 111 in your JA Economics textbook

Corporations § A corporation is an artificial being permitted by Government to carry out a business § A corporate charter-A written grant of authority from the Government giving you permission to exist. § state charter is easier to obtain § Federal charter is more difficult and can be an expensive process

Owners-Stockholders § Paid dividends-how the corporate profits are shared § Proxy-written permission transferring your voting rights § This is the most dominant type of business in modern U. S. capitalism § Makes up 20%of all businesses § Generates 90% of all business sales & revenue

Advantages § Most effective way to raise capital § Sell new stocks, bonds, lenders, dispose of holdings § *Usually easier to access bank credit

Advantages § *Limited Liability owners risk only what they paid for stock § § § Easier to expand in size and scope Mass production & specialization A life separate from its owners (legally immortal)

Disadvantages § § § Very, Very had to establish Expensive and time consuming Lots of “Red-Tape” all of the papers and documents that must be completed before legally beginning § Double Taxation § Corporate profits are taxed (usually 35%) § Stockholders are taxed on dividends

Separation of Ownership & Business § Corporate officers can avoid responsibility for questionable business decisions § Officers can vote themselves large pay raises & bonuses § Most shareholders do not exercise voting rights