From Garage to Fortune 500 The story of

From Garage to Fortune 500 The story of 5 entrepreneurs…

Characteristics of Business Management

Today’s Objectives �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

Entrepreneurship �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.

Think About It… What personality traits, qualities, or skills are needed in order to be a successful entrepreneur?

Characteristics of Entrepreneurs �Risk taker �Decision maker �Hard worker �Ambitious �Goal setter �Enjoys challenges �Can adapt to changes

SWOT Analysis Strengths Weaknesses Opportunities Threats

Nature of Business

What is 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!

Business Activities 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

Types of Businesses

Industrial 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

Commercial 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)

Other Key Terms �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

Types of Business Ownership

Types of Business Ownership Sole Proprietorship o Partnership o Corporation o • • • LLC S-Corporation Nonprofit Corporation • Organizational Alliances o • • o Quasi-public Corporation Joint Ventures Cooperatives Franchise

Importance of Small Business Ø Small businesses provide 55% of jobs. Ø There are 1/2 million businesses started each year – only the strong survive! Ø Within the first three years, one out of every four to five businesses will close. Ø About half cease operations within 6 to 7 years.

Sole Proprietorships �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. ).

Sole Proprietorships � � Owner is boss Owner receives all profits Personally know employees & customers Makes all decisions Advantages �May lack necessary skills & abilities �May lack funding �Owner bears all losses (unlimited liability) �Business ends upon death of the owner 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.

Partnerships �Skills & abilities pooled �Sources of capital increase ◦ Investment ◦ Credit Advantages �Unlimited liability �Disagreement among partners �All partners share risk ◦ May be held responsible for partner’s mistakes �Difficulty in withdrawing from partnership 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.

Corporations �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.

Corporations �Available sources of capital �Limited liability of stockholders �Permanency of existence �Ease in transferring ownership Advantages �Double taxation ◦ Company taxed on income ◦ Stockholders taxed on profits �Government regulations �Complex business to run ◦ Stockholders’ records ◦ Charter restrictions Disadvantages

Other Types of Corporations LLC S-corporations Nonprofit corporations Quasi-public corporations

Limited Liability Company �Also known as LLC �Relatively �Hybrid new form of ownership 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

Nonprofit Corporations �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

Quasi-Public 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

Organizational Alliances Joint Venture Cooperatives

Joint Ventures �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

Cooperatives �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

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 Advantages � Owner receives thorough business training � Uses a tested management system � Owner is guaranteed a certain geographic area � Usually widely recognized names Disadvantages �High initial cost �Owner has to follow strict rules and regulations �Judged by performance of peers

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 learned 2… examples that stood out 1… question you still have THE END