1. Introduction to Business © Thomson South-Western ChapterChapter Business Organization 5-1 5-1Business in the U.S. Economy 5-2 5-2Forms of Business Ownership 5-3 5-3Organizational Structure for Businesses 5

2. Introduction to Business © Thomson South-Western Chapter 5 Slide 2 THE CHANGING U.S. JOB MARKET Employment data Baby Boomers dominate market since 1960. The average age of U.S. workers in 2010 will be over 40. Mini-boom will cause the 16-24 age grow to grow faster than the overall labor force for first time in 25 years. Higher employment rates for: Asian, Hispanic, and African American Workers. White workers make up 75% of job market – will decline to 70% by 2012. Biggest change in employment – participation of women in workforce.

3. Introduction to Business © Thomson South-Western Chapter 5 Slide 3 Pressures on employees Economic stress led to downsizing by companies Increase of contingent workers Contingent worker is one who has no explicit or implicit contract for long term employment – also known as temporary employment The number of contingent/temporary workers will double in ten years.

4. Introduction to Business © Thomson South-Western Chapter 5 Slide 4 BUSINESS AND THE ECONOMY – all businesses worldwide produced $32 trillion of goods & services Size of businesses Most U.S. businesses are small. The largest number have no employees at all. Almost 80% of businesses have no employees other than owner.

5. Introduction to Business © Thomson South-Western Chapter 5 Slide 5 NUMBER OF EMPLOYEES IN U.S. BUSINESSES

6. Introduction to Business © Thomson South-Western Chapter 5 Slide 6 Roles of Business  Employment  Wages – employees purchase goods & services  Profits – used to compensate owners & investors  Pay Taxes  Most Important Role – to make and distribute products & services needed by consumers, government and other businesses.

7. Introduction to Business © Thomson South-Western Chapter 5 Slide 7 Impact on a Community Pays wages to workers Buys goods & services from other business in area Housing, auto, food, entertainment. Successful businesses contribute to more jobs, more income, and a thriving economy in the communities where they operate.

8. Introduction to Business © Thomson South-Western Chapter 5 Slide 8 BUSINESS ACTIVITIES Generating ideas Raising capital Employing and training personnel Buying goods and services - all businesses buy goods & services. Marketing goods and services Maintaining business records

9. Introduction to Business © Thomson South-Western Chapter 5 Slide 9 TYPES OF BUSINESSES Producers Intermediaries Service businesses

10. Introduction to Business © Thomson South-Western Chapter 5 Slide 10 Producers Create the products and services used by individuals and other businesses. Responsible for using resources to make something that is needed by others. Extractor – takes resources from nature for direct consumption or for use in developing other products. pump oil, mine coal, cut timber Manufacturers – get supplies from other producers and convert them into products. Sell own products to consumers and other businesses. Start producers and go to manufacturers Example – cereal manufacturer, automobiles

11. Introduction to Business © Thomson South-Western Chapter 5 Slide 11 Intermediaries Intermediaries – businesses involved in selling the goods and services of producers to consumers and other businesses. Most common types of intermediaries are retailers and wholesalers. Example – grocery store Specialized intermediaries – transportation companies, advertising agencies, storage centers, sales offices, and data processing centers.

12. Introduction to Business © Thomson South-Western Chapter 5 Slide 12 Service Businesses Service Business – carries out activities that are consumed by its customers. Do not offer products for sale Fastest growing part of economy 60% of all U.S. employment is in service- producing business Services can be professional/technical services, example – internet service

13. Introduction to Business © Thomson South-Western Chapter 5 Slide 13 BUSINESS OWNERSHIP Proprietorship Partnership Corporation

14. Introduction to Business © Thomson South-Western Chapter 5 Slide 14 FORMS OF OWNERSHIP

15. Introduction to Business © Thomson South-Western Chapter 5 Slide 15 Proprietorship Business owned and run by just one person. Easiest form of business to start Sole control Owner receives all profits Responsible for all debts Fails – no shelter from creditors Creditors can take any money or assets to pay business debts.

16. Introduction to Business © Thomson South-Western Chapter 5 Slide 16 Partnership Owned and controlled by 2 or more people who have entered into a written agreement. Easy to start Responsible for business decisions Share investments & profits based on terms of partnership agreement. Each partner is liable for all debts of business if it should fail.

17. Introduction to Business © Thomson South-Western Chapter 5 Slide 17 Corporation Separate legal entity formed by documents filed with state. Owned by 1 or more shareholders Managed by Board of Directors several owners invest by purchasing stock More difficult Owners have no direct involvement No access to profits unless the Board of Directors approve it. Liability of stockholders to amount invested.

18. Introduction to Business © Thomson South-Western Chapter 5 Slide 18 CHOOSING A FORM OF BUSINESS OWNERSHIP Choosing a proprietorship Freedom Control Easy to form Do not need a business name Do need government license Tax advantages Taxed as personal income Business expenses used to reduce income Unlimited liability

19. Introduction to Business © Thomson South-Western Chapter 5 Slide 19 CHOOSING A FORM OF BUSINESS OWNERSHIP Choosing a partnership Partnership Agreement details rules and procedures that guide ownership and operation 2 or more contribute to investment Each partner responsible for decisions Unlimited liability Business is dissolved if partner leaves or dies.

20. Introduction to Business © Thomson South-Western Chapter 5 Slide 20 CHOOSING A FORM OF BUSINESS OWNERSHIP Corporation Subject to more laws Difficult to form File Article of Incorporation – written legal document that defines ownership and operating procedures and conditions of business Must create corporate bylaws Name board of directors – who make financial decisions Issue shares of stock to investors Limited liability to money invested Decision making is shared More records and laws Double taxed corporate tax on profit earned personal tax on individual earnings

21. Introduction to Business © Thomson South-Western Chapter 5 Slide 21 OTHER FORMS OF OWNERSHIP Specialized partnerships and corporations LL Partnership Investors cannot lose more than amount invested Do not participate in day-to-day management of business Difficult and costly Joint Venture Organized by 2 or more businesses to operate for a limited time and for a specific project S Corporation Small companies/limited liability LLC or Limited Liability Company Provides liability protection for owners Similar to corporation with no articles of incorporation or bylaws NonProfit Corporation Group that join to do some activity that benefits the public Free from corporate income taxes Must organize as a corporation Meet government approval and approve purpose and operations

22. Introduction to Business © Thomson South-Western Chapter 5 Slide 22 OTHER FORMS OF OWNERSHIP Cooperatives Owned by members, serves their needs, and is managed in their interest. Purchase goods/services cheaper Franchise Written contract granting permission to operate a business to sell products and services in a set way. Franchiser – the company that owns the product or service and grants the rights to another business. Franchisee – the company purchasing the rights to run a business Examples – Jiffy Lube, Century 21 Real Estate, Merry Maids

23. Introduction to Business © Thomson South-Western Chapter 5 Slide 23 DESIGNING AN EFFECTIVE BUSINESS ORGANIZATION Setting direction Mission Statement – The direction for a business. Reason the business exists and what it wants to achieve. Goals – is a precise statement of results the business expects to achieve. Goals are used to define what needs to be accomplished and to determine if the business is successful. Policies – guidelines used in making consistent decisions Procedures – descriptions of the way work is to be done.

24. Introduction to Business © Thomson South-Western Chapter 5 Slide 24 Principles of effective organization Responsibility, authority, and accountability Responsibility – obligation to complete specific work Authority – the right to make decisions about how responsibilities should be accomplished Accountability – taking responsibility for results achieved Unity of command – means there is a clear reporting relationship for all staff of a business Span of control – number of employees who are assigned to particular work task or manager.

25. Introduction to Business © Thomson South-Western Chapter 5 Slide 25 TYPES OF ORGANIZATIONAL STRUCTURES Organizational Chart – is a diagram that shows the structure of an organization. Functional organization structure – work is arranged within main business functions such as production, operations, marketing, and human resources. Matrix organizational structure – work is structured around specific projects, products, or customer groups. Interesting and motivating Work with different people

26. Introduction to Business © Thomson South-Western Chapter 5 Slide 26 BUSINESS ORGANIZATION CHART