Chapter 8: Types of Business Organizations Section 1: Sole Proprietorships pg.226-231
The Characteristics of Sole Proprietorships Every business starts with an idea. A business organization is an enterprise that produces goods or provides services. Most of the goods and services available in a market economy come from business organizations The purpose of a business organization is to earn a profit. They achieve this by producing the goods and services that meet consumers’ wants and needs. They provide jobs and income that can be used for spending and saving. They also pay taxes that help finance government.
Sole Proprietorship This is the most common type of business organization in the U.S. This is a business owned and managed by a single person. These include everything from mom-&-pop grocery stores to barbershops to computer repair stores. They account for more than 70% of all businesses in the U.S., but they generate less than 5% of all sales by American businesses.
Bart’s Cosmic Comics To raise funds Bart went to the bank but the bank would not give him a loan b/c he was not a proven business owner. He had to get the start up money from his family and friends. Bart had to complete a few legal documents, including a business license and registering his business’s name. He decided to advertise and had in-store promotions and he had success. After 18 months of successful operations the bank would now give him a loan for expansion.
Advantages of Sole Proprietorships There are many reasons why this is the most common type of business: Easy to Open or Close: as we saw with Bart’s store there are just a few legal documents to start or close a sole proprietorship Few Regulations: open your business in the correctly zoned area and follow the labor laws. Freedom & Control: Bart makes all of the decisions and does not have to check with partners or a board of directors. Owner Keeps Profits: Bart is the sole owner t/f he keeps all the profits.
Disadvantages of Sole Proprietorships Limited Funds: this is one of the biggest reasons why these sole proprietorships fail. Banks will not give loans unless you have experience and at the start of your business you may no be able to pay competitive wages or offer benefits. Limited Life: this means that a business ceases to exist if the owner dies, retires, or leaves the business for some other reason. Unlimited Liability: this means a business owner is responsible for all the losses, debt, and other claims against the business. This means that Bart could lose his car, his home, or anything else he owns if the business fails.
Do you have what it takes to “go it alone” as an entrepreneur? Are you willing to take the risks? Can you live with uncertainty? Are you self-confident? Are you self-directed, able to set and reach goals for yourself? Are you optimistic, energetic and action-oriented?
Mary Kay Ash: Going it Alone After being passed over for a promotion in 1963 she started her own business. She wanted to make sure women were not passed over in her company. Mary Kay Cosmetics made 800,000 by 1965, $500 million by 1991,and $2 billion by 2005.