Topic 5, Business & Labor

How can businesses & labor best achieve their goals? What if you’re one of the lucky ones who is able to turn something you really love to do into a business? One of many challenges will be finding out the best way to organize your business. Business organization: ownership structure of a company or firm

Sole Proprietorship Business owned and managed by a single individual Most popular in USA More than 70 percent of all businesses Most are small Generate about 4 percent of all sales in USA

Sole Proprietorship Business owned and managed by a single individual Most popular in USA More than 70 percent of all businesses Most are small Generate about 4 percent of all sales in USA

Sole Proprietorship

Using the graph, how would you describe the size of most sole proprietorships?

Sole Proprietorship Advantages Disadvantages Easy to start and end Relatively few regulations Sole receiver of profit Full control Unlimited personal liability Limited access to resources Lack of permanence You’re going to die

5.2 Partnerships Business organization owned by two or more persons who agree on a specific division of responsibilities & profits In the USA, partnerships account for nearly 10 percent of all businesses Generate a quarter of all income earned

Partnership Advantages Disadvantages Unlimited liability Ease of start-up Financial impact More than one person paying Improved ability to borrow Shared decision making Unlimited liability Unless LLP Potential for conflict Lack of permanence You die and your partner leaves…

Franchise A business franchise is a semi-independent business that pays fees to a parent company In return, the business is granted the exclusive right to sell a certain product or service in a given area

Franchise Advantages Disadvantages Sacrifice freedom Reputation built-in Training and support Quality Advertising Financial assistance Some franchisers offer financial startup support Centralized buying power Buy in bulk, pass on to franchise locations Sacrifice freedom High franchising fees & royalties A share of their earnings Strict operating standards Purchasing restrictions Limited product line

So you want to own a Taco Bell…

$750,000: How much you need in liquid assets for Taco Bell to even approve you to become a franchisee. $1,500,000: Your minimum net worth in order to open a franchise. $45,000: The fee you must pay to Taco Bell to own a franchise. $1,200,000: The average start up and construction costs to build a new Taco Bell. Could be as high as $2.5 million. $175,000: How much it costs to acquire an already existing Taco Bell. Could be as high as $1.4 million. $1,400,000: The yearly sales of an average Taco Bell. $116,000: What it costs to open a Subway instead.

Certificate of ownership in a corporation Corporations A legal entity, or being, owned by individual stockholders, each of whom has limited liability for the firms debts Stockholders own stock Most complex form of business organization Certificate of ownership in a corporation

Corporations In the US, corporations account for about 20 percent of all businesses but more than 80 percent of all sales 60 percent of net income earned Most large businesses do incorporate

Corporation Advantages Disadvantages Difficult and expensive to start Advantages for stockholders Limited liability Flexibility in terms of ownership (easily transferable) Advantages for corporations Potential for growth Bonds (promise to repay borrowed $ with interest Long life Can hire experts to run it Difficult and expensive to start Double taxation Dividends Original owners loss of control More regulation Annual meetings Keep records of all transactions

Corporations Horizontal Mergers: two or more firms competing in the same market with the same good join (Office Depot & OfficeMax) Vertical Mergers: firms involved in different stages of producing the same good join together Conglomerate: three or more unrelated businesses are involved

Nonprofits Function like a business organization but do not operate for the purpose of generating profit No owner Board of directors Exempt from income taxes Cannot issue stock

Labor Force Labor Force: nonmilitary people who are employed or unemployed Over the past two decades, US economy has shifted from manufacturing economy to service economy

Employed or Unemployed? Employed if you are 16 years or older and meet at least one of the following: Worked at least one hour for pay in the past week Worked 15 or more hours without pay in a family business Held jobs bud did not work due to illnesses, vacations, labor disputes, or bad weather Unemployed if you don’t meet this criteria and are either temporarily without work or are not working but have looked for jobs within the last four weeks. Outside the labor force: Discouraged workers: once sought work but have given up Full time students Stay at home parents Retirees, institutionalized, active military