Being a Business Owner Section 4.2

Read to Learn The four main ways to become a business owner and the advantages and disadvantages of each The different forms of legal business ownership

Read to learn How to prepare to finance a new business Factors that can affect business success

Main idea Knowing the factors that affect a business’s success will help you to launch a successful business

Key Concepts Going into Business Owning a Business Operating Your Business

Key Terms Start up costs Lease Goodwill Market outlook Franchise Sole proprietorship Partnership corporation Operating expenses Income statement Revenue Gross Profit Net Profit

Four Main Ways to Go into Business Going into Business Start a New Business Buy an Existing Business Buy a Franchise Join a Family Business Four Main Ways to Go into Business

Starting a New Business Rewards You do not inherit a previous owner’s mistakes You can develop your own reputation You can build the business your way You get personal satisfaction Challenges Starting a new business requires more time and effort Start-up costs can be high Borrowing money may be difficult Risk can be high

Starting a new business Examples of start up costs include: Renting or buying space Buying equipment and supplies Buying insurance Key Term: Start-up Costs: The expenses involved in going into business

Buying an existing business Before buying an existing business, determine whether the problems of the business can be fixed, and at what costs

Buying an Existing business Advantages You can save on start-up costs by taking advantage of the previous owner’s business agreements You may be able to purchase the existing equipment If the business was successful, you can build on that success You can benefit from existing positive reputation and a trained staff

Buying an existing business Disadvantages The location might be poor The competition might be taking business away The potential for future sales may be poor Expensive repairs might be necessary The business may have a poor reputation

Buying an existing business When buying an existing business, you may be able to keep the existing lease. Key Term: Lease – a contract to use something for a specified period of time

Buying an existing business When buying an existing business, you may be able to take advantage of existing goodwill of existing customers. Key Term: Goodwill - Loyalty

Buying an existing business When buying an existing business, you should be aware of the market outlook Key Term: Market Outlook – The potential for future sales

Buying a franchise Buying a franchise offers specific advantages You agree to pay a percentage of your profits to the parent company Key Term: Franchise – The legal right to sell a company’s goods and services in a particular area

Buying a franchise Advantages You get a recognized product name You have established procedures and management systems You benefit from a business reputation and customer goodwill You receive training and support services You benefit from the company’s advertising Financing can be more easily obtained

Buying a Franchise Disadvantages Profits are shared with the parent company You must follow the parent company guidelines There may be less personal satisfaction

Joining a family business Advantages Relatives can help you finance the business Family members are loyal and trust each other Family members work as a team Relatives can teach you the business Customers are likely to give you the same trust and goodwill

Joining a family business Disadvantages Not all families work well together Difficulties at work can affect family relationships

Owning a business As a business owner, you will have to decide if you will run the business yourself, or if you will share the work and risks.

Forms of legal ownership Sole Proprietorship Three basic forms of legal ownership Corporation Partnership

Forms of legal ownership Most businesses begin as a sole proprietorship. The owner is responsible for all the business’s assets and debts Key Term: Sole Proprietorship- when the business is completely owned by one person

Forms of legal ownership In a partnership, all partners are liable for the debts of the business Key Term: Partnership- a legal arrangement in which two or more people share ownership

Corporation In a corporation, shareholders earn a profit based on the number of shares they own Key Term: Corporation – a business chartered by a state that legally operates apart from the owner(s)

Operating your business Whatever type of business you launch, you will need money to finance …. Financing

Financing A business plan gives specific information about your business Information in a Business Plan Product Description Business location Number of employees Salaries Description of the competition Marketing plan Timetable

financing A financial plan spells out your start-up costs, operating expenses, and other costs for the first few months Key Term: Operating Expenses- the costs of doing business, such as the costs of manufacturing and selling the product

Ongoing operations Financial records are needed for tax purposes and for seeding additional financing The income statement is an essential business record Key Term: Income statement- A summary of a business’s income and expenses during a specific period

Ongoing operations The first item in an income statement is revenue Another item in the income statement is gross profit The net profit is an important part of the income statement Key Terms: Revenue – The income from sales Gross Profit – The difference between the cost of goods and their selling price Net Profit – The amount left after operating expenses are subtracted from the gross profit

Ongoing operations The balance sheet summarizes a business’s assets, liabilities, and owners equity Assets are anything of monetary value Liabilities are debts a business owes Net worth is the difference between assets and liabilities A cash flow statement is a monthly plan that shows when you anticipate cash coming into the business and when you expect to pay out cash

Succeeding in business Financing Location Factors of Succeeding in Business Management Competition

Location Factors that contribute to a successful business location include: The type of businesses in the area The condition of the streets and buildings The cost of property The location of competition The location of your customers

Competition To compete successfully, you must be familiar with your competitor’s product or service You must also produce a better product than your competitors

Management Poor management is one of the main reasons for business failure Skills Needed for Management Reading Writing Listening Speaking Math

Exit Ticket 1. Name the four ways to become a business owner. Which one would you choose? Why? 2. Explain the differences between a partnership and a corporation 3. Describe one of the documents you would need to prepare to apply for a business loan.