Objective 1.01 Understand the purpose and the functions of business 1.01 Purpose and Functions of Business

Purpose of Business Businesses fulfill the needs and wants of consumers. Businesses fulfill the needs and wants of consumers. Consumers use goods and services Consumers use goods and services Customers purchase goods and services Customers purchase goods and services Businesses sell goods, services or both to consumers Businesses sell goods, services or both to consumers Goods—clothing, cars, computers, CDs Goods—clothing, cars, computers, CDs Services—hairdresser, dry cleaner, lawn care, babysitting Services—hairdresser, dry cleaner, lawn care, babysitting

Motivation to start a business Profit motive—desire to make money; see the opportunity to make money in the marketplace. Profit motive—desire to make money; see the opportunity to make money in the marketplace. Opportunity to meet wants and needs of consumers Opportunity to meet wants and needs of consumers Opportunity to increase competition in the marketplace Opportunity to increase competition in the marketplace Businesses are investment opportunities for individuals—future income Businesses are investment opportunities for individuals—future income

Functions of Business Accounting—recording and reporting financial activity and transactions Accounting—recording and reporting financial activity and transactions Examples Examples Paying bills Paying bills Collecting money from customers Collecting money from customers Paying taxes Paying taxes Preparing employee payroll checks Preparing employee payroll checks Reconciling bank statements Reconciling bank statements Investing cash Investing cash Purchasing inventory Purchasing inventory

Functions of Business Management Management Makes sure that the entire organization meets its goals and obligations Makes sure that the entire organization meets its goals and obligations Effectively works with people in the organization Effectively works with people in the organization Uses available resources to accomplish the organizations’ goals Uses available resources to accomplish the organizations’ goals

Functions of Business Marketing Marketing Satisfies the needs and wants of consumers through exchange Satisfies the needs and wants of consumers through exchange Based on four “P’s” Based on four “P’s” Product Product Price (establishing the price of the product) Price (establishing the price of the product) Placement (placing the product in attractive and convenient sales locations) Placement (placing the product in attractive and convenient sales locations) Promotion (advertising) Promotion (advertising)

Functions of Business Information Technology Information Technology Uses technology to share knowledge, facts, and data to others (co-workers, customers, and suppliers) Uses technology to share knowledge, facts, and data to others (co-workers, customers, and suppliers) Examples Examples Maintains accounts Maintains accounts Maintains software applications Maintains software applications Maintains processing systems Maintains processing systems Maintains hardware for all technology used Maintains hardware for all technology used

Functions of Business Operations Operations Considered the “back office” Considered the “back office” Involves behind the scenes paperwork required to complete all transactions Involves behind the scenes paperwork required to complete all transactions Found in both the service and the manufacturing sector Found in both the service and the manufacturing sector

Functions of Business Human Resources Human Resources Manages “people” relations within the company Manages “people” relations within the company Helps workers develop the skills and knowledge needed to be successful on the job Helps workers develop the skills and knowledge needed to be successful on the job Responsible for hiring and firing of employees Responsible for hiring and firing of employees Selects employee benefits and enrolls all employees in the benefits (insurance, retirement, etc.) Selects employee benefits and enrolls all employees in the benefits (insurance, retirement, etc.) Helps employees pursue educational opportunities Helps employees pursue educational opportunities

1.02—Types of Business Organization Objective 1.02 Compare the main types of business organization: 1. Sole proprietorship, 2. partnership, 3. corporation, 4. and franchise

Sole Proprietorship Owned by one person Examples Floral shops Bookstores Farms Advantages Easy to start Owner is his/her own boss Owner keeps all profits Disadvantages Owner must pay for everything needed for the business Difficult to obtain capital needed to start Owner might lack business skills Unlimited liability—owner has full responsibility for company’s debts and can lose entire investment as well as personal assets

Partnership Owned by two or more people Examples Law firms Medical practices Auto Body Repair Advantages Relatively easy to start Easier to obtain capital than in a sole proprietorship Partners share skills and talents Partners share risks Disadvantages Partnership agreement is needed to start Partners might not get along well Partners must share profits Partnership must be reorganized if one partner quits Partners share unlimited liability—all partners share the responsibility of a bad decision made by one partner (including debts)

Corporation Owned by many people— stockholders, but treated by law as one person (can own property, pay taxes, make contracts) Advantages Corporations can raise money by selling stock Limited liability—stockholders can only lose what they have invested Corporation continues when stockholders sell stock Corporation can always make money by selling more stock Examples Nike IBM Google Disadvantages Corporations are taxed on their profits Government closely regulates corporation More difficult to start a corporation Must obtain a corporate charter from the state in which headquarters is located

Franchise Franchise is a contractual agreement to sell a company’s products or services in a specific geographic area Advantages Easy to start Franchisee can rely on good name and expertise of the parent company Franchisee can get needed guidance in operating the business from franchisor Disadvantages Some franchisors are strict about how the business is run Franchise is limited in what products or services can be sold Franchise must operate like every other franchise Examples Taco Bell Blockbuster McDonald’s

Objective 1.03 Classify businesses as profit- making or non profit-making; and service, product or combination.

For-profit businesses Motive is making a profit (earning more revenue than expenses) Produce and distribute goods and services based on consumer demand for wants Examples Apple Computer Sony Domino’s Pizza The Gap Abercrombie and Fitch

Non-profit businesses Can earn a profit, but cannot be run for the sole purpose of earning a profit; profits must be used to benefit the purpose of the organization Cannot be run for the financial gain of the members or directors Donors’ Contributions are tax deductible Examples American Red Cross Salvation Army Meals on Wheels Homeless Shelters St. Jude’s Children’s Hospital

Provide services rather than goods Some service businesses meet needs (medical clinics, law firms) Some service businesses provide wants (taxi companies, ISPs) Examples Barber shop Dry Cleaners Copy and Print Shops (Kinko’s) Car repair shops

Sell goods to consumers and other businesses Retailers and distributors are product businesses Examples Old Navy CD Stores Best Buy Dick’s Sporting Goods

Some businesses are both product and service businesses—they sell a product and provide a service. Examples Automobile dealerships Hair salons Appliance stores Can you think of others?