Forms of Business Exploring Business

Entrepreneurship/Business Ownership  How does a business impact the community it’s located in? 1.Added income for the citizens who live there 2.These wages are spent in local businesses 3.Increases sales in the housing market 4.New businesses support local businesses 5.Businesses attract other businesses

Forms of Business  Sole Proprietorship  Partnership  Corporation

Business Ownership in the United States Corporations 20% Partnerships 8% Sole Proprietorships 72%

Sole Proprietorship  Sole Proprietorship: a business owned by one person  Easiest and most popular form of business  Owner is responsible for all business activities  Life of business depends on the owner, dissolves is owner quits or dies

Sole Proprietorship AdvantagesDisadvantages Easy to startCapital is limited to what the owner can supply Owner makes all decisions Owner is responsible for all debts Owner receives all profits Long hours and hard work

Sole Proprietorship  When businesses grow, it may be time to take in another person to help balance both the workload and the finances

Partnership  Partnership: a business owned and managed by more than one person  Just like a sole proprietorship, except there is more than one owner  Decisions are mutually agreed upon

Keys to a Successful Partnership  When forming a partnership it is essential that you draw up a detailed partnership contract  This contract should clearly identify the expectations of each partner; as well as, How much each partner will invest Salary amounts How profits are divided Work responsibilities How disputes will be handled How the business will be dissolved

Partnership AdvantagesDisadvantages Fairly easy to startEach partner is liable for business debts made by all partners More sources of capital available Each partner can make decisions, more than one boss More business skills availablePartnership ends if a partner dies or quits Losses are shared by all partners Each partner shares the profits

Corporation  A business owned by a number of people  Corporation: acts as an individual – pays taxes and is held liable for loans  A form of business where shares of ownership have been issued in the form of stock.

Corporation  Stock: a share of ownership within a company  The easiest way to become a business owner is to buy stock  Unlimited shareholders  Control of business rests with people who own the majority

Corporation  Board of Directors: a group of people with responsibility to guide the operation of the company  Dividend: the part of the profits that each shareholder shares  Examples: IBM General Motors Microsoft Rite Aide Blue Cross & Blue Shield

Switching to a Corporation  Under what circumstances might a business operating as a sole proprietorship or partnership decide to incorporate? No disruption to the business if an owner dies Reduces liability Offer ownership shares as a means to get money for expansion or motivational incentive for employees

Corporations AdvantagesDisadvantages More sources of capital available Difficult to start the operation Specialized managerial skills available Owner’s do not have control of decisions made each day unless they are officers of the company Owner’s are only liable up to the amount of their investment Can be expensive, especially legal costs

Franchises Exploring Business

Franchise  Franchise – An agreement or license to sell a company’s product exclusively in a particular area, or to operate a business that carries the company’ name  Basically a “franchise” is an agreement or license between two parties which gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor).

Franchise Facts  There are 320,000 franchised small businesses in 75 industries  Franchises account for about 40% of all United States retail sales  About 1 in every 12 businesses are franchises  Every 8 minutes a new franchise outlet opens somewhere in the US

Types of Franchises  Product Distribution Franchises: Businesses that simply sell the franchiser’s product. Supplier-Dealer Relationships Only Trademark & Logo used Examples – Car Dealerships & Gas Stations

Types of Franchises  Business Format Franchises: use a franchiser’s product, service & trademark, and complete method for conducting business.  Most common type of franchise

Example of Popular Franchise’s FranchiseInvestment Required Century 21 Real Estate$11,600 - $522,400 Dippin Dots$69,539 - $214,750 Little Caesar’s$106,000 - $260,000 McDonald’s$511,000 - $1.05 million Burger King$750,000 - $1.1 million Bally’s Fitness$1 million - $1.5 million Dairy Queen$1 million - $2 million Applebee’s$1.7 million - $3.1 million Courtyard by Marriot$5 million - $7 million

Franchise  Can be a sole proprietorship, partnership, or corporation.  One of the fastest-growing segments of the US economy  There are more than 500,000 franchise operations in the U.S.  Accounts for an estimated $760 billion in sales or about 1/3 of all retail sales.  To acquire a franchise you have to pay a franchising fee which is usually between $20,000 - $30,000  Royalties – 5% - 8% of gross sales/month

Franchise AdvantagesDisadvantages You have access to all franchise supply channels of distribution Typically very expensive Benefit from national advertising Franchiser may limit your choices on how you want to run your business & limit freedom May already have experienced workers & loyal customers May be taking over a business that is unsuccessful

Franchisor vs. Franchisee FranchisorFranchisee Site SelectionOversees, may chooseChooses with approval DesignProvides prototype designImplement designs, pays EmployeesGeneral recommendationsActually hires, supervises, & fires MenuSet by franchisorChanged only by approval PricesRecommendations, possible capsDecides actual prices SuppliesMay offer bulk purchasing program or list approved suppliers Complies with program AdvertisingDesign national program, Requires or suggests local amount Pays into ad fund, gets franchisor approval Quality ControlSet standards, trains franchisee, Inspects Trains employee, carries out systems

Packet Activity  Complete Business Operations notes  Complete Business Structures & Business Operations Worksheet

Business Structures CharacteristicsS. Prop. P.Corp. The owner is the boss and makes all the decisions X Owner(s) cannot start businesses unless approved by the state May be owned by thousands of different people One of the owners may be personally responsible for the debts of other owners

Business Structures CharacteristicsS. Prop. P.Corp. Considered the best type of business for raising large amounts of capital Profits distributed in the form of dividends according to the number of shares owned The business is managed by a board of directors The owner or owners can lose their personal needs

Business Structures CharacteristicsS. Prop. P.Corp. Each owner has one vote for each stock of share The owners are not liable for the firm’s debts Easy to start this type of business Business ends when owner dies or quits Owners receive all the profits and are responsible for the debts of other owners