Chapter 1: Economic Basics What Is a Business?

Chapter 1: Economic Basics What Is a Business?
Businesses come in many shapes and sizes, such as local, regional, national, and/or global. They are classified by their size, structure, and the role they play in the community. Profit or Non-profit? For-Profit Business A for-profit business produces or sell goods and services to satisfy the needs, wants, and demands of consumers for the purpose of a making profit. Non-profit and Not-for-profit Organizations A non-profit and/or not-for-profit organization operates strictly to help people in a community.

For-profit Business By supplying goods and services, a business can make a profit. Profit is the income left after all costs and expenses are paid. Expenses are the payments involved in running a business and the assets that get “used up” operating it. Cost is the money required to produce or provide the goods and services. Revenue – Expenses = Profit (or Loss) When a business makes a profit, it can reinvest money for expansion provide improved goods and services give the owner(s) funds to spend on personal needs or wants The business is considered solvent when debts are paid and financial obligations are met. FOR PROFIT BUSINESS Expenses: expenditures such as wages and “used up” assets such as paper and chalk Costs: raw materials To achieve cost reduction businesses can reduce their payroll (wages paid to employees) by decreasing staff, however they may compromise customer service (fewer people to serve customers) actually causing sales (thus profit) to decline. Business’s strive to keep expenses and costs down. As costs and expenses increase, the business’s profits get smaller. Businesses need to be efficient and organized. Solvency: means having the ability to pay all business debts and financial obligations. To stay profitable businesses need to anticipate and prepare for the changing needs and wants of consumers.

Non-profit Organizations The primary motive of a non-profit organization is to raise funds for a specific goal. Only charities and charitable organizations are called non-profit and are allowed to raise such funds. These organizations operate to serve people and their communities. Not-for-profit Organizations A not-for-profit organization uses any surplus funds to improve the services offered to its members. However, they do not distribute profits to members. A co-operative, unlike a not-for-profit organization, consists of an independent association of persons who join together to meet economic, social, and cultural needs and goals. NON-PROFIT ORGANIZATIONS Non-profit (charity/charitable) include the Canadian Breast Cancer Foundation that raises funds through events such as the CIBC Run for the Cure. They in turn advance research, education, diagnosis and treatment. Not-for-profit-housing and childcare. NOT-FOR-PROFIT ORGANIZATIONS

Large or Small A small or medium-sized business (SMB) can be classified by the following characteristics: employs fewer than 500 people estimated to be over one million in Canada provides jobs for more than 60 percent of the Canadian workforce Forms of Business Ownership Informal descriptions of business ownership include: LARGE OR SMALL FORMS OF BUSINESS OWNERSHIP Sole proprietorship: owned by one person Partnership: owned by two or more partners Corporation: an artificial “person” created by law and owned by shareholders Co-operative: owned by its workers or members who buy from the business Franchise: when a business licenses another to use its name, operating procedure, etc. under an above form of ownership sole proprietorship partnership corporation co-operative franchise

Channels of Distribution A business can be classified according to how it delivers goods or services to the customer. Some of these categories are retail (“bricks and mortar”) the telephone catalogues e-commerce Role in the Community A business performs different functions in its community. Jobs A business can be classified by the types of jobs that it provides.

Chapter 1: Economic Basics The Role of the Consumer
Producers are the businesses that make goods or provide services that consumers need or want. Consumers are the people who purchase goods and services from producers. A marketplace or location is where producers and consumers come together to buy and sell their goods and services. Businesses use consumer habits plus their own research to decide what quantities of goods and services they will provide to consumers. Some key questions that businesses might ask about themselves are When do they want these goods and services? Where do they want them? How much goods or services do they want? What price will they pay for these goods and services? Consumers greatly influence businesses in regards to what they produce and how they deliver it. Stew Leonard’s store-front message: Ask students if they agree, if they think that businesses really function this way and if they could suggest businesses that do not follow these rules? Rule#1: The customer is always right. Rule#2: If the customer is wrong, re-read Rule#1. Examples: A cookie manufacturer is the producer of a good, while the business that services their machinery provides a service. A marketplace would include a mall, farmer’s market, or a grocery store.

Consumer Influence on Products In the past, businesses controlled what, when, and the amount of products and services available to consumers. With increased competition and the appearance of more producers, consumers ultimately buy from businesses that meet their personal needs and wants. When Products Become Obsolete Over time, products or services can become obsolete because people no longer want or need them. CONSUMER INFLUENCE ON PRODUCTS ask students what they have purchased over the last month. ask them if the colour, style, size, or other options mattered? ask them to identify style and colours for clothes that are “in” now? ask them to consider what information businesses get from their buying habits. the shift from business controlling the marketplace to more consumer control took place during the 1950s. When Products Become Obsolete Examples: Treadle sewing machines, stem-powered locomotives (trains), wringer washer, and manual typewriters are examples of product that have become obsolete. The service of delivering coal and ice to people’s homes is also an example of obsolescence.

Consumer Influence on Price Businesses are in control when they have pricing power. They can increase prices in response to increased costs or to increase their profits. Consumers have control when they have power. They demonstrate this by “voting with their feet” to look elsewhere for products and services. Consumer Influence on Service Consumer purchasing power gives individuals the control to buy goods and services at the price they want and the location they like. This power influences the products, prices, and service levels that businesses offer consumers. CONSUMER INFLUENCE ON PRICE Consumers want access to a wide variety of inexpensive, reliable goods and services. In the 1950’s, when businesses had a greater degree of pricing power they offered a limited variety of products. Today we have a wider range of brands and a broader price range to choose from (example cereal). When setting a price for a product, producers have to consider what the customer will pay for it in addition to the cost of producing it. Similar products will be in the same price range as competitor's products. CONSUMER INFLUENCE ON SERVICE Consumers have influenced restaurant service. Customers, at one time, had to go into and eat at the restaurant When take-out started customers had to go into the business to get the food. Some restaurants started offering drive-thru, and others followed suit. At first it was mainly pizza businesses that offered delivery. Now other restaurants such as Swiss Chalet have started offering delivery service. Even grocery stores, such as Dominion, have been influenced by consumers and now offer take-out and delivery.

Chapter 1: Economic Basics Starting a Business
Characteristics of Entrepreneurs Entrepreneurs are individuals who are risk-takers and problem-solvers. They are acutely aware of opportunities in the marketplace and take advantage of these in their businesses. Important entrepreneurial characteristics include the following: Consumer Needs and Wants Entrepreneurs often start businesses to satisfy consumer needs. Basic survival needs for individuals are food, clothing, and shelter. However, entrepreneurs can also provide consumers with new products or services that are not considered a need but a want—something that adds comfort or pleasure to their lives. self-confidence a flair for innovation the ability to work alone an aptitude for managing others CHARACTERISTIS OF ENTREPRENEURS self-confidence: self-assured and positive and confident in their ability to run a business including purchasing, marketing, and accounting. a flair for innovation: improving upon what is being done in the marketplace and anticipating future consumer needs and wants. the ability to work alone: initiative and drive to accomplish tasks and meet deadlines on one’s own an aptitude for managing others: the ability to motivate others to achieve objectives CONSUMER NEEDS AND WANTS Examples of needs include; food, basic clothing, and shelter. Examples of wants include; I-pod, plasma TV, a designer purse, and a Rolex watch.

Attracting Consumer Interest Entrepreneurs need to identify their competition. They must determine how to attract their customers and keep them. Businesses also plan what goods and services to offer and how to distribute and market them by knowing how consumers will answer the following questions: Do I really need it? Where should I buy it? How much variety is there to choose from? How much can I afford to spent? Why would I want to buy here? Are there sales or coupons? Where else could I get it? Could I buy it used or get it as a gift? ATTRACTING CONSUMER INTEREST Surveys (feedback) can give businesses information about consumer wants, needs, and preferences.

Attracting Consumer Interest Businesses compete for consumers. Here are a few strategies that businesses use to help attract buyers to try a product or service. Create something new and/or improve it. Promote the latest trends. Compete with similar businesses. Making Good Business Decisions Entrepreneurs face many decisions on a daily basis. Even deciding how much inventory or stock (i.e., the quantity of goods and materials to keep on hand) must be considered carefully because of the financial resources available. ATTRACTING CONSUMER INTEREST Strategies: “New and Improved” Many products compete for your breakfast dollar; Kellogg’s (Mini-Wheats), Wonder (bread), Old South (orange juice), Nestle (Carnation instant breakfast), Danone (yogurt), etc. What you ate for breakfast could have depended on price, taste preference, promotion, health concerns, or some other factor. What might another factor be? Businesses come up with “new and improved” products, that they think will be better than the competition’s, through research and testing. Breakthroughs that give a business an advantage can translate into profits for the business. Promoting Treads Advertising or product placement in movies, videos and on television. Competing with Similar Businesses Not the same types of businesses; fast-food outlets, restaurants, grocery stores, catering businesses, meal plan services, etc., all compete against each other for consumer’s money in an effort to make a profit.

Decision-Making Process DECISION-MAKING PROCESS Determine what decision has to be made. Clearly define the question to be answered. Formulate it so that you will be able to test or measure if you made the correct decision or not. 2. Identify the alternatives. Develop and state clearly several courses of action or actions that you could take to answer your question or problem. 3. Evaluate the advantages and disadvantages of each alternative. For each of the alternatives that you have identified state the advantages and the disadvantages of each course of action. All decisions have a benefit(s) and a drawback(s). 4. Make a decision and take action. Choose among the alternatives that you have identified. Put the decision into action. Take the steps to implement it. 5. Evaluate the decision. After sufficient time for your decision to run its course, review your decision. Did it do as you had planned? Where the disadvantages too high? Did the advantages of the decision that you opted for measure up to the your expectations.

Chapter 1: Economic Basics Economic Resources
Economic resources, also known as factors of production, are the means through which goods and services are made available to consumers. Most products require a combination of natural resources human resources capital resources Businesses are interdependent, which means they rely on the goods and services from a variety of businesses to satisfy consumer needs and wants. ECONOMIC RESOURCES natural resources; Materials that come from the earth, water and air. Soil, iron ore, gold, oil, trees, wildlife, agricultural goods, fish, and oxygen are examples of natural resources used in the production of goods and services. Most natural resources are non-renewable and limited (some take many years to replenish), therefore businesses are restricted in what they can build and create. human resources; Sometimes referred to as labour, human resources are the people who work to create the goods and services. Examples include farmers, teachers, factory workers, construction workers, nurses, and social workers. capital resources; Include buildings, equipment and machinery, tools, vehicles, and factories that usually last for a long period of time and may require a substantial investment. Money is also considered a capital resource, it is needed by businesses to buy raw materials and pay for human resources needed to produce goods and services. Interdependence A fast-food restaurant relies on materials that they get from a wholesale business such as beef, tomatoes, and potatoes (natural resources), they have to purchase the building or lease in which they operate and they would have had to purchase grills and refrigerators (capital resources) from a company that sells restaurant equipment. They will also need cooks, managers, and servers (human resources) acquired perhaps through an employment agency.

Chapter 1: Economic Basics Economic Resources
Economic Systems Economic systems are a way of dealing with the selection, production, distribution, and consumption of goods and services. Government and business work together to foster activity and growth in the marketplace. Economic systems have to answer three key questions: What goods and services should be produced within the system? For whom should these goods and services be produced? How should these goods and services be produced? ECONOMIC SYSTEMS An example of government and business working together could include addressing the energy shortage that countries such as Canada face. Existing oil supplies are shared in a fair way due to government and businesses working together. They are also working together to develop other forms of energy such as nuclear, hydro, solar, and wind.

Chapter 1: Economic Basics Demand, Supply, and Price
Law of Demand Demand is the quantity of a good or service that consumers are willing and able to buy at a particular price. Law of demand and its relationship to prices and consumers is defined as the following: When prices  decrease consumers buy more and demand goes up . When prices  increase consumers buy less; demand goes down . Several conditions that create demand are LAW OF DEMAND People have different needs and wants and different levels of ability, therefore we have different demands. When we buy goods, or use a service, we express a demand for it. Several conditions create demand: consumer awareness: Through marketing and advertising, businesses create awareness and interest in the goods or services that they offer. supply: An ample supply of the good or service available to consumers. price: The good or service offered at a reasonable and competitive price. accessibility: The product or service must be obtainable for the consumer to purchase. “Location, location, location” is a popular business motto that stresses the importance of the physical location of a business operation. See table 1.2 for “Factors That Can Increase or Decrease Demand” consumer awareness price supply accessibility

Chapter 1: Economic Basics Demand, Supply, and Price
Law of Supply Supply is the quantity of a good or service that businesses are willing and able to provide within a range of prices that people would be willing to pay. Increasing the quantity supplied as prices increase is called the law of supply. Several conditions that affect supply are the cost of producing or providing a good or service the price consumers are willing to pay for it Relating Price to Supply and Demand Price is determined by supply and demand as well as the cost of producing or providing the good or service. LAW OF SUPPLY Businesses satisfy people’s needs and wants by providing goods and services at a profit. Efficient businesses produce more, with the same resources, than less efficient ones. As prices for a product or service increase, produces can use the increased revenue to provide more goods and services. More revenue means a business can pay more overtime, expand factories, hire more employees, and buy more productive equipment. Several conditions affect supply: Occasionally, demand for a new good or service is created by supplying it for sale in the marketplace, and marketing as well. See table 1.3 for “Factors That Can Increase or Decrease Supply” RELATING PRICE TO SUPPLY AND DEMAND When consumer demand is high while supply is low, prices will tend to be high. When consumer demand is low while supply is high, prices will tend to be low. Because demand and supply constantly change, prices tend to fluctuate. High prices usually decrease the quantity demanded.

Chapter 2: Types of Businesses Forms of Business Ownership
Forms of business ownership and types of businesses describe how they are organized and run. The four main forms of business ownership are listed below. Sole Proprietorships A sole proprietorship is a business owned by one person who is known as the proprietor. The proprietor has a wide range of responsibilities including arranging displays and selling to customers to name a few. Funds to run the business usually come from the owner’s savings, friends, family, or from a bank loan. If the business prospers, the owner receives all of the profits. If the business does poorly, the owner is responsible for its losses. This is called unlimited liability.  A franchise is a combination, or hybrid, of the four forms of ownership. partnership co-operatives sole proprietorship corporation SOLE PROPRIETORSHIP Unlimited liability: The responsibility for all of the business’s debts and liabilities could mean that the owner loses his/her home or other personal assets. Unlimited liability is the greatest disadvantage of a sole proprietorship. This form of business ownership is easier and less expensive than the other forms of business ownership. Business income is declared on the owner’s personal income tax rather than filing a separate business tax form.

Partnerships A partnership refers to a type of business in which two or more individuals share the costs and responsibilities of owning and operating it. The terms of the partnership are recorded in the partnership agreement. The most common form of partnership is a general partnership. When two individuals form a limited partnership, the partners are only responsible for the funds they both invested in the initial business. This is called limited liability. PARTNERSHIP Examples include A&W, Baskin-Robbins, Black & Decker, and Proctor & Gamble. A general partnership means that all partners have unlimited liability for the firm’s debts. With this form of unlimited liability each partner could be held responsible for the other partner(s)’ business-related arrears. With a limited partnership there is limited liability, this means that each partner is only responsible for paying back the amount they invested in the partnership. If the business fails, their personal savings and other assets cannot be used to pay the partnership’s debts. The working relationship between partners can be an advantage of a partnership. Successful partners usually have complementary talents and share in decision making.

Corporations A corporation is a business granted legal status with rights, privileges, and liabilities that are distinct from those of the people who work for the business. Corporations can be small such as a one-person business or large such as A multinational that conducts business in several different countries. Small portions of corporate ownership that are owned publicly are called stocks or shares. Individuals who own shares of a corporation are called shareholders and become owners of the business. Shareholders have limited liability. A board of directors runs a corporation that is owned by shareholders. A publicly traded corporation that makes a profit may pay out dividends to shareholders. CORPORATIONS Multinational corporations are also know as transnational. Most corporations are owned entirely by individuals, families, and small groups. Large corporations require funds, therefore the original owners divide the corporation’s ownership into small parts called shares or stocks and sell them through a stock exchange. Examples of stock exchanges are the TSX, the Toronto Stock Exchange, and the New York Stock Exchange. Once shares are sold the corporation becomes a publicly traded (or publicly owned) corporation. The more shares that a shareholder has the more control he or she has. One share usually equals one vote. With so many owners, a board of directors is designated to run the corporation beyond the amount originally invested. Shareholders have limited liability, they cannot be held legally responsible for the debts of the corporation. If the corporation loses money, investors only lose the amount invested, if the business makes a profit it can be reinvested and/or paid out to shareholders in the form of dividends. Shareholder Dividend = Total Profit Paid Out ÷ Total Number of Shares x Number of Shares Owned by Shareholder

Types of Corporations Co-operatives A co-operative is owned by the workers or members who buy the products or use the services that the business offers. This type of business is motivated by service and not profit. Adaptations of this business model include consumer, retail, and worker co-operatives. private corporations Crown corporations public corporations municipal corporations TYPES OF CORPORATIONS Private corporations: Only a few people control all the shares or stock, therefore the business. Shares are not listed for sale on a stock exchange. Public corporations: Available to anyone, shares in these corporations are bought and sold on the stock exchange. Selling shares raises money for the corporation. Shareholders are the owners of the business. The more shares an individual owns, the more impact they have on the business. One share means one vote. Crown corporations: A business owned by the provincial or federal government. Examples include the Business Development Bank of Canada, Canada Post, and the Canadian Broadcasting Corporation (CBC). Municipal corporations: In an effort to provide local citizens with services towns and cities can be incorporated. CO-OPERATIVES The motivation is not profit. Members make up the board of directors that run the co-operative. Regardless of the number of shares owned, each member has only one vote. Profits of a co-operative are distributed according to how much each member spends. A local credit union is an example of consumer co-operative. IGA (Independent Grocers Alliance) is an example of a retail co-operative. A worker co-operative is created to provide work for its members. Some co-operatives are not-for-profit such as health care, child-care, and housing.

Franchises The franchiser licenses the rights to its name, operating procedure, designs, and business expertise to another business called the franchisee. A franchise agreement can provide the franchisee with a ready made, fully operational business brand recognition that is appealing to consumers Requirements before a franchise is awarded may include paying the franchise fee agreeing to pay a monthly percentage fee as well as any national or local advertising costs purchasing all supplies centrally from the franchiser participating in franchiser standards training FRANCHISES Examples of franchise operations include; hotels, motels, fast-food restaurants, and automobile dealerships. Paid to the franchiser, the franchise fee can range from thousands to millions of dollars. A monthly franchise fee might be 5% of total monthly sales. Local and/or national advertising costs are roughly 1% of monthly sales.

Chapter 2: Types of Businesses Going into Business
Eight Questions to Ask Before Going into Business Why Start Your Own Business? People who desire to be the boss and take responsibility for making decisions often decide to run their own business. They believe it is the best way for them to achieve financial independence, to allow them to use their skills and knowledge, and to be creative. What Different Types of Businesses Are There? service business retail business not-for-profit organization manufacturing business What Are Your Skills and Interests? Different ideas, skills, and knowledge can be used to start a new business. Two popular ones are home-based or Web-based businesses. 2. WHAT DIFFERENT TYPES OF BUSINESSES ARE THERE? See Figure 2.1 “Types of Businesses” on page 52.

Should Your Business Be Home-based? Technology has changed how SOHO (“small office, home-based”) businesses operate. Computers, scanners, and Internet access are a few of the tools that home office businesses use today to be successful. ii. Should Your Business be Web-based? E-commerce (“electronic commerce”) is a marketplace where consumers and sellers meet without face-to-face contact. In the “real world,” products are tangible. Products and services are sold to us by personal contact with the sellers. In cyberspace or online, we do not interact with products or come face-to-face with the sellers. Our experience with services is limited or non-existent. Consumers are often reluctant to purchase online due to unreliable or dishonest businesses and privacy issues. Should Your Business be Home-based? Computers, scanners, video equipment, camcorders, and access to the internet have transformed the home office into a “virtual” office. Advantage might be: fewer meetings, no office politics, less time on the telephone or running from office to office, and casual clothing. Disadvantage might be: less personal contact, lack of discipline imposed by the traditional work environment, and distractions that are not business related. Should Your Business be Web-based? E-businesses are generally open “24/7”, they are open 24 hours a day, seven days a week. An e-commerce business needs a physical space to operate. They need a website to conduct e-commerce transactions and a domain name; a catchy and simple Internet address such as An Internet address lets potential customers connect with the business online. Businesses can hire a professional to create their website and the contained web pages, or they can create it themselves. E-businesses need to be able to process online payments. Profit and website hits, a measurement of a site’s popularity by the number of people who visit the site, can help a business gauge success. Some products and services have a reputation of selling well on the Internet, such as CDs, health products, banking services, travel, etc. Privacy issues include information being stolen or misused.

Where Can You Find Information About a Business? Businesses require accurate and current information to make good decisions. Important resources to find information include What Are the Start-up Costs? Capital resources to run a business are available through debt financing referred to as borrowing money to run the business. Using your savings or investor savings called equity financing is an alternative way to fund a business. libraries trade associations the Internet existing businesses federal and provincial governments (i.e., Strategis and Statistics Canada are two helpful government sites or agencies.) WHERE CAN YOU FIND INFORMATION ABOUT A BUSINESS? Strategis gives Canadians direct access to valuable business and consumer information sources, timesaving interactive tools, and a large number of online and e-commerce services. Statistics Canada, collects statistical information about Canada, Canadians, and business, and makes it available to Canadians via the web site. Information such as the gross domestic produce (GDP), the total dollar value of all goods and services produced in a country during one year. The GDP measures how a country’s economy is performing. WHAT ARE YOUR START-UP COSTS? Debt financing: Disadvantage - large sum may be difficult to pay back on time and interest costs are based on risk of loan. Banks, trust companies, and credit unions may lend money after factors such as the applicant’s past credit history and review of the business plan are completed. The lending institution also considers if the owner has the skills to operate the business as to whether the applicant will be able to repay the loan. Equity financing: Disadvantages are risking your own savings and/or that of others and you give up part ownership in the business.

What Level of Risk Can You Expect? Even with research and planning, business can be risky. Risks or threats beyond and within the owner’s control can put the business in financial difficulty. What Steps Are Involved in Running This Business? Some types of businesses, such as manufacturing, are complex. A complex business requires many people with different skills to successfully start and operate it. WHAT LEVEL OF RISK CAN YOU EXPECT? You could lose the capital that you, or others, have invested. Depending on type of ownership, personal liability. WHAT STEPS ARE INVOLVED IN RUNNING THIS BUSINESS? Remember the four types of businesses include; service business, retail business, not-for-profit organization, and manufacturing business.

What Resources Will You Need? Forecasting is determining the resources the business requires and how much financing it needs to obtain them. Revenue is the amount of money gained from the sale of products or services. WHAT RESOURCES WILL YOU NEED? Resources might include cash, inventory, supplies, furniture and fixtures, computer hardware and software, equipment, tools, vehicles, and buildings. Approximately every three months projected revenue should be determined. Projected revenue is the amount of money that you think the business will generate over a period of time. Revenue – Costs + Expenses = Profit If projected revenue, or costs and expenses, are inaccurate it is important to find out why and make another forecast.

Chapter 2: Types of Businesses International Business Structures
A number of different business structures allow businesses to expand into international markets. Joint Ventures A joint venture can match the skills and expertise of two different individuals or businesses to generate more benefits for both parties. International Franchises An international franchise is a way to achieve an international presence by buying the rights to a chain operation from the franchiser. JOINT VENTURES A joint venture can be adopted for a trial period (weeks/months) and should be continued only if they work to the advantage of the parties. A joint venture can help businesses establish more contacts, get more leads, and increase their customer base. INTERANTIONAL FRANCHISES A hybrid type of business ownership where the franchisee buys the rights, from the franchiser, to operate one or more of a chain of similar businesses that offer the same products or services. Boston Pizza is an example of a Canadian franchise that has expanded into the United States. It supplies the franchisees with real estate, construction, start-up procedures, fixtures, operating systems, signage, equipment, marketing programs, training, and menus.

Strategic Alliances Strategic alliances occur when two or more businesses agree to commit particular resources to achieve a common set of objectives. Alliance partners remain separate and entirely independent of each other. Mergers Mergers happen when two or more companies join together: one of the businesses usually wants to purchase a controlling interest in the other company, or both business have combined interests. STRATEGIC ALLIANCES Used to help co-develop, co-produce, and co-market products or service of the two businesses. Strategic alliance players include customers, suppliers, competitors, universities, and/or divisions of government. The purposes of the alliance can include improving competitive positioning, gaining entry to new markets, the supplementation of critical skills, and to share the risk or cost of major projects. Amnesty International and the Citizens Bank of Canada have formed an alliance in which the bank donates 10 cents to Amnesty when people use a designated Visa card. MERGERS The benefits can include stronger operations, ability to enter new markets, the acquisition of new technologies, resources, and skills. The smaller company may increase market share, become more efficient, or gain a competitive advantage. The federal government of Canada has the power to stop mergers that are to the detriment of the public’s interest.

Offshoring Offshoring relocates some of a company’s operations to another country. Usually this happens to take advantage of lower labour costs, to be closer to large and emerging buyer markets, and to have access to skilled workforces. Multinational Corporations A business enterprise that conducts business in another country or several different countries is a multinational corporation. A multinational corporation offers different benefits to the country it invests in. Some positive benefits include new jobs and training for people. Negative consequences could be less pay and more financial instability for citizens of that country. OFFSHORING Canadian companies have offshored manufacturing to China and Mexico. Challenges to offshoring include public perception in the home country, political climate and currency stability of offshore country, and trade barriers. MULTINATIONAL CORPORATION These corporations observe the regulations, rules, and polices of the countries in which they operate. Some multinationals wield enough power to pressure (sometimes the threat to close operations and cause mass lay-offs) the governments into meet their demands. Benefits to the offshore country may include jobs, new technology, and training. Disadvantages to the offshore country can include poor wages and conditions not considered acceptable in the home country.

Chapter 3: Business Ethics and Social Responsibility Business Ethics
Ethics are rules that help us tell the difference between right and wrong. They encourage us to do the right thing. What is Ethical Behaviour? Ethical behaviour is conduct that conforms to ethics—individual beliefs and social standards about what is right and good. Values tell us what is important. They help us make decisions about right and wrong. Morals are rules we use to decide what is good or bad. WHAT IS ETHICAL BEHAVIOUR? Ethics are important for getting along with others, living with yourself, and having a good character. Some values are trustworthiness, respect, responsibility, caring, justice, and good citizenship. A moral is that stealing is bad because it harms others. Often personal values conflict with society morals. Unethical behaviour (being bad or wrong) are decisions that do not conform to our values and morals and go against individual beliefs and social standards. The consequences of unethical behavior range from upsetting others to jail time.

What Role Should Ethics Play in Business? Business ethics are based on society’s ethics and those of the people who work for and buy from them. A Code of Ethics Some companies write a code of ethics, a document that explains specifically how employees should respond in certain situations. Canadian laws address acceptable business behaviours. However, businesses can still behave unethically without breaking these laws. WHAT ROLE SHOULD ETHICS PLAY IN BUSINESS? Individual beliefs and social standards vary from person to person, situation to situation, and culture to culture. A code of ethics allows people to approach problems in the same way that is sanctioned by the business. Creating and applying the code of ethics is not always easy. Training and educational programs, regarding ethical conduct, are offered by some businesses. See “Rogers Communication Inc. Code of Ethics and Conduct” on page 78. Since not every situation is answered, by law or a company document, individuals need to rely on their own judgment first.

How Can Businesses Resolve Ethical Dilemmas? A dilemma is a situation where a difficult choice must be made between two or more options. An ethical dilemma is a moral problem with a choice between potential right and wrong. Some questions to consider are Who will be helped by what you do? Who will be hurt by what you do? What are the benefits and problems of such a decision? Will the decision survive the test of time? Whistle-blowing Whistle-blowing happens when an employee informs officials or the public about an illegal or ethical violation. HOW CAN BUSINESSES RESOLVE ETHICAL DILEMMAS? An ethical dilemma, for a business, usually weights profitability and competitiveness against values and morals. Ethical dilemmas include; downsizing of staff, pollution control, disposal of toxic waste, depletion and allocation of scarce resources, cost containment, changes in law and technology, employee rights, discrimination against women and minorities, and product safety. See Figure 3.1, “Ethical Dilemmas and Developments Over Time” on page 81. Examples of issues that a whistle-blower might report: Someone submitting false information on an expense report A business that is ignoring hiring procedures for minorities A business that ignores workplace safety codes A business that is not observing mandated health codes

What Happens When People Do Not Behave Ethically? When an individual acts unethically, his or her behaviour will most likely harm others. The individual could also be sent to jail for his or her actions. Major ethical issues include fraud, accounting scandals, and insider trading. Fraud Fraud is a crime of lying or pretending. Some businesses mislead consumers and trick them to buy their products or services. The Competition Act 2002 bans such fraud and deceptive business practices and defines these as false or misleading advertising “bait and switch” selling double ticketing items for sale WHAT HAPPENS WHEN PEOPLE DO NOT BEHAVE ETHICALLY? “Bait and switch” is advertising a bargain price for merchandise that is unavailable for sale in a reasonable quantity. Double ticketing is placing two different prices on a product and selling it to the consumer at the higher price. Fraud can involve consumers and businesses, it constantly changes and varies in its level of sophistication. Common frauds include: Bank fraud, Consumer fraud, Contract fraud, Insurance fraud, Mail fraud, Pyramid scheme fraud, Stock market fraud, Telemarketing fraud, and Welfare fraud (see examples on page 83).

Accounting Scandals An accounting scandal occurs when accountants or senior executives alter accounting records for personal benefit. Accounting information is used inside and outside of the business to make decisions. When accounting irregularities are uncovered, a forensic accountant investigates legal and financial documents to find evidence of tampering. Embezzlement, a type of accounting fraud, happens when an accountant or senior executive creates false accounts and redirects money into them for personal gain. Business owners rely on outside accountants, auditors, to check and report on the validity of financial records. ACCOUNTING SCANDALS Accounting scandals usually take place in large corporations. Embezzlement usually occurs in small businesses and can go on for a long time before owners discover it. The term “cooking the books” is sometimes used to describe large business fraud involving assets and liabilities. A business owns assets, such as buildings, land, equipment, cash, and receivables that are valuable. Liabilities are debts that a businesses owes such as accounts payable. Types of corporate fraud related to accounting include; misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets to shareholders, and under-reporting debts. Even auditors sometimes have difficulty detecting fraud committed by experienced accountants.

Insider Trading Insider trading is buying or selling shares of a company based on confidential information. This type of trading is illegal. Prosecution for insider trading falls under the provincial securities commissions. Punishment includes fining the individual(s) for up to $1 million turning over all profits from trading incarcerating the person(s) for up to two years being banned from future trading in securities WHAT HAPPENS WHEN PEOPLE DO NOT BEHAVE ETHICALLY? Authorities at stock exchanges watch for the sale and purchase of stocks by individuals who may have access to information that gives them an unfair advantage over others. When people who work for a company transfer stock ownership, to keep the transaction legal, they need to inform the stock exchange.

Chapter 3: Business Ethics and Social Responsibility Ethics and Corporate Social Responsibility
A business exhibits corporate social responsibility (CRS) through their values, ethics, and the contributions it makes to communities. CRS is driven by a desire to protect customers and to treat employees and shareholders fairly. CSR Principles Businesses that practice CSR principles support their employees and consumers by providing a safe and healthy work environment adopting fair labour polices protecting the environment being truthful in advertising avoiding price discrimination donating to charity CSR PRINCILPLES Providing a safe and healthy work environment: could mean an employee wellness program, on-site daycare, fitness facilities, health, and safety committees Adopting fair labour polices: could mean paying employees above minimum wage or offering flexible hours Protecting the environment: could mean funding community based environmental programs or making the company greener Being truthful in advertising: ensure that advertising does not contain inaccurate or deceptive claims, statements, or illustrations Avoiding price discrimination: could mean using the manufacturers suggested list price See Table 3.2 for the “Top 10 Reasons for Business Ethics”, page 92. Donating to charity: allow charitable payroll deduction programs and host charitable events

Duty to Report Corporations and their employees have a duty to report, which means they must disclose all important information to shareholders, partners, lenders, insurers, communities, regulators, consumers, employees, and investors. Laws that Govern Corporate Ethics Workplace Safety The Occupational Health and Safety Act (OHSA) of Ontario defines the rights and responsibilities of employees in their workplace to ensure their safety and health. These regulations were put in place to remind companies that it is not only important to focus on making profits, but also equally imperative to look after the safety and health their workers. LAWS THAT GOVERN CORPORATE ETHICS (SIX AREAS) Workplace Safety Many people still die or are injured on the job each year in Canada. Work related illnesses also injure and kill workers. OHSA ensures three basic rights in the workplace: the right to to refuse unsafe work the right to participate in workplace health and safety activities the right to know about actual hazards in the workplace

Antidiscrimination Issues Discrimination is denying a qualified individual an interview, job, or promotion based on his or her religion, gender, sexual orientation, or physical disabilities. Gender discrimination is treating an employee differently based on their sex (male or female). The glass ceiling refers to invisible barriers that may affect the career path of senior leaders in corporate positions. Harassment Many businesses have policies and procedures for dealing with harassment: behaviour that is threatening, disturbing, or makes others feel uncomfortable. LAWS THAT GOVERN COPRPORATE ETHICS (Six Areas) Antidiscrimination Issues Successful lobbying has improved the status of women in the workplace. Some companies are not aware that they place barriers to advancement that adversely effect women, minorities, and disabled workers such as: procedures expectations selection and recruitment practices job assignments performance evaluations decisions about salaries working environment Educational programs and employing an antidiscrimination officer are ways to counteract barriers. Harassment Examples include bullying, stalking, and other forms that deal with sexual, racial, sexual orientation, or disability issues. It can be written or verbal threats or insults about race, ethnicity, or skin colour; abusive comments about racial origins; ridicule based on cultural grounds; derogatory name calling; racist jokes; damage to property; the display of offensive material, and encouragement of others to commit any of the above.

Accessibility Issues The duty to accommodate refers to an employer’s obligation to ensure accessibility for all employees. The Canadian Human Rights Act, Sections 2 and 15, states that employees with disabilities must be accommodated by business as long as undue hardship does not occur to the business. Environmental Responsibility Environmental concerns for business include the Earth’s air, land, and water. These issues affect Canadian businesses and others in the world Environmental Protection Act The Canadian Environmental Protection Act 1999 was the response of Environment Canada to the environmental disaster of the Exxon Valdez. Kyoto Protocol Canada signed the Kyoto Protocol in 1998 that states countries must reduce carbon dioxide emissions by 2012 (five percent less than in 1990). LAWS THAT GOVERN COPRPORATE ETHICS (Six Areas) Accessibility Issues Employees denied accommodation can file a complaint under the act (sections 2 and 15). Failure by a business may result in legal action. The law enforces the rights to a fair job interview that does not discriminate based on disability. Accommodations can include changing the job tasks of the worker, allowing guide dogs, making the work space more user friendly (ramps and alternative equipment), sign-language support, and training of other workers. Environmental Responsibility Businesses may have avoided being responsible to society because of the stand that responsibility is first to owners, then customers, then employees, and then partners. The Exxon Valdez was an oil tanker that ruptured and caused a catastrophic oil spill off the west coast of Canada. With legislation some businesses still ignore laws because it can be costly to comply and because of the impact it could have on profitability. See Table 3.4 for the “Highlights of Canada’s Environmental Protection Act (CEPA)”, page 99. The Kyoto Protocol is sometimes referred to as the Kyoto Accord. The Kyoto Protocol was signed in 1998 and ratified in Canadian Parliament in 2002. Canada’s progress has been slow as reducing emissions is difficult and costly for business and individuals.

Business and the Environment The way businesses respond to environmental concerns and laws tells us about their ethics or commitment to doing what is right. Business is like a three-legged stool: each leg stands for a different goal. (See illustration on page 101 in the text.) Business Goals First leg: financial goals Second leg: environmental goals Third leg: social goals  Problem: Corporate resources spent on environmental and social goals never equal what is spent trying to generate profits (financial goals). LAWS THAT GOVERN COPRPORATE ETHICS (Six Areas) Business and the Environment The leg imbalance is due in part to the obligation of managers to please owners (shareholders). Most often a business’s desire to address environmental concerns comes about due to scrutiny by governments, the media, special interest groups, and consumers. When a company’s reputation is at stake, the environment and social goals receive more investment. Profits can be increased through good practices such as waste reduction and recycling programs and energy efficient processes and equipment. It can also attract customers thereby enhancing competitive advantage in the marketplace.

Chapter 3: Business Ethics and Social Responsibility Social Responsibility
Labour Practices In Ontario, the Employment Standards Act addresses the minimum employment conditions including hours of work overtime pay minimum wage holidays vacations equal pay for male and female employees employee benefit plans pregnancy, parental, and other leaves of absence notice of termination of employment severance and termination pay LAWS THAT GOVERN COPRPORATE ETHICS (Six Areas) Labour Practices Issues are complicated since some individuals, such as supervisors and managers, are exempt depending on jurisdictions. Labour laws change. In 2000 the hours of work per week was raised to 60, then cut back in 2004.

Pay Equity Although pay equity legislation has changed considerably since its establishment in 1978, it still does not always deliver equal pay for work of equal value. The legislation prohibits employers from paying employees of one sex differently than from the other when the same or substantially the same work is done. Privacy Laws The Personal Information Protection and Electronic Documents Act (January 1, 2004) requires all provincially regulated businesses to explain what personal information they need from employees or customers and why they need it. LAWS THAT GOVERN COPRPORATE ETHICS (Six Areas) Pay Equity Same work is judged by assessing the skill, effort, and responsibility required and the conditions under which the work is performed. Women who work full time, according to the Canadian Human Rights Commission, make an average of 72% for every dollar earned by a man. Is this difference due to education, experience, and/or hours of work? Canadian economists estimate that 20 to 30 percent of the gap is due to discriminatory attitudes towards women. Privacy Laws People can demand full disclosure of personal information maintained on them, and they can challenge the accuracy or use of their personal information.

Fair Trade Fair trade is the voluntary practice of helping producers in developing countries bypass expensive middlemen so they can sell their goods in other countries for a fair profit. A grassroots movement starts out as the local action of or response by a group of people to a problem: the movement develops from the bottom up, not from the top down. For example, the fair trade initiative began with partnerships between farmers in less-developed countries and aid organizations (bottom up) to help them reach markets in Europe and North America (top down). Fair-trade products are marked with logos such as the non-profit organization’s TransFair Canada symbol. Ethical trading means using trade to ensure that the basic labour rights of employees in other countries are respected. FAIR TRADE Beginning about 50 years ago, fair trade began to help prevent unscrupulous middlemen and corporations from paying farmers so poorly they struggled to survive. Farmers had no other way to earn money other than selling to others who often make large profits off of them. Fair-trade goods, such as coffee, tea, rice, bananas, cocoa, sugar, honey, and fruit juices tend to cost more. Consumers buy fair-trade knowing that they are supporting poor farmers in distant countries. The TransFair Canada symbol assures consumers that the goods are certified and it benefits the producers and workers. Organizations can buy products or ensure that their suppliers use fair-trade

Chapter 4: International Business What Is International Business?
A domestic transaction is the selling of items produced in the same country. An international transaction is the selling of items produced in other countries. These items contribute to the global economy. Benefits for Business access to markets cheaper labour increased quality of goods increased quantity of goods access to resources International transactions (foreign trade) involve creating, shipping, and selling foods and services across national boarders. The global economy is the exchange of goods and services among people in different countries throughout the world.

Benefits for Business Access to Markets By trading abroad, Canadian businesses can gain access to markets that are 200 times larger than those at home. Customers in other parts of the world have different needs and wants. Businesses must make adaptations to their products and services to be successful in other countries. A global product is a standardized item that is offered in the same format in all countries. Cheaper Labour Lower prices as the result of cheap labour in other countries is the number one reason why consumers buy items made in different parts of the world. BENEFITS FOR BUSINESS? Access to Markets Examples of standardized, or global product are pencils, soccer balls, and cameras. Packages food items are not generally global products. Cheaper Labour Canadian businesses, in an attempt to lower costs of production, use cheap foreign labour to maximize profits.

Increased Quality of Goods International business can help producers improve the quality of the products they sell. Increased Quantity As long as a product has international appeal, so does the potential for increased sales. Access to Resources Connections to international markets provides businesses with increased access to the three types of economic resources: natural, human, and capital. BENEFITS FOR BUSINESS? Increased Quality of Goods Products such as luxury cars as parts manufactured in many different countries come together to form the finished product. Increased Quantity Companies may have to increase production to meet demand, this may means increased efficiency, longer hours of operation or the establishment of new facilities. Access to Resources Natural Resources: bamboo from China to make furniture Human Resources: cheap factory labour in India Capital Resources: specialized machinery made in Germany

The Five Ps of International Business All countries benefit when businesses produce specialized goods and services that appeal to consumers. International business provides increased markets for businesses and offers them a broader choice of products, services, and prices for its consumers. Product Price Proximity Preference Promotion THE FIVE Ps OF INTERNATIONAL BUSINESS As businesses expand internationally they create jobs at home and overseas. Knowledge that is exchanged, as a result of international business, it results in new approaches to production, marketing, and selling that benefits domestic consumers as well as producers. Political benefits also materialize, dialogue and understanding are improved and communication and respect are enhanced.

Product A country’s resources determine what goods and services it produces. Price The cost of producing goods and services varies from country to country. Sometimes it may be more profitable for Canadian businesses to produce products overseas and then ship them here to sell to consumers. Lower foreign wages, taxes, and material costs make it cheaper to produce products abroad rather than domestically. Proximity It may be more advantageous and profitable for some businesses to sell products and services to consumers near a neighbouring country’s border rather than to its domestic customers. For example, 80 percent of the Canadian population lives within 170 km of the American border. Therefore, many Canadian businesses trade extensively with Americans. The reverse is also true: Americans market many of their goods and services to Canada. THE FIVE Ps OF INTERNATIONAL BUSINESS Product Due to out geographical location and seasonal climate change Canada imports crops (such as citrus all year and strawberries in the winter) from other countries. Canada exports products such as timber and grain that we have an abundance of. Price Lower production costs may mean lower prices for consumers, causing increased units sold, therefore improved profits. Proximity Historically trade between countries was heavily dependant on proximity; the closer a business or individual that you traded with the greater an asset they were to you or your business.

Preference Consumers often purchase foreign goods and services based on their reputation and specialization, even though similar products are produced domestically. Two examples are Swiss watches and Belgium chocolates. Promotion Technology, especially the Internet, makes it easy for businesses to promote their products and services internationally. THE FIVE Ps OF INTERNATIONAL BUSINESS Preferences Some foreign products that Canadian consumers purchase due to preference are Belgian chocolate, Swiss watches, Australian wine, German cars, and Cuban cigars. Promotion Before global communication methods (such as satellite broadcasting and the Internet) businesses found it difficult to let others far away know about themselves. According to Interbrand Corp.’s website a business can develop a global brand name in three years by using the Internet. Easy promotion is an incentive for companies to create an international presence.

Costs of International Trade The hidden or social costs often associated with international trade include offshore outsourcing, human rights or labour abuses, and environmental degradation. Offshore Outsourcing Offshore outsourcing occurs when businesses decide to produce all or part of their goods in countries where labour costs are lower. Some advantages include proximity to natural resources, more efficient technology, indigenous innovation, and favorable tax structures. However, offshore outsourcing faces potential changes in the future as companies may turn to transnational corporations that operate in several countries to produce their goods and services. COSTS OF INTERNATIONAL TRADE Offshore Outsourcing Also, known as contracting out, offshore outsourcing is the practice of subcontracting work to other companies to lower costs or to focus on tasks done better. High-tech jobs and customer support services are commonly outsourced to India, China, and Costa Rica. Cost associated include salaries, benefits, training, and recruiting. Services (bookkeeping and accounting) can also be outsourced. Time differences allow work to be done overnight and submitted in the morning. Transnational (multinational) corporations operate in several nations.

Human Rights Issues and Labour Abuses Some workers in poor countries face labour exploitation, such as physical and sexual abuses, forced confinement, non-payment of wages, denial of food and health care, and excessive working hours. Child labour—the regular employment of boys and girls under the age of 16—is commonly practiced in poor countries where the workforce is often exploited. Environmental Degradation Sustainable development is the process of developing land, cities, businesses, and communities that meet the needs of the present generation without compromising those of the future. Environmental degradation is the consumption of natural resources, such as trees, water, earth, habitat, and air, faster that nature can replenish them. COSTS OF INTERNATIONAL TRADE Human Rights Issues and Labour Abuses Sometimes the Canadian company outsourcing is not aware to the abuses. The International Labour Organization (ILO) is the UN specialized agency that seeks the promotion of social justice and internationally recognized human rights. The ILO estimates that there are nearly child domestic workers in Indonesia. According to the the ILO girls under 16, doing housework and child care, is the largest category of child labour. Environmental Degradation Sometimes businesses ignore the damage growth causes in the name of business goals. Businesses should be aware of the impact that their procedures and policies have on the environment and invest in solutions.

Barriers to International Business The Canadian government uses barriers, often referred to a roadblocks, to help protect domestic businesses and consumers. Tariffs Tariffs, also called customs duties, are a form of tax on certain types of imports. Finished imported goods include tariffs, which increase their prices. Canadian products do not carry such tariffs, and, therefore, may be sold at lower prices. In an effort to protect their domestic industries, countries put up tariff barriers by increasing the cost of imported goods. BARRIERS TO INTERNATIONAL BUSINESS Canada prohibits the entry of goods such as illegal narcotics, certain weapons, and products made from endangered animals; print material that is obscene or that promotes hatred or treason. Goods coming into Canada have to inspected, accompanied by a valid permit, or have special packaging and labeling. The Canadian Food Inspection Agency tests of antibiotics, drugs, and hormones in meat, allergens and pesticides in good, and other threats to food safety. See Table 4.1, “Imported Goods That Require Permits, Inspection, or Special Packaging” on page 124. Tariffs Custom duties (tariffs) are an amount added by a country to the cost of an imported product. The duty is usually a percent of the price of the product, depending on the tariff of the country. Finance Canada monitors Canadian, and international, tariff polices to ensure the development of new polices that will best serve the Canadian economy. Effective January 1, 2005, the government eliminated tariffs on fibre, yarn, and textile inputs used by the apparel industry imports. This change saved the domestic industry more than $90 million.

Non-tariff Barriers Non-tariff barriers are controls or standards for the quality of imported goods set so high that foreign competitors cannot enter the market. Costs of Importing and Exporting The price of a product or service must take the landed cost into consideration. The landed cost is the actual cost of an imported purchased item, composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges. BARRIERS TO INTERNATIONAL BUSINESS Non-tariff Barriers Standards for safety and environmental controls can limit the competition because of the cost to comply. Another barrier is the requirement of an expensive licence to sell goods in the country’s market. Customs inspections at a country’s border can also impose barriers. Costs of Importing and Exporting Price is based on the cost of manufacturing, plus the costs of storage, marketing, shipping, advertising, overhead, and the profit margins. Some examples of import/export costs include airfreight, translator, interest charges, labeling costs, etc. A foreign purchase is not always a better deal than a domestic purchase.

Excise Taxes An excise tax is a tax on the manufacture, sale, or consumption of a particular product within a country. Currency Fluctuations Since currency rates fluctuate on a daily basis, an international purchase made on one day may cost less or more than another purchase on the following day. Shifting currency exchange rates vary as the economic strength of the two countries change on a daily or weekly basis. BARRIERS TO INTERNATIONAL BUSINESS Excise Taxes The Canadian government charges an excise tax of 10 cents per litre on gasoline ($4 billion per year) and provincial governments charge about 14.5 cents per litre. Excise taxes depend on the quantity or mass of an item. Excise taxes are used to raise money, sometimes to discourage purchase as in the case of tobacco (smoking), and to encourage consumers to buy Canadian. Currency Fluctuations Currency exchange rates have a big impact on doing business internationally.

Chapter 4: International Business Flow of Goods and Services
Imports, such as raw materials, processed material, semi-finished goods, and manufactured products, flow into Canada. Goods and materials also leave Canada as exports. Balance of Trade To maintain a healthy balance of trade, countries try to import the same total value of products that they export. An imbalance of the two results in the following: a trade deficit in which a country pays more for imports than it earns from exports a trade surplus in which a country earns more from exports than it pays for imports The importation of goods and materials provides, more or less, jobs for Canadians. See Figure 4.2, “Canadian Imports and Exports for 2005”, on page 129. BALANCE OF TRADE Countries usually try to reduce high trade deficits because it means money is flowing out and fewer jobs are being provided. A manufactured good surplus can be good because the domestic production process means more Canadian jobs. In 2005, Canada had a trade surplus of just under $65 billion; as a result of the $85 billion trade surplus with the U.S. that countered the $20 billion trade deficit from all other international trading.

Imports Five Ways to Offset the Risk of Importing Measure consumer interest. Use care when selecting foreign suppliers. Learn about a foreign partner’s culture. Carefully scrutinize the purchase agreement and then sign it. Check goods for quantity and quality upon arrival. Exports Direct exporting is exporting a product directly to an importer without using an intermediary. Indirect exporting is exporting a product to an intermediary who then conveys the product to the importer. Larger established companies usually use direct exporting while newer ones utilize indirect exporting. IMPORTS See figure 4.3, “Five Ways to Offset the Risks of Importing”, on page 130. EXPORTS Established companies usually export directly. Businesses that export directly often set up offices and sales staff in foreign countries or send a sales representative to the country. Many new companies use indirect exporting as they do not have the resources to establish abroad. Intermediaries are familiar with regulations, restrictions and culture. Intermediaries handle paperwork, collect money, and can assume risk. Some countries such as the Middle East, Central America, and Asia do not allow direct exporting, probably to create domestic jobs.

Offsetting Risks Exporters reduce risks by planning carefully. As part of their plan, they conduct market research to ensure that there are consumers for their goods and services. Canada’s Major Trading Partners Canada’s number one trade partner is the United States. Three major reasons for trading with the United States include low cost shipping due to proximity similar cultures (language, interests, product interest, and so on a market that is 10 timers larger than the domestic one EXPORTS Offsetting Risks Sources of information to reduce risk include: Foreign Affairs International Trade Canada Internet Asia Pacific Foundation of Canada Canadian Manufacturers and Exporters Canadian Association of Importers and Exporters Canadian Embassies See questions that embassy staff suggest foreign clients might ask, on page 131. CANADA’S MAJOR TRADING PARTNERS A Canadian product or service sold in both the Canadian and U.S. markets will be far more profitable than a product sold only in Canada. See Table 4.2, “Canada’s Top 10 Export & Import Markets by Country, 2005”, page 133.

Chapter 4: International Business Canada and International Trade Agreements
Two Main Advantages to Reducing Trade Barriers Domestic business can sell their products abroad at lower prices since duties are not added. Consumers have access to new foreign products that may result in lower costs and quality improvement of domestic products. Trade agreements between countries allow goods and service to flow more freely across boarders. World Trade Organization (WTO) In 1947, the General Agreement on Tariffs and Trade (GATT) was signed by 23 nations who were allies in World War II. The trade agreement came into effective in Eventually, GATT grew to 115 member states before it was replaced by the World Trade Organization (WTO) in Today the WTO is the principal international organization that deals with rules of trade between nations. Initial trade agreements usually start out dealing with importing and exporting. Agreements usually address tariff elimination or reduction, and processes for resolving disputes. Agreements should also include issues such as when and why people will be permitted to work across international boarders, qualifications needs, standards applied to their work, and how intellectual property will be protected. Intellectual property is a business’s trade secrets or the ideas or talent of its workforce. WORLD TRADE ORGANIZATION (WTO) An international organization was set up to help GATT negotiate trade deals, resolve problems, and collect data. An important WTO agreement is the 1995 General Agreement on Trade in Services (GATS) that sets guidelines for the trade of services (such as banking). The WTO governs about 97% of all world trade.

Chapter 4: International Business Canada and International Trade Agreements
North American Free Trade Agreement (NAFTA) Canada-U.S. Free Trade Agreement (FTA) came into effect in January 1989. In 1994, Mexico, the United States, and Canada formed the North American Free Trade Agreement (NAFTA). Other Free Trade Agreements Bilateral agreements involve Canada and one other country or group. A trading bloc is a group of countries that share trade interests. The Group of Eight (G8) The Group of Eight (G8) is an association of the world’s most powerful industrialized democracies. Meeting annually, the G8 deals with economic and political issues facing their own countries and those of the larger international community. Topics discussed include energy, employment, the environment, human rights, and arms control. NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) Canada hoped to gain, with the FTA, stable access to U.S. markets, clarify government assistance to industry, ability of Canadian companies to bid on U.S. government contracts, and allow Canada an equal say in disputes. The U.S. wanted to clarify rules regarding services and intellectual property, reduce restrictions on investment in Canadian industries, and increase exports to Canada with the FTA. See Table 4.3, “Canada-U.S. Free Trade Agreement (FTA) (1989)”, on page 136. NAFTA created a continent-wide free-trade zone. Products made within the free-trade zone could be traded across the boarders without tariffs. Each day, Canada, U.S., and Mexico conduct nearly $1.7 billion in trilateral trade. See Table 4.4, “North American Free Trade Agreement (NAFTA) (1994)”, on page 136. OTHER FREE TRADE AGREEMENTS Canada has bilateral free trade agreements with Chile and Israel. Canada is negotiating agreements with Costa Rica and a trading bloc made up of Guatemala, El Salvador, Honduras, and Nicaragua. See Table 4.5, “Other Free Trade Agreements”, on page 138. THE GROUP OF EIGHT (G8) The G8 (1975) is made up of Britain, France, Germany, Italy, Canada, United States, Japan (original Group of Seven (G7)), and Russia (joined in 1998).

Chapter 4: International Business The Future of International Trade
The Asia-Pacific Economic Corporation (APEC) is an economic development organization formed in The Asia-Pacific market is the fastest growing trade group. European Union (EU) In 1993, the European Union (EU) united 12 member states into a true single market. Today the EU has 15 members and a population of more that 370 million people. Evolution of NAFTA If NAFTA becomes a single market, it could result in workers from the US, Canada, and Mexico moving freely between countries. APEC is based on consensus and voluntary participation. EUROPEAN UNION (EU) EU members in 1993 were Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom (UK). In 1993 Austria, Finland, and Sweden joined the EU. A single currency, the euro, is used by member countries except the UK and Denmark. The EU has its own elected government and citizens can move freely from one country to another. The EU members could be 28 countries by 2010. EVOLUTION OF NAFTA A single market would mean American and Mexican workers could vie for Canadian jobs in Canada. A single currency could also evolve.

Impact of Cultural Differences International trade depends on our response to and acceptance of cultural differences. Culture is the sum of a country’s way of life, beliefs, and customs. Dealing with People Conducting successful business in foreign countries involves learning what is important to their populations as well as its cultural nuances. Punctuality The value of punctuality depends on the cultures: some cultures value timeliness, some do not. It is important to understand this before visiting foreign countries. Other characteristics to recognize are working at an acceptable pace, having good manners, and learning to avoid waits and disappointments. Greetings Greeting someone can leave an important first impression. IMPACT OF CULTUREAL DIFFERENCES Culture influences what can and can not be done, of what is acceptable and unacceptable. Culture can be learned. Operating in different cultures requires research that looks at important social and environmental issues and demographic characteristics that shape the market. Greetings Handshakes are common in most countries, but they are not all done the same way. A single shake in France is acceptable. Eye contact is polite in most cultures, in some however averting your eyes is a sign of respect.

Nonverbal Communication Signals Nonverbal signals can convey more than words do. Good Manners In Canada, the United States, and some European countries, business is completed at a quick and efficient pace. Most other countries prefer to get to know people before any business is done. Decision Making In North America, decision making is typically top-down. In other cultures, decisions are made from the bottom up. Global Dependency Global dependency exists when customers in one country demand items that are created in another. IMPACT OF CULTUREAL DIFFERENCES Nonverbal Communication Signals Asian businesspeople often do not say “no”, they use body language especially to convey a negative response. People in Bulgaria say “yes” with a side-to-side shake of the head, while “no” is a nod up and down. The “okay” sign, is an offensive gesture in Brazil and the symbol for money in Japan. Proximity and touching are also communication signals interpreted differently from country to country. Good Manners Asian and Latin America are countries were the three Fs of business – family, friends, and favours, have a very strong influence on the business decisions people make. Decision Making Latin America uses the typical top-down approach. When many people, from the bottom up, are consulted decisions may take longer to make. GLOBAL DEPENDENCY Global communication (television, movies, satellite communications, and the Internet) aid in global awareness. Global dependency will increase, as communication technology advances.

Chapter 5: Production Factors of Production
Production happens when an individual, business, or an organization makes a product, provides a service, or generates an idea or concept. Six Factors of Production Natural resources Raw materials Labour Capital Information Management If you make something, you have been involved in production. Factor of production is another name for economic resources.

Natural Resources The six types of natural resources that primary industries supply us with are agriculture fishing and trapping mining water fuel and energy logging and forestry Primary industries that take something out of the Earth or the sea can be referred to as extractive industries. NATURAL RESOURCES Primary Industries are businesses or organizations where all items start out; one of the six natural resource industries. Agriculture: The cultivation of the ground to grow crops (such as corn and mushrooms) and the raising and feeding of livestock (such as cattle and chickens). Fishing and Trapping:The practice of catching or farming fish (such as the farming of Atlantic salmon). Taking game or animals from the wilderness (such as using trapping mink for the fur). Mining: Excavating or digging the earth for metals or minerals (such as gold). Water: Covers three fifths of the earth’s surface and is essential for all organisms. Fuel and Energy: Petroleum Logging and Forestry: Redwood timber See Figure 5.1, “The Six Primary (or Extractive) Industries”, on page 156.

Raw Materials Raw materials are any goods used in the manufacturing of other goods. Two Main Types of Raw Materials Ingredients ― raw materials that are combined or converted and become a part of the finished product. Supplies ― raw materials that do not become a part of the finished product, but are used in the product creation process. RAW MATERIALS Raw Materials: Ingredients that are transformed into another product. Some form of raw material is used to make the products that we regularly consume. Two examples of raw materials that we might purchase and use are raw fish and fresh vegetables. Wheat (natural resource)  makes flour (raw material)  makes bread (raw material)  toast (finished product) Ingredients: The raw materials that are combined to make a product, they have been converted from their “natural resource” state (except perhaps the water). Supplies: The raw materials that are needed to produce a product but do not become a part of the product.

Chapter 5: Production Factors of Production Two Main Raw Materials
Supplies Air filters for ventilation systems Pants Zipper Fabric Paper for invoices Thread RAW MATERIALS Ask student to get in small groups and select a product that they have in their possession and have them draw a diagram showing the ingredients and supplies needed to create the finished product. Students can explain to the class the different ingredient and supplies used in producing their finished product. Rivets Sewing machine oil Ingredients

Labour Labour includes all of the physical and mental (cognitive) work needed to produce goods and services. Labour is expensive so most businesses seek ways to save on labour costs. Businesses now automate and consolidate to save on labour costs. Automation means that many tasks are performed by more them one person using machines. Consolidation occurs when many small manufacturing sites close down and are centralized into one large site. Outsourcing, the hiring of another company to perform tasks for any company, is another cost saving business option. LABOUR Labour is all the physical and mental work needed to produce good or service. To automate is have work once done by humans now done by machines. Often archived through increased mechanization. Consolidation happens when small manufacturing sites are closed down and fewer or a single major site meets the business needs. It is centralizing work in one major site. Can use Tim Horton's example. Outsourcing is hiring or subcontracting another company to perform tasks for your company. Inexpensive labour available in countries such as India, Kenya, and Sri Lanka allows Canadian companies to save money by hiring firms for such work as telemarketing, HR, and payroll. Outsourcing to overseas companies means less jobs for Canadians but a cost savings to Canadian businesses.

Capital Capital is the money invested in the business and is often referred to as monetary capital. Capital can be transformed into other items to run the business such as a new truck. This type of capital is called liquid. Some capital such as buildings or equipment are non-liquid. It is part of the business operations, and cannot be converted into liquid capital easily. These items are called capital goods. Intellectual property, the ideas or the talent of a business’ workforce, is a non-tangible form of capital. CAPITAL Capital is the value of a borrower’s assets that could be used to repay a debt. Forms of liquid capital include: cash, stocks, bonds, accounts payable, etc. Liquid means it can be transformed into other things (cash) at any time with minimum effort. Non-liquid items that the business owns, that are a part of the everyday operation and that cannot be converted into liquid capital easily. Non-liquid items can be referred to as capital goods. Examples of capital goods include a delivery truck, industrial-size mixer, and laptop computer. Intellectual property is a business’s trade secrets or the ideas or talent of its workforce. Examples of intellectual property include the ideas and talents of workers such as athletes, computer programmers, writers, and science researchers. See Figure 5.2, “Types of Capital”, on page 159.

Information To produce goods and services in a competitive global market, businesses require more information about new technology customers competition political conditions sources of supply Accurate and usable information reduces a business’ risk and can enhance its profitability. INFORMATION Business purchase and sell information. They also hire individuals (researchers) to obtain and analyze information for them. Businesses provide information to others for free over the internet, making revenue through the pairing of advertising with the Internet site. Examples of industrial directories and data bases are Frasers (Canadian) or Thomas Register (American). MarketQuest and D-Code are examples of market research companies; they provide information about trends and new products, advertising effectiveness, public opinions, and the competition. Ask students what other types of information Canadian businesses might find useful. (Answers might include: legal information, sources of workers, statistics, weather, patent, and copyright information, etc.)

Management Management consists of the people who run the business and control or direct the factors of production (natural resources, raw materials, labour, capital, information, and so on). Management also allocates company resources and makes decisions that affect the day-to-day and long-term operations of the business. In larger companies, higher-level managers and/or the board of directors make decisions regarding profit distribution. In a smaller business, a single business manager or owner may make all of the business decisions. MANAGEMENT Management are the individuals who decide how best to use an organization’s human, financial, and material resources (factors of production). Management allocates resources, capital and human, and decides what to purchase from whom, who to employ, what and where to sell or provide goods and services, etc.

Chapter 5: Production The Production Process
Purchasing, grading, processing, and quality control are the four stages of the production process. Purchasing Within a business, someone is responsible for purchasing the raw materials needed to produce the product or service. Purchasing may be the responsibility of a purchasing department, purchasing agent, buyer, or owner. Some considerations when making purchasing decisions include the quality of the raw material being purchased the price of the raw material being purchased any additional costs associated with the purchase of the raw material PURCHASING Raw Materials are the ingredients that are transformed into another product. Quality, may include the durability, pre-described specifications, size, reputation of business, etc. Price, may be the monetary charge (dollar and cents) per unit purchased, price reduction with quantity purchased, terms or payment that may impact the material cost, penalties for such things as delivery time lines, etc. Costs are hidden charges related to the purchase of the material, such as the transportation costs, taxes, trade duties, storage charges, expiration dates, etc.

Processing All non-service businesses convert one item into another through processing. This is called conversion processing. Examples of raw materials that are refined to produce semi-finished or finished products include bauxite  aluminum sugar cane  sugar wheat  flour timber or logs  paper Quality Control Quality control are standards that ensure all produced products conform to prescribed levels of excellence. These standards are set by the company, the government, or another organization such as the International Organization for Standards (ISO). The latter organization sets worldwide standards for numerous industries in 157 countries. PROCESSING Refining is the processing steps that converts a raw material into a semi-finished or finished product. See the stages of aluminum processing on page 164. Quality Control ensures that the standards for products that are set by the company, government, or outside organization are meet. Quality standards for numerous industries, including businesses, consumers, customers, governments, and trade officials, are set by the International Organization for Standardization (ISO). The ISO has 157 member countries. The Standards Council of Canada (voice for Canadians who set standards) represents the standard institutes in Canada. ISO certification helps products meet international standards.

Grading Related to quality control, grading is the act of checking products for size and quality against fixed standards for the product or product category. Grading of products allows consumers to make informed purchasing decisions. Many other products are not formally graded. These types of products do not meet manufacturer's standards and are often sold as “seconds” containing slight defects, such as towels or sheets. Products with surface damages such as appliances can be sold at reduced prices at “scratch and dent” sales. GRADING Grading is the act of checking a product for size and quality against pre-described standards for the product of product category.

Chapter 5: Production Improving Productivity
Profitability and productivity are closely related. It is important that an increase in productivity results in an increase in profit. Increased productivity consists of the following: maintaining quality while increasing speed increasing quality while maintaining speed increasing both quality and speed at the same time Improving and maintaining productivity is often dependent on training capital investment investment in technology new inventory systems Productivity is a comparison of the resources used with the products or services that result. If fewer resources are used per units produced, productivity increases.

Training Training programs that develop a person’s knowledge and experience are essential in the development of a productive employee. Four Major Types of Training Initial training Ongoing training Retraining Specialized training Capital Investment Investment of capital into things, such as new computers, machinery, buildings, and facilities, contribute to increased productivity. TRAINING Initial Training: Good training, at the onset of the job, can save money and increase employee productivity. Usually over several days, the employee is paid regular wages and taught the occupation basics. The training period should be long enough to ensure that quality is maintained, customers remain satisfied, and mistakes are reduced. Overall, since training is expensive it should be designed to retain the employee. Ongoing Training: Employees are taught new systems, procedures, and processes. They are also given refresher courses in areas such as safety, customer relations, etc. Retraining: A form of initial training when an employee is moved, promoted, or transferred to another job or occupation within the company. Specialized Training: Courses, workshops and/or seminars, often called “professional development”, that often take place away from the normal workplace. Often delivered via professional conferences, these courses are usually very expensive but instill employees with new ideas, information, and enthusiasm that potential can improve productivity. CAPITAL INVESTMENT Capital Investment: A comparison between the cost of the investment against the benefit (increase in productivity) should result in the monetary gain from improved productivity paying for the investment over a fixed period of time.

Investment in Technology Utilizing up-to-date technology enables companies to maintain and improve upon their competitive edge. Robotics and automation, the use of computer-controlled machinery to perform repetitive tasks, is another way companies can improve productivity. New Inventory Systems Just-in-time (JIT) inventory systems allow businesses to coordinate suppliers, monitor warehouse storage, and keep track of factory production to deliver goods on time. Requiring up-to-date statistical information, this system saves time, money, space, and reduces waste to increase productivity. Benefits include having the right material, at the right time, at the right place, and in the right amount. INVESTMENT IN TECHNOLOGY Robots are a major capital investment, however they do not get sick, need vacations, go on strike, and can work in extreme conditions 24 hours a day, seven days a week, without pay. NEW INVENTORY SYSTEMS Just-in-time (JIT): Computerized inventory systems that coordinates suppliers (and their deliveries), warehouse storage, and factory floor delivery. This means materials arrive when they are needed. Saves time, energy (heating warehouse space), factory space, therefore resulting in improved productivity.

Chapter 6: Human Resources The Functions of Human Resources Management
In business, human resources (HR) is part of the management team who hire workers, set up their training programs, and arrange for payment of their salaries. Small companies handle these duties themselves. However, large companies have a human resources department that is responsible for coordinating all employees’ activities, such as reviewing applications to arranging pay. The Labour Market The labour market is where employers (buyers of skills) meet employees (sellers of skills). Occupational forecasts involve predictions about jobs that help to inform individuals about future job conditions and wages. HR managers coordinate activities associated with the employees including: study of labour markets new hire decisions employee skill sets recruits conducts interviews selects employees training payroll and employee retention programs employee transitions THE LABOUR MARKET Unskilled labour are individuals with little training, such as a dishwasher or busboy. Semiskilled labour requires some instruction, such as a cashier. Skilled labour is characterized by having training from an education institution or from previous employment, such as a cake decorator. Professional labour is highly trained within the context of a specific occupation, such as an accountant or a teacher.

The Importance of Productivity Employers want employees to be productive: the more they produce in the hours that they work, the more profit the business can make. The Importance of Skilled Labour A skilled employee means that a business can save money because the worker can usually produce a better product or service. The Importance of a Positive Attitude Happy employees are more productive than unhappy ones. Determining the Need for a New Employee HR helps businesses to create a staffing plan to avoid hiring under pressure. HR also forecasts a company’s employee turnover, the rate at which employees leave a company for another job or to retire. THE LABOUR MARKET The Importance of Productivity If an employee produces 1000 units in a week and is paid $500 per week the approximate cost of labour for each unit is 50¢ ($500 ÷ 1000). The Importance of a Positive Attitude Working conditions, training, fitness facilities, and time off are some ways to promote a positive attitude in the workplace. DETERMINING THE NEED FOR A NEW EMPLOYEE Within medium to large businesses HR managers determine initial and expansion staffing requirements. HR managers can also predict how new technologies, changes in hiring practices, and shifts in economic conditions will effect staffing needs. When a vacancy occurs the search for a qualified internal candidates usually means checking employee records that show service length, skill level, training, and performance evaluations.

Looking for the Right Employee HR uses a variety of recruitment sources to hire qualified employees including newspaper, journal, and magazine advertisements notices at universities or colleges postings on job banks at government employment centres online recruiting Web sites, such as Workopolis a company’s Web site employee search firm often called a headhunter employee referral program recent job applicants LOOKING FOR THE RIGHT EMPLOYEE Human Resources Development Canada (HRDC) is a department of the federal government responsible for workforce issues and programs. They have career centres and a comprehensive website. A headhunter is a term used for a recruitment agency or executive search companies.

The Application Process and the Interview A person looking for a position in a company usually submits an application form, a cover letter, and a resumé. An HR person and the department manager who the new employee will work for usually interviews and decides on the successful applicant. Interview Tips dress appropriately go alone know the time, place arrive a few minutes early give a firm handshake, smile and make eye contact, stay focussed, remain calm be pleasant, enthusiastic listen to questions, answer briefly be aware of body language thank the interviewer for their time reaffirm interest in the job THE APPLICATION PROCESS AND THE INTERVIEW A resumé usually lists the applicant’s education, experience, interests, and abilities. The interview team asks questions regarding personality, work habits, values, interests, and other qualities. An applicant my go through several interviews and a reference check that verifies the information on the application, and may be ask additional questions to gain more information. Interview Tips: Dress appropriately for the job. Do not be too formal or too casual. Go alone. Do not take friends or family with you. Know where the interview will take place and know when. Plan to arrive a few minutes early. You could run into traffic or delays on the way. Focus and calm down when you arrive. Give a firm handshake to the interviewers. Make eye contact and smile during the interview. Be pleasant and enthusiastic, but avoid talking too much. Do not say more than you are asked to say. Listen carefully to each question and give a brief but complete answer. Try to be aware of your body language, facial expressions, and tone of voice. Thank the interviewer(s) at the end of the interview and reaffirm your interest in the position.

Job Training Orientation is the time when new employees tour the workplace and meet other co-workers. At this point, employees may also receive training on equipment and be introduced to new technology and software. Keeping Good Employees It is for costly for businesses to search for, hire, and train new employees. Most businesses take steps to retain good employees. Some businesses offer employees perks—special benefits beyond ordinary compensation—to attract and retain them. Images: Dress Code? JOB TRAINING During orientation the HR department introduces business policies on compensation, work hours, benefits, rules of behaviour, dress code, health and safety procedures, etc. to the new employee. HR departments may also arrange motivational speakers and training in stress management, increased productivity, and management skills. KEEPING GOOD EMPLOYEES New employees are less productive, meaning less profitable. Perks can include a casual dress code, daycare services, on-site gym facilities, massage therapists, special food, reading, and rest rooms.

Departures, Dismissals, and Retirements HR tries to ensure a smooth transition when employees leave the business regardless of the reason for the departure. Businesses need to protect their reputation and maintain good relationships with employees. Departures During an exit interview, the employee may discuss their future goals, provide some feedback about the workplace, and ways for improvement. Some employers give a positive reference for or letter of recommendation to their employees. Dismissals Employers in corrective interviews discuss work problems with employees. Employees then improve or face dismissal. Employee layoffs can occur due to financial cut backs. Companies sometimes offer severance packages. If provided, outplacement counselling offers terminated employees ways to find new jobs. DEPARTURES, DISMISSALS, AND RETIREMENTS A positive relationship should be maintained with the employee who is leaving the company. Departures A departure could be due to family needs, job dissatisfaction, or a better opportunity elsewhere. Dismissals Corrective interviews are interviews with an employee who is having difficulties, in which problems are discussed openly and a plan for improvement is made, and often signed by both parties. If improvements are not shown within a period of time the employee may be dismissed. Dismissals can occur due to lateness, absenteeism, poor work habits, etc. Dismissing staff to reduce expenses is called employee layoffs. Companies with unionized employees usually lay off workers in order of seniority. Seniority is the length of service with a company. A severance package is final compensation paid to a laid-off or terminated employee. A severance package is usually based on the time an employee has worked for a business, perhaps one week’s pay for every year of service.

Retirement Retirement occurs when an employee voluntarily withdraws from the labour market. Handling Compensation Compensation is the money and other benefits received by employees in exchange for their work. Hourly Wages A common compensation payment method is an hourly wage. The minimum wage is the lowest hourly wage an employer can legally pay an employee. Overtime is a higher hourly rate for working longer than the regular scheduled time or on holidays. DEPARTURES, DISMISSALS, AND RETIREMENTS Retirement Throughout the time an employee works for a company, they and the company may contribute to a pension that the retiree receives as an income once he/she no longer works for the company. HANDLING COMPENSTATION The payroll department calculates the amount owing to the employees, after deductions such as income tax, unemployment insurance, pension, etc. Supply and demand affects compensation in that the greater demand for a particular skill the greater the compensation paid. Hourly Wages Most part-time employees are paid an hourly wage. The amount per hour ranges from the minimum wage, paid to unskilled or semiskilled labour, to hundreds of dollars an hour for skilled or professional work.

Salary A salary is a fixed amount of money paid to an employee on a regular schedule, usually weekly or monthly. Salary plus Commission Pay based on the amount of sales generated is called commission. Generally, it is a small amount of money added to the salary or hourly wage that acts as an incentive to encourage an employee to work harder. Straight Commission Straight commission is based solely on an employee’s sales. HANDLING COMPENSTATION Salary A salary is often paid weekly, bi-weekly, or monthly. A salary is often expressed as a yearly amount such as $64,000 a year. Usually salaried jobs do not specify the number of hours to be worked and if the employee works extended hours overtime is not paid. Salary Plus Commission An incentive is something added to the pay of an employee to encourage harder work or particular types of work. If an employee makes a 2% commission on goods sold, and sells $5000 worth of goods, the commission would be $5000 x .02 = $100. Higher commissions usually mean that the salesperson is paid a lower salary or hourly wage. Straight Commission People who sell high-priced items or that sell to wholesale businesses or large industries often earn straight commission. Car and real estate sales people often receive straight commission. If the person falls ill or need to take time off their income will suffer significantly.

Incentive Bonus When employees perform well, they may be rewarded with bonuses. Performance-based Pay Piecework is performance-based pay that is calculated on how much product can be made by one person. Sweatshops are piecework factories characterized by low wages and unsafe or unhealthy conditions. Fee for Service A complete job is paid by one fee, and is usually documented in a signed contract. HANDLING COMPENSTATION Incentive Bonus An incentive is added to the pay of an employee to encourage harder work or a particular type of work. A bonus system can also be called variable pay. When employees meet their sales quotas, targets, or performance goals, they can receive extra money, or something else of value. Performance-based Pay Is widely used in the clothing industry. Requires speed and skill. This pay system can lead to abuses especially in poverty stricken countries where very little is paid, especially to child labour. Many reputable businesses use piecework. It can allow employees to work at home, using their own equipment and to set their own pace. Fee for Service The fee usually consists of the cost of the time and materials to do the job plus and additional fee to ensure a profit. Renovation, catering, and cleaning are sectors that often work on a fee-for-service basis. The contract helps to prevent misunderstandings as it states costs, time lines, materials, and so on.

Royalty or Licensing Fee A royalty is a fee paid to the owner of a patent or copyright by someone who uses it. A licensing fee is money paid to obtain a license. Stock Options Stock options are a form of compensation that gives employees the opportunity to buy shares in the company at a lower-than-market price. HANDLING COMPENSTATION Royalty or Licensing Fee Writing a book, recording a song, or have an idea you can sell may result in the payment of a royalty or licensing fee. If you license your idea to someone else the fee you are paid could be a percentage of sales, a fixed fee, or a combination of both. The person you licenses to is the licensee. Stock Options With this option, employees can buy stocks, for a given period of time, at the quoted price even if the market price increases, therefore if and when the employee sells the stocks they will make money or a profit. Companies benefit because employees who own part of the company work harder for organizational success.

Health and Safety Federal and provincial laws require businesses to provide and maintain a safe and healthy work environment. Health Sick pay are wages paid to any employee who is absent from work due to illness. Employers benefit from healthy employees. To encourage this, many businesses have established wellness programs that promote the physical and emotional well-being of their employees. HEALTH AND SAFETY Provincial and Federals laws enforce health and safety standards. Sick or injured workers are unproductive and they can bring legal action. Health Sick pay is usually full pay while the employee is off work. Wellness programs aim to reduce absenteeism. See Table 6.1, “Health and Wellness Programs” on page 192.

Safety According to Part Two of the Canada Labour Code, employees have the right to be informed about known and foreseeable hazards in the workplace identify and resolve job-related problems in safety and health refuse dangerous work if they have reasonable cause to believe that a situation constitutes a danger HEALTH AND SAFETY Safety Legislation is intended to prevent accidents, injury, and disease. Some foreseeable hazards involve the use of equipment so employers should be provided with the necessary training. Carpal tunnel syndrome is a painful injury caused by using a computer improperly. First-aid equipment should be made available and associated training can be provided. Proper lifting techniques should be used on the job. The Workplace Safety and Insurance Board (WSIB) is an organization that provides insurance that pays employees while they recover (medical coverage, rehabilitation). Employers pay WSIB premiums. Poor health and safety records affects a companies reputation and may bring government investigations and possibly charges.

Chapter 6: Human Resources Key Employability Skills
The Conference Board of Canada has developed a list of employability skills including academic skills, personal management skills, and teamwork skills. Academic Skills Academic skills allow you to obtain, retain, and progress on the job. These skills include the ability to communicate think learn ACADEMIC SKILLS Communication skills include the ability to: understand and speak the language in which business is conducted listen to understand and to learn read, comprehend, and use written materials, including graphs, charts, and displays write effectively in the languages in which business is conducted Thinking skills include the ability to: think critically and act logically to evaluate situations, solve problems, and make decisions understand and solve problems involving math and use the results use technology, instruments, tools, and information systems effectively access and apply specialized knowledge from various fields To learn means: lifelong learning

Chapter 6: Human Resources Key Employability Skills
Personal Management Skills Canadian employers need people who can demonstrate the following skills, attitudes, and behaviours: positive attitudes and behaviours responsibility Teamwork Skills To achieve organizational goals, employees need to work collaboratively with one another in the workplace. PERSONAL MANAGEMENT SKILLS Positive Attitudes and Behaviours self-esteem and confidence honesty, integrity, and personal ethics a positive attitude towards learning, growth, and personal health initiative, energy, and persistence to get the job done Responsibility the ability to set goals and priorities in ones work and personal life the ability to plan and manage time, money, and other resources to achieve goals accountability for actions taken adaptability a positive attitude towards change the ability to identify and suggest new ideas to get the job done—creativity TEAMWORK SKILLS works well with others understands and works within the culture of the group plans and makes decisions with others and supports the outcome respects the thoughts and opinions of others in the group exercises “give and take” to achieve group results seeks a team approach as appropriate leads where appropriate, mobilizing the group for high performance

Chapter 6: Human Resources Business Careers
Professions such as medicine or the law as well as the trades of plumbing or construction are a few of the career choices that people can make today. General Business A high-school education is usually the minimum requirement for entry-level jobs in business. Accounting Careers Professional accountants must be certified and obtain one of the following designations: Certified Accountants (CA) Certified General Accountants (CGA) Certified Management Accountants (CMA) GENERAL BUSINESS General business careers provide a good living for hundreds of thousands of people who work in occupations such as; waiters, bartenders, secretaries, clerks, drivers, and assembly workers. Entry-level positions are often the first step towards higher-level positions. ACCOUNTING CAREERS Accountants work with a company’s finances, income, and expenses, assets, and liabilities. After a four year business degree, and two or three years working in an accounting office, a tough certification exam must be written and passed.

Consulting Careers Consultants are individuals who are paid by businesses for their expertise and advice on specific topics. Entrepreneurship Many successful individuals start their own businesses. They apply their skills and invest capital to create unique businesses that meet the needs and wants of consumers. Financial Careers A financial career involves looking after and giving advice about other people’s investments or assets. CONSULTING CAREERS Consultants are knowledgeable on specific topics, such as a business consultant would consult on management issues, marketing problems, public relations, international trade, etc. Consultants usually have considerable knowledge or experience in a field and proven success. ENTREPRENEURSHIP Ray Kroc (McDonalds) and Dave Thomas (Wendy’s) where vastly successful entrepreneurs that never completed high school. FINANCIAL CAREERS Bankers, stockbrokers, and money managers are examples of financial occupations. These hard working careers are often under pressure. Bank tellers, loan officers, and financial planners are also financial occupations, however these positions are not as stressful. Financial institutions usually provide on-the-job training.

Human Resources Careers Large corporations seek individuals who have taken human resources management courses at a community college or at university. Marketing Careers The range of careers within marketing differ with most requiring post-secondary education, strong communication skills, and a creative edge. Personal Selling Careers Task ranges, skill levels, and incomes vary to a great extent within the personal sales sector. HUMAN RESOURCES CAREERS The chapter has outlined the responsibilities and opportunities within a HR department. MARKETNG CAREERS Careers in advertising, promotions, publicity, packaging, and event planning all require special community college or university degrees, plus creativity. Retail marketing careers require a community college background and on-the-job training. Product development requires an academic background in design. Logistics (determining the cheapest, fastest, and the safest way to transport goods) requires a community college certificate and accreditation from the Canadian Institute of Traffic and Transportation (CITT). PERSONAL SELLING CAREERS See Table 6.2, “Types of Sales Positions”, on page 200.

Chapter 6: Human Resources Rights in the Workplace
The Universal Declaration of Human Rights, adopted by the General Assembly of the United Nations on December 10, 1948, is the source for many of the workplace rights available to employees and employers today. The Rights of the Employee The provincial and federal governments provide legislation that determines employment standards for public and private sector employees. Each province has human rights legislation that protects employees against discrimination and harassment. The Right of the Employer Employers have the right to hire, dismiss, and promote employees, and to establish conditions of employment that best serve their business goals. The declaration was adopted on December 10, 1948. See “Universal Declaration of Human Rights” on page 201. THE RIGHTS OF THE EMPLOYEE The legislation sets out provisions for the following: minimum employment age, hours of work, minimum wages, overtime, holidays, and vacation pay, paid public holidays, parental leave, individual and group terminations of employment, and the recovery of unpaid wages Human rights codes make it illegal to harass or discriminate against employees or potential employees. Protected grounds are characteristics (gender, race, religion, etc.) of an employee that, by law, cannot lead to harassment or discrimination. Discrimination is denying a qualified individual an interview, a job, or a promotion because of religion, gender, or physical disability. Harassment is making a person or group feel uncomfortable in a work situation because of their race, religion, gender, etc. THE RIGHTS OF THE EMPLOYER Employers have the right to: decide what their employment needs are require that employees have job-related qualifications and/or experience hire, promote, and assign the most qualified person to a position establish standards for evaluating job performance require that employees adhere to clearly defined job descriptions and performance criteria discipline, demote, or dismiss incompetent, negligent, or insubordinate employees set employment terms and conditions establish salary and wage scales either independently or through negotiations

Chapter 7: Management How Management Functions
To achieve organizational goals, management decides how to utilize human, financial, and material resources. The four major functions of management are planning, organizing, leading, and controlling. Planning Planning is the process of setting short- and long-term goals and deciding how to achieve them. Organizing Organizing is arranging people and tasks to carry out the business’s plans and objectives. The three levels of management are upper management, middle management, and lower-level management. PLANNING Managers are people who get things done by directing others. Short-term goals are often expressed as a sales or income target. Long-term economic goals are to maximize profit. Managers must clearly understand these goal, and they range from department to department, and develop strategies to achieve them. ORGANIZING Each department within company has its own manager who determines tasks and duties, establishes and maintains relationships with other departments. To accomplish these goals managers hire employees and write the necessary job descriptions. The three levels of management are (see Figure 7.1, “Levels of Management”, on page 211): Upper managements: Positions such as CEO (chief executive officer), COO (chief operating officer), CFO (chief financial officer), vice-president of marketing, and vice-president of human resources sets long-term goals. Middle Management: Positions such as plant manager and regional manager interprets plans from upper management and puts them into action Lowe-level management: Positions such as team leader, foreperson, and assistant manager implement plans from above.

Chapter 7: Management How Management Functions
Leading Through leadership, managers achieve organizational goals by motivating, communicating, and encouraging participation. Controlling Controlling involves activities, such as employee discipline, performance appraisals, and budgeting. Managers use these methods to increase, maintain, or decrease the resources that are allocated to them. CONTROLLING A budget determines the number of employees in a department, the amount of money the department receives, and the amount of physical supplies it gets. When departments do not reach goals financial and physical resources may be cut. When goals are achieved budgets may be increased. LEADING Managers need to be skilled at motivating individuals and teams, they need to communicate effectively, and be able to hand conflict and stress. Motivating: Skillful managers understand that different rewards, such as money, fixtures, work assignments, verbal praise, trust, etc. motivate different people. Through this understanding managers can increase productivity and achieve organizational goals. Communicating: good leaders communicate directions, urgency, corporate values, plans, and goals efficiently and effectively. When employees do not receive information as it is intended by the sender, tasks have to be redone and time and money are wasted and damage to reputation is done. Encouraging Participation: Business decisions and moral can be improved when stakeholders (employees) are involved in decision making (participative planning).

Chapter 7: Management Managing Resources
Businesses often have different managers for each resource area. Purchasing Purchasing managers negotiate with suppliers for the supply and delivery of raw materials, equipment, supplies, and goods for resale. Production Activities of a production manager range from processing the raw materials into a final product to packaging and storing the same product. Marketing and Distribution Using sales strategies, marketing and distribution managers ensure that the company’s products are sold. PURCHASING Raw materials are the ingredients that are transformed into another product. Just-in-time (JIT) is a process by which required items are delivered immediately before they are needed, rather than kept on hand, thereby reducing shipping cost and warehouse needs (space and staff). PRODUCTION Production managers ensure that the business makes what it is supposed to make. Production managers arrange and coordinated maintenance, shift scheduling, machinery repair, and technological improvements. MARKETING AND DISTRIBUTION Sales strategies include advertising, promotional activities, and publicity. Distribution managers attempt to improve product distribution through direct sales (sales representatives) or indirect sales (vending machines, catalogues, and Internet sales).

Chapter 7: Management Managing Resources
Research and Development Research and Development (R&D) departments create new products or services or develop new and improved ways to produce the original product or service. Finance Often an accountant, the comptroller who manages the financial department is responsible for keeping records of the company’s financial transactions and money control. RESEARCH AND DEVELOPMENT Consumers often provide businesses with feedback conveying likes and dislikes about product and services. They will also provide information about new products and services that they want or need. R&D managers provide reports containing valuable information for purchasing, production, and marketing managers that allow them to make better decisions. FINANCE Financial controllers and managers set budgets for departments in conjunction with the department managers.

Chapter 7: Management Leadership Styles
Leaders have different styles. The style of leadership used is dependent on the situation and the manager’s personality. Autocratic Leadership Autocratic leaders make all the decisions and do not allow for employee participation. Autocratic leadership is often used when quick decisions are necessary, such as lay-offs or company closures. However, if this type of leadership is used all the time, it causes too much discontentment among staff. Laissez-faire Leadership A laissez-faire leader leaves employees alone to do their work. This can be beneficial to those employees who like independence. But it can be difficult for new workers or those who require more direction. AUTOCRATIC LEADERSHIP If employees are not allowed to participate in decision making they feel undervalued and may rebel or quit.

Chapter 7: Management Leadership Styles
Democratic Leadership Democratic leaders encourage employees to have a say in the decision-making process. This type of leadership encourages employees to contribute their ideas and creativity to the job. It also recognizes employees’ achievements and increases team spirit and morale. Democratic leadership is the most effective of the three styles to keep employees content and to increase productivity. LAISSEZ-FAIRE LEADERSHIP A laissez-faire leadership style works well when employees are mature and have years of experience. Without feedback, direction, guidance, and motivation occasionally employees may become uncertain, unmotivated, and directionless. This is not an appropriate style when leading employees who are new at their jobs. DEMOCRATIC LEADERSHIP A democratic leaders motivate staff, recognizes achievement, and can lift team spirits. A good leader knows when to apply each of the three different styles and can implement them in a seamless fashion.

Chapter 7: Management Ethical Behaviour and Management
Managers make decisions that guide the social responsibility, moral, and ethical behaviour of a business. Management and Employees Managers are role models in an organization. When managers treat others with respect and dignity, their behaviour is perpetuated throughout the organization. Management and the Environment Businesses need to be aware that their decisions impact the environment. Good decisions minimize environmental damage; bad decisions accelerate it. Using environmentally friendly practices creates a positive public image for the company that may improve its bottom line. MANAGEMENT AND EMPLOYEES Managers should provide fair pay, reasonable hours, vacations, and interesting work. Some companies have a code of ethical conduct that documents a company’s polices regarding discrimination, sexual harassment, bribery, kickbacks, and theft of company property. MANAGEMENT AND THE ENVIRONEMNT Recycling is one way businesses are addressing environmental issues. Others include using green building materials, energy conservation programs and mandates, and pollution reduction. See Table 7.1, “10 Ways to Be an Environmentally Friendly Business”, on page 219. Environmental practices may increase sales and decrease costs, therefore increasing profits in the long term.

Chapter 7: Management Ethical Behaviour and Management
Management and the Community Ethical decisions that impact local communities are made on a daily basis by a company’s management. Contributing to charitable organizations such as the United Way is one way that companies make a difference in their communities. Teamwork in Companies A team is a collection of individuals with complementary skills who work together to pursue a common goal. Depending on the purpose and duration of the group, different types of teams are used to obtain organizational objectives. Types of Teams MANAGEMENT AND THE COMMUNITY The United Way is a charitable organization that many businesses help by collecting money, supplying paid staff to do fund raising, and payroll donations program. The Body Shop demonstrates its ethical commitment to community by raising millions of dollars to help stop violence in the home. TYPES OF TEAMS The sic main types of teams are: Committee: people form different organizational areas who work on an ongoing basis on a specific task, such as; social committee or an employee benefits committee. Task Force: formed to accomplish a specific task then disbanded such as; a team to design a new building or to design a new product. Cross-functional Team: allowing diversity of input and quick decision making, this team has members form different functional areas such as accounting departments, marketing departments, HR departments, etc. Self-managed Work Team: responsible for their own work, including hiring, training, developing, and scheduling, this team has no official leader. Virtual Team: a team structure where individuals work via computer communications and often over long distances, this style can save time and money. Informal Team: present in all organizations, these groups are not formed by management but arise from the relationships among employees, examples include a car pool, sports team, or lunch group. See Table 7.2, “Advantages and Disadvantages Teamwork” on page 220. Committee Cross-functional team Virtual team Task force Self-managed work team Informal team

Chapter 8: Marketing The Role and Impact of Marketing
Marketing is all activities involved in getting goods and services from the businesses that produce them to the consumer. Marketing has two fundamental roles: to sell what a business makes and to manage the brand. Marketing activities include Branding Businesses can spend millions creating an image for products and services with a brand name, logo or trademark, and a slogan. research development sales distribution advertising promotion Marketing does not include the production of goods and services.

Brand Name A brand name is a word or group of words a business uses to distinguish its products from that of the competition. Brand names should be distinctive, stand out, and memorable. Logo or Trademark A logo is a symbol that is associated with the company or product. It can take the following forms: monogram, visual symbol, or abstract symbol. A trademark is a word, symbol, design, or a combination of all three that a business uses to distinguish its goods or services from others. BRANDING Brand Name A brand name is how a product and company are identified and it is important to organizational success. When people talk with others about brand preference this is free publicity for the company. Logo or Trademark A logo or trademark helps a product compete for consumer awareness. Monogram: a stylized rendering of a company’s initials or a combination of initials and numbers. Examples include IBM (International Business Machines) who wanted to consumers to associate them with computers not adding machines, and KFC (Kentucky Fried Chicken) who did not want consumers seeing the work “Fried”, etc. Visual symbol: These are line drawings of people, animals, or things such as Apple Computer’s apple and Kellogg’s Frosted Flakes’ Tony the Tiger. Abstract symbol: These are shapes that carry a visual message but are not representative of actual things. The Nike “swoosh” is an example and one of the world’s most well recognized logos.

Slogan A slogan is a short or catchy advertising phrase associated with a company or product. Brand Identification Everything associated with a product, such as the slogan, name, and logo, must be used consistently to ensure that the brand is always identifiable to the consumer. The Product Life Cycle Marketing efforts pay off in the form of consumer reaction to the brand. Successful marketing efforts increase brand equity or the value of the brand in the marketplace. The changes in popularity or sales volume of a product over time can be graphed on the product life cycle or style curve. BRANDING Slogan Slogans are taglines for both print and broadcast advertisements. Examples include; MasterCard’s “Priceless,” Canadian Blood Services’ “It’s in You to Give,” and Sprite’s “Obey Your Thirst”. Brand Identification The writing, the colours used, the design of the package should always be used in association with the product, this way it is always clear to the consumer that they are getting the product they desire. THE PRODUCT LIFE CYCLE Successful marketing efforts created brand awareness; customers can name you brand as part of a specific category. Brand loyalty is when customers prefer your brand and support it. Brand insistence is when customers will not accept a substitute for a particular brand. Brands that have reached brand insistence have enormous equity.

THE PRODUCT LIFE CYCLE Product Introduction: Is the launch of a product into the marketplace. It may be done locally, all the way to internationally. Businesses need to inform potential customers about the products features, availability, package design, and brand identification. Early adopters are individuals who like to be one of the first to try a new product. Marketers often focus their early efforts on these trendsetters who can be sports icons, celebrities, or even students. Growth: As the new product sales increase competitors enter, this can decrease profitability due to decreased market share. They often compete by adding features, improving quality, or sell at a lower price;. The product line becomes very visible and is promoted on commercials, billboards, print ads, etc. Some competitors start to drop out of the competitive race at this stage. Maturity: Growth is flat; it does not increase or decrease, and brand equity is at its highest. Businesses keep advertising the product to keep it in the consumers’ eye. Products, also know as cash cows, at this stage usually make large profits and this income can be used to develop and fund new products for the company. Examples include Tide and Kellogg’s Corn Flakes. Decline: When sales decrease because customers leave to by other brands, and they are not replaced, a product can enter the decline stage. Sometimes a change in price or advertising can slow down or stop the decline. The Decision Point: The business may make an effort to regain original sales figures and brand equity or they may discontinue the product altogether. If they try to save the product a variety of options are available: Repositioning: making the product popular with a new consumer group Reformulate (new scent), repackage (new container and spout), and re-introduce (new and improved) the product. Repricing to gain popularity. New promotion. Obsolete technology utilized in the product will make such that no amount of marketing efforts will restore product position.

Non-traditional Product Life Cycles Fads A fad is a product that is extremely popular with a select market for a short time, usually less than a year. Niches A niche is a section of the market in which a product dominates and into which few competitors enter. Niche marketers are often left alone because of barriers to entry—the factors that prevent competition from being profitable in a given market. Seasonal Some products are popular during a specific time or season. Balancing product quantity with seasonal sales is called inventory management. To be left with little seasonal inventory, businesses calculate the amount of product to keep on hand. NON-TRADITIONAL PRODCUT LIFE CYCLES Fads Trends are not fads, trends last longer and influences other areas. Some well-known fads are hula hoops, yo-yos, Pogs, and Tamagotchis. Businesses who plan well, and sell most of its stock and get out of the market just before the fad reaches its peak, can make an excellent profit. Some companies market knock-offs of fads, often a cheaper version. If they do not sell off their inventories before the fad quickly dies off they can stand to lose money. Niches A niche product tends to have a short growth stage and leads to a solid, but not financially spectacular, maturity stage. Niche marketers usually invent their products and hold exclusive patents or formulas. By the time the competition can produce a competitive product the niche marketers have cornered that market. Barriers to entry include the small market size, the cost of R&D, advertising expenses, factory and equipment costs, design costs, lack of distribution channels, and the cost of raw materials. Seasonal Christmas and summer are seasonal time frames within which certain products are marketed. Inventory management is the balancing of product quantity with sales.

Chapter 8: Marketing Marketing Concepts
Marketing can be divided into two major concepts: the product concept and the market concept. Product concept involves the four Ps of marketing and market concept involves the two Cs of marketing. The Four Ps of Marketing A good combination of all four elements, called the marketing mix, translates into an effective campaign. Products and Services The two reasons businesses develop product are because they can and they see a need. The development of good products and services considers quality, design, features, and benefits. Product Price Place Promotion The Four Ps of Marketing are the four elements of a good marketing campaign: product, price, place, and promotion. The Two Cs of Marketing are the two major external factors in marketing: the competition and the consumer. THE FOUR Ps OF MARKETING The four Ps of marketing are product, price, place and promotion. See Figure 8.3, “The Marketing Mix”, on page 240.

Quality Improvements made to the quality of a product attracts more customers. Design Every product and service has a design component. Consumers will often buy one product over another because of the way it looks. Features Product developers consider the features used, such as the materials, scent, size, or the taste, when constructing a new product. Service providers outline or detail what they do best. THE FOUR Ps OF MARKETING Products and Services Quality Consumers depend on the quality of many established brand names. Consumers know that higher quality usually means that the product or service is more expensive. Some products are successful because they can meet consumer needs, at a lower quality, and therefore a lower price. Design We often think of design in relation to clothing, such as jeans that come in many different styles. When a package is designed the function has to be considered. Packaging protects the product from light, dirt, germs, air, water, tampering, and damage. Packaging can aid ease of use, such as a spout or a resealable bag. Product identification or recognition benefits from package shape and colour, such as the Coca-Cola bottle. Label design is also an aspect of design and it can help a product stand out. Labels also give information such as size, weight, ingredients, and nutritional facts. Services consider design features in their web pages and the physical design of their store. Features Some examples of product features are the smell of different perfumes, foam or feather pillows, and laundry detergent can be spring sent or sent-free.

Benefits Consumers buy products and services for a particular purpose. Businesses need to make consumers aware of the advantages of a product to be motivated to buy it. The Product/Service Mix A retail store provides services and a service business sells a product. The resulting product/service mix can increase sales to existing customers and attract new ones. Price Prices for products must be set with care to ensure their success. Today consumers are very price conscious and look for competitive prices at other stores or on the Internet. Businesses need to be price sensitive and look at their competitors’ prices for the same products. THE FOUR Ps OF MARKETING Products and Services Benefits Examples of benefits are a microwave that cooks food faster or a can opener that does not leave a sharp edge. The Product/Service Mix A retail store could offer a delivery service, an installation service, or a gift-wrapping service. A service business, such as a veterinarian could not only assist ill pets but could sell pet food products as well. Price If consumers think the price of a product is too high, it will not sell. Consumers can easily find out product prices by searching on the Internet. Marketers need to be aware of how price sensitive their product is: how much sales will go up or down when the price goes up or down.

Place (Channels of Distribution) Channels of distribution are the paths of ownership that goods follow as they pass from the producer or manufacturer to the consumer. The three types of channels of distribution are direct, indirect, and specialty. Direct Channels Direct channels of distribution connect the consumers to the producers of the goods or services. This is also referred to as the maker-user relationship. Indirect Channels Indirect channels of distribution have one or more intermediaries who import products (importers), wholesale goods (wholesalers), or retail products (retailers). THE FOUR Ps OF MARKETING Place (Channels of Distribution) A product does not change as it moves through the distribution chain. If the product is changed or altered that is the end of that channel and a new one begins. See Figure 8.4, “Channels of Distribution”, on page 243. Direct Channels Simplest form of distribution. Direct channel distribution does not use intermediaries or businesses that take possession of the goods before the consumers do, they add costs to the product so that they realize a profit. With direct channels consumers can readily inform the producers of their needs and they may feel more confident about the product because they deal directly with the company that produces it. Indirect Channels of Distribution Importers: Importers are businesses that seek out foreign products to bring into their own country. Importers may negotiate distribution deals with foreign manufacturers, buy the goods, store the goods, and may sell the goods. To eliminate risk importers can arrange only delivery of foreign goods to Canadian businesses. Wholesalers: Wholesalers buy goods from producers or importers and resell the goods to retailers. The manufacturer may require that the retailer buy a minimum quantity of goods. Using a wholesalers may mean that the retailer pays a higher price but they get the quantity they need and the wholesaler may store the products close by. Retailers: Linked directly to consumers, retailers buy merchandise customers want, keep it in stock, and display it so that customers can examine it in an easy-to-reach location.

Specialty Channels A specialty channel of distribution is an indirect way to distribute products by using vending machines, telemarketing, catalogue sales, e-commerce, and door-to-door sales. No retail store is involved. Promotion Promotion is an attempt to sell a product. Sales promotion encourages consumers to buy products by using coupons, contests, premiums, samples, or special events. THE FOUR Ps OF MARKETING Place (Channels of Distribution) Specialty Channels See Figure 8.5, “Specialty Channels of Distribution”, on page 246. Vending Machines: Vending machines, that can sell virtually anything, can be placed where consumers are. Telemarketing: Using the telephone to sell products and services is very popular. A sales pitch or scripted presentation that anticipates all possible consumer responses is delivered to people once the automated call distributors (ACDs), a computerized dialing system, calls them. Catalogue Sales: Catalogues from retailers provide information about merchandise that consumers can purchase by mail, phone, or at the store. E-commerce: The most important specialty channel, e-commerce is selling products and services online. For consumers it is convenient and competitive and for manufacturers and retailers it reduces distribution costs. PROMOTION Coupons: offer consumers money off the price of a product but redemption rates, a method of determining effectiveness, are only about 5%. Contests: increase brand recognition through an anyone can enter and win concept that is not gambling and cannot require a purchase to enter. Premiums: are when the consumer makes a purchase and they get something for free. Customer loyalty cards are stamped with each purchase and, when full, entitles the customer to a discount or a free product. Samples: samples are small “trail” sizes of a product that are given to consumers, it is expensive but often results in increased sales. Special Events: are used to attract customers and increase sales.

The Two Cs of Marketing The marketing department must consider two major external factors: the competition and the consumer. The Competitive Market The competitive market refers to the sellers of a specific product, and is often expressed in terms of the total dollars spent annually on the product. The percentage of the market that a company or brand has is called its market share. A market segment is a part of the overall market with similar characteristics. Competition among Products Indirect competition means products or services are not directly related to each other. Products that are similar to one another are called direct competition. THE TWO Cs OF MARKETING See Figure 8.6, “The Two Cs of Marketing”, on page 249. The Competitive Market See Table 8.1, “Estimated U.S. Market Share for Major Soft Drink Brands*”, on page 250. The soft drink market has a flavoured market segment (root beer for example) and an energy drink segment (Red Bull for example). The two ways to increase market share are to increase the size of the overall market (the introduction of energy drinks created a new segment) and to take sales away for the competition. Competition among Products All products and services compete for the consumer’s money in some way. Indirect Competition: Is competition between products or services that are not directly related to each other such as a teen with $25 who decides on spending it on movie tickets or on a CD. Discretionary Income: The portion of one’s disposable income that is not already committed to paying for necessities and can be used to buy things for pleasure, satisfaction, and comfort. Disposable Income: Is the amount of income that is left after taxes have been paid. This income can be used to pay for the basic necessities such as food, clothing, and shelter. Direct Competition: Competition between products that are very similar and have only minor differences. These products that compete directly with each other do so through image, quality, price, design, features, and benefits.

The Consumer Market In their effort to be competitive, businesses study and target the consumer market, the potential users of a product or service. These consumers can be identified by demographics and lifestyle. Demographics Demographics is the study of obvious characteristics that categorize human beings. Some examples of demographics include the following: Lifestyle Lifestyle is the way people live, including their values, beliefs, and motivations. THE TWO Cs OF MARKETING The Consumer Market Demographics are used by businesses to target specific consumers. Age: Age defines our tastes as well as our needs and wants. Some age groups are consumers, but not always customers. Adults or parents are gatekeepers, or the person who makes buying decisions for others, often children who can influence their decisions. Gender: Some products lines are distinctly marketed to men or women, but more and more traditionally gender marketed products are being targeted to both groups (detergent and power tools are examples). Family life cycle: People’s stage in the family life cycle often determines needs and wants. New parents need baby items and seniors may buy a retirement escape. Income level: Is the grouping of consumers by how much money they make or have. Some products are marketed to consumers in every income bracket (Kellogg’s Corn Flakes), some are not (Mercedes). Ethnicity and culture: Businesses target people based on their background and customs. Lifestyle study is called psychographics. When marketing to demographic groups, marketers need to consider their lifestyles because a person’s beliefs (such as being environmentally conscious or concerned about diet) influence what they purchase. age gender family lifestyle income level ethnicity and culture

Chapter 8: Marketing Advertising
Creating Good Advertising Good advertisements sell products by making the consumer remember the brand name of their products or services. The four standard rules for creating good advertising are summarized as follows: Attract attention – develop a good headline Gain interest – make people want to read, watch, or listen Build desire – help the customer want your product Get action – always ask for the sale Types of Advertising Advertising is the paid-for promotion of a businesses’ goods and services using a variety of mass media to target a market. CREATING GOOD ADVERTISING Can be referred to as the AIDA principal: Attention, Interest, Desire, and Action See Figure 8.7, “Rules for Creating Good Advertising”, on page 255. Attract Attention: Print ads need a good headline, it should not be more than seven words, it should mention the brand, and should encourage receiver to read the rest of the ad. Broadcast ads attract attention with sound, unusual visuals, attractive people, celebrities, or something funny. Gain Interest: Print ads should be easy to read and to the point. Broadcast ads should get to the message quickly. Visual images should be strong. Build Desire: Print ads should build desire with words, adding benefits with each line. Broadcast ads repeat brand names. Get Action: Ask the consumer to buy now, give them reasons, and provide the necessary information so that they can. TYPES OF ADVERTISING Advertising, that always is the advertisers’ point of view, costs a lot of money. Publicity, usually more believable that advertising, is information about a business, either positive or negative, that appears in the media and is not paid for by the business. Some companies hire public relations (PR) firms that can influence the media with well written positive stories about the business.

Chapter 8: Marketing Advertising
Common advertising classifications include Comparing Types of Advertising Advertisers use the following categories to help them select which media to use for a certain product promotion. These eight categories are direct-to-home out-of-home radio television newspapers magazines Internet TYPES OF ADVERTISING Direct-to-home advertisements are messages (flyer or catalogue) that come directly to a person’s residence. Out-of home advertising are messages (billboard or bus ad) that the consumer is supposed to receive while not at home. Radio advertisements or “go anywhere” medium uses words and sound to draw us in. Television, and effective but expensive medium, combines words, sound, and images to reach very large audiences. Newspaper ads range from inexpensive local ads in the classified section to full page spreads in national publications. Magazines offer the opportunity to target specific groups of consumers with colour. The Internet allows for three different types of advertising: company websites, banner ads on other websites, and advertising. Non-permission-based is called spamming. COMPARING TYPES OF ADVERTISING Reach means the number of people exposed to a message. Frequency is the number of times an audience will see or hear the ad over a given period of time. Selectivity means the ability of the medium to focus on a target audience. Durability means how long the advertisement lasts in the house. Lead-time means how fast the ad can be ready to run. Mechanical requirements means how complex it is to prepare the ads for the medium. Clutter means the level of competition for the audience’s attention. Costs means the accumulated costs of running the advertisement. See Table 8.2, “Media Rating Chart”, on page 261. reach frequency selectivity durability lead-time mechanical requirements clutter cost

Chapter 8: Marketing Marketing Research
Market research is the collection and analysis of information that identifies specific groups of consumers who would use a particular product or service. Types of Marketing Research Marketers use different types of research depending on what information is needed, how it will be collected, and what will be done with the final information after it is analyzed. The following is a list of the most common types of research used by marketers: TYPES OF MARKETING RESEARCH Consumer research uses methods such as phone or personal interviews to discover what type of products consumers want and predicts the sales potential of that product. Market research identifies specific groups of consumers who would use a particular product or service. Motivation Research tries to find out why we buy, by looking at the emotional and rational motives that influence buying decisions. Pricing research helps a company decide if they can sell a product for a competitive price and make a profit. Competitive research looks for opportunities where competition is weak or absent and determines what competitors are doing. Product research looks at details of a product or service and analyzes the impact these details might have on the market. Advertising research gives information on effective ways to get a message to potential consumers. consumer research market research motivation research pricing research competitive research product research advertising research

Chapter 8: Marketing Marketing Research
Marketing Research Tools Marketing research relies on secondary and primary data. Secondary Data Secondary data is information collected by others. Secondary data can be collected from Web sites, databases, periodicals, indexes, and professionally prepared marketing research reports. Primary Data Primary data refers to current information that is collected and analyzed for a specific purpose. Methods include MARKETING RESEARCH TOOLS Secondary Data Researchers re-interpret secondary data for their own or their clients’ purposes. A lot of secondary data is available for free, however sources such as databases or reports can be costly (a beverage industry report costs almost $10 000). Primary Data Test marketing involves producing a limited quantity of a new product and introducing it to one or two areas (in Ontario London, Peterborough, and Kingston are often used). This method is expensive and should be done carefully to ensure good decisions. Internal information sources includes data mining, the analyze of a company’s own records (sales, inventory, advertising, and promotional results), that gathers primary data on product history and/or customer behaviour. Surveys are a planned set of questions used to gather data that can be analyzed to help solve problems. Most surveys us closed-ended questions for which respondents must select an answer from two or more choices they are given. Open-ended questions are questions that allows respondents to develop their own answers, they are difficult to analyze and are used only when very specific data is needed. Observation is used to learn how people react to situations and it is done without interaction and often when the subject does not know they are being watched. Focus groups are company-arranged meetings of potential consumers that the marketer observes during an organized discussion. Participants are usually paid. observation focus groups test marketing internal information sources surveys

Chapter 9: Accounting Basic Accounting Concepts
Businesses engage in activities that concentrate on financial worth, such as money, spending, expenses, mergers, and costs. What Accountants Do Accountants make meaningful and effective decisions based on up to date and accurate records of a company. Accounting is the process of recording, analyzing, and interpreting the financial or economic activities of a business. Financial activities in business are recorded as transactions: recording something of value for something else of value. Bookkeeping is the recording of all transactions for a business in a specific format. Double-Entry Bookkeeping The principle that each transaction involves two changes is known as double-entry bookkeeping: one increase results in one decrease, two increases results in two decreases, and so on. WHAT ACCOUNTANTS DO Businesses can conduct hundreds—even thousands of transactions daily. Transactions include paying staff; paying bills, such as heat and electricity; and buying and storing inventory. Most businesses use accounting software packages, such as QuickBooks and Simply Accounting, to record and track financial information. Double-entry Bookkeeping A transaction could result in one increase offset by one decrease, two increases, or two decreases. An example would be if a business pays $80 for labour, it decreases cash while increasing expenses.

Accounting and Individuals Individuals need to keep accurate financial records. People often allow organizations to take preauthorized payments resulting in money taken automatically and on a regular basis from their bank accounts. Assets Assets are things of value that a business or person owns. Liabilities Liabilities are debts or amounts of money that are owed to others by an individual or a business. Personal Equity or Net Worth A person’s assets, after all liabilities are deducted, is known as personal equity or net worth. ACCOUNTING AND INDIVIDUALS Personal records or transactions can be recorded in a cheque register or on a computer program. An example of a preauthorized payment would be a utility bill deducted on a monthly basis from a chequing account. Always keeping accurate records ensures that individuals do not find themselves with insufficient funds. Assets When you take ownership of something, even if you owe money on it, it becomes yours and it is an asset. Liabilities Individuals and businesses may borrow money from financial or credit companies. Personal Equity or Net Worth See equation below Owner’s Equity on the next slide.

Accounting and Businesses A businesses’ assets and liabilities are used to calculate the net worth—the owner’s equity. Owner’s Equity Owner’s equity is the owner’s investment in the business or the financial portion of the business that belongs to the owners or shareholders. Assets – Liabilities = Owner’s Equity Balance Sheet Equations The balance sheet equation can be expressed in two ways: 1. To determine owner’s equity: Assets – Liabilities = Owner’s Equity 2. To determine total assets: Assets = Liabilities + Owner’s Equity ACCOUNTING AND BUSINESSES A balance sheet is a financial statement that shows the financial position of a business on a specific date. If the information on the balance sheet is correct, the left and right side will be equal.

Cost Principle and Depreciation The accounting practice of always recording an asset at the actual amount it costs the business is known as the cost principle. Even when an asset depreciates or loses value over time the asset value on the books remains the same. Mark’s Repair Shop Here are the assets of Mark’s Repair Shop. cash in the business and in a bank account ($6500) accounts receivable ($8100) invoicing supplies ($500) parts inventory ($4000) business equipment (truck) ($25 500) building and land ($ ) Total Assets = $ Mark’s Repair Shop Accounts receivable is the money owed to the business.

Mark’s Repair Shop Here are Mark’s debts or liabilities. accounts payable ($7350) bank loan for truck ($11 050) mortgage payable (on building) ($ ) Total Liabilities = $ Equity calculation for Mark’s net worth can be calculated as follows: Assets – Liabilities = Owner’s Equity $ $ = $91 200 ACCOUNTING AND INDIVIDUALS Accounts payable is the money that a business owes. Mortgage payable is the debt owed on a building.

Chapter 9: Accounting Preparing Financial Statements
The balance sheet, the income statement, and the statement of cash flow helps owners and managers keep track of the financial health of the business. The financial statements provide outsiders with accurate information about the business. Preparing a Balance Sheet The balance sheet shows the financial position on any given day of the business, and provides information about its assets, liabilities, and equity. Balance Sheet Equation Method The balance sheet gets its name because the left side of the equation (assets) always equals the right side (liabilities plus owner’s equity). Assets are owned by one of two groups owner(s) of the business (owner’s equity) individuals or businesses owed money (liabilities) PREPARING FINANCAIL STATEMENTS Outsiders interested in the business could be lenders, government employees, and other business people. See Figure 9.1, “Types of Financial Statements”, on page 281. Preparing a Balance Sheet On any given day the balance sheet should be different, that is why it is like a snapshot. Balance Sheet Equation Method If the business did not have any debts the balance sheet equation would be: Assets = Owner’s Equity.

Step 1 Statement Headings Mark’s Repair Shop Balance Sheet September 30, 20__ Assets Liabilities Cash $ Accounts Payable Accounts Receivable Bank Loan Supplies Mortgage Payable Parts Inventory Total Liabilities $ Equipment Building and Land Owner’s Equity Mark Bianchet, Equity $ Total Liabilities and Total Assets $ Owner’s Equity Step 2 List Assets Step 3 List Liabilities (steps for preparing a valance sheet for Mark’s Repair Shop) Step 1: Fill in the Statement Heading: three-line header, centred, with who, what and when Step 2: List the Assets: Assets should be listed in order of liquidity, the ability to convert an asset or investment into cash quickly and easily. Step 3: List the Liabilities: Liabilities are listed in order of maturity date, the date by which they must be repaid. The individuals and business under liabilities are often called creditors (a person or business that is owed money; one who lends money or sells on credit. Step 4: Calculate Owner’s Equity: Use the balance sheet equation Assets – Liabilities = Owner’s Equity to calculate the Mark’s equity in the business. $ $ = $91 200 Step 5: Put It All Together: Using Steps 1 through 4, the balance sheet for Mark’s Repair Shop will be as shown. Step 4 Calculate Owner’s Equity Step 5 Put It All Together

Balance Sheet Report Form Method Computer programs easily complete the balance sheet using an up-and-down column format rather than a side-by-side format. Preparing an Income Statement The income statement is a financial statement that shows a business’s profit (or loss) over a stated period of time. The money, or the promise of money, received from the sale of goods or services is called revenue. Expenses are expenditures that help a business generate revenue. Balance Sheet Report Form Method See Figure 9.2, “Who Might Need to Review a Balance Sheet?”, on page 285. PREPARTING AN INCOME STATEMENT An income statement is like a movie that shows what happened over a period of time (week, month, quarter, or year). Examples of expenses include salaries, advertising, maintenance, and utilities.

Income Statements for Service Businesses Step 1 Statement Headings Mark’s Repair Shop Balance Sheet For the month ending September 30, 20__ Revenue Repairs Revenue $ Total Revenue $ Expenses Salaries $ Rent Advertising Supplies Utilities Insurance Delivery Expense Total Expenses $ Net Income $ Step 2 Organize Revenue Section Step 3 Organize Expenses Section INCOME STATEMENT FOR SERVICE BUSINESSES (steps for preparing an income statement for mark’s Repair Shop for the month of September) Step 1: Fill in the Statement Heading: It answers the questions Who? What? And When? Step 2: Organize the Revenue Section: All sources of revenue should be listed. Step 3: Organize the Expenses Section: Larger expenses tend to go first, with all of September’s expenses listed. Step 4: Calculate Net Income or Net Loss: Using the information from Steps 2 and 3 and the equation for calculating profit (Total Revenue – Total Expenses) $ $6 790 = $3 110 When expenses are shown on the income statement they should be matched with the revenue they generate. The matching principle states that accurate profit reporting can be done only if all the costs of dong business in a particular period are matched with the revenue generated during that period. Not following the matching principle might distort figures that business decisions are based on. See Table 9.1, “Matching Principle Example”, on page 289. Step 4 Calculate Net Income/Loss

Income Statements for Retail Businesses Balance sheets for retail businesses are similar to those of service businesses. However, retail businesses need to take the cost of inventory (goods on hand to be sold) into account. Income Statement Equations Income statement equation for a service business. Revenue – Expenses = Net Income Income statement equation for a retail business. Revenue – Cost of Goods Sold = Gross Profit Gross Profit – Expenses = Net Income Income Statement for Retail Businesses Inventory is the goods and materials kept on hand by a business. Income Statement Equations Gross profit, or gross margin, is the money left over after deducting the cost of goods sold from the revenue, but before deduction the business expenses that helped generate the revenue. The cost of goods sold is calculated by starting with the opening inventory figure (goods and services purchased in previous months but not yet used), adding the new purchases made during the period, and subtracting the inventory remaining at the end of the time period.

Income Statements and Inventory Tracking of inventory is critical. It saves the retail business money and increases customer satisfaction. When a physical count of inventory is taken, it is compared to the on-going count that is usually maintained by computer systems. Beginning Inventory, Jan.1, 20__ $50 000 Inventory Purchased Costs of All Goods for Sale Ending Inventory, Dec. 20__ Costs of Goods Sold Sales Revenue $ Cost of Goods profit Gross Profit Gross Profit $65 000 Expenses Net Profit $40 000 ACCOUNTING AND INDIVIDUALS A fiscal year, or business year, is any 12-month operating period. The fiscal year often, but not always, corresponds to the calendar year,; it could be January 1 to December 31, or April 1 to March 31. At the beginning of the fiscal year (Jan. 1, 20__) the shoe store had $ in inventory. The shoe store, through the year, buy $ worth of additional inventory. Over the whole year the store has a total of $ in inventory to sell. At the end of the twelve month period an actual physical count is done. There is $ in unsold inventory. Subtract the $ (ending inventory) from the $ (cost of all goods available for sale) and the cost of goods sold in $ Remember the cost of goods sold is not the price the customer paid. The store collected $ in sales revenue (from goods sold) during the year. $ (cost of goods sold) is deducted from $ (sales revenue) and the gross profit is $ (this is the amount before deducting the business expenses that helped to generate the revenue). Expenses ($25 000) are deducted from gross profit ($65 000) and it results in net profit ($40 000). Net profit is the amount the storeowner can declare as income for income tax purposes. Operating expenses are deducted from the gross profit to determine the net profit.

“Capital” is added to identify the owner’s account Owner’s Equity Account The net profit is calculated first then transferred to the balance sheet as part of owner’s equity. Creditors and owners have claims on the assets of the business. Preparing a Statement of Cash Flow Cash flow is the movement of cash-in and cash-out of a business. The statement of cash flow is a summary of the cash-in and cash-out transactions of a business that helps to predict the amount of cash it needs to meet obligations. Owner’s Equity C. Donahue, Capital, Jan. 1, 20__ $ Add: Net Income $ C. Donahue, Capital, Dec. 31, 20__ $ Projected Cash Flow Statement Mark’s Repair Shop October 31, 20__ Transaction In (+) Out (-) Investment Income +$ Accounts Receivables Equipment to be Sold Payroll Not Yet Paid $ Loan Repayment Insurance Due Projected Cash Flow PREPARING A STATEMENT OF CASH FLOW Sources of cash moving into a business could include sales, interest on investments, accounts receivable, the sale of capital equipment, new loans, and investments. Sources of expenditures, cash moving out of the business could include rent, payroll, accounts payable, interest payable, and insurance.

Ways to Increase Cash Flow A business must consider several ways to meet its obligations if cash flow is inefficient. A business might seek extra investments, reduce inventory purchases, and increase efforts to collect accounts receivables. Cash-flow Implications of Credit and Debit Cards Business that allow customers to use a credit and/or debit card do not have wait for their money (accounts receivables); they receive their money (sales revenue) up front. Since these businesses take a long time to pay their own bills, they invest the customers’ cash to make more money. Ways to Increase Cash Flow Extra investment sources are increased money from owner(s), a short-term loan from a bank, or finding new partners or investors. See Figure 9.3, “Eight Ways to Boost Your Cash Flow”, page 294. Cash-flow Implications of Credit and Debit Cards In some cases stores can make as much or more on their money-on-money investments as they do selling goods in the store.

Interpreting Financial Statements Financial statement information allows accountants to make recommendations to owners regarding future business decisions. Accountants compare data over a set period of time, usually two or more years. A Final Measure of Success For a business to be successful, the return on the owner’s investment should be equal to or greater than the return for a savings account, bond, or mutual fund. INTERPRETING FINANCIAL STATEMENTS See Table 9.2, “Comparative Balance Sheet”, on page 297. The comparison gives an indication of where the company was and where it is now. The comparison balance sheet could demonstrate that the business needs to direct more effort to collecting accounts receivable. The balance sheet can give information concerning inventory, show that there is too much debt, or if owner’s net worth has decreased.

Chapter 10: Characteristics and Skills of an Entrepreneur Entrepreneurial Characteristics
Not everyone wants to be an entrepreneur and run their own business. Being an entrepreneur requires specific characteristics and skills that are often achieved through education, hard work, and planning. Risk Taker Businesses face risk. Entrepreneurs minimize risk through research, planning, and skill development. Perceptive Entrepreneurs view problems as opportunities and challenges. Curious Entrepreneurs like to know how things work. They take the time and initiative to pursue the unknown. ENTREPRENEURIAL CHARACTERISTICS Risk Taker Entrepreneurs often take on a high degree of risk and stress. Many entrepreneurs face bankruptcy, that can leave them with not business and no personal assets. Perceptive The owner of Cott Corp. was perceptive, he saw the opportunity to offer a private-label beverage to the grocery industry. Private label or private brand is a product that is manufactured by another company but is sold with a store’s brand name; also called a store brand or private brand. Curious Ray Kroc, a leader in the development of the modern franchise system, recognized the potential of the McDonalds brothers’ restaurant and its formula for producing good and inexpensive food and capitalized on it.

Imaginative Entrepreneurs are creative. They imagine solutions to problems that encourage them to create new products and generate ideas. Persistent True entrepreneurs face bureaucracy, make mistakes, receive criticism, and deal with money, family, or stress problems. But they still stick to their dreams of seeing the venture succeed. Goal-setting Entrepreneurs are motivated by the excitement of staring a new business. Once achieved, they seek out new goals or ventures to try. Hardworking Entrepreneurs need a great deal of energy to see a venture start and succeed. Yet they are not deterred by the long hours to achieve their goal. ENTREPRENEURIAL CHARACTERISTICS Imaginative The founder of Canadian Railway Newspaper Company (Cara Operations Ltd.), T.P. Phelan took his newspaper service to the next step by providing food service in many sectors. Persistent The story about The Little Engine That Could is a children’s storybook tale of persistence. Goal-setting Some entrepreneurs have local success and then take on new challenges by going international with their business. Hardworking J.M. Schneider worked days for a button factory and in the evenings and at night he worked to provide his own customers with sausages.

Self-confident Entrepreneurs believe in themselves. Their self-confidence takes care of any doubts they may have. Flexible Entrepreneurs must be flexible in order to adapt to changing trends, markets, technologies, rules, and economic environments. Independent An entrepreneur’s desire for control and the ability to make decisions often makes it difficult for them to work in a controlled environment. ENTREPRENEURIAL CHARACTERISTICS Self-confident Sir Richard Branson, the founder of Virgin Records, went out of his comfort zone and started Virgin Airlines. Flexible Video rental businesses demonstrated flexibility buy quickly adapting to the change from video format to DVD format. Independent Each venture is a reflection of the independent entrepreneur who started it. See

Chapter 10: Characteristics and Skills of an Entrepreneur Entrepreneurial Skills
A skill is the ability to do something specific or to translate knowledge into action. Research Skills Entrepreneurs need to identify what they need to know and use research techniques to obtain it. Gathering Information Reliable and relevant sources of information may include INTERPRETING FINANCIAL STATEMENTS It is easier to learn a skill than to develop a characteristic. Research Skills The first step in knowledge acquisition is asking a good question, such as “Why is that?” or “How does that work?”. The second step is to gather information that will help you to answer the questions. You may reformulate your question or ask new ones, all perhaps leading to the start of a new venture. Books: Municipal libraries, educational institution libraries (such as universities), bookstores, government resource centres, book stores, etc. are places to access information written about business and business ownership. Periodicals: Magazines, newspapers, newsletters, and trade journals and publications are excellent sources of current and industry specific information and secondary research. Indexes and Databases: A periodical index is a list of all articles published about specific topics over a period of time that gives the title, a brief description, and the name and date of the periodical in which the article appears. A data base is a list of information organized by category, that are usually very specific (kite manufacturers) or very broad (Canadian businesses that export to the U.S.). Some databases charge a fee, others are free. Schools and libraries often provide access to some databases. The Internet: See Table 10.1, “Using the Internet”, on page 319. Consultants: Consultants are knowledgeable experts who charge for their services or work for organization such as universities, government departments and financial institutions that provide services for free to their clients. Professionals: Experts such as accountants, lawyers, sales agents, and individuals who work for advertising agencies can assist entrepreneurs in the start-up stages of a business and on an on-going basis. Schools: Entrepreneurs can access part-time and full-time programs at universities and colleges for a variety of business related subjects. books periodicals indexes and databases the Internet consultants professionals schools

Using Information After information is acquired, it needs to be sorted into relevant data that answers the entrepreneur’s initial questions. These questions may lead the entrepreneur to look at new ventures. Management Skills Management skills for entrepreneurs involve planning, organizing, directing, and controlling. These are then applied towards their personal, financial, and material goals. Planning Entrepreneurs develop financial, production, and marketing plans that comprise the overall business plan. Using Information As a business develops questions, the answers should become more fine tuned to the specific aspects of the venture. MANAGEMENT SKILLS Recall Chapter 7, where in we learned that the role of management in business is to achieve the goals of an organization by directing the allocation and use of the human, financial, and material resources. Planning Entrepreneurs need to avoid over planning, it may be overwhelming.

Organizing Organizing the venture is vital. The key to this is time-management. Directing Entrepreneurs learn how to motivate their staff by encouraging initiative and self-direction. This inspires a sense of shared responsibilities to grow the business. Controlling Entrepreneurs need to develop budgets and keep accurate bookkeeping and accounting records. INTERPRETING FINANCIAL STATEMENTS Organizing To organize their time entrepreneurs use detailed schedules, “to do” lists, reminder files, and use personal planners. Entrepreneurs need to develop job descriptions and they must develop lines of communication and an organizational structure. Directing Entrepreneurs should share goals and the big picture with staff. Controlling Entrepreneurs should have accounting knowledge and skills or hire someone who does.

Relationship Skills Running a business means building good relationships with staff, suppliers, and customers. Staff Relationships Employees need to feel that they are treated fairly, are rewarded for their efforts, and have their needs met. Supplier Relationships Communication is the most important relationship skill required to deal with suppliers. They act as sources of information for the new business. Suppliers also require feedback to know how to improve their service. Customer Relationships In an entrepreneurial business, the customer is the “boss” and the key to the business’ success. Therefore, the entrepreneur and his or her staff must develop a positive relationship with the customer. RELATIONSHIP SKILLS Staff Relationships Motivation relies on the matching of rewards to an employees needs and personality. Empathy is the ability to understand what other people think and feel. Supplier Relationships Suppliers such the government, service providers, merchandise suppliers, or material and equipment sellers are all sourced of information about new products, processes, and materials. Paying bills when due help to maintain good relations with suppliers and if financial problems arise be sure to communicate in an effort to meet mutual needs. Customer Relationships Entrepreneurs should strive to make customers feel important.

Chapter 10: Characteristics and Skills of an Entrepreneurs Canadian Entrepreneurs
Jimmy Pattison Pattison used his entrepreneurial skills as a child selling garden seeds, magazines, and papers door-to-door. In university, he washed used cars and bought and fixed them to sell to students and later managed a car dealership. Today, as a billionaire, Pattison is past chair of Vancouver’s World Fair, Expo 86, and owner of Ripley’s Believe it or Not. Vickie Kerr In 1986, Kerr used some potatoes growing on her family’s potato farm to create a healthy snack for kids. Her persistence resulted in a unique potato chip called Miss Vickie’s that sold locally and nationally. In 1993, Kerr sold her brand to the US-owned Hostess Frito-Lay Co David Tuccaro A Mikisew Cree, Tuccaro owns Neegan Development Corp. and Tuc’s Contracting in Fort McMurray, Alberta. He is a business ally of Syncrude Canada, a major developer in the Northern Alberta’s Athabasca oil sands. Tuccaro uses his business success and cultural knowledge to improve the lives of Aboriginals in Canada and abroad. Images: ? Read about entrepreneur's stories on pages 325 to 329. JIMMY PATTISON See Figure 10.1, “Pattison’s Timeline”, on page 326. When he took on the management of a car dealership he was still in university. VICKIE KERR DAVID TUCCARO See

Chapter 10: Characteristics and Skills of an Entrepreneur Venture Evaluation Criteria
An entrepreneur must develop a good business plan that is feasible, marketable, and profitable. Key points are below. Feasibility Finances ― list the amount required in a budget including the source of capital (bank, credit union, and so on) Location ― explain the location outlining the details (address, rent, taxes, and so on) Licences and permits ― list the licences or permits and state how to obtain them Suppliers ― make a list of everything required including the name of the suppliers and their prices and terms Staff ― describe staffing needs and ways to meet them

Marketability Entrepreneurs need to ask themselves the following questions about their product, service, or charity: Does your target market want this product? Prove it. What is you competition? How much of the market do they own already? How will you take it away from them? Are you competitively priced? Is this a short-term venture? How long will it last? What do you offer that no other product, service, or charity offers? Why would a customer pay money for what you provide? Profitability To expect a profit, an entrepreneur must ensure that revenue exceeds all costs. Listing expected revenue and expenses can help to achieve this. PROFITABILITY Prepare an income statement that projects revenue and expenses and ensure that net income is enough.

Chapter 11: Invention and Innovation Entrepreneurial Opportunities
Choosing a Venture If you have the skills and characteristics to be an entrepreneur, ask yourself these questions: What kind of venture will you start? How will you do it? Entrepreneurs can look for opportunities to develop new ventures in two ways—as idea-driven or as market-driven opportunities. Idea-driven Enterprises An ideas-driven enterprise for a business usually starts as an invention or innovation. Market-driven Enterprises A market-driven enterprise for a business usually develops as a result of a need and want that consumers indicate or desire. ENTREPRENEURIAL OPPORTUNITIES Idea-driven Enterprises Someone is inspired to provide a new service or create a new product and then brings it to market. Since no need was expressed by the marketplace for the product there is risk involved with idea-driven enterprises. Market-driven Enterprises Market-driven means the venture is the result of a market demand or need rather than someone coming up with a product idea. The need or want within the market may not match the entrepreneurial skills and characteristics that an individual has.

Bringing Ideas and Marketing Skills Together Successful ventures combine the idea-driven aspect with the market-driven one. Entrepreneurs can learn marketing skills, technical skills, or form a partnership with someone who has complementary attributes. A feasible venture is one that has the potential to be successful. The entrepreneur plans reasonable goals for the venture, and thinks about an idea and a market to ensure the business’ success. BRINGING IDEAS AND MARKETING SKILLS TOGETHER Marketing skills can be acquired by taking courses, reading texts, accessing websites, and magazines. Skilled individuals can be hired from ad firms, research companies, and consultant firms. High schools and community colleges provide technical skills training. How-to-books, the Internet, and magazines also are a wealth of information. Technically skilled people can be hired from drafting firms, industrial design companies, and technical consulting firms. Taking on a partner can increase venture capital and diversify the risk. Prospective partners can be accessed at capital trade fairs, by placing advertisements, or by using the Internet.

Finding Entrepreneurial Opportunities New venture categories include manufacturing retail sales importing or wholesaling service A new venture must solve a problem or satisfy a need or a want. To find out about the market for a new business, an entrepreneur needs to segment the current market and create a product or service map. FINDING ENTREPRENEURIAL OPPORTUNITIES You need to find out what is and what is not already available in the market. You can innovate of improve on an existing product or service. You can provide a product of service that does not exist. A feasible venture is a venture that has the potential to succeed. A market segment is any part of an overall market that has common characteristics.

Segmenting Before a new venture is launched, entrepreneurs must analyze the segment of the market by looking for the common characteristics in which the business fits. Product or Service Mapping Product mapping allows an entrepreneur to visualize all the products or services that are available in a segment and to group them by specific features. Setting Your Venture Apart The goal of a new venture is to ensure that it is different than those already operating. Manufacturers, importers, or wholesalers need to offer different products than those that already exist. Retailers and service providers also must think of ways to set themselves apart from others. FINDING ENTREPRENEURIAL OPPORTUNITIES Segmenting A market segment is a part of an overall market that has common characteristics. An example of a market segment is the caffeine-free diet colas that are part of the overall beverage market. Mapping Root beer could be mapped by features to include long-necked bottles, premium root beers, foaming root beers, and so on. See Figure 11.2, “Root Beer Product Map”, on page 342. Analyses of statistics, taste-test data, product histories, consumer motivation data, etc. to learn more about the different brands. The resulting product map is best represented visually in an organizational style chart. Once completed the map helps an entrepreneur develop a product or service with a unique set of features. Setting Your Venture Apart There are many venture configurations that would result in success.

Chapter 11: Invention and Innovation Some Canadian Inventions
What Is an Invention? An invention is a product or process that does something that has never been done before. When the invented product or service fills a need, it can potentially be sold to consumers. Canadian Inventors and Inventions Some well know inventions and inventors are included in the chart below. (For more, see chart on p. 345 of text.) WHAT IS AN INVENTION? Some entrepreneurs build businesses that produce, distribute, and market an inventions. Some inventors do not realize the potential commercial applications of their invention or prefer not to pursue it. CANADIAN INVENTORS AND INVENTIONS See Table 11.1, “Canadian Inventions and Inventors”, on page 345. Year Invention Canadian Inventor 1921 Insulin Drs. Banting and Best 1960 Goalie mask Jacques Plante 1994 Java computer language James Gosling

Chapter 11: Invention and Innovation Taking the Next Step
Entrepreneurship starts when a new invention or innovation becomes the inspiration for a venture. Patents and Copyrights Entrepreneurs need to patent or copyright their inventions. A patent is the registration of an inventors legal right of ownership for their invention. It prevents others from using the invention without permission. A copyright is the exclusive right to publish, produce, sell, or distribute an original work of literature, art, music, software, design, and so on. PATENTS AND COPYRIGHTS The acquisition of a patent can be complicated and expensive. Lawyers can help with application and patent searches. If someone else has a previous patent or similar one a new application will not be granted. Inventions are protected during the “patent pending” period of time. To prevent the theft of your idea(s) make sure to utilize the services of a reputable patent service.

Licensing Agreements Licensing an invention or innovation allows another business to use it for a fee or a royalty. Franchising Agreements Similar to a licensing agreement, a franchise agreement is an arrangement for one business to license the rights to its name and procedures to another business or person. Producing the Invention The manufacturing of a new invention often requires a large amount of capital and expertise. This process can be very risky. Selling the Rights Entrepreneurs can sell outright their patents or copyrights. ENTREPRENEURIAL OPPORTUNITIES Licensing Agreements Royalty is a fee paid to the owner of a patent or copyright by someone who uses it. A royalty can be a fixed price or a percentage of total sales revenue. Ideas, images, and names can be licensed in product development. Fictional characters and sports teams are examples of things that could have their names, pictures, and logos on products. Producing the Invention Often entrepreneurs form partnerships with established businesses or financial investors that provide funds and expertise. Venture capital markets are a forum for bringing together inventors and financial investors who are interested in developing new ideas. Selling the Rights This is the fast way to realize revenue from an invention or innovation. An advantage would be that the buyer assumes risks such as financing, production, and marketing of the product. Another advantage is that the entrepreneur would not have to wait for the money. A disadvantage to selling the rights is that the invention is used in an application not anticipated by the inventor. A second disadvantage could be that long term profits may exceed the payment for the patent or copyright.

Chapter 11: Invention and Innovation The Impact of Innovation
What Is an Innovation? An innovation requires using new technology, materials, or processes to improve existing products or to create new production and distribution processes. Innovators as Entrepreneurs Innovators build on what other businesses, such as manufacturers, distributors, and marketers, have already developed. They look to the competition for ways to gain an advantage for their new products or services. Entrepreneurs use innovation to change how a product is used, packaged, marketed, distributed, designed, or manufactured. WHAT IS AN INNOVATION? Many product we use today have changed from the original way the inventor created them. Soap has seen many changes in the way it is manufactured, what ingredients go into it, how it is distributed, and its form (soap on a rope).

Chapter 11: Invention and Innovation The Impact of Innovation
Changing How a Product Is Used When entrepreneurs discover innovative ways to use a familiar product, they can develop a whole new market for that product. Changing the Package Changing the way a product is packaged can create a whole new industry. Changing the Marketing Strategy Changing the way a product or service is promoted or advertised can target a new market and, potentially, improve sales. INNOVATORS AS ENTREPRENEURS Changing How a Product is Used 3M Scotch Tape, introduced in 1948, has been marketed for a wide variety of uses over the years. Changing the Package Beverage containers have gone from glass bottles to wax covered cartons to recyclable tetra style boxes. Package innovations occur for many reasons including to be environmentally friendly and to help the products marketability to a new audience. Changing the Marketing Strategy An example of increasing sales occurred in the late 1990’s when the marketers of Corn Pops strategically placed commercial targeting teens.

Changing the Distribution Process Changing or improving the way a product is distributed can potentially result in more and new customers. Changing the Design A design change to a product can improve how it functions or who it appeals to in a new market segment. Changing the Manufacturing Process As new technologies and materials are developed, manufacturers must review their production processes to create better and less expensive products. INNOVATORS AS ENTREPRENEURS Changing the Distribution Process Trade shows are an exhibition where a large number or manufacturers and distributors show their goods. These shows often have restricted entrance, only allowing people involved in the show’s industry attendance. Expanding a product market can be accomplished by distributing it internationally. Kiwi is an example of a product that was not readily available before the 1980s in Canada, but now is commonly purchased fruit. Changing the Design Changing the size, colour, or shape of a product can generate more sales. Changing the Manufacturing Process New processes and machines can improve efficiency and lower production costs; produce products in less time and help in the creation of better quality products.

Chapter 12: Income Management What Is Money?
Money allows businesses to operate and consumers to buy products and services that meet their needs and wants. Forms of Legal Tender Coins and paper money are classified as legal tender by the government of Canada and must be accepted as payment for goods and services. Coins are minted and bank notes are issued as paper money. New Canadian Bank Notes Since 2001, the Bank of Canada has been updating bank notes with sophisticated security features. Canada’s culture, the queen and prime ministers are depicted on bank notes. FORMS OF LEGAL TENDER Cheques and credit cards are not legal tender. The Royal Canadian Mint manufactures coins such as the $1 and $2 that replaced the less durable paper notes. Bank notes are issued by the federal government, Canada’s central bank. English and French versions of notes were first issued in 1935. The Bank of Canada uses two privately owned, high-security, printing companies.

Chapter 12: Income Management What Is Money?
Special Features of Bank Notes Ever changing state-of-the-art security features on Canadian bank notes discourage high-tech counterfeiting (the production of fake money). However, features such as unique textures on every note help visually impaired people to make distinctions between denominations. Credit cards, traveler's cheques, passports, and other identification are subject to counterfeiting as well. Money’s Changing Purchasing Power Coins and bank notes have no true value. The paper is worthless as are the metals to make coins. Both are only important to consumers because they accept that currency or money has a standard value that allows them to purchase items or invest. Since prices tend to rise, consumers’ money buys them less every year. FORMS OF LEGAL TENDER Special Features of Bank Notes See Figure 12.1, “Security Features on This $5 Bill”, on page 366. Counterfeiting is the production of fake money. MONEY’S CHANGING PURCHASING POWER Inflation causes our money to be worth less as prices for goods and services goes up. Calculated monthly, the Consumer Price Index (CPI) is a figure that represents purchasing power. CPI calculates the cost of 600 products, including food, shelter, transportation, clothing, and recreation.

Chapter 12: Income Management What Is Income?
Income is money that an individual or business receives from sources, such as wages or sales, interest, and dividends. Closely related to income is the need for a financial plan that looks at how to make money grow. Types of Personal Income Forms of Employment Income Employees Benefits Other sources of income can include dividends, allowance, interest, gifts, part-time jobs, and inheritance. salary wages commission piecework profit sharing Some people earn just enough to pay for needs or necessities such as food, rent, and clothing. Individuals with higher incomes usually spend more on wants and non-essential items such as vacations and electronics. medical insurance paid sick days paid holidays drug and dental plans

Chapter 12: Income Management What Is Income?
Gross Income Gross income is the total amount of money received by a person before any deductions. Disposable Income Disposable income, or take-home-pay, is the amount of income that is left after deductions of income tax, Canada Pension Plan (CPP), and Employment Insurance (EI). Discretionary Income Discretionary income is the amount of money that is left over after all necessities have been paid. Necessities consist of rent or mortgage, food, transportation, insurance, electricity, and so on. TYPES OF PERSONAL INCOME Gross Income See Figure 12.2, “Nadira’s Annual Gross Income”, on page 368. Disposable Income The amount an individual pays in income tax varies depending on things such as union dues, charitable contributions, pension deductions, dependents, etc. Taxes are paid to Canada Revenue Agency (federal) and to the province the person lives in. See Figure 12.3, “Nadira’s Disposable Income” on page 369. Discretionary Income See Figure 12.4, “Nadira’s Monthly Necessity Expenses and Discretionary Income”, on page 370.

Chapter 12: Income Management Managing Money for Personal Use
Money management is the daily financial activities aimed at satisfying a person’s needs and wants within a limited income. Individuals need to carefully plan, save, and spend their money to get the most out of it. Why We Buy Consumers choose among marketplace alternatives. Five key factors that influence consumer buying decisions include income and price status current trends custom and habits promotion WHY WE BUY Money management education is very important and people often learn it by observing how adults close to them earn and spend. It is important to know how much you have to spend, where you spend it, and financial goals. Income and Price Family obligations, such as children, and disposable income greatly influence what we buy. Low-income families spend a greater percentage of income on necessities. High-income families have more to spend on wants. Price is the most important consideration for consumers. Some consumers believe that a higher price always means better quality or design. Status Some people feel that having a certain product makes them better or more noticed than others. Conspicuous consumption is the purchase of products or services with the primary purpose of impressing others. Current Trends Clothing trends, for some people, are the foundation of their image. Clothing is often seen as an indication of status, popularity, or group identity. Peer pressure, a strong influence on people in their social group, can cause individuals to buy products they do not want or need. Customs and Habits Customs related to family, religion, and community influence consumer choices. Habits are behaviours formed over time and done repetitively such as buying a magazine monthly. Promotion Advertising and promotion influence consumer spending creating desire for products and services. Lifestyle advertising incorporated attractive, successful, and appealing people thereby implying that using the product or service will improve ones life.

Chapter 12: Income Management Spending Money
Today’s society is known as a consumer-driven one. This means that the economy offers consumers a never ending supply of exciting and innovative goods and services. Comparison Shopping Comparing price, quality, features, and services helps consumers make smart purchases. Comparing Price and Quality Comparison shopping means selecting the least expensive product or service that best meets the consumer’s needs and wants. Features The features of goods and services are often the most important requirements for consumers when they purchase these items. COMPARISON SHOPPING See Figure 12.5, “The Wise Shopper” On page 375. Comparing Price and Quality Selecting a product that has higher quality, usually at a higher price, may result in a savings since it may be more durable and last longer. Features Weather it is the gears on a bike, the safety aspects of a new car, or cell phone features all of these characteristics influence purchases.

Chapter 12: Income Management Spending Money
Services Retail stores often offer services that complement their merchandise. Some of these are free delivery for large purchases or warranties on these items. Warranties are usually written promises that products comply to high standards. Planning and Comparing Prices and features of products or services can be compared using catalogues, newspapers, calling stores, or Internet searches. COMPARISON SHOPPING Services Service can include aspects such as guarantees or warranties, delivery, store locations, etc. See Table 12.1, “Where to Buy” on page 377. Planning and Comparing Asking others for their opinion and reading consumer magazines and daily newspapers features are other ways to plan and compare purchases.

Chapter 12: Income Management When to Buy
When planning a purchase, consider clearance and promotional sales as well as second-hand shopping. Consumers need to consider doing some comparison shopping for the same or similar product at other stores. Clearance Sales Retailers often have clearance (end-of-season) sales where seasonal goods are sold below the regular price to clear out old stock and to make room for new items. Promotional Sales Promotional sales happen when goods are sold below regular price to build acceptance for new products or to publicize store openings. These sales can create opportunities to sell future non-promoted products to consumers. CLEARANCE SALES Clothing stores usually have sales in January and June (July). Traditionally Christmas items go on sale on Boxing Day. Car dealerships lower prices in August and September to make room for new models. Clearance sale selection is often limited making consumers decide it the lower price out-weights not getting exactly what they want. PROMOTIONAL SALES The hope is the consumer will like the product that they purchased on sale and buy it again.

Chapter 12: Income Management When to Buy
Second-hand Shopping Second-hand shopping involves the purchasing of goods that have been previously owned by someone else. Buying such merchandise supports the three Rs of waste management—reduce, reuse, and recycle. Avoid Impulse Buying Impulse buying is purchasing items on the spur of the moment without considering whether they are needed or wanted. Ways to avoid impulse buying include taking your time, visiting many stores, checking the Internet, seeking out the best value, and, most importantly, not rushing. SECOND-HAND SHOPPING Second-hand items are usually priced very low but do not come with a guarantee or the ability to return it. You may not find exactly what you want but you may get something unique or valuable. AVOID IMPULSE BUYING Buying on impulse wastes money, especially if you are on a tight budget. Planning purchases often means getting the best value for your money. Do not let others, peers, family, or sales staff, rush you into a unnecessary purchase. Visit stores or go on-line to find the best value for you money. Be aware that displays at store check outs are designed to get you to purchase the things you do not need or want.

Chapter 12: Income Management Budgeting
A budget is a plan for smart spending and savings based on one’s income and expenses. Personal Budgeting Personal budgets can be kept daily, weekly, and even monthly. Many people avoid budgeting because they believe that it is too difficult, or it will limit their enjoyment of life. However, learning to budget can actually help them find money for the things they really want or need. Setting Personal Goals Setting up a personal financial plan requires establishing realistic and achievable short- and long-term goals. Most people need to set aside specific minimum monthly amounts to achieve long-term financial goals. With a budget you can reach financial goals and control what you spend your money on. PERSONAL BUDGETING A student budget could address aspects such as savings, post-secondary savings, charitable donations, planned spending, and mad money. See Figure 12.6, “Budgeting Your Allowance”, on page 381. Start getting into the habit of budgeting early in life to develop planning skills that will enable you to reach your financial goals throughout your lifetime. Setting Personal Goals Families can prepare budgets together that set goals that are important to everyone.

Chapter 12: Income Management Budgeting
Preparing a Personal Budget Step 1: Calculate the amount of expected income. Step 2: Calculate expenses. Include regularly occurring fixed expenses. Preparing a Personal Budget Step 1: Calculate the amount of income you expect to earn or receive. Step 2: Determine the two types of expenses: Fixed expenses occur on a regular basis and usually cannot be adjusted. Savings, usually about 10% of of income, should be saved. Variable expenses differ from one month to the next. Step 3: Calculate the amount of money left over. This money can be added to savings or can be added to discretionary income. The goal of a personal budget is to have all income allocated and not to have any leftover. Reviewing your budget can help you compare expected and actual spending and to see if you are buying on impulse. If you are spending too much, expenses will have to be decreased or income increased. Goals may have to be re-evaluated and time-lines adjusted. Estimate variable expenses that change monthly. Step 3: Calculate amount left over.

Chapter 12: Income Management Managing Money for Business Use
Money management for businesses means that they are accountable to the owners and/or shareholders. The primary goal is profit. Types of Business Income Three forms of business income are revenue, gross income, and net income. Budgeting for a Business Business success is determined by its ability to stay within a budget. The two types of business budgets are start-up budgets and operating budgets. Setting Business Goals Managers set company goals that are measurable and specific. Budgets often involve a variety of different departments, such as production, marketing, human resources, and finance. Business owner spends money to make money, wage earner makes money to spend money. Business budgeting and planning are tools for creating profit and growth, not simply cutting back on expenses. Spending in a business is good as it helps increase sales in an effort to increase profit. TYPES OF BUSINESS INCOME Revenue is the money a business receives from products and/or services it sells or from investments. Gross income is the total amount of money received by the business minus the cost of goods sold. Net income is gross income minus the business expenses. BUDGETING FOR A BUSINESS All Interconnected budgets are needed for projects, departments, and divisions. Often created by top management, budgets should receive input for all organizational levels. A start-up budget shows the money needed to open a business. Often underestimated, start-up budgets need enough capital to last more than a year. Operating budgets are done monthly, yearly, or per project. Sets out ongoing revenues and expenses for the business. See Figure 12.9, “Before Starting a Business”, on page 387. SETTING BUSINESS GOALS Goals could be for business aspects such as launching a new product, expanding internationally, increasing research and development, or closing a division.

Chapter 12: Income Management Managing Money for Business Use
Preparing a Business Budget Step 1: Calculate amount of business income expected. Step 2: Calculate expenses, including fixed and variable. PREPARING A BUSINESS BUDGET The steps in preparing a business budget are similar to those of preparing a personal budget. Step 1: Calculate the amount of business income expected; this is total revenue. Step 2: Calculate all business expenses; these include fixed and variable expenses. Examples of fixed expenses are rent, salaries for full-time employees, and property insurance. Examples of variable expenses are part-time workers, cost of goods sold, utilities, advertising, and bank charges. Step 3: Determine the amount of money left, also known as net income. Business budgets should have income left over because this is the business’s profits. Step 4: Review the budget to compare actual spending with expected or projected spending. If a business is spending more than it earns, expenses need to be adjusted or an increase in income has to be realized. Income can be increased by increasing sales, raising prices, advertising more, or the introduction of new product lines. Step 3: Calculate amount left. Step 4: Review budget.

Chapter 13: Banking The Need for Financial Institutions
The main deposit-taking institutions in Canada are chartered banks, trust companies, caisses populaires, and credit unions. All invest and lend their customers’ savings and charge fees for services. Canadian Banking Banks sell services to earn profits. Most bank revenue occurs when interest is charged on loaned money. These institutions accept deposits, encourage saving, and keep money safe. They provide loans to consumers and to businesses, and they handle millions of business transactions. Institutions provide different services, banking methods, and hours of operations. CANADIAN BANKING Banks loan money to consumers, businesses, and the government. Banks also invest money that individuals and businesses deposit with them, thereby earning interest.

The Bank Act The Canadian Constitution of 1867 created a common, unified banking system controlled by the federal government. All banks in Canada operate under the same rules. In 1871, the federal government passed the Bank Act outlining the rules and regulations that banks must follow. The government provides banks with a charter or licence that gives them the authority to operate. These types of banks are known as chartered banks. The Bank Act established three classes of banks—Schedule I, Schedule II, and Schedule III—to encourage more competition. The bank’s ownership determines its class. The Bank Act The Canadian Constitution of 1867 gave the federal government control over money and banking. Federal parliament passed the first bank act in 1871. Receiving a charter allows an institution to use the word “bank”. The Bank Act outlines procedures for new banks and mergers and gives details about what a bank can and cannot do. The Bank Act is reviewed and revised every few years. The last revision occurred in 2001. In 1980 the revisions allowed foreign banks to operated in Canada for the first time. See Table 13.1, “The Three Classes of Canadian Banks”, on page 398. See Table 13.2, “Canada’s 19 Schedule I Banks”, on page 399.

Branch Banking Branch banking is a system in which there is a head office and interconnected branches or outlets providing financial services to different parts of the country. The Bank of Canada The Bank of Canada helps to keep the Canadian economy as stable a possible in part by regulating the money supply. The rate charged borrowers by chartered banks is indicated by the bank rate or prime lending rate that the Bank of Canada sets several times a year. Branch Banking Schedule I banks have head office in one of Canada’s main cities. Head offices determine policies and is connected to the branches across the country. See Table 13.3, “Branch Banking in Canada”, on page 400. The Bank of Canada The Bank of Canada is operated by the federal government, it is Canada’s central bank; it controls the money supply. The Bank of Canada can raise or lower the bank rate. The bank rate is the minimum rate of interest charged by the Bank of Canada for loans made to the chartered banks; also called the prime lending rate. If interest rates go up, fewer individuals and business borrow money thereby causing the money supply to contract. If interest rates go down, individuals and businesses borrow money and it causes more money to enter the economy and thereby increasing the supply. Money supply is the total amount of money in circulation in Canada, including cash and deposits and savings in financial institutions.

Chapter 13: Banking Other Financial Institutions
Trust Companies Established in the late 1800s, trust companies traditionally managed and invested consumers’ money. Today they also provide other banking services, such as loans and savings and chequing accounts. Like chartered banks, the Canada Deposit Insurance Corporation (CDIC) protects consumers’ accounts. Caisses Popularies and Credit Unions Similar to co-operatives, caisses populaires and credit unions are organized and owned by people who pool and share their resources. Services are only provided to members and their families who own at least one share in these institutions. OTHER FINANCIAL INSTITUTIONS Trust Companies Often called “near banks”, trust companies offer services such as loans, savings and chequing accounts, purchase and sale of real estate, administration of estates, and maintain trust account for charitable organizations and minors. The federal or provincial government grants a trust company the right to operate and specifies the types of investment that these “near banks” can make with customer money. Caisses Popularies and Credit Unions Members share a common bond of association, such as a profession, place of employment, geographic area, cultural or ethnic background, or religion. Caisses populaires and credit unions belong to the World Council of Credit Unions. To borrow money you must have some savings deposited in the institution. When collective decisions are made each member has only one vote. Year end profits are paid to members in the form of dividends or rebates.

Chapter 13: Banking Other Financial Institutions
Insurance Companies Insurance companies are financial institutions that insure risks. The two general areas that are covered include life and health insurance and property and car insurance. How Insurance Works Insurance works by sharing risk. Payments are used from many policyholders to pay out the claims of a few. Insurance companies pool together premiums paid by policyholders. An insurance company’s pool of premiums can severally drain when major disasters happen. INSURANCE COMPANIES Common types of insurance that individuals purchase include house, car, life, accident, property, drug, and health. Businesses often purchase property or liability insurance and auto insurance. Insurance for professionals protects them against suits for malpractice or misconduct. Product liability insurance protects against faulty product or customer injury. How Insurance Works Many policyholders pay millions in premiums to the insurance companies, that pool the money to pay out claims.

Chapter 13: Banking About Accounts
People open accounts at financial institutions to save money and, potentially, to make money or interest. Opening and Accessing an Account Personal information, such as a birth certificate, a driver’s licence, or a home address, is required to open an account at a financial institution. Customers must fill out a signature card with their signature to conduct transactions. They will then receive a special card often referred to as a debit card to conduct transactions at the bank or at an automated banking machine. Interest rates vary and are dependent on the balance and they type of account. Usually only a small amount of money is necessary to open a savings account. An account in one person’s name gives them full control. A joint account can be opened by two or more individuals. Withdrawals from joint account may require more that one person’s signature and is dependant on the way the account was set up. OPEINING AND ACCESSING AN ACCOUNT Personal information includes full name and home address, date of birth, telephone number, and occupation. You will also have to provide two current pieces of identification containing a signature and if possible a photograph. Acceptable identification includes a driver’s licence, credit card, employer identity card, passport, and student card.

Chapter 13: Banking About Accounts
Account Statements and Passbooks Financial institutions give clients an account statement or a passbook that serves as a record of account transactions. Each account has a unique number that appears on these documents. Making a Deposit Deposits can be made at the financial institution or at an automated banking machine (ABM). Personal identification numbers (PIN) are confidential electronic signatures that are necessary to access accounts at ABMs. Making a Withdrawal Withdrawals for cash can be made in the financial institution or at an ABM. Account Statements and Passbooks The statement and passbook shows all deposits, withdrawals, transfers of money, service charges, and any interest earned on the account. Account statements are mailed to clients on a monthly basis. Passbooks can be updated in the financial institution and at many automated banking machines. Customers can access account information online by using their bank card number and their PIN code. Making a Deposit In the financial institution the teller facilitates the deposit either electronically or by filling in a deposit slip and then gives the customer a receipt. Automated banking machines (ABMs) are computer terminals that allow customers to withdraw, deposit, pay bills, check balances, and transfer money with a bank card (with a magnetic strip) and personal identification number (PIN) code. ABMs work with an electronic network that validate the bank card and PIN. The ABM, upon request, provides the user with a paper transaction record. Transactions made before 3:00 p.m., on business days, are usually processed the same day and after or on weekends and holidays on the next business day. See “Security Tips for Using ABMs” on page 408.

Chapter 13: Banking Transaction Accounts
Competition in the financial industry has lead to a greater variety of services and transaction accounts offered to customers. Reasons for Transaction Accounts Transaction accounts allow people to pay for goods and services with cash, cheques, or debit. Account details, such as writing cheques, making deposits or withdrawals, using debit cards, and paying bills electronically, should be recorded in a transaction register. Straight Transaction Accounts Straight transaction accounts usually do not pay interest and are used to pay personal and household bills. REASONS FOR TRANSACTION ACCOUNTS Keeping accurate and up-to-date transaction records lets you know how much money is actually available in the account.

Chapter 13: Banking Transaction Accounts
Transaction-Savings (Combination) Accounts Combination accounts provide ways to save money and to pay expenses. Financial institutions levy service charges on combination and transaction accounts. Current Accounts Current accounts are for businesses that are registered with the provincial or federal government. These accounts must be recorded in the business’ name. Transaction—Savings (Combination) Accounts These accounts are part transaction (write cheques, make debit transactions) and part savings accounts (pay small amounts of interest). Service charges vary with the type of account or service package selected and offered at the institution. Charges usually apply to the writing of cheques, debit transactions, withdrawals, etc. Cancelled Cheques Cancelled cheques are considered legal proof of payment as they have been stamped indicating that the payee received the amount of money. Current Accounts No interest is paid on current accounts and service fees are charged for cheques, deposits, and withdrawals. Statements and cancelled cheques are sent to the business at the end of each month. These account usually provide a deposit book with duplicate slips for the client’s and the institution’s records.

Chapter 13: Banking Reconciling the Statement
Reconciliation occurs when the transaction register and the monthly bank statement are compared and matched to ensure they agree. Monthly reconciliation is important so that the necessary funds are available to cover current and future transactions. Steps in a Reconciliation Step 1. Check off transactions that appear on the account statement and the transaction register. Step 2. List any outstanding cheques and withdrawals. Step 3. List any deposits in the transaction register and not on the account statement. Step 4. Subtract Step 2 from Step 3. Step 5. Enter into the transaction register any transactions on the statement not already entered. Balances of Steps 4 and 5 must match. Steps in a ReconciliationStep 3: List any deposits in the transaction register and not on the account statement. Step 1: Check off transactions that appear on the account statement and the transaction register. Step 2: List any cheques and withdrawals that are in you register but are not on the bank statement. This list represents withdrawals that occurred after the bank statement cut-off date and cheques that have not cleared through the account. Cheques that have not been cashed or deducted from the account balance are called outstanding cheques. Step 3: Deposits listed should be those made since the statement was prepared. Add this total to the closing balance of your account statement. Step 4: Subtract the total in Step 2 from the total in Step 3. Step 5: Example of entries not yet in the transaction register are interest, service charges, debit card purchases, and ABM transactions. Calculate a new register balance. The balance at the end of Step 4 should match the balance at the end of Step 5. If they do not agree recheck your work for errors and if none made contact your financial institution.

Chapter 13: Banking Writing Cheques
Most cheques are written from a chequebook. However, cheques can be written on anything including blank paper, roofing tiles, or envelopes to name a few. Banks will accept these special “cheques,” but will charge a special fee to process them. Cheque Essentials Basic information that must be on a cheque are date, payee, drawee, drawer, amount, and account number. Security Features Cheques like currency can be forged. To prevent this, some security features have been added to cheques, such as special inks that change colour when rubbed, watermarks, and special fibres. Stopping Payments A stop payment request can be made if you do not want a cheque to be cashed, or if it is lost or stolen. CHEQUE ESSENTIALS See “Essential of a Cheque” on page 413. Date: All cheques need a day of month, month, and year. Staledated cheques, are dated more than six months prior to the day they are presented at the financial institution are not usually accepted. Postdated cheques, a cheques with a date on it that is later that the actual date, will not be accepted at a financial institution until cheque’s date. Payee: The payee is the name of the person or business to whom the cheque is written. Drawee: The drawee is the financial institution that will honour the cheque. Drawer: The drawer is the person or business from whose chequing account the money will be taken. The drawer must sign the cheque on the line in the bottom right corner and the signature should be the dame as the drawer’s signature card. Amount: The amount of the cheque must appear in both numbers and in words and they must agree. Numbers should be written close to the dollar sign and the words as far left as possible (followed by a line to fill in the blank space). The number of cents should be written above the /100 and no cents should be indicated with xx or 00. Account Number: The account number, that indicated from which account the money is to be drawn, is printed (or can be written) at the bottom of the cheque. STOPPING PAYMENT A stop payment is an order requesting a financial institution not to pay a particular cheque. See “Tips for Writing Cheques”, on page 415.

Chapter 13: Banking Writing Cheques
Cheque Clearing Cheque clearing is the processing of cheques and the settling of account balances among financial institutions. Cashing a cheque involves about 20 different processes that occur at regional data centres, financial institutions, and their branches. Magnetic Ink Character Recognition Magnetic Ink Character Recognition (MICR) is special coded characters printed across the bottom of cheques that are read by electronic cheque sorting machines. Holds on Cheques Deposited cheques can have a hold or delay placed on them. This gives the institution time to clear the cheque and make sure that it does not present a risk to the institution it was written on. CHEQUE CLEARING Daily, representative of financial institutions exchange cheques and computer or electronic records through regional data centres. Branches usually receive cheques no later than two days after they are deposited. Magnetic ink character coding, electronic and digital equipment, and fast, linked computer terminals support the speed and efficiency of the process. With over a billion cheques handled annually and the huge cost associated with the processing, financial institutions encourage customers to make electronic transactions that reduce costs. See Figure 13.1, “A Cheque’s Journey Through the Canadian Clearing System”, on page 416. Magnetic Ink Character Recognition (MICR) When a cheque is processed through an electronic sorting machine, the encoding line is magnetized and the cheque number, institution and branch numbers, and the account numbers are read. During clearing two codes for the amount and type of transaction are added. Holds on Cheques Holds are a way for financial institutions to ensure that the person or business writing the cheque is willing and able to cover its value. Holds also protect individuals, businesses, and institutions from loses due to NSF cheques and cheques written for illegal purposes.

Chapter 13: Banking Shared ABM Networks
Financial institutions introduced ABMs in Canada in ABMs allow customers to access their accounts quickly, conveniently, and accurately. The electronic funds transfer system (EFTS) is a computerized system that facilitates deposits and withdrawals. It also provides customers with a faster and less costly service. Debit Cards and Direct Payment In 1993, Canadians began to use their ABM cards as debit cards to make Interac Direct Payment (IDP). This service allowed customers to pay for goods and services at businesses. Telephone Banking Telephone banking allows customers the flexibilty to bank at any time and anywhere using a telephone. Customers usually call a toll-free number and use their bank card and PIN code to access a variety of services through computerized voice instructions. ABMs are found in supermarkets, airports, malls, gas stations, stores, schools, etc. The three main shared ABM networks in Canada are Interac, Cirrus, and Plus. Interac is the largest and is a Canadian network that links with Cirrus and Plus, both international ABM networks allowing cardholders access to accounts abroad. Customers usually pay a fee for each ABM transaction; these charges can add up fast. DEBIT CARDS AND DIRECT PAYMENT Interac Direct Payment (IDP) is a method of paying for goods and services electronically that uses customers’ banking cards to immediately and directly transfer funds from their bank accounts to those of merchants or other service providers. Another name for a bank card, a debit card allows customers to access their accounts electronically at ABMs or at retailers using the Interac direct payment service. Password or PIN protection is important with merchant transactions as well and ABM transactions. IDP customers can use remote or mobile card readers to pay for taxis and delivered pizza. When there is sufficient funds in the customer’s account it is debited and then credited to the retailer’s account. A direct payment transaction fee may be applied by the financial institution and sometimes even the retailer.

Chapter 13: Banking Online Banking
Financial institutions also offer customers online banking using computers. With the Internet, customers can now access banking services 24 hours a day, seven days a week (24/7). Online Banks Online banks, also known as virtual banks, do not have physical branches. Customers access and communicate with the institution online, on the telephone, by ABM, or through independent professionals. ONLINE BANKING The same services, plus others, available via telephone banking are available over the Inernet. Additional services include the ability to buy RRSPs, and download and print information. The customer’s PIN code is used to access the Internet system and fee associated with this service are generally lower than traditional in branch services. See Table 13.4, “Pros and Cons of Online Banking” on page 420. Online Banking Examples on online banks include ING DIRECT, President’s Choice Bank, and Citizens Bank of Canada. These types of banks have lower business costs that they often pass on the the customers through lower fees, lower interest rates for borrowing, and higher rates for deposits. The negatives involved may include that no personal relationships are established and cheques may clear slower.

Chapter 13: Banking Other Financial Services
Financial institutions offer different services that vary in cost to meet the needs of individuals and businesses. Loans Loans are one of the most important services offered to consumers, businesses, and all three levels of government. Loans generate the major source of income for institutions. Lines of Credit A line of credit is a form of borrowing that allows a consumer to gain access to instant credit at a prearranged amount from an institution. Credit Cards A convenient alternative to cash and cheques, credit cards allow consumers to buy goods and services worldwide and even obtain cash from ABMs. LOANS Loans are made to consumers, businesses, and all three levels of government. The range from small to multibillion—dollar financing. Money is only lent if it seems likely that it can be repaid on time. Term loans, student loans, credit cards, lines of credit, and mortgages are common types of loans. A term loan involves borrowing money and paying it back at a specific time. Interest on a loan can be fixed (a set rate of interest for a specified term) or variable (interest rates fluctuate with general rates). LINES OF CREDIT This ability to access credit instantly requires payment of interest only on the exact amount borrowed for the number of days that it is used. Interest rates are usually lower that basic credit cards. Lines of credit can be critical for new business in the start-up period and for seasonal businesses. CREDIT CARDS Many financial institutions offer one of two major credit cards: Visa or MasterCard. Features, fees, and interest rates on credit cards vary.

Direct Deposits A direct deposit is the transfer of funds from sources such as an employer directly into a specified account. Money Orders and Drafts A money order is a form of payment like a cheque in which the issuing institution guarantees payment to the payee. Similar to a money order, a draft is issued only by a financial institution for a large amount of money. It is a safe and secure method to receive payment, and guarantees the payee instant access to his or her money. DIRECT DEPOSIT The government (tax refund) and employers (pay) can have the funds that they want an individual to have deposited into their bank account thereby giving instant access to the money without any holds. MONEY ORDERS AND DRAFTS The money order is also protected if it is lost or stolen. Often a small service fee is applied to the purchase of a money order. Money orders can be purchased in a foreign currency and at non financial institutions such as Canada Post. Some institutions do not differentiate between a money orders and drafts. Drafts are completed in triplicate (main copy to payee, one copy is for the institution, and a copy (a form of receipt) is kept by the sender). money transfers have reduced the need for money orders, allowing parents to send children money or pay into an account at another institution.

Night Depositories A night depository chute allows customers to make deposits or drop off documents 24/7 that are then processed during branch hours. Overdraft Protection For a fee, depositors can have overdraft protection when a cheque is written for more than the funds in the account. Preauthorized Bill Payments Preauthorized debit allows individuals to pay businesses using regular, automatic withdrawals from their account. NIGHT DEPOSITORIES This service allows business to drop off money in locked pouches into secure chutes thereby reducing the risk of theft and insurance costs to the business. This can also save the business time as a representative does not have to be present when the deposit is processed. OVERDRAFT PROTECTION If an account does not have overdraft protection, the cheque will not be honored and it will be returned marked NSF. PREAUTHORIZED BILL PAYMENTS Monthly bills such as a mortgage, cable TV, insurance, etc. can be arranged by giving a company written permission to make withdrawals for an account. Businesses that charge different amounts monthly have to notify the payor at least 10 days before the payment is due.

Safety Deposit Boxes Customers can rent fireproof, metal boxes to store documents and valuables at a financial institution. Combination Service Packages Financial institutions offer a range of service packages to clients for a flat monthly fee. Shopping for a Financial Institution When selecting a financial institution(s), consider and research the services, location, fees, reputation, and so on that are offered. SAFETY DEPOSIT BOXES Safety deposit boxes come in different sizes and they are not covered by insurance. The institution does not know what is in the box, even though they have one of the keys for it; the renter has the other key (both are needed to open the box). People often store birth certificates, stock certificates, insurance policies, wills, collector coins, jewellery, deeds, etc. in these boxes Fees charged are usually based on the box size. COMBINATION SERVIE PACKAGES Plans range from the basic with limited transactions per month to comprehensive packages that include some unlimited services including free chequing, personalized cheques, overdraft protection, credit card(s), electronic transfers, etc. Young people, students, and seniors are often offered special rate packages. SHOPPING FOR A FINANCIAL INSTITUTION Printed material and information available online can assist individuals make decisions regarding what financial institution(s) to use. The Future of Financial Services Even with technology driven services branch and personal banking will remain a reality in Canada. Plastic smart cards that house a microchip can store applications (information) such as e-cash and electronic cash. “Chip” transactions will initially be expensive and time consuming, as terminals and ABMs will have to be replaced. Electronic and digital technology will keep on driving change in the financial institutions in Canada.

Chapter 14: Savings and Investing Savings and Investing
Consumers can use any money left over from purchasing goods and services toward savings or investing. Saving means putting money aside for future use. Investing is using savings to earn extra income. For most consumers, it is a good idea to combine both savings and investing in their financial plan. The Need for a Savings Plan A savings plan ensures that a certain amount of money is put aside on a regular basis to reach a financial goal. Why People Save People save for many reasons including emergency needs, short- and long-term goals, and security and future needs. Money deposited in a savings account earns interest and is protected against loss. If the interest rate is less than the inflation rate money loses its purchasing power. Examples of savings options are GICs, RRSPs, savings accounts, and term deposits. Investing Advantages: Often yields a higher rate of return. Investments can grow at or exceed the inflation rate. Investing Disadvantages: Yield is not guaranteed. Risk of losing part of or all the money. Examples of investing include stocks, mutual funds, bonds, and collectables. The combination of saving and investing depends on short and long term goals. THE NEED FOR A SAVINGS PLAN Employers and banks can help individuals save by taking part of their money and redirecting it into savings and investing. Emergency Needs: consists of unexpected events affecting the main income earner in the family. Insurance offers some protection against unexpected events, “Saving for a rainy day”. Three to 6 months in savings is recommended by financial planners. Short and Long Term: Short term is usually the purchase of an inexpensive item(s) within a year. Long term goals require saving periods of a year or more (for such things as post-secondary education, car, house, etc.). Security and Future Needs: Savings for emergencies, opportunities, and future needs gives people a sense of security and satisfaction. Having sufficient retirement savings can be achieved by saving at least 10% of earnings.

Chapter 14: Savings and Investing Selecting a Savings Plan
Benefits of Savings Plans Plans offered by financial institutions can offer interest, safety, and insure against loss. Earnings and Yield When money is deposited into an account at a financial institution, it is being lent to the institution so that it can also be lent to other borrowers. Interest is paid to the account holder for the use of the money. Interest is also paid by the person borrowing the money. Rate of return is interest expressed as a percent of the original investment. It is also called yield. ($1000 x .05 = $50) Rate of return is usually based on a one-year period. The time frame for interest calculations (for example daily, weekly, monthly, or annually) affects the amount of yield earned. Interest can be calculated with simple interest meaning based on the principal amount deposited. Interest can be compounded or calculated on the amount saved plus the interest on the interest already accumulated. See Table 14.1, “Calculating Compound Interest”, on page 439. Compounding makes your savings grow faster than simple interest. Individuals should seek out the best yields balanced with an acceptable level of risk. Now worth $1050

Chapter 14: Savings and Investing Selecting a Savings Plan
Safety Established in 1967, the Canadian Deposit Insurance Corporation (CDIC), an agency of the federal government, protects depositor’s funds to a maximum of $ Liquidity Liquidity is the ability to convert an asset or investment into cash quickly and easily. Safety The financial institution pays for the deposit insurance. The $ maximum is the total amount insured on deposits in all accounts at all branches of the same financial institution. Accounts at credit unions are also insured. Protection varies from province to province. Liquidity Many savings plans have liquidity whereas assets such as a home or collectables may take considerable time to convert into cash.

Chapter 14: Savings and Investing Common Savings Plans
There is a wide range of savings plans available to individuals from different institutions. Savings Accounts Savings accounts are the safest way to save and earn some interest or return on your money. Interest rates and calculation methods vary from one institution to the next, and fluctuate with economic conditions. Term Deposits and Guaranteed Investment Certificates Term deposits and guaranteed investment certificates (GICs) are savings plans in which a fixed sum of money is deposited over a specific length to time. Interest is calculated in different ways: Daily and paid at the end of each money On the average account balance during a specific period On the minimum monthly balance and paid semi-annually (April 30 and October 31) Interest paid on savings accounts is the lowest rate paid on all types of investments. Term Deposits and Guaranteed Investment Certificates Terms range from 30 days to 5 years. Shorter terms usually mean lower interest rates GICs are locked in for the term, or to an anniversary date, and term deposits can be cashed early.

Chapter 14: Savings and Investing Common Savings Plans
Registered Retirement Savings Plans In 1957, the federal government introduced registered retirement savings plans (RRSPs) to encourage people to save for retirement. Registered Education Savings Plans Registered education savings plan (RESP) is a long term savings plan to help finance a child’s education. See some restrictions below. Income earned is tax-free until the child attends an approved post- secondary school full time. The amount is limited to $ (new legislation $50 000). The Canadian Education Savings Grant (CESG) is up to $400 per child per year. Costs of Post-secondary Education Tables 14.2, “Student Living at Home,” and Table 14.3, “Student Living Away from Home,” on p. 446 in the text, show the estimated costs of post-secondary education and student living costs. RESISTERED RETIREMENT SAVINGS PLANS RRSPs allow individuals to invest a portion of yearly income without paying income tax on it until they withdraw it. Since income tax is usually deducted off peoples pay cheques, those who invest in RRSPs receive the income tax paid when they file a return. The government limits that amount you can contribute to your RRSPs. RRSPs come in the form of mutual funds GICs, stocks, bonds, and even small business. Contributions made early in one’s life generate larger returns. See “Who wants to Become a Millionaire?” on page 443. REGISTERED EDUCTION SAVINGS PLANS Little or not tax is paid when the beneficiary withdraws the funds (students usually have low income levels).

Chapter 14: Savings and Investing Common Forms of Investments
Investments, such as government or corporate bonds, stocks or mutual funds, real estate, and collectibles, have different levels of risk. Lower yields are associated with “safer” investments. Higher yields are associated with riskier investments. When someone diversifies their investment, they spread their investments across several types. Canada Savings Bonds A Canada Savings Bond (CSB) is a loan made by an individual to the government of Canada. On the maturity date, the government will repay the principal plus interest. Risky investments should only be considered when the investor is prepared for the lose of or part of their savings. Canada Savings Bonds The maturity date or due date of a bond is printed on its face. Provinces and municipalities also sell bonds. Advantages include: Guaranteed by the government of Canada Very liquid (cashed at any time) Only the face value is paid within the first three months after purchase Face values as small as $100 can be purchased through payroll deductions. The Canada Premium Bond is also available to consumers with a higher rate of interest, but can only be cashed on the anniversary of the issue date or during the 30 days after that.

Corporate Bonds Businesses sometimes need money to increase production, expand operations, or introduce new products. Businesses sell securities— corporate bonds and shares of stock—to raise the necessary funds. A bond is a promise to repay borrowed money on a certain future date along with interest. Investing in Stocks When an individual buys stocks, they become part owner or a shareholder in the company. Shareholders share the risks and rewards of the company. A bull market occurs when the demand and price for most stocks is high. When demand and price for most stocks is low, it is a bear market. Corporate Bonds Securities is a general term for stocks and bonds that are sold by corporations and governments to raise large sums of money. Individuals who buy corporate bonds are lending money to the corporation. A bond is guaranteed by specific assets of the company issuing the bond. Bond holders get a fixed interest payment each year, dependent on the reputation and credit rating of the corporation and general interest rates. If a bondholder sells before the bond matures, it is usually sold at the current value or market value to other investors through investment dealers. Market value is the price at which a share or stock or a bond can be bought or sold. People who buy corporate bonds generally do so for the regular interest income. Investing in Stocks Companies sell shares to raise funds to establish themselves or to expand and grow. If a business is profitable, a portion of these profits may be divided and paid to the shareholders as dividends. Stocks do not have a maturity date. Stock prices fluctuate from day to day and even hour to hour. Stock prices should reflect the investor’s views on the company’s prospects including earnings and growth, news or new products or planned services, and economic conditions.

Common Stock Common stock represents general ownership in a corporation, carries voting privileges, and includes a right to share in its profits. However, there are no fixed dividend rates. Common stock is always liquid—it can be bought or sold at any time on the open market. Preferred Stock Preferred stock has advantages over common stock due to the payment of fixed rate dividends. Shareholders have no voting privileges, and stock prices tend to be more stable. This type of stock is also liquid. Blue chip companies such as Weston and Imperial Oil are characterized by a long record of regular dividend payments, stable growth, and active trading. Common Stock Holders of common stock can attend the company’s annual meetings. One share equals one vote. Common shareholders are paid dividends only after obligations to bondholders and preferred shareholders are meet. During a bear market, when share values fall usually due to poor company performance, little or no dividends are paid. Preferred Stock Preferred stocks usually have a higher yield than common shares. Involve less risk and tend to be more stable and dividends are fixed. There are no voting rights and there is less of a chance of large gains if the company has high profits. Examples of blue chip companies include Bell Canada International, Imperial Oil, TransCanada Pipelines, and Weston. Growth companies, that have a higher risk, reinvest their profits rather than paying shareholders dividends. If a company goes out of business, common and preferred shareholders are only liable, or lose, the amount originally invested.

The Stock Exchange Investors buy and sell stocks often with the help of stockbrokers or by using online services through the stock exchange. The Toronto Stock Exchange (TSX) handles about $5 billion worth of shares a day—the largest trading volume of any stock market in Canada. The TSX and TSX Venture Exchange have over 110 members made up of mostly investment bankers and brokerage firms. Other well-known stock exchanges include NYSE New York Stock Exchange (New York City, USA) NASDAQ National Association of Securities Dealers Automated Quotations (New York City, USA) London Stock Exchange (London, England) Hong Kong Stock Exchange (Hong Kong, China) The Stock Exchange The TSX was created on October 25, 1861, it listed 18 securities, and membership was $5. In 2003 the TSX listed 1340 stocks, listing fees where between $ and $ The total market capitalization (number of shares times share price) was $1.3 trillion. Members provide advice to clients, guarantee new issues, and provide corporate finance services. TSX profits are generated in three ways: Collects brokerage fees Collects fees from list companies Sells stock data EASDAQ is the European equivalent of the NASDAQ Other major stock exchanges include the London Stock Exchange, the Tokyo Stock Exchange, Euronect, Frankfurt Stock Exchange, and the Hong Kong Stock Exchange. Because of the internet and the different stock exchanges available the future of the TSX is uncertain; a merger may be in its future.

Buying and Selling Stocks Stockbrokers and investment dealers are licensed financial experts who advise buyers on which stocks to buy and sell and when to complete these transactions. Online investing, the buying and selling of stocks on the Internet, is growing in popularity due to convenience and low associated costs. Stock Quotations The bid price is the highest price anyone is currently willing to pay for a stock. The ask price is the lowest selling price that another investor is willing to accept for the stock. Both make up a stock quotation. Buying and Selling Stocks Licensed financial experts charge a fee, or commission, which serves as their salary and for services that the firm provides. Fees vary so shop around. When investing online, individuals should make sure to do their research from sources such as annual reports, financial statements, and company news and background on stock performance. Stock Quotations Stock quotations usually list the following information: The highest and lowest price paid for the stock during the current year The highest and lowest price paid for the stock the previous day The last, of closing price of the stock that day The change in price from the previous day’s closing price The number of shares traded during the most recent trading session

Chapter 14: Savings and Investing Savings and Investing
Mutual Funds Mutual funds are pools of money from many investors that are set up and managed by an investment company to buy and sell securities from other corporations. Real Estate Real estate is land and anything attached to it. Besides buying a home as a form of investment in real estate, some people buy income property. Collectibles Collectibles are items of personal interest to a collector. A collectible may increase in value over time due to the scarcity of the item or the demand in the market. Mutual Funds Professional investment managers, who make the day-to-day fund decisions are paid management fees and fees when funds are bought or sold. No-load funds do not involve fees. Buy selecting investments from many different companies the risk is spread over a large number of securities. Mutual funds are not covered by the Canada Deposit Insurance Corporation (CDIC). Fund types include growth funds, balanced funds, global funds, money market funds, and real estate funds. Even with the professional management, individuals should still follow to see how funds are doing. Daily newspaper financial sections usually report mutual fund performance. REAL ESTATE Real estate includes a house, cottage, condominium, or a piece of property. Income property is the purchase of an apartment, house, or commercial buildings, and renting it to tenants. COLLECTIBLES Examples of collectibles include sports cards, comic books, stamps, coins, antique furniture, vintage cars, etc. Returns beyond the original price paid for the collectible is not realized until it is sold (no interest or dividends).

Chapter 14: Savings and Investing Business Investments
Three Main Reasons Why Businesses Invest Businesses can invest excess cash (usually at a low risk but highly liquid) until it is needed. Excess cash can be invested to generate income. Business can invest strategically by purchasing another business. BUSINESS INVESTMENTS Low risk, liquid investment could include: High-rate savings accounts Treasury bills that are short-term government bonds, usually in large denominations, available for short-term investing, but difficult to cash in before the maturity date. Purchase back their own company shares it the shares are perceived as undervalued. Profits can be used to increase profits. One way is to buy preferred shares because of the consistent dividend payments. The purchase of another business can expand the customer base, eliminate competitors, or ensure the supply of raw materials.

Chapter 15: Credit The Wonderful World of Credit
What is Credit? Credit is the privilege of using someone else’s money to purchase an item or service now and then pay for it later. Using credit means a transaction has occurred between a creditor and debtor. The creditor is the person or business that sells on credit or grants a loan. The debtor is the person or business that buys on credit or obtains a loan. Consumer Credit A consumer uses credit for expensive items, such as a home or car, and for inexpensive things like theatre tickets or DVDs. Vacations, investments, and paying off other debts can also be arranged on credit. WHAT IS CREDIT? Credit can be good or bad depending the the debtors use of it. Positive uses of credit include using it to avoid draining savings or to start up a new business. When individuals borrow beyond their ability to repay debt, financial difficulties occur. Consumer Credit Consumers should be aware of and weight the advantages and disadvantages of credit. See “To Use or Not to Use Consumer Credit?” on page 469.

Consumer Credit Advantages of Consumer Credit Disadvantages of Consumer Credit Government Credit All three levels of government borrow money to provide goods and services to citizens. Canada Savings Bonds and Government of Canada Treasury Bills are two examples of the government using credit. instant enjoyment convenience emergency needs saving money credit rating monthly statement credit costs impulse buying overbuying financial difficulties Consumer Credit See Figure 15.1, “Advantages and Disadvantages of Using Consumer Credit”, on page 468. Advantages of Credit Instant enjoyment means buying the goods or services on credit and using it now and paying later. Using credit is convenient as you do not need to carry cash and cheques while shopping or traveling. Credit can come in very handy when there is an emergency and money is needed now. Credit allows people to save money by taking advantage of sales. Buying on credit is one way to establish a credit rating. A credit rating is an indication of the level of risk that a consumer, business, or government will pose if credit is granted. The monthly statement received from the creditor can help individuals budget and record spending. Disadvantages of Credit There are costs involved when buying on credit not fully present when using cash (losses passed on to consumers and interest charges). With access to credit some consumers buy impulsively and do not comparison shop or check the details of the sale. With access to credit some consumers overbuy, purchasing things they do not need or that they cannot afford. Many consumers get themselves into financial difficulties by mismanagement of credit, basically spending more than they can afford.

Business Credit Businesses use long-term credit to purchase land, buildings, and equipment, and short-term credit to buy goods, raw materials, and supplies. Entrepreneurs start new businesses by using loans and credit. Advantages of Business Credit Disadvantages of Business Credit Why Business Grant Credit Financial institutions and retail businesses grant credit to consumers. Retailers offer credit to increase sales, attract customers, and to potentially collect interest charges. finance major purchases consolidate payments use of corporate credit cards overcome cash-flow shortages Business Credit Advantages of Business Credit: Companies can borrow funds to finance major purchases such as buildings, land, equipment, etc. Supplies are often purchased on credit as cost of delivered items is consolidated into one monthly payment thereby effectively using credit. Corporate credit cards allow employees to make work-related purchased. They usually keep receipts for expenses such as meals, gas, and travel and submit them periodically to the company. When business experience cash-flow shortages due to the cyclical nature of the business credit can be used over these low revenue periods. Disadvantages of Business Credit: The interest charged on loans increases business costs. When businesses default on loans assets may be seized, the company’s reputation is degraded, and the business may become insolvent or declare bankruptcy. WHY BUSINESS GRANT CREDIT Financial institutions grant credit in the form of loans, mortgages, and bank credit cards. Many retailers offer store credit (credit cards) and credit accounts. Credit is shown as accounts receivable in a business’s records. Businesses grant credit by accepting universal credit cards, such as Visa and MasterCard. Reliable business customers can receive goods and pay for it once a month and if terms are not meet interest charges will be incurred. When business do not pay their accounts payable they may be subjected to the efforts of a collection agency hired by the business that they owe money to. increased costs defaulting on a loan

Chapter 15: Credit Types and Sources of Credit
The type of credit that people use depends on their needs, wants, goals, and purposes. The four common types of credit are credit cards, installment sales credit, loans, and mortgages. Credit Cards The average Canadian has at least three different credit cards. The three basic types of cards issued to consumers come from banks (the most popular), retailers, and travel and entertainment businesses. Bank-issued Credit Cards With a good credit rating, consumers can acquire bank-issued credit cards, such as a Visa and/or MasterCard. The credit limit on the card depends on the consumer’s credit rating. Businesses that allow consumers to pay with credit cards incur the cost of equipment, transaction fees, monthly statement charges, charge-back fees and customer disputes. CREDIT CARDS There are more than 600 different issuers of credit cards in Canada. Except for retail charge cards, credit cards are universal, or multipurpose. Businesses around the world accept major credit cards, thereby attracting customers and increasing sales. Credit cards are like short-term loans and it is important to know the terms, conditions, and options. Cards range from low interest rate to “gold” and “platinum” cards. Some cards allow customers to collect points, such as Air Miles and AeroplanPlus. Bank-issued Credit Cards If the credit card balance is paid consistently each month no interest charges are incurred. Interest is charged on all cash advances and is charged on purchases after the statement due date passes. Advantages include: Small and large business can set themselves up to accept credit card payments. Ideal for web-based businesses. Credit cards increase the probability and size of consumer purchases. Payment speed is fast and businesses do not have the delays related to cheques or invoiced payments. Payment is guaranteed; no bounced cheques. Transaction fees are a percentage of the purchase price. The money used to fund bank-issued cards comes form depositors’ savings at the institution. Profit is made from the difference the card user pays and the amount that the financial institution pays the depositors. Consumers benefit because these cards are widely accepted and they receive a monthly bill that lists purchases.

Travel and Entertainment Cards Travel and entertainment cards are used to pay for luxury services and products, such as hotels, airline tickets, and so on. Retailer Credit Cards Retailers establish their own credit cards, or single-purpose cards, to avoid the charges and fees associated with universal card companies. Businesses that have their “own” card effectively lower costs and make money on the interest payments received. Travel and Entertainment Cards Examples include American Express, Diners Club International, and Discover. Card users usually pay a yearly membership fee that is higher than bank-issued cards. Some of these cards requires payment in full is made each month. Retailer Credit Cards Single-purpose cards can only be used at the issuing retail store(s). The store can also provide their customers with credit specific deals, such as no interest for three months, and thereby be more competitive in the marketplace. Disadvantages include the paperwork involves and the risk that customers may not pay and the outstanding debts would need to be collected; this can be costly and often impossible. Retailers can enhance their card product by offering users special deals, bonuses, and point systems.

Installment Sales Credit Installment sales credit is a credit plan that requires a down payment and fixed regular payments with finance charges added to the purchase price. This form of credit involves a contract that includes the terms of the purchase and payment, including finance charges. Installment credit is slightly more complicated than handing over a credit card to pay for something. The consumer must fill out an application, be approved for credit risk, and then sign a detailed sales contract for the purchase. The buyer takes possession of the product or service, but the ownership stays with the seller until the buyer makes full payment according to the contract. Installment Sales Credit Usually for expensive purchases such as furniture, appliances, or a vehicle. The buyer usually make a down payment of at least 10 percent. Payments, as per the contract, are made over a specified time period.

Loans Loans can be used to make a wide variety of purchases except real estate. Loans, with a variety of repayment options, can be obtained from most Canadian financial institutions. Term Loans A term loan is a form of borrowing in which the borrower agrees to make fixed payments over a set period of time or term. A lease is an agreement to rent something for a set time and at an agreed price. It is an alternative to a term loan. LOANS Types of loans include term loans, demand loans, and student loans. Term Loans Usually one to five years, the term is the period of time over which a loan is to be repaid. The amount repaid is the principal plus interest. With a fixed-rate loan, the interest rate is set for the full term of the loan. With a variable-rate loan, the interest rate changes based on the prime leading rate (Chapter 13). A lease requires the making of regular payments over a fixed period of time but the borrower does not own the asset at the end of the lease.

Demand Loans A demand loan is usually short-term with flexible terms of repayment. Repayment of the entire sum owing can be demanded by the lender at any time. Collateral—something of value that the lender can take and sell if the loan is not repaid—serves as security for the loan. Student Loans Guaranteed by the federal and provincial governments, student loans are available through most financial institutions. Student loans are usually interest-free until six months after graduation. LOANS Demand Loans Demand loan borrowers usually have a strong relationship with the financial institution. Personal examples of collateral include savings, real estate, jewellery, etc. Business collateral could include factories, machinery, or other valuable assets. Businesses can make regular payments or pay the amount in full at any time. Student Loans Applications are available at most guidance/student services at high schools, and at most colleges and universities. Almost all full- and part-time students can apply if attending an approved institution and course. If a student is living at home the family’s financial background determines if they qualify.

Mortgage Loans A mortgage loan is a 10 to 25 year credit plan to purchase property. The property is pledged as collateral for the loan. A bank and buyer renegotiate the terms of the loan and the interest rates many times during the mortgage’s time frame due to varying interest rates. Mortgage Loans The mortgage itself is a legal document. Mortgages come with options in relations to terms, interest rates, and length of time. The terms of the mortgage are usually renegotiated over the life of the mortgage.

Chapter 15: Credit The Cost of Credit
Factors that affect the cost of credit include principal borrowed the term for repaying the loan current interest rates inflation and economic conditions security or collateral risk and credit rating Principal and Term Short-term loans usually have lower interest rates than long-term loans. Borrowing can cost less when it is over a shorter period of time, especially when extra payments are made. Consumers should shop around for a loan, as institutions compete for your business and you may be able to negotiate a better deal than offered. PRINCIPAL AND TERM Sort-term loans rates are lower because institutions can better predict economic trends. Long-term loan rates are usually higher as it is harder to predict economic conditions farther into the future. See Table 15.1, “Cost of Borrowing $ for a Car”, on page 481.

Chapter 15: Credit The Cost of Credit
How to Calculate Simple Interest The formula for calculating simple interest is as follows: I (interest) = P (principal) x R (interest rate) x T (time) However, financial institutions do not calculate using this simple formula. Instead, they take into account amounts repaid during the loan, and charge interest only on the amount outstanding. From a financial institution’s perspective, the total cost of a loan is as follows: P (principal) + I (interest) Security or Collateral Often collateral is necessary to secure a loan. It reduces the risk to the lender as the asset can be sold if the borrower fails to repay the loan. HOW TO CALCULATE SIMPLE INTEREST Example: P ($3000) x R (0.07) x T (1 year) = I ($210) SECURITY OR COLLATERAL Collateral allows a borrower to loan a larger amount at a lower interest rate as compared to not having collateral.

Chapter 15: Credit Credit Worthiness
Prior to granting credit, a lender looks at the potential borrower’s credit worthiness, a person’s ability to take on and repay debt. The three Cs of credit are character, capacity, and capital: qualities that a potential borrower must possess for a lender to consider when making a decision. Character Character refers to the borrower’s willingness, reliability, and trustworthiness to make a loan repayment. A lender needs to assess the character of the borrower to determine if the individual or business will repay the debt. CHARACTER Questions that a lender could ask an individual to determine character: Do you pay your bills on time? Have you used credit before? How long have you lived at your current address? Where do you work, and how long have you held your present job? Questions that a lender could ask a business to determine character: Does the business pay its bills on time? Has the business used credit previously without problems? How long has the business existed? Are the owners reliable? Answer to these questions seek to determine responsibility and stability.

Capacity Capacity refers to the borrower’s ability to make payments on time and to pay the debt when it is due. Assessment of capacity by the lender determines if the individual or business can repay the debt. Capital Capital is the value of the borrower’s assets that could be used to repay debts. The lender makes an assessment of capital to know what the borrower has of value that could be sold if the individual or the business does not repay the debt. CAPACITY Questions that a lender could ask an individual to determine capacity: Do you have a permanent job or a steady income? How much do you earn? Do you have any dependants? What are your current living expenses? How much money do you presently owe? Questions that a lender could ask a business to determine capacity: How much income is the business generating? What are the business’s accounts payable? What are the business’s current expenses? Is the business growing? CAPITAL Questions that a lender could ask an individual to determine capital: How much money do you have in a savings account? What assets do you have and what is their value? What investments do you have that could be used as collateral? Do you own or rent your residence? Questions that a lender could ask a business to determine capital: What are the liquid assets available in cash, bank accounts, and accounts receivable? What assets does the business own? What investments does the business own? Does the business own real estate?

Credit Bureaus A credit bureau is a business that gathers credit information on borrowers and then sells it to credit grantors and lenders. Information is collected on both individuals and businesses for a period of seven years. After that, it is removed from their files. The three major credit bureaus in Canada are Equifax Canada, TransUnion of Canada, and Northern Credit Bureaus. Credit Rating A credit rating is an indication of the level of risk that a consumer, business, or government will pose if credit is granted. CREDIT BUREAUS Retail stores and financial institutions are the main customers of credit bureaus. Information collected by the bureaus is similar because most national and international creditors are registered with all three. Credit bureaus do not rate borrowers; they gather information on them and keep it on file for seven years. Individuals and businesses that do not use credit (cash) do not establish a credit record. Credit reports help businesses make better decisions. Since lenders are able to make faster decisions regarding granting credit, consumers benefit. CREDIT RATING Credit rating is a measure of credit worthiness. A good credit rating results when a borrower: Carries no outstanding balance on credit cards Pays all bills on time Keeps debt to a reasonable level; based on income and assets Has taken out a loan, meeting all payment obligations on time A lower credit rating results when a borrower: Pays bills late Has too many credit cards Owes large sums of money as well as a mortgage Applies for many loans or credit cards in a short time period Has declared bankruptcy

Getting a Credit History Students usually do not have any credit history, which makes it difficult for them to receive a loan for education, for transportation, or to start a business. Ways for students to achieve worthiness in lender’s eyes include obtaining good marks and attending school getting and keeping a job buying something on credit and paying it off before interest is charged taking out a small loan having someone, such as a family member or close friend with a good credit rating, co-sign a loan Checking Your Credit File Once a credit rating is established, it is a good idea to check it periodically by contacting one of the credit bureau(s). GETTING A CREDIT HISTORY Without a credit history, lenders cannot rate a student’s risk or credit worthiness. Good marks and attendance indicated positive behaviour and the likelihood that the individual will succeed in future education and in the job market. Repaying a small loan on schedule helps to establish a good credit rating. Co-sign means that a second person signs a repayment contract as a guarantee that payments will be made. If the borrower does not repay the loan, the co-signer will be left responsible for the debt. CHECKING YOUR CREDIT FILE Borrowers request a copy of their credit rating if they are unsure of their rating status, have been denied credit (perhaps information is incorrect), or plan to apply for a large amount of credit. Individuals and businesses can obtain a copy of their credit rating from Equifax, TransUnion, or Northern Credit Bureaus is person, by mail, by fax, or online. The cost to obtain a report is minimal.

Credit Crisis It is important to re-examine spending habits and get out of debt when in crisis. Signs of credit crisis include consistently unable to pay off your credit cards using cash advances for everyday living expenses not knowing how much debt you have seeming to always be in debt Getting out of Debt The steps towards getting out of debt include contact and explain difficulties to creditors be honest and realistic when working with creditors on a plan pay a portion of overdue payments put away credit cards seek help from credit counselling services CREDIT CRISIS Credit crisis is not uncommon. Getting out of Debt When individual and businesses experience a credit crisis they should not panic nor should they avoid their creditors. Spending habits, financial goals, and lifestyle need to be re-accessed when a crisis occurs. A consolidation loan, is a consumer loan (often with lower interest rates) that combines all of the borrower’s debts into one more manageable loan. Credit counselling services are not-for-profit consumer debt counselling services that provide unbiased assistance for individuals and families experiencing money and credit problems. Credit counsellors discuss options and help to develop a course of action to get out of debt. Counsellers can help with budgets and can contact creditors to arrange debt-management plans and reduced payments.

Chapter 1: Economic Basics What Is a Business?

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Chapter 1: Economic Basics What Is a Business?

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