1. Business Organization
Chapter 5
Business Organization

2. 5-1 Business in the U.S. Economy
After finishing this section you will know how to:
Describe the changing status of U.S. employment
Discuss the role of business in the U.S. economy
Describe the three major types of businesses

3. THE CHANGING U.S. JOB MARKET
The beginning of the 21st century saw many new career opportunities along with a decline in manufacturing and agriculture jobs

4. Employment Data
From 1996-to 2006 total employment grew by 14 percent
In 2007 nearly 144 million people held jobs
That number is projected to reach 165 million by 2014 increasing by almost 13 percent

5. Baby Boomers- a large number of people born between 1946 and 1964
They have dominated the labor market since they began working in the 1960s
They will continue to do so until the 2010s when they begin to retire
The average age of U.S. workers in 2020 will be over 50

6. A mini-boom of younger workers will cause the year-old age group to grow faster than the rest of the labor force
Other groups that will go through higher employment growth rates are Asian-, Hispanic-, and African-American workers

7. Currently white non-Hispanic workers make up 70 percent of the labor force
That number will drop to 66 percent by 2014
In the early 1960s, 35 percent of women were working outside the home
The number of working women doubled by 2000
by percent of all jobs will be held by women

8. Pressures on Employees
It was thought at one time that technology would allow people to work fewer hours. That hasn’t occurred.

9. Economic stress has led to downsizing the number of employees
Businesses required employees to take on new tasks and work extra hours
Some full time jobs were changed to part time
Wage rates were decreased
Many people had to find second jobs to meet economic needs

10. Not a permanent employee
Contingent workers- one who has explicit or implicit contract for long-term employment
Not a permanent employee
About 5 percent(6 million people) of the workforce
It is estimated that that number will double in 10 years
Some workers choose this because they:
can’t find other work
like the flexibility of the hours

11. Checkpoint>>
List several groups that will increase as a percentage of the total U.S. workforce in the next decade?

12. BUSINESS AND THE ECONOMY
Businesses make the goods and services you use each day.
In 2002, all businesses world wide produced more than $40 trillion of goods and services
U.S. businesses were responsible for almost 29 percent of that production

13. Size of Businesses Most U.S. businesses are quite small.
Nearly 19.5 million businesses have no employees other than the owner
About 4.5 million companies employ less than 20 people
Just over 26,000 employ people
About 107,000 large businesses employ 100 or more
890 employ more than 10,000 people

14. Roles of Business Provide employment Pay taxes
Make and distribute products and services

15. Impact on a Community When a new business opens, it
pays wages to workers
buys goods and services
money spent can lead to more jobs being created
this leads to more taxes which will go back into providing community services

16. When a large business opens in an area, other businesses will locate there to support them
Small businesses may be started to meet the needs of residents and other businesses

17. Business Activities
Large or small, simple or complex, all businesses complete the following activities:
Generating ideas
Raising capital
Employing and training personnel
Buying goods and services
Marketing goods and services
Maintaining business records

18. Generating ideas A business begins with a new idea.
A business must continue to improve and develop new ideas to remain successful
Many companies use research and development departments to discover new product, service, and operations ideas

19. Raising Capital Businesses need financial resources to operate.
Used to buy buildings, train workers, and complete day-to-day business operations

20. A large amount of capital is needed to start a business
Most comes from owners and loans from financial institutions and investors
A business continues to need money as it develops and grows
That money comes from reinvested profits, bank funding, and investors

21. Employing and Training Personnel
Businesses need human resources.
Businesses have procedures for recruiting, hiring, and training employees
New employees receive training in order to perform their jobs correctly.

22. Buying Goods and Services
Businesses use many of their purchases for their own operations, other purchases are resold.
Manufacturers of cars must buy:
steel, aluminum, and plastics
tires batteries, and airbags

23. A retailer buys an assortment of products to sell to customers.
Must also buy display equipment, computers, and cleaning supplies used to run their business

24. Marketing Goods and Services
Marketing- activities directed at providing the goods and services wanted by a business’s customers
Without marketing, even the best products would remain unsold

25. Maintaining Business Records
All businesses must have some type of record keeping system.
Owners and managers need records to track employee and sales performance to make decisions
Technology is available to make record keeping easy and accurate.

26. Checkpoint>>
What are the six basic activities completed by a business?

27. TYPES OF BUSINESSES
Producers- create the products and services used by individuals and other businesses
Responsible for using resources to make something needed by others

28. Extractors- business that takes resources from nature for direct consumption or developing other products
Examples: pumping oil, mining coal, cutting timber

29. Farmers- cultivate land and use other natural resources to grow crops and raise livestock
Manufacturers- get supplies from other producers and convert them into products
Business activities start with producers

30. Intermediaries- businesses involved in selling the goods and services of producers to consumers or other businesses
There are two common types of intermediaries: wholesalers and retailers
Wholesalers- sell to other businesses, usually in bulk orders
Retailers- sell to consumers

31. Service business- carries out activities that are consumed by its customers
Examples: doctors, lawyers, dentists, baby sitters, painters, or furniture movers
Fastest growing part of the economy
Accounts for more than 60 percent of U.S. employment

32. Checkpoint>>
How does a manufacturer differ from an extractor?

33. 5-1 ASSESSMENT

34. 5-2 Forms of Business Ownership
After finishing this section you will know how to:
Describe the three major forms of business ownership
Determine when each form of business ownership is most appropriate
Recognize specialized business ownership forms

35. 5-2 Forms of Business Ownership
There are three major forms of business ownership
Proprietorship (sole proprietorship)
Partnership
Corporation

36. Proprietorship- business owned and run by just one person
Easiest form of business to start and end
There are few legal requirements regarding ownership and capital needs

37. Advantages of Proprietorships
Sole control over business decisions
Owner receives all profits
Disadvantages of Proprietorships
Responsible for all debts
Any personal assets can be taken by creditors to pay debts

38. Partnership- business owned and controlled by two or more people who have entered into an agreement
Quite easy to start
The owners are both responsible for key business decisions and functions
The partners share both investments and profits
Each partner is liable for all the debts if the business should fail

39. Corporation- a separate legal entity formed by documents filed within a state
It is owned by one or more shareholders
Managed by a board of directors
Most corporations have several owners who invest by buying shares of stock

40. More difficult to start than proprietorships and partnerships due to legal requirements
Not all owners have direct involvement in decision-making about business functions
They do not have access to profits
Stockholders can only loose up to the amount they invested

41. Checkpoint>>
What are the differences between the three main forms of business ownership?

42. CHOOSING A FORM OF BUSINESS OWNERSHIP
While it is possible to change the form of ownership for an existing business, it is best to decide which form to use for the long-term and for the first few years

43. Choosing a Proprietorship
Most businesses begin as a proprietorship.
They remain in that form for the life of the owner
Some people form a business from a hobby or operate a business on a part-time basis.

44. Starting a proprietorship is easy.
You do not need to create a business name.
You do not need to obtain any government licenses or permits.
If operating the business for several years as your only job, it is best to name the business
You will need to register the name with local, state, and federal governments.

45. Provides a tax advantage for the owner
All income is taxed as part of your personal income.
Many business expenses can be used to reduce income.

46. Choosing a Partnership
A partnership is a bit more formal and complex than a proprietorship
Partnership agreement- a written agreement among all owners

47. It details the rules and procedures that guide ownership and operations
Identifies the:
Business name
Investments
Other contributions of each owner

48. Shows how:
The profits and losses will be divided among partners
Authority and responsibilities are distributed among partners

49. Advantage of Partnerships
Two or more people can contribute capital
Disadvantages of Partnerships
All owners responsible for decisions made by other partners
Any personal assets of each partner can be taken by creditors
If any partner leaves or dies, the partnership must be dissolved

50. Choosing a Corporation
Popular form for large business
Corporations are treated as an individual
They must follow the laws of the state that they are incorporated in.

51. To form a corporation, you must file:
Articles of incorporation- written legal document that defines ownership and operating procedures and conditions for the business
Each state has specific information that must be included.
A form is provided

52. Corporate bylaws- operating procedures for the corporation
Board of directors- people who will make the policy and financial decisions for the business
A corporation sells shares of stock

53. Advantages of Corporations
Liability of any owner is limited to the amount they invest
You can make money without being involved in day-to-day operations
Easily expanded or ownership transferred

54. Disadvantages of Corporations
Decision making shared among owners
More records are required
More laws regulate

55. Checkpoint>>
Which form of business ownership is the most complex and difficult to form?

56. OTHER FORMS OF OWNERSHIP
Specialized Partnerships and Corporations
Limited liability partnership- identifies some investors who cannot lose more than the amount they invested
Joint ventures- unique business organized by two or more other businesses to operate for a limited time for a specific project

57. S corporation- limited liability of a corporation with income taxed as personal income
Limited liability company- provides limited liability protection for owners
Has a simpler set of organizing and operating requirements than a corporation
A simple document like a partnership agreement must be developed.

58. Nonprofit corporation- group of people who join to do some activity that benefits the public
Examples: education, health care, charity, or the arts

59. Cooperatives and Franchises
Cooperative- owned by members, serves their needs, and is managed in their interests
Large numbers of small businesses will have greater bargaining power than the individual businesses

60. Franchise- written contract granting permission to operate a business, sell products and services in a set way
Franchiser- the company that owns the product or service and grants the rights to another business
Franchisee- the company purchasing the rights to run the business

61. Checkpoint>>
What are the other specialized forms of business ownership?

62. 5-2 ASSESSMENT

63. 5-3 Organizational Structure for Businesses
After finishing this section you will know how to:
Understand important principles in designing an effective organization
Compare alternative organizational structures for business

64. DESIGNING AN EFFECTIVE BUSINESS ORGANIZATION
Many new businesses fail in the first few years.
Few businesses maintain their success for the lifetime of the owner.
A business needs to be well organized to help people do their work properly.

65. Setting Direction
Mission statement- short, specific written statement of the reason a business exists and what it wants to achieve
Where the direction for the business comes from

66. After a mission statement is developed a business sets goals.
Goal- precise statement of results the business expects to achieve
Used to define what needs to be accomplished and to determine if the business is successful
Example: For an automobile manufacturer: “to produce the top-rated brand for quality and customer satisfaction”

67. Policies- guidelines for making consistent decisions
Procedures- descriptions of the way work is to be done
Effective policies and procedures provide direction to people working in the organization

68. Principles of Effective Organization
Responsibility, Authority, and Accountability
Responsibility- obligation to complete specific work
Authority- right to make decisions about how responsibilities should be accomplished
Accountability- taking responsibility for the results achieved

69. Unity of Command
Unity of command- there is a clear reporting relationship for all staff of a business
For each work assignment, people need to know who is the leader and how decisions will be made

70. Span of Control
Span of control- the number of employees assigned to a particular work task and manager
A large number of people working with little support from their manager cannot be effective
A manager with only a few number of workers may provide too much control

71. Checkpoint>>
What is the difference between a mission statement and a goal?

72. TYPES OF ORGANIZATIONAL STRUCTURES
When only one person works in a business there is little need for an organizational structure.
The sole employee is responsible for all work completed.
When more people are hires, there will need to be an agreement on what work each person will complete and if that person has authority over the work of others

73. Organizational chart- diagram that shows the structure of an organization, classifications of work, and the relationships among those classifications

75. Functional Organization Structure
Functional organizational structure- work is arranged within main business functions such as
Production
Operations
Marketing
Human resources
All people with jobs related to one function will work together.
They report to managers that are responsible for that function.

76. Advantage
People work with others that have the same skills
Drawbacks
More people become focused on their specific function rather than the success of the business
Little interaction with people in other parts of the business

77. Matrix Organizational Structure
Matrix organizational structure- work is structured around specific projects, products, or customer groups
People with different backgrounds are assigned together because their expertise is required for the project or to serve the customer

78. The assignment may be temporary or long term
Can be interesting and motivating to employees
Work with many different people
Focused on a specific project or task
Can be confusing and inefficient without leadership and communication

79. Checkpoint>>
What problems can result from the use of a functional organizational structure?

80. 5-3 ASSESSMENT