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Types of business ownership
Chapter 4
Academic Preparation
 To take business classes in high school
 To go to college and get a degree in
 Co-oping or Internship
 Attending workshops, seminars, trade
What do successful entrepreneurs
do before opening a new business?
 Identify the wants and needs of the
marketplace. Will their business be able to
 Set financial goals - (how much money you
want to make, when you want to pay off your
 Set nonfinancial goals – personal satisfaction
receive (helping community, personal
independence, doing something you like)
Sole Proprietorship (most
common form of business)
 One person is in control of the business
– Advantages: Very little government control
– Receives all of the profits
– Relatively easy to start
– Taxed less
– Disadvantages: You are solely responsible –
unlimited liability
– Limited money
– Make all decisions yourself
 Advantages
– Have someone to share in decision-making and
management responsibilities
– You don’t have to come up with all of the
money/capital by yourself
– Less taxation than corporation
– Losses will be shared by all partners
– Face very little government regulation
 May have disagreements on business
 May be held liable for partner’s mistakes
 All partners must assume the liability (unless
wrote up different)
 Death of partner may dissolve the
Corporation (chartered through a
state and legally operates apart
from owners)
 Advantages:
– Can get money through sale of stock
– Limited liability
– Can easily enter and leave business (sell stock)
– Areas can be managed by experts
 Disadvantages:
– Complex to form
– Increased government regulation
– Higher taxes on profits
– Major accounting /recordkeeping
What is a business plan???
 A written document that describes all the
steps necessary in opening and operating a
business (used to guide your business)
 Legal agreement that gives an individual a
legal right to market a company’s product or
services in a particular area
Operating Costs
 Initial franchise fee – right to run business
 Start-up costs – costs to rent facility,
equipment costs, inventory
 Royalty fees – weekly or monthly payments
to owner to seller of franchise
 Advertising fees – fees paid to support
advertising of franchise as a whole
Advantages of franchise
 Have an established product or service
 Franchisors offer management, technical,
and other assistance
 Equipment and supplies may be less
expensive (get better contract deals)
 Guarantee of consistency attracts
Disadvantages of franchise
Can cost a lot of money
Don’t get as much of profits
Less freedom to make decisions
Dependent on performance of other
 Franchisor my terminate the franchise
agreement or not renew it
Things to consider???
 Will I have an exclusive territory?
 What are the costs and royalty fees?
 How profitable have other franchises
 How long has franchisor been in
 What services will the franchisor offer
 What happens if I cancel the
Financial and Nonfinancial Goals
 Set goals
– Financial – how much money make, how long to
make a profit
– Non-financial – personal satisfaction,
Three main skills needed by entrepreneurs?
Good decision-makers
What is scarcity?
 There are limited resources and unlimited
wants and needs in our economy – forces
us to have to make choices
– Resources of a business:
 Land – physical property owned
 Labor – people working
 Capital – money and resources used to make a
product (could be buildings, equipment, etc.)
 Entrepreurship – people owning their own business
Command Economy/Market
 Market economy (United States)
– Not a lot of government control
– The consumer decides what gets produced,
how its produced, and for whom
 Command economy (North Korea)
– Government controls the factors of production
and makes all the economic decisions (What,
How, and for Whom)
Government affects what gets
produced by?
 Allowing competition
 Having regulations to protect the consumer
 Promote business ownership
Advantages to buying an existing
 The business already has customers,
suppliers, and procedures
 The seller may train the new owner
 There are prior records of revenues,
expenses and profits.
 May be easier to get financing (less risk for
the bank)
Disadvantages of buying an existing
 The business may not be making a profit.
 You may inherit serious problems. (poor
reputation, trouble with suppliers, etc.)
 Capital is required
Before buying a new business what
should you find out/do???
 Visit during business hours
 Make sure business meets your objectives
 Get a complete financial accounting report
for the last 3 years
 Ask for important information in writing.
 Meet with a business broker to help with
whether or not it is a good investment.
Advantages of entering a family
 Pride and sense of mission working with
 Some enjoy working with relatives.
 Like keeping the business in the family
Disadvantages of working with
 Senior management positions – held by
family members regardless of their ability
 May be hard to retain good employees who
are not members of family
 Family politics may affect decision-making
 Sometimes distinction between family-life
and business is blurred