Download Characteristics of Business - Loudoun County Public Schools

The story of 5 entrepreneurs…
Business Management
Define entrepreneurship.
 Explain the risks and rewards of
entrepreneurship through a SWOT
analysis.
 Explain the nature of business activities.
 Describe the general types of businesses.
 Compare the characteristics of different
types of business ownership.
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Entrepreneurship is the process of
starting and managing your own
business.

An entrepreneur is someone who
attempts to earn money and make
profits by taking the risk of owning and
operating their business.
What personality traits,
qualities, or skills are
needed in order to be a
successful
entrepreneur?
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Risk taker
Decision maker
Hard worker
Ambitious
Goal setter
Enjoys challenges
Can adapt to changes
Inter
nal
Strengths
Weaknesses
Operations
Finances
Personnel
Exter
nal
Opportunities
Threats
Customers
Economy
Government

An organization that produces or
distributes a good or service for
profit is called a business.

Profit (the difference between
earned income and costs) is the
goal of business ownership!
Every business engages in at least three major activities.
1.
Production
making a product or providing a
service
2.
Marketing
3.
Finance
activities between the business
and customers (buying / selling)
deals with all of the money matters
involved in running a business

Produce goods used
by other businesses or
organizations to make
things:
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Mining coal
Extracting oil
Constructing buildings
Building businesses
Manufacturing airplanes
Assembling televisions
Growing crops

Sell products or services
to the end consumer

Engaged in marketing
(wholesalers and
retailers), in finance
(banks and investment
companies), and
providing services
(medical offices, fitness
centers, hotels)

Service Businesses – type of
commercial business that use mostly
labor to offer intangible products to
satisfy consumer needs

Industry – refers to all businesses
within a category that do similar work
(i.e., the automotive industry)
Service
Businesses
Industries
Sole Proprietorship
o Partnership
o Corporation
o Organizational Alliances
o Franchise
o

About 3/4 of all businesses in the United
States are sole proprietorships.

A sole proprietorship is a business
owned by one person.

Sole proprietors usually have a special
skill by which they can earn a living (i.e.
plumbers, contractors, wedding planners,
etc.).
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Owner is boss
Owner receives all
profits
Personally know
employees &
customers
Makes all decisions
Advantages
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May lack necessary
skills & abilities
May lack funding
Owner bears all
losses (unlimited
liability)
Business ends upon
death of the owner
Disadvantages

A partnership is a business
owned by two or more people
who share its risks and rewards.

A partnership agreement
outlines the rights and
responsibilities of each partner.

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Skills & abilities
pooled
Sources of capital
increase
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◦ May be held responsible
for partner’s mistakes
◦ Investment
◦ Credit

Advantages
Unlimited liability
Disagreement among
partners
All partners share risk
Difficulty in
withdrawing from
partnership
Disadvantages

Small businesses provide 55% of jobs.
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There are 1/2 million businesses
started each year – only the strong
survive!
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Within the first three years, one out of
every four or five businesses will close.

About half cease operations within 6 to
7 years.

Only 15 – 20 percent of all
businesses in the United States are
corporations.

Corporations are responsible for 80%
of all business that is conducted in
the United States.

A corporation is a company that is registered
by a state and operates apart from its owners.

The owner must get a corporate charter
(business license) from the state where the
main office will be located.

To raise money, the owners can sell stock
(shares in the company) to stockholders.

The company must have a board of directors
to govern the corporation.
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Available sources of
capital
Limited liability of
stockholders
Permanency of
existence
Ease in transferring
ownership
Advantages
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Double taxation
◦ Company taxed on
income
◦ Stockholders taxed on
profits
Government regulations
Complex business to run
◦ Stockholders’ records
◦ Charter restrictions
Disadvantages
Complete the worksheet using
the website listed.
LLC
S-corporations
Nonprofit corporations
Quasi-public corporations
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Also known as LLC
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Relatively new form of ownership
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Hybrid of a partnership and corporation
◦ Owners protected from personal liability
◦ Profits / losses pass directly to owners
without taxation to the company itself
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Small business that is taxed
like a partnership or sole
proprietorship but has up to 35
shareholders
Does not pay taxes, does not exist to
make a profit
 In the United States, nonprofits provide
nearly 1/3 of the GDP.
 Examples include:
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◦ Loudoun County Public Schools
◦ United Way
◦ Educational Testing Service (the SATs)
◦ Hospitals
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Businesses that are important to society but lack the
profit potential to attract investors
Usually operated by local, state, or federal
government
Government provides financial support (subsidy)
Government imposes regulatory controls
Examples include:
◦ Interstate highways (Massachusetts & PA turnpike … stateowned)
◦ Local water & sewer systems (Loudoun Water)
◦ Los Angeles County Museum of Art
Joint Venture
Cooperatives
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Agreement among two or more businesses to
work together to provide a good or a service
Each business shares the costs of doing
business as well as the profits
Many web-based companies rely extensively
on joint ventures.
Also commonly seen when businesses
expand into foreign countries
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Business owned and operated by its usermembers for the purpose of supplying
themselves with goods and services
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Operates similarly to a corporation
(stockholders, charter)
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Provides members with cost and profit
advantages
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Popular in agriculture for buying & selling
crops
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A franchise is a legal agreement to use the
name and sell the products of a parent
company in a designated geographic area.
Franchisee: person who buys the rights to
operate the business
Franchisor: recognized company that
allows independent owners to use their
name
The franchisee pays the franchisor an
annual fee and a share of the profits.
Advantages
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Owner receives
thorough business
training
Uses a tested
management system
Owner is guaranteed a
certain geographic area
Usually widely
recognized names
Disadvantages
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High initial cost
Owner has to follow
strict rules and
regulations
Judged by performance
of peers
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Many businesses start as one form
of business ownership, but move into
other forms later.
Example: Ben & Jerry’s started as a
partnership, became a Subchapter S
Corporation, and then eventually
became the corporation we know
today.
THE END