Chapter 6 Business Ownership and Operations

Transcription

1 Business Ownership and Operations pp Back to Table of Contents

2 Why It s Important You need to understand business ownerships and operations before starting a business. Introduction to Business, Business Ownership and Operations Slide 2 of 27

3 Types of Business Ownership The three different ways you can own a business are: Sole proprietorship Partnership Incorporation Introduction to Business, Business Ownership and Operations Slide 3 of 27

4 Sole Proprietorship A sole proprietorship is a business owned by only one person. Introduction to Business, Business Ownership and Operations Slide 4 of 27

5 Sole Proprietorship The advantages to having your own business are: It s easy to start You get to be your own boss You get to keep all the profits The taxes are usually low Introduction to Business, Business Ownership and Operations Slide 5 of 27

6 Sole Proprietorship The disadvantages to having your own business are: You have to pay for everything yourself continued Introduction to Business, Business Ownership and Operations Slide 6 of 27

7 Sole Proprietorship You might have to use your personal savings or borrow money from the bank You might lack business skills Introduction to Business, Business Ownership and Operations Slide 7 of 27

8 Sole Proprietorship A serious disadvantage to owning a sole proprietorship is that you have unlimited liability, or full responsibility for your company s debts. Introduction to Business, Business Ownership and Operations Slide 8 of 27

9 Partnership A partnership is a business owned by two or more persons who share the risks and rewards. Introduction to Business, Business Ownership and Operations Slide 9 of 27

10 Partnership To start a partnership you need to draw up a partnership agreement, which is a contract that outlines the rights and responsibilities of each partner. Introduction to Business, Business Ownership and Operations Slide 10 of 27

11 Partnership The advantages to partnership are: You might need only a license to start and have to pay taxes only on your personal profits. Each of your partners can contribute money to start the business. continued Introduction to Business, Business Ownership and Operations Slide 11 of 27

12 Partnership Banks are often more willing to lend money to partnerships than sole proprietorships. Your partners can bring different skills to the business. Introduction to Business, Business Ownership and Operations Slide 12 of 27

13 Partnership The disadvantages to partnership are: You not only share the risks with your partners, you also share the profits. continued Introduction to Business, Business Ownership and Operations Slide 13 of 27

14 Partnership You might not get along with your partners. You share unlimited legal and financial liability with your partners. Introduction to Business, Business Ownership and Operations Slide 14 of 27

15 Making a Business Decision 1. What are the advantages and disadvantages of going solo in a business venture? 2. How can having a partner help launch and grow a business? Are there any drawbacks? Introduction to Business, Business Ownership and Operations Slide 15 of 27

16 Corporation A corporation is a business owned by many people but treated by law as one person. Introduction to Business, Business Ownership and Operations Slide 16 of 27

17 Corporation To form a corporation, you need to get a corporate charter from the state your headquarters is in. Introduction to Business, Business Ownership and Operations Slide 17 of 27

18 Corporation To raise money, you can sell stock, or shares of ownership in your corporation. Introduction to Business, Business Ownership and Operations Slide 18 of 27

19 Corporation For each share of common stock, the stockholder gets a share of the profits and a vote on how the business is run. You also must have a board of directors who control the corporation. Introduction to Business, Business Ownership and Operations Slide 19 of 27

20 Corporation A major advantage of a corporation is its limited liability. If your company loses money, the stockholders lose only what they invested. Introduction to Business, Business Ownership and Operations Slide 20 of 27

21 Corporation Another advantage is that the corporation doesn t end if the owners sell their shares. Introduction to Business, Business Ownership and Operations Slide 21 of 27

22 Corporation A disadvantage of a corporation is that you often have to pay more taxes. Introduction to Business, Business Ownership and Operations Slide 22 of 27

23 Corporation The government closely regulates corporations. Introduction to Business, Business Ownership and Operations Slide 23 of 27

24 Corporation It is more difficult to start a corporation than a sole proprietorship or a partnership and running a corporation can be much more complicated. Introduction to Business, Business Ownership and Operations Slide 24 of 27

25 Franchise A business relationship between two parties which gives the franchisee: The right to sell a product or service using the trademark or trade name of the franchiser The right to market a product or service using the operating methods of the franchiser The obligation to pay the franchiser fees for these rights. Introduction to Business, Business Ownership and Operations Slide 25 of 27

26 Franchise Product Distribution Franchises sell the franchisers products only (supplier-dealer) Business Format Franchises not only use a franchiser s product, service, and trademark, but also the complete method for conducting the business (marketing plan) Introduction to Business, Business Ownership and Operations Slide 26 of 27

27 Franchise Pros of Franchise Businesses Established Brand and Customer Base. By far, the biggest advantage of buying into an established franchise is the strength of the brand and loyalty of its customers. Marketing Support. Franchises often have the support of a national campaign, as well as prepared marketing materials for a local campaign. Reputable Suppliers. Franchisors often have established relationships with suppliers for all the materials franchisees need. Business Support. There's a saying in franchising: "You're in business for yourself, but not by yourself" because you have a network of support. Training. Some of the better (and more expensive) franchise operations offer management and technical training. Financial Assistance. Some franchisors provide loans and other assistance to help franchisees. Access to Proprietary Methods. There's no need to reinvent the wheel as franchisees get access to all the trade secrets. Ongoing Research and Development, New Products. Franchisees can stick to improving their operations and let the franchisor spend the time and money developing new products. The Boss is You. As with owning any business that you own, you are in control of your destiny. Reduced Risk. For all of these reasons, starting a franchise of an established brand often has less risk than starting a business from nothing. Introduction to Business, Business Ownership and Operations Slide 27 of 27

28 Franchise Cons of Franchise Businesses Initial Payout (Franchise Fee and Start-up Costs). Some of the bigger franchise operations can involve a very large initial costs, often more than what it would cost to start your own business. Royalty Payments. For as long as you are a franchisee, you will have to pay some percentage of the monthly gross back to the franchisor, reducing your profit potential. Marketing/Advertising Fees. To receive the wonderful marketing support from the franchisor, franchisees must pay these fees, according to some contracts. Limited Creativity/Flexibility. Most franchise contracts have very explicit standards, allowing little or no alterations or additions to the brand, stifling any creativity on the part of the franchisee. You must use their system, follow their rules. Sole Sourcing. Some franchise contracts stipulate that franchisors must buy supplies only from an approved list of suppliers, possibly at a higher cost. Locked into Operation by Long-Term Contract. If you don't do as much research as you should have and find yourself with the wrong franchise, you may be stuck for many years. Dependent on Franchisor Success. The reputation of your franchise is only as good as that of the franchisor, so any difficulties that the franchisor encounters will have a direct impact on you. False Expectations. Opening a franchise rather than starting your own business offers no guarantees of success. You still need to be a sharp businessperson to make it work. Risk. There's always risk in starting any new business. Introduction to Business, Business Ownership and Operations Slide 28 of 27

29 Fast Review 1. What are some of the advantages of a sole proprietorship? 2. What is the difference between a sole proprietorship and a partnership? continued Introduction to Business, Business Ownership and Operations Slide 29 of 27

30 Fast Review 3. If a partner makes a bad business decision, what responsibility do the other partners have? 4. What are the disadvantages of a corporation? Introduction to Business, Business Ownership and Operations Slide 30 of 27