BEING A BUSINESS OWNER Section 4.2
Feb 25, 2016
BEING A BUSINESS OWNER Section 4.2
READ TO LEARNThe four main ways to become a business owner and the advantages and disadvantages of each
The different forms of legal business ownership
READ TO LEARNHow to prepare to finance a new business
Factors that can affect business success
MAIN IDEA Knowing the factors that affect a business’s success will help you to launch a successful business
KEY CONCEPTSGoing into BusinessOwning a BusinessOperating Your Business
KEY TERMSStart up costsLeaseGoodwillMarket outlookFranchiseSole proprietorshipPartnershipcorporation
Operating expensesIncome statementRevenueGross ProfitNet Profit
GOING INTO BUSINESSStart a New Business
Buy an Existing
Business
Buy a Franchise
Join a Family
Business
Four Main Ways to Go
into Business
STARTING A NEW BUSINESSRewards
You do not inherit a previous owner’s mistakes
You can develop your own reputation
You can build the business your way
You get personal satisfaction
ChallengesStarting a new business
requires more time and effortStart-up costs can be highBorrowing money may be
difficultRisk can be high
STARTING A NEW BUSINESSExamples of start up costs include:Renting or buying spaceBuying equipment and suppliesBuying insurance
Key Term: Start-up Costs: The expenses involved in going into business
BUYING AN EXISTING BUSINESSBefore buying an existing business, determine whether the problems of the business can be fixed, and at what costs
BUYING AN EXISTING BUSINESS
AdvantagesYou can save on start-up costs by taking advantage of the previous owner’s business agreementsYou may be able to purchase the existing equipmentIf the business was successful, you can build on that successYou can benefit from existing positive reputation and a trained staff
BUYING AN EXISTING BUSINESS
DisadvantagesThe location might be poorThe competition might be taking business awayThe potential for future sales may be poorExpensive repairs might be necessaryThe business may have a poor reputation
BUYING AN EXISTING BUSINESSWhen buying an existing business, you may be able to keep the existing lease.
Key Term: Lease – a contract to use something for a specified period of time
BUYING AN EXISTING BUSINESSWhen buying an existing business, you may be able to take advantage of existing goodwill of existing customers.
Key Term: Goodwill - Loyalty
BUYING AN EXISTING BUSINESSWhen buying an existing business, you should be aware of the market outlook
Key Term: Market Outlook – The potential for future sales
BUYING A FRANCHISEBuying a franchise offers specific advantagesYou agree to pay a percentage of your profits to the parent company
Key Term: Franchise – The legal right to sell a company’s goods and services in a particular area
BUYING A FRANCHISEAdvantagesYou get a recognized product nameYou have established procedures and management systemsYou benefit from a business reputation and customer goodwillYou receive training and support servicesYou benefit from the company’s advertisingFinancing can be more easily obtained
BUYING A FRANCHISEDisadvantagesProfits are shared with the parent companyYou must follow the parent company guidelines There may be less personal satisfaction
JOINING A FAMILY BUSINESSAdvantagesRelatives can help you finance the businessFamily members are loyal and trust each otherFamily members work as a teamRelatives can teach you the businessCustomers are likely to give you the same trust and goodwill
JOINING A FAMILY BUSINESS
DisadvantagesNot all families work well togetherDifficulties at work can affect family relationships
OWNING A BUSINESSAs a business owner, you will have to decide if you will run the business yourself, or if you will share the work and risks.
FORMS OF LEGAL OWNERSHIP
Sole Proprietorship
Corporation Partnership
Three basic forms of legal ownership
FORMS OF LEGAL OWNERSHIPMost businesses begin as a sole proprietorship.
The owner is responsible for all the business’s assets and debts
Key Term: Sole Proprietorship- when the business is completely owned by one person
FORMS OF LEGAL OWNERSHIPIn a partnership, all partners are liable for the debts of the business
Key Term: Partnership- a legal arrangement in which two or more people share ownership
CORPORATIONIn a corporation, shareholders earn a profit based on the number of shares they own
Key Term: Corporation – a business chartered by a state that legally operates apart from the owner(s)
OPERATING YOUR BUSINESSWhatever type of business you launch, you will need money to finance …. Financing
FINANCINGA business plan gives specific information about your business
Information in a Business Plan• Product Description• Business location• Number of employees• Salaries• Description of the
competition• Marketing plan• Timetable
FINANCINGA financial plan spells out your start-up costs, operating expenses, and other costs for the first few months
Key Term: Operating Expenses- the costs of doing business, such as the costs of manufacturing and selling the product
ONGOING OPERATIONSFinancial records are needed for tax purposes and for seeding additional financingThe income statement is an essential business record
Key Term: Income statement-
A summary of a business’s income and expenses during a specific period
ONGOING OPERATIONSThe first item in an income statement is revenueAnother item in the income statement is gross profitThe net profit is an important part of the income statement
Key Terms: Revenue – The income from sales
Gross Profit – The difference between the cost of goods and their selling price
Net Profit – The amount left after operating expenses are subtracted from the gross profit
ONGOING OPERATIONS The balance sheet summarizes a business’s assets, liabilities, and owners equity
Assets are anything of monetary value
Liabilities are debts a business owes Net worth is the difference between assets and liabilities A cash flow statement is a monthly plan that shows when you anticipate cash coming into the business and when you expect to pay out cash
SUCCEEDING IN BUSINESS
Financing Location
Management
Competition
Factors of Succeeding in Business
LOCATION Factors that contribute to a successful business location include:The type of businesses in the areaThe condition of the streets and buildings The cost of propertyThe location of competitionThe location of your customers
COMPETITIONTo compete successfully, you must be familiar with your competitor’s product or service
You must also produce a better product than your competitors
MANAGEMENTPoor management is one of the main reasons for business failure
Skills Needed for ManagementReading WritingListeningSpeakingMath
EXIT TICKET 1. Name the four ways to become a business owner. Which one would you choose? Why?
2. Explain the differences between a partnership and a corporation
3. Describe one of the documents you would need to prepare to apply for a business loan.