Business Ch 3 Flashcards
What is sole proprietorship
No legal distinction between the sole proprietor’s status as an individual and his or her status as a business owner
Advantages for sole proprietorship
Easy and inexpensive to form
Profits all go to owner
Direct control of the business
Freedom from gov regulation
No special taxation
Ease of dissolution
Disadvantages to sole proprietorship
Unlimited personal liability
Difficulty raising capital
Limited managerial expertise
Trouble finding qualified employees
Personal times commitment
Unstable business life
Losses are the owner’s responsibility
General partnership
An association of 2 or more persons who operate a business as co-owners by voluntary legal agreement
Advantages to general partnership
Easy and inexpensive to form
Shared financial commitment among partners
Complementary skills/utilize the expertise of each partner
Partnership incentives for employees
Disadvantages to general partnership
Joint and individual liability
Disagreements among partners
Shared profits
Corporations
A legal organization with assets and liabilities separate from those of its owners
Advantages to corporations
Limited liability: shareholder’s personal assets are protected. Shareholders can generally only be held responsible for their investment in stock in the company
Ability to generate capital through sale of stock
Corporate tax treatment: Corporations file taxes separately from their owners
Attractive to potential employees
Disadvantages to corporations
Time and money: costly and time consuming to start and operate
Double taxing: In some cases, corporations are twice first, when the company makes a profit, and again when dividends are paid to shareholders
Additional paperwork: There are increased paperwork and record-keeping burdens associated with this entity
Franchise
Business model that involves 1 business owner (franchisor) licensing trademarks and methods to an independent entrepreneur (franchisee) for a prescribed period of time
Disadvantages to franchisee
Cost: Buying and running a franchise can be very expensive
Unequal partnership: Franchisor sets the rules and franchisee must follow them
Rules and enforcement: Franchisor rules imposed by the franchising authority are becoming increasingly strict. Some franchisors are using minor rule violations to terminate contracts and seize the franchise without any reimbursement
Advantages to franchisee
Less risk
Name/brand recognition: The franchise has an established image and identity already, which can reduce or simplify marketing efforts
Access to expertise, ongoing support: Franchisee often receives help with site selection, training materials, product supply, and marketing plans
Relative autonomy
Advantages to franchisor
Access to capital for growth and expansion
Cash flow for operations: In addition to initial franchise fees that can range from 50k to 5 mil, franchisors receive payments in the form or royalties from each franchisee
Economies of scale: Once a franchise is established with multiple locations, company may be able to leverage its buying suppliers, advertisers, and vendors
Disadvantages to franchisor
Lack of control: Despite the language of the franchise agreement, once the franchisee has established their location, the franchisor may have difficulty ensuring that quality standards are met and the franchise is operating in a manner that benefits the brand
Trade secrets: If the success of a business is based on a trade secret, special process, or innovative technology, establishing a franchise may make the business vulnerable to knock-offs or imitation
Overexposure/brand dilution
Limited liability company (LLC)
Secures the corporate advantage of limited liability while avoiding the double taxation characteristic of traditional corporation
S Corporation
Corporations that do not pay corporate taxes on profits; instead, profits are distributed to shareholders who pay individual income taxes
Small business
Independent business with fewer than 500 employees not dominant in its market
Why small businesses fail
Management shortcomings: Overconfidence
Inadequate financing: Overestimate income, underestimate expenses
Government regulations: Regulatory requirements, high taxes
Small business contributions
Creating new jobs, creating new industries, innovation
Entrepreneurs
Risk taker in the private enterprise system, a person who seeks profitable opportunity and takes the necessary risks to set up and operate a business
How are entrepreneurs different from small business owners
Major goal is expansion and growth
Combine their ideas and drive with money, employees, and other resources to create a business that fills a market need
How are entrepreneurs different from managers
Main responsibility is to use the resources of their organization employees, money, equipment, and facilities to accomplish their goals
Willing to assume risk
Characteristics of entrpreneurs
Vision
High energy level
Need to achieve
Self-confidence and optimism
Tolerance for failure
Creativity
Tolerance for ambiguity
Internal focus of control
Business plan
Professional error-free statement
Similar to roadmap
Describes how you will structure, operate, fund, and grow business
Industry overview
Discusses trends and growth opportunities within the industry
Analyzes what already exists within the industry
Management team plan
Describes who will be on the management team and their qualification
If you don’t have all necessary qualifications this section describes where you get advice
Company description
Describes basic concept of business, initial size of company, need for your products, and problem the product is solving
Market analysis
Provides details about industry, size of market, and target market
Target market describes what type of consumer is most likely to purchase product
Competitive analysis
Focuses on the competition
Describes how you will compete in the market
Direct and indirect comp
Direct comp- Businesses that provide same product
Indirect comp- Businesses that offer a different product but meet the same need
Marketing plan
Describes how you will make your product known to future customers
Marketing mix: Product, place, price, promotion
Operational plan
Describes what the business needs in order to operate
Organizational plan
Describes the organizational structure and team
Defines the management philosophy
Financial plan
Describes key financial information: financial needs and overall financial health, estimates growth, identifies financial management
Growth plan
Describes plans for company going forward and what is needed for the company to grow
Investors want to see that entrepreneurs have thought beyond the initial stages of opening the business
Contingency plan
Examines potential risks and how these can be avoided or what can be done to prepare
Executive summary
Summarizes key points from the business plan
May contain a hook or story to entice someone to read the plan
…will tell you if there’s an opportunity to turn your idea into a successful business. It’s a way to gather information about potential customers and businesses already operating in your area. Use that information to find a competitive advantage for your business
Conduct market research
Your ______ is the foundation of your business. It’s a roadmap for how to structure, run, and grow your new business. You’ll use it to convince people that working with you — or investing in your company — is a smart choice
Write your business plan
Your business plan will help you figure out how much money you’ll need to start your business. If you don’t have that amount on hand, you’ll need to either raise or borrow the capital. Fortunately, there are more ways than ever to find the capital you need
Fund your business
…will impact your business registration requirements, how much you pay in taxes, and your personal liability
Choose a business structure
one of the most important decisions you’ll make. Whether you’re setting up a brick-and-mortar business or launching an online store, the choices you make could affect your taxes, legal requirements, and revenue
Pick your business location
You’ll want one that reflects your brand and captures your spirit. You’ll also want to make sure your ___________ isn’t already being used by someone else
Choose a business name
Once you’ve picked the perfect business name, it’s time to make it legal and protect your brand. If you’re doing business under a name different than your own, you’ll need to register with the federal government, and maybe your state government, too
Register your business
You’ll use your employer identification number (EIN) for important steps to start and grow your business, like opening a bank account and paying taxes. It’s like a social security number for your business
Get federal and state tax IDs
Keep your business running smoothly by staying legally compliant. These you need for your business will vary by industry, state, location, and other factors
Apply for licenses and permits
A small business checking account can help you handle legal, tax, and day-to-day issues. The good news is it’s easy to set one up if you have the right registrations and paperwork ready
Open a business bank account
Reasons to choose entrepreneurship
Being Your Own Boss
Financial Success
Job Security
Quality of Life
Who are the entrepreneurs we talked about in class and what are the businesses they started?
Ray Krok- McDonalds
Bailey Wilson- Bondi Bowls
Sam Walton- Walmart
Jessica Alba- Honest
Mission vs vision statement
Mission- Goals
Vision- Values
