Ch. 5 Business Organization

1
Ch. 5 Business Organization

• 5.1 Business in the U.S. Economy
• 5.2 Forms of Business Ownership
• 5.3 Organizational Structure for Businesses

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5.1 Business in the U.S. Economy

• Goals
• Describe the changing status of U.S. employment
• Discuss the role of business in the U.S. economy
• Describe three major types of businesses

3
The Changing U.S. Job Market

• Dot-com world grows
• Manufacturing and agriculture decline
• Employment Data http//www.bls.gov/
• 1996-2006, employment grew 14
• 2007, 144 million people had jobs
• 2014, 165 million (increase 13)

4
Baby Boomers

• Large of people born 1946-1964
• Dominated the workforce
• Will retire in the 2010s
• Other growth areas
• Asian
• Hispanic
• African-American
• Currently, white non-Hispanic workers make up 70
  of the labor force

5
Employment Trends

• 1960s, 35 women worked
• Doubled by 2000
• By 2014 nearly one half of all jobs (47) in the
  U.S. will be held by women http//www.bls.gov/cps
  /wlf-intro-2009.htm

6
Pressures on Employees

• Economic stress led to downsizing of the number
  of people employed by companies
• Companies streamlined production and implemented
  cost-cutting procedures
• Employees take on new tasks, work extra hours

7
Pressures continued

• Wage rates decreased
• People forced to find second jobs
• Family/career
• Increased use of contingent workers
• One who has no explicit or implicit contract for
  long-term employment
• About 5 of U.S. workforce (6 million)
• Projected to double

8
Trends 2010

• Unemployment rate remained unchanged at 9.6 in
  Sept. national rate
• 14.8 million are unemployed nationally
• Technology in telecommunications careers rapidly
  growing
• Top five career choices
• Fitness trainers
• Physical therapists
• Dental hygiene
• Vets techs
• Software engineers

9
Trends

• Since 1999, unemployment gradually grown
• Diversity more immigration from other
  countries
• More women in the workforce
• But wage gap is 77cents to the dollar as compared
  to men
• MI 12.9 unemployment as to compared to national
  at 9.2
• Unemployment insurance benefits last only 99
  weeks
• Sept change in employment -39,000

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Trends

• Demand for legal services in increases growth 13
• School teachers growth by 13 between 2008-2018
• DOL fastest growing occupations
• Network systems, data communications
• Computer software engineering
• Mental health and social workers
• H.S. Diploma jobs,
• Health aides
• Physical therapy aides
• Dental assistants
• Medical assistants

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Trends

• MI jobs Sept. 3 million (mo. Of Sept.)
  -13,000 mo. Change over year -7,000
• Unemployment 13 (Sept.)
• May-Sept. jobless rate remained unchanged
• Oldest of 79 million baby boomers turn 61 this
  year (retirement 65-67)
• 2008-2018 32.8 of Asian women working

12
Trends

• 11 states in Sept. reported increase in
  unemployment, 16 states had no change, 23 states
  decreased
• Productivity down 1.8 for 2nd qtr.
• Top 6 Careers for 2010
• Healthcare
• Education
• Interactive design
• Childcare
• Energy

13
Trends

• 4th qtr. Commercial and admin. Jobs increase
• Non-farm payroll down 95,OOO (Sept.)
• Top job growth Healthcare 811,059 new jobs
• 2009 2 million jobs outsourced to other
  countries
• 2008 unemployment rate for women 5.4
• 3.7 Asian
• 4.9 Caucasian
• A.A. 8.9
• Hispanic 7.7

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Business The Economy

• U.S. business were responsible for almost 29 of
  the 40 trillion of goods and services produced
  in 2002!
• Size of Businesses
• Most U.S. business are quite small

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Business Size
See pg. 104
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Roles of Business

• Provide employment
• Wages then are used to purchase goods/services
• Business profits used to compensate owners
  investors
• Pay taxes to local, state, federal govt.
• Govt. uses the tax to provide services
• Clean water, streets, schools
• Most important make distribute products
  services we consume

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Impact on a Community

• Businesses pays wages to workers
• Buys good and services from other businesses
• Other businesses congregate by a new, large
  business to support that business
• Successful businesses contribute to more jobs,
  income, and a thriving economy

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Business Activities (6)

• Generating Ideas
• A business begins with a new idea
• New ideas competitive
• Research Development
• Raising Capital
• Need financial resources to operate
• Personal investment, loans, investors
• Needs more capital as it grows reinvested
  profits
• Attract investors

pg. 104-106
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Business Activities

• Employing and Training Personnel
• Need human resources
• Recruit, hire, train (as business changes)
• Pay wages, benefits, and employment taxes
• Buying Goods Services
• Businesses buy many services like
• Advertising, legal accounting, maintenance,
  security

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Business Activities

• Marketing Goods Services
• The activities directed at providing the goods
  and services wanted by a businesss customers
• Without marketing, even the best products remain
  unsold!

21
Business Activities

• Maintaining Business Records
• TAKE ACCOUNTING!!!
• Records help track performance
• Customers need info. about orders and payments
• Businesses are required by govt. to pay taxes
  (keep records)
• Technology is a big help

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Types of Businesses
pg. 106

• Producers
• Create the products and services used by
  individuals and other businesses
• A business that uses resources from nature for
  direct consumption or for use in making other
  products is an extractor
• Pump oil, mine coal, etc.

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Producers

• Farmers cultivate land and use other natural
  resources to grow crops and raise livestock for
  consumption
• Manufacturers get supplies from other producers
  and convert them into products (sell to consumers
  and other businesses)

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Intermediaries

• Businesses involved in selling the goods and
  services of producers to consumers and other
  businesses.
• Retailers and Wholesalers

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Service Business

• Carries out activities that are consumed by its
  customers
• Does not offer products for sale
• Dentists, Physicians
• Lawyers, Accountants
• Hair Stylists, Pet Sitters
• People businesses use service businesses
• Fastest growing part of the economy! (60 of U.S.
  employment service)

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Pg. 107 Assessment

• 1. The largest number of U.S. businesses employ
• 2. Which of the following is not one of the
  common activities of all businesses?
• 3. A retailer is an example of

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5.2 Business Ownership

• A business must organize to produce goods and
  services for the consumer
• Types of Business Ownership
• Sole Proprietorship
• Partnership
• Corporation
• Franchise

pg. 108
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Sole Proprietorship

• A business owned by one person
• Small firms - Less than 50 people employed
• Can easily be managed by owner
• Few legal requirements
• Sole control
• Owner receives all profits debts!
• More than 2/3 (66) of U.S. businesses are
  operated as sole proprietorships
• Most common form

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Requirements for Starting

• Knowledge of industry area
• What type of small business is going to be
  successful and profitable?
• What goods/services do consumers need?
• Equipment
• For physical facility
• For creating goods
• Business name? Permit or license?
• Little capital needed

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Sole Proprietorship

• Must account for income and expenses
• Pay taxes on profits
• Tax advantage
• All income is taxed as a part of your personal
  income
• Business expenses can be used to reduce the
  income (tax write-offs)

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Advantages of a Sole Proprietorship

• Easy to open
• Little capital
• Profits for the owner
• No one to share with!
• Tax advantages
• Only taxed on personal level
• Control and flexibility
• Establish own hours
• Make hiring decisions
• Make product development decisions
• You are your own boss!

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Advantages Continued

• Easy to close
• You choose when the time is right to close the
  business
• Pride and satisfaction of owning your own
  business!

33
Disadvantages of a Sole Proprietorship

• Liability the personal responsibility you assume
  for something - you are entirely, totally
  responsible for any and all consequences (the
  owner can be sued personally)!
• Your personal assets could be at risk
• All debts are yours to pay!
• Limited Capital
• Its just you and your investment

34
Disadvantages Continued

• Limited Capabilities
• Limited to your ideas and strategies alone
• Uncertain life
• What will happen to the business if you pass away

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Partnership

• A business owned and managed by a small group,
  (more than 2 people)
• Partners decide what each will contribute
  (investment) and what each will get out of that
  investment
• About 1 1/2 million in the U.S.
• Used less than other forms
• Purpose of forming a partnership
• Join capital
• Join experience
• Join the abilities of 2 or more people

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Partnership Agreement

• Partners should have an attorney prepare a
  partnership agreement to help prevent future
  problems
• Rights and responsibilities of each partner
• Contributions of each partner
• Division of authority of each partner
• Division of profit for each partner
• Length of partnership agreement
• Actions to take if partner dies or becomes unable
  to continue the business

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Advantages of a Partnership

• Easy to open
• Increased capital
• Your resources someone elses
• Combined capabilities
• Decreased competition
• If together, you do not have to compete against
  one another
• Reduced expenses
• Tax advantages
• Taxed on personal level

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Disadvantages of a Partnership

• Liability
• Uncertain life
• Difficult to share profits
• Your investment 60--Your partners investment
  40--Do you split the profits using the same
  percentages?
• Disagreements
• Difficult to end
• What if one person wants out?
• Limited capital
• What the partners are able and can contribute

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Corporations

• A business owned by a number of people and
  operated under written permission from the state
  in which it is located
• Articles/Certificate of Incorporation
• Corporations Name
• Corporations Purpose
• Location
• Amount of stock to be issued
• Names of the Board of Directors
• Invisible, intangible and existing only in the
  eyes of the law (an individual)
• Few compared to sole proprietorships
• Only 15-20 of businesses are corporations
• Over 80 of all business is done by corporations

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Corporations

• Ability to
• Borrow or loan money
• Buy and sell goods
• Make contracts
• Sue or be sued
• Ownership in a corporation
• Individuals (stockholders) can share in profits
  by buying shares of stock
• Represent ownership in the corporation
• Stockholders risk only the amount they invest
• Shareholders receive dividends (part of the
  profit earned by the corporation)

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Advantages of Corporations

• Limited liability
• Only responsible for your personal investment in
  the company (your personal assets are not at
  stake)
• Unlimited life
• The corporation will still survive with changing
  personnel (owners)
• Easy to transfer ownership
• Through selling stock - ownership
• Skilled personnel
• Highly trained and prepared
• Financial power

42
Disadvantages of Corporations

• Difficult to form and operate
• Separate owners and managers
• Varied opinions and strategies , -
• More complex requirements (govt.)
• Taxation
• The corporation is taxed twice
• At the individuals level with owning shares
• At the corporate level for the business entity

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Limited Liability Partnership

• Identifies some investors who cannot lose more
  than the amount of their investment
• Not allowed to participate in the day-to-day
  management of the business
• Difficult and costly

44
Joint Venture

• Unique business organized by two or more other
  businesses to operate for a limited time for a
  specific project
• Type of partnership

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S Corporation

• Offers the limited liability of a corp.
• All income passed through to the owners based on
  their investment
• Taxed on individual tax returns

S
46
Limited Liability Company

• LLC
• Provides liability protection for owners
• Similar to corp.
• No article of incorporation or bylaws are needed

LLC
47
Nonprofit Corporation

• Group of people who join to do some activity that
  benefits the public
• Education
• Health Care
• Charity
• Free from corporate income taxes
• Raise funds through grants and donations
• Organized as a corp. govt. must approve

48
Cooperative

• Owned by members, serves their needs, and is
  managed in their interest
• Members form Cooperative to
• purchase goods and services cheaper as a group
  rather than individually
• Business Cooperative forms to
• Market the products produced by members
• Purchase products needed by members
• Large numbers of small businesses has greater
  bargaining power than individual small businesses

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Franchise

• A written contract granting permission to sell
  someone elses product or service in a prescribed
  manner, over a certain period of time, and in a
  specified territory
• Method of distributing goods/services through
  licensing agreement
• Between franchiser (parent company, owner of
  name) and franchisee (one who buys right to sell
  products) according to the contract agreement
  (franchise)

50
Franchise

• Large amount of capital needed to purchase
• Failure rate 5 as compared to 50 for
  independent businesses

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Advantages of a Franchise

• Assistance provided
• Product has traditional features, packaging,
  advertising, etc. that remain the same across
  each franchise
• Brand name well known
• McDonalds
• Holiday Inn
• Century 21
• Promotional support
• Management training
• Greater chances for success
• 5 vs. 50

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Disadvantages of a Franchise

• Large amount of capital to purchase
• Pay royalties or of profit
• To franchiser
• Uniform policies
• Less independence and decision-making power
• Restrictions

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Managing a Successful Business

• Managers are responsible for coordinating
  resources within a business
• Human capital - laborers
• Natural resources - turn resources into goods
• Management activities are focused in five (5) key
  areas
• Planning
• Organizing
• Staffing
• Leading
• Controlling

Do you want to be a manager?
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Management Roles

• Planning
• Activities include
• Thinking
• Gathering and analyzing information
• Making decisions about all phases of the business
• Set goals and strategies to achieve them
• Organizing
• Activities include
• Determine what work has to be done and who is
  doing each job
• Delegate responsibility to others who are skilled
  in each area (job task)

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Management Roles

• Staffing
• Activities include
• Finding, selecting, hiring, training, appraising,
  and rewarding the businesss employees
• A.K.A Human Resource Management
• Leading
• Activities include
• Influencing people to act
• Inspiring workers to perform their jobs
• Using good human-relation skills
• Using effective communication skills

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Management Roles

• Controlling
• Activities include
• Answers the question, Is the business
  accomplishing the goals it set out to reach in
  the planning stage?
• Compares what actually happened to what was
  planned
• Examines and analyzes feedback
• Applying standards set back in the planning stage
• Evaluates the success of decisions made
• Reports results of comparisons

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Ch. 5 Review Problems

• Pages 120/121
• s 10-23
• Write out each question with answer underlined or
  circled