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Read to Learn
The four main ways to become a business owner and the advantages and disadvantages of each
The different forms of legal business ownership
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Read to Learn
How to prepare to finance a new business
Factors that can affect business success
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Main Idea
Knowing the factors that affect a business’s success will help you to launch a successful business.
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Key Concepts
Going into Business
Owning a Business
Operating Your Business
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Key Term
start-up costs
lease
goodwill
market outlook
franchise
sole proprietorship
partnership
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Key Term
corporation
operating expenses
income statement
revenue
gross profit
net profit
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Going into Business
Four Main Ways to Go
into Business
Start a NewBusiness
Buy anExisting Business
Buy aFranchise
Join aFamily Business
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Starting a New Business
ChallengesStarting a new business requires more time and effort.
Start-up costs can be high.
Borrowing money may be difficult.
Risk can be high.
RewardsYou 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.
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Starting a New Business
Examples of start-up costs include: start-up costs
the expenses involved in going into business
Renting or buying space
Buying equipment and supplies
Buying insurance
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Buying an Existing Business
Before buying an existing business, determine whether the problems of the business can be fixed, and at what costs.
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Buying an Existing Business
AdvantagesYou can save on start-up costs by taking advantage of the previous owner’s business agreements.
You may be able to purchase the existing equipment.
If the business was successful, you can build on that success.
You can benefit from existing positive reputation and a trained staff.
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Buying an Existing Business
Disadvantages
The location might be poor.
The competition might be taking business away.
The potential for future sales may be poor.
Expensive repairs might be necessary.
The business may have a poor reputation.
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Buying an Existing Business
When buying an existing business, you may be able to keep the existing lease.
lease
a contract to use something for a specified period of time
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Buying an Existing Business
When buying an existing business, you may be able to take advantage of existing goodwill of existing customers.
goodwill
loyalty
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Buying an Existing Business
When buying an existing business, you should be aware of the market outlook.
market outlook
the potential for future sales
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Buying a Franchise
Buying a franchise offers specific advantages.
franchise
the legal right to sell a company’s goods and services in a particular areaYou must agree to
pay a percentage of your profits to the parent company.
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Buying a Franchise
Advantages
You get a recognized product name.
You have established procedures and management systems.
You benefit from a business reputation and customer goodwill.
You receive training and support services.
You benefit from the company’s advertising.
Financing can be more easily obtained.
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Buying a Franchise
Disadvantages
Profits are shared with the parent company.
You must follow the parent company guidelines.
There may be less personal satisfaction.
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Joining a Family Business
Advantages
Relatives can help you finance the business.
Family members are loyal and trust each other.
Family members work as a team.
Relatives can teach you the business.
Customers are likely to give you the same trust and goodwill.
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Joining a Family Business
Disadvantages
Not all families work well together.
Difficulties at work can affect family relationships.
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Owning a Business
As a business owner, you will have to decide if you will run the business yourself, or if you will share the work and risks.
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Forms of Legal Ownership
Three BasicForms of Legal
Ownership
SoleProprietorship
PartnershipCorporation
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Forms of Legal Ownership
Most businesses begin as a sole proprietorship.
soleproprietorship
when the business is completely owned by one personThe owner is
responsible for all the business’s assets and debts.
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Forms of Legal Ownership
In a partnership, all partners are liable for the debts of the business.
partnership
a legal arrangement in which two or more people share ownership
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Forms of Legal Ownership
In a corporation, shareholders earn a profit based on the number of shares they own.
corporation
a business chartered by a state that legally operates apart from the owner(s)
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Operating Your Business
Whatever type of business you launch, you will need money to finance it.
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Financing
A 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
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Financing
A financial plan spells out your start-up costs, operating expenses, and other costs for the first few months.
operating expensesthe costs of doing business, such as the costs of manufacturing and selling the product
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Ongoing Operations
Financial records are needed for tax purposes and for seeking additional financing.
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Ongoing Operations
The income statement is an essential business record.
incomestatementa summary of a business’s income and expenses during a specific period
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Ongoing Operations
The first item in an income statement is revenue.
revenue
the income from sales
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Ongoing Operations
Another item in the income statement is gross profit.
gross profit
the difference between the cost of goods and their selling price
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Ongoing Operations
The net profit is an important part of the income statement.
net profit
the amount left after operating expenses are subtracted from the gross profit
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Ongoing Operations
The balance sheet summarizes a business's assets, liabilities, and owner equity.
Assets are anything of monetary value.
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Ongoing Operations
Liabilities are debts a business owes.
Net worth is the difference between assets and liabilities.
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Ongoing Operations
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.
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Succeeding in Business
Factors of Succeeding in Business
Financing
Competition
Location
Management
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Location
Factors that contribute to a successful business location include:
The type of businesses in the area
The condition of the streets and buildings
The cost of property
The location of competition
The location of your customers
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Competition
To compete successfully, you must be familiar with your competitor’s product or service.
You must also produce a better product or service than your competitors.
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Management
Poor management is one of the main reasons for business failure.
Skills Needed for Management
Reading
Writing
Listening
Speaking
Math
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When the game is finished, close the Quick Quiz window andclick here for the next slide >>
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Section 4.2 After You Read
1. Name the four ways to become a business owner. Which one would you choose? Why?
Buy an existing business, start your own business, buy a franchise, or take over a family business.
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Section 4.2 After You Read
2. Explain the differences between a partnership and a corporation.
A partnership is a legal arrangement in which two or more people share direct ownership, while a corporation is a business that legally operates apart from the owners.
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Section 4.2 After You Read
3. Describe one of the documents you would need to prepare to apply for a business loan.
You would need to provide a business plan and a financial plan.
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