BEING A BUSINESS OWNER

Section 4.2

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

READ TO LEARN

How 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 CONCEPTS

Going into BusinessOwning a BusinessOperating Your Business

KEY TERMSStart up costs

Lease

Goodwill

Market outlook

Franchise

Sole proprietorship

Partnership

corporation

Operating expenses

Income statement

Revenue

Gross Profit

Net 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 BUSINESS

Rewards

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

Challenges

Starting a new business requires more time and effort

Start-up costs can be high

Borrowing money may be difficult

Risk can be high

STARTING A NEW BUSINESS

Examples 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 FRANCHISE

Buying 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 FRANCHISE

AdvantagesYou 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 FRANCHISE

DisadvantagesProfits are shared with the parent companyYou must follow the parent company guidelines There may be less personal satisfaction

JOINING A FAMILY BUSINESS

AdvantagesRelatives 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 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.

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

CORPORATION

In 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 BUSINESS

Whatever type of business you launch, you will need money to finance …. Financing

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

FINANCING

A 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 OPERATIONS

Financial 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 OPERATIONS

The 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

COMPETITION

To compete successfully, you must be familiar with your competitor’s product or service

You must also produce a better product than your competitors

MANAGEMENT

Poor 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.