Business Organization

There are various types of business ownership. A sole proprietorship is owned and operated by one person. While sole proprietorships are easy to set up and offer great operating flexibility, the owner remains personally liable for all of the firm’s debts and legal settlements. In a partnership, two or more individuals share responsibility for owning and running the business. Partnerships are relatively easy to set up, but they do not offer protection from liability. When a business is set up as a corporation, it becomes a separate legal entity. Investors receive shares of stock in the firm. Owners have no legal and financial liability beyond their individual investments. In an employee-owned business, most stockholders are also employees. Family-owned businesses may be structured legally in any of these three ways but face unique challenges, including succession and complex relationships. The legal structure of a not-for-profit corporation stipulates that its goals do not include earning a profit.

In a corporation, the company’s assets and liabilities are separate from those of its owner(s). Advantages include limited financial liability for owners; they lose only the money they have invested. Furthermore, there are expanded financial capabilities such as stock sales and internal fund transfers. A major disadvantage is double taxation of corporate earnings. To avoid double taxation of corporate earnings, an S corporation can pay federal income taxes as partnerships while retaining the liability limitations of corporations. Limited liability companies (LLCs) have the corporate advantage of limited liability while avoiding the double taxation.

There are three types of corporations: domestic, foreign, and alien. Stockholders, or shareholders, own a corporation. In return for their financial investments, they receive shares of stock in the company. Stockholders elect a board of directors, who set overall policy. The board hires the chief executive officer (CEO), who then hires managers.

Public ownership occurs when a unit or agency of government owns and operates an organization. Collective ownership establishes an organization referred to as a cooperative, whose owners join forces to operate all or part of the functions in their firm or industry.

A franchisor is a large firm that permits a small-business owner (franchisee) to market and sell its products under its brand name, in return for a fee. Benefits to the franchisor include opportunities for expansion and greater profits. Benefits to the franchisee include name recognition, quick start-up, support from the franchisor, and the freedom of small-business ownership.

Lastly, in a merger, two or more firms combine to form one company. A vertical merger combines firms operating at different levels in the production and marketing process. A horizontal merger joins firms in the same industry. A conglomerate merger combines unrelated firms. An acquisition occurs when one firm purchases another. A joint venture is a partnership between companies formed for a specific undertaking.

Small Business Administration (SBA)

The Small Business Administration (SBA) guarantees loans made by private lenders, including microloans and those funded by Small Business Investment Companies. It offers training and information resources, so business owners can improve their odds of success. The SBA also advocates small-business interests within the federal government and provides specific support for businesses owned by women and minorities. State and local governments also have programs designed to help small businesses get established and grow. Venture capitalists are firms that invest in small businesses in return for an ownership stake. Here's the web site -> www.sba.gov

Business Plan

A business plan is a written statement of a company’s goals, the methods by which it intends to achieve those goals, and the standards by which it will measure its achievements. To be complete, it contains an executive summary, an introduction, financial and marketing solutions, and resumes of the business principals. Within this structure, an effective business plan includes: the company’s mission; an outline of what makes the company unique; identification of customers and competitors; financial evaluation of the industry and market; and an assessment of the risks.

FROM SBA -> app1.sba.gov/training/sbabp/bptemplate.pdf

 
***This is part one of eight. Just continue on YouTube with the remaining seven parts.

What is a Small Business?

A small business is a firm that is independently owned and operated and is not dominant in its industry. 98% of all U.S. companies are considered small businesses, and have generated 64% of new jobs during the last 15 years. Employing more than half of all private-sector (non-government) workers, these businesses hire 40% of high-tech workers such as scientists, engineers, and computer programmers. In terms of the general economy, small businesses create new jobs and new industries, hiring workers who traditionally have had difficulty finding employment at larger firms.

However, it is not easy to survive in a competitive environment. About seven of every ten new businesses survive at least two years, but by the tenth year, 82% have closed. Failure is often attributed to management shortcomings, inadequate financing, and difficulty meeting government regulations.

First-time business-owners often assume their firms will immediately generate enough funds from their initial sales to finance continuing operations. Commercial banks and other financial institutions are the largest lenders to small businesses, accounting for 65% of total traditional credit to small firms. Furthermore, credit cards remain an important source of financing for small businesses, especially for firms with fewer than 10 employees.

Taxes are another burden for small firms—local, state, and federal income tax, workers’ compensation, Social Security, and unemployment benefits. The burden of taxes is balanced with tax incentives—including tax credits for use of biodiesel and renewable fuels, research activities, pension-plan start ups, and access for individuals with disabilities.

Entering Foreign Markets

The United States is both the world’s largest importer and the largest exporter, although less than five percent of the world’s population lives within its borders. With the increasing globalization of the world’s economies, the international marketplace offers tremendous opportunities for U.S. and foreign businesses to expand into new markets for their goods and services. Doing business globally provides new sources of materials and labor. Trading with other countries also reduces a company’s dependence on economic conditions in its home market. Countries that encourage international trade enjoy higher levels of economic activity, employment, and wages than those that restrict it.


EXPORTS TO USA STATS -> http://www.nationmaster.com/graph/eco_exp_to_us-economy-exports-to-us


IMPORTS FROM USA STATS -> http://www.nationmaster.com/graph/eco_imp_fro_us-economy-imports-from-us

Exporting and importing, the first level of involvement in international business, involves the lowest degree of both risk and control. Companies may rely on export trading or management companies to help distribute their products. Contractual agreements such as franchising, foreign licensing, and subcontracting offer additional options. Franchising and licensing are especially appropriate for services. Companies also may choose local subcontractors to produce goods for local sales. International direct investment in production and marketing facilities provides the highest degree of control but also the greatest risk. Firms make direct investments by acquiring foreign companies or facilities, forming joint ventures with local firms and setting up their own overseas divisions.

A company that adopts a global (or standardization) strategy develops a single, standardized product and marketing strategy for implementation throughout the world. The firm sells the same product in essentially the same manner in all countries in which it operates. Under a multidomestic (or adaptation) strategy, the firm develops a different treatment for each foreign market. It develops products and marketing strategies that appeal to the customs, tastes, and buying habits of particular nations.

Video: "The Spill" (BP)

Over the past decade, BP vaulted from an energy "also-ran" to one of the biggest companies in the world, gobbling up competitors in a series of mergers that delivered handsome profits for shareholders. But an investigation by FRONTLINE and the nonprofit newsroom ProPublica shows that BP's leadership failed to create a culture of safety in the massive new company. As BP took increasingly big risks to find oil and extract it, the company left behind a trail of mounting problems: deadly accidents, disastrous spills, countless safety violations. Each time, BP acknowledged the wider flaws in its culture and promised to do better. The FRONTLINE/ProPublica investigation shows that the rhetoric was empty. From the refineries to the oil fields to the Gulf of Mexico, BP workers understood that profits came first. 

http://www.pbs.org/wgbh/pages/frontline/the-spill/

Business Ethics and Social Responsibility

Although the aim of business is to serve customers at a profit, companies today try to give back to customers, society, and the environment. Sometimes they face difficult questions. When does self-interest conflict with society’s and customers’ well-being? And must profit-seeking conflict with right and wrong?

Business ethics refers to the standards of conduct and moral values that businesspeople rely on to guide their actions and decisions in the workplace. Businesspeople must take a wide range of social issues into account when making decisions. Social responsibility refers to management’s acceptance of the obligation to put an equal value on profit, consumer satisfaction, and societal well-being in evaluating the firm’s performance.

People develop ethical standards in three stages: preconventional, conventional, and postconventional. In the preconventional stage, individuals primarily consider their own needs and desires in making decisions. They obey external rules only from fear of punishment or hope of reward. In the conventional stage, individuals are aware of and respond to their duty to others. Expectations of groups, as well as self-interest, influence behavior. In the postconventional stage, the individual can move beyond self-interest and duty to include consideration of the needs of society. A person in this stage can apply personal ethical principles in a variety of situations.

Employees are strongly influenced by the standards of conduct established and supported within the organizations where they work. Businesses can help shape ethical behavior by developing codes of conduct that define their expectations. Organizations also can provide training to develop employees’ ethics awareness and reasoning, for instance discussing common issues like conflicts of interest, honesty and integrity, loyalty versus truth, and whistle-blowing. Executives must demonstrate ethical behavior in their decisions and actions to provide ethical leadership.

Today’s businesses are expected to weigh their qualitative impact on consumers and society, in addition to their quantitative economic contributions such as sales, employment levels, and profits. One measure is their compliance with labor and consumer protection laws and their charitable contributions. Another measure some businesses take is to conduct social audits. Public-interest groups also create standards and measure companies’ performance relative to those standards.

Consumerism protects the right to be safe, to be informed, to choose, and to be heard. It has increased product safety, provided information to consumers, increased competition, offered a wider variety of choices, promoted truth in advertising, and monitored unethical activities and fraud. Challenges include assuring product safety because contamination leaks in, causing illness or even death. Moreover, all communications with customers—from salespeople’s comments to warranties and invoices—must be controlled to clearly and accurately inform customers. Businesses that fail to comply with truth in advertising face scrutiny from the FTC and consumer protection organizations.

The responsibilities of business to the general public include protecting the public health and the environment and developing the quality of the workforce. In addition, many would argue that businesses have a social responsibility to support charitable and social causes in the communities in which they earn profits. Business also must treat customers fairly and protect consumers, upholding their rights to be safe, to be informed, to choose, and to be heard. Businesses have wide-ranging responsibilities to their workers. They should make sure that the workplace is safe, address quality-of-life issues, ensure equal opportunity, and prevent sexual harassment and other forms of discrimination.

Lastly, investors and the financial community demand that businesses behave ethically as well as legally in handling their financial transactions. Businesses must be honest in reporting their profits and financial performance to avoid misleading investors. The Securities and Exchange Commission (www.sec.gov) is the federal agency responsible for investigating suspicions that publicly traded firms have engaged in unethical or illegal financial behavior.

A Changing Workforce

The workforce is changing in several significant ways: it is aging, the labor pool is shrinking, it's becoming increasingly diverse and it's using collaboration to innovate. The nature of work has shifted toward services and toward a focus on information. More firms now rely on outsourcing, offshoring, and nearshoring to produce goods or fulfill services and functions that were previously handled in-house or in-country. In addition, today’s workplaces are becoming increasingly flexible, allowing employees to work from different locations and through different relationships.

*outsourcing: using outside vendors for business activities
*offshoring: relocation of businesses overseas in order to lower costs.
*nearshoring: outsourcing production or services to locations near a firm’s home base.

Eras of Business History

The Colonial Period (Before 1776)
Rural and agricultural production. Towns were small,served as marketplaces for farmers. Economic focus centered on rural areas.

The Industrial Revolution (~1760 to 1850)
Business operations shifted from independent skilled workers who specialized on building products one by one to a factory system that mass produced items by bringing together large numbers of semi-skilled workers. Factories profited from savings created by large scale production and increasing assistance from machines. Specialization of labor, limiting each worker to a few specific tasks in the production process, also improved production efficiency.

The Age of Industrial Entrepreneurs (late 1800s)
The entrepreneurial spirit of the "golden age in business" did much to advance the American business system and raise overall standard of living of its citizens. This market transformation, in turn, created new demand for manufactured goods.

The Production Era (through 1920s)
More goods were made due to the increasing demand for manufactured goods. Assembly lines were created and efficiency in production was emphasized.

The Marketing Era (starting 1950s)
Consumer orientation was discovered and businesses began to advertise to appeal to certain groups or people; analyze consumer desires before beginning actual production.

The Relationship Era (since 1990s)
A significant change has been taking place in the ways companies interact with customers, taking a longer term approach to their interactions with customers. Firms seek ways to actively nurture customer loyalty by carefully managing every interaction.

*Taken from Boone & Kurtz, Contemporary Business, 14th Edition

Video: Accounting Costs vs. Economic Costs

Video: Opportunity Cost

Opportunity cost

An opportunity cost (OC) is the value of the next best alternative foregone. Unlike accountants who merely count costs related to a purchase or a job or a decision, economists add the value of the opportunity cost to this accounting value. If I buy a $25 shirt, then my OC is the DVD I couldn't buy. If I teach economics for one hour, then my OC is the time I couldn't spend working out. Any good or service that has an OC is called an economic good (i.e. most everything we can see and buy around us). If there is no OC, then we have a free good, like seawater or (arguably) fresh air.

The concept of opportunity cost is vital for our arsenal of evaluative tools. Whenever we spend money, firms spend money, governments spend money, etc., an argument can be made through OC analysis that the money could have been better spent (or not spent/collected in the first place). Different people have different views, making this concept central to our study of economics, scarcity and rationing.

Types of Economic Systems : Command - Mixed - Free/Market

There are three main types of economic systems. In a command (or planned) economy, the basic economic questions of what to produce, how to produce and for whom to produce are answered by the central planning agency of the government. This represents total government intervention as the government decides what's made how and for whom. The factors of production are owned by everybody and, in theory, the government combines these productive inputs in a manner that's best for all. Of course, this is very difficult to orchestrate, especially considering the size and intricacies of economies. The collapse of the Soviet Union and continued move away from command economies illustrates it's inability to function in reality.

In a pure free or market economy, the forces of supply and demand via the interactions between consumers and producers answers these three questions. Resources are allocated to those that can afford them and factors of production are privately-owned. Because of the profit incentive, there tends to be little waste and, thus, this system is far more efficient than the command economy. There is no government intervention in the pure free market. Because of this, there are too few merit and public goods, too many demerit goods, and not "enough" government protections (arguably).

All economies in reality are mixed. In other words, there are free market elements with some level of government intervention. It is the latter that determines whether or not an economy is closer to command or closer to free. A country like North Korea would be mixed, close to command; Sweden close to the middle thanks to an extensive welfare state; and Singapore would be close to free market because of little government intervention compared to much of the rest of the world.

VIDEO -> http://blog.thinkwell.com/2009/08/overview-of-economic-systems.html
GREAT READ -> http://www.bized.co.uk/learn/economics/notes/systems.htm

Pros of free markets : efficient use of resources (through price mechanism), profit incentives created many high-quality g/s
Pros of command economies : little unemployment, presence of public and merit goods (and fewer demerit goods), resources may be used up at a slower pace, not as many clear winners and losers
Pros of mixed : can mix pros from both!
Cons of each : see pros of other

Video - Resources

Factors of Production (FoP)

There are four factors of production: land, labor, capital and enterprise. Land includes all productive inputs in the land, on the land and above the land, including minerals, oil, crops, and iron ore from mountains. Land is paid in rent. Labor includes all productive inputs in the form of people as workers. They receive wages. Capital is the capital stock of the economy, including all the machines, factories, even pens and pencils. Firms use capital to make other goods and services in the production process, and it's paid in interest. Lastly, as The Economist web site nicely describes, enterprise is the "animal spirits of humans" to combine land, labor and capital in novel ways to make g/s. Entrepreneurs are paid in profit. A country is said to have a fixed number of FoPs in the short-run, but most of the time (unless there is a devastating event like the Haitian Earthquake of 2010), productive capacity increases over time (due to factors like technological advancement and population growth). Of course, land has many fixed factors, including the physical amount of oil and gold. Unless we conquer another planet, it's all we've got!

What is business?

A business is an entity that provides goods and/or service for sale to customers (i.e. consumers, other businesses, governments). In capitalistic societies, most businesses exist for the main goal of making a profit and are privately owned. Profits are the reward for risk-taking. However, there are also non-profit and state-owned (public) businesses.