1.01 Business Characteristics

Term Definition

Purposes/Characteristics of Business


Profit motive







Money that remains after a business has paid for the expenses of running the business.

Income > Expenses

A person's incentive to work to gain something for himself or herself (that is to make money).

Contest between businesses to win customers' business and loyalty

Items necessary for existence, such as clothing, food, and shelter.

Items that would be nice to have, but are not necessary.

A person who uses goods or services. Many times the consumer is also the customer


Items businesses sell that can be physically weighed or measured, such as iPods and CDs.

Tasks that businesses perform or provide for customers, such as hair cuts and car washes.


Functions of Business



Information Technology



The process of recording and reporting the financial data for a business.

The process of creating, promoting, and presenting a product to the consumers.

The process of developing, installing, and implementing computer information systems and applications. IT includes the support and maintenance of computer hardware and software.

The activities involved in the day-to-day running of a business for the purpose of producing value for the stakeholders.

The activities that deal with the hiring, firing, training and other personnel (employee) issues.

Human Resources

1.02 Types of a Business

Sole Proprietorship

A. Owned by one person

B. Advantages

1) Easy to start

2) Owner is his/her own boss

3) Owner keeps all profits

C. Disadvantages

1) Owner must pay for everything needed for the business.

2) Difficult to obtain capital needed to start business.

3) Owner might lack business skills.

4) Unlimited liability

—owner has full responsibility for company's debts and can lose entire investment as well as personal assets.

D. Examples

1) Floral shops

2) Bookstores

3) Farms




A. Owned by two or more people.

B. Advantages

1) Relatively easy to start

2) Easier to obtain capital than in a sole proprietorship

3) Partners share different skills and talents.

4) Partners share the risks of the business.

C. Disadvantages

1) Partnership agreement is needed to start the partnership.

2) Partners might not get along.

3) Partners must share the profits.

4) Partnership must be reorganized if one partner quits.

5) Partners share unlimited liability

—all partners share the responsibility of a bad decision made by one partner (including debts).

D. Examples

1) Law firms

2) Medical practices

3) Tom and Ray's Auto Body Repair


A. Owned by many people (stockholders), but treated by law as one person

(corporation can own property, pay taxes, make contracts, etc.)

B. Advantages

1) Corporations can raise money by selling stock.

2) Limited liability

—stockholders can only lose what they have invested.

3) Corporation continues when stockholders sell shares of stock.

4) Corporation may make money by selling more shares of stock.

C. Disadvantages

1) Corporations are taxed on their profits.

2) Government closely regulates corporations.

3) More difficult to start a corporation because they must obtain a corporate charter from the state in which headquarters is located.

D. Examples:

1) Nike

2) IBM

3) Google

E. Multinational Corporation - A corporation that has its facilities and other assets in at least one country other than its home country.

1. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management.

2. Examples are Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW.



A. Contractual agreement between the parent company (franchisor) and the franchisee

(business operator) to sell a company's products or services in a specific geographic area

B. Advantages

1) Easy to start

2) Franchisee can rely on the good name and expertise of the parent company.

3) Franchisee can get help from the proven methods of the franchisor

—especially good if franchisee lacks experience.

C. Disadvantages

1) Some franchisors are strict about how the business is run.

2) Franchise is limited in what products or services can be sold.

3) Franchise must operate like every other franchise.

D. Examples

1) Taco Bell

2) Blockbuster

3) McDonald's

I. Profit-making Businesses

A. Businesses whose motive is making a


(earning more revenue than expenses)

B. Produce and distribute goods and services based on consumer demand (for



C. Examples

1) Apple Computer

2) Sony

3) Domino's Pizza

4) Abercrombie & Fitch

5) The Gap

II. Non profit-making Businesses and Organizations

A. Focus on providing a service instead of making a profit

1) Usually benefit an organization, cause, need, or a public purpose

2) Can earn a profit, but cannot be run for the sole purpose of earning a profit and profits must be used to benefit the purpose of the organization.



be run for the financial gain of the members or directors

4) Donors' contributions are tax deductible

B. Examples

1) American Red Cross

2) Salvation Army

3) Meals on Wheels

4) St. Jude's Children's Hospital

5) Homeless shelters

III. Service Businesses

A. Provide services rather than goods.

B. Some service businesses meet needs (medical clinics, law firms)

C. Some service businesses provide wants (taxi companies, ISPs)

D. Examples

1) Barber shop

2) Dry cleaners

3) Copy and print shops (Kinko's)

4) Car repair shops

IV. Product Businesses

A. Sell goods to consumers and other businesses

B. Retailers and distributors are product businesses

C. Examples

1) Old Navy


2) CD stores

3) Best Buy

4) Dick's Sporting Goods

Combination businesses

A. Because some businesses can sell a product AND provide a service within the same business, they are considered a combination of product and service.

B. Examples:

1) Automobile dealerships

—sell cars and change your oil

2) Hair salons

—sell shampoo and hair spray and cut your hair

3) Appliance stores

—sell washing machines and repair them