Ch 5: Business Organization
5-1: Business in the US Economy
I.
The Changing US Job Market
a. Baby Boomers make up largest part of workforce
i. They will start to retire around 2010
ii. Average age of worker in 2010 will be 40 yrs old
b. Minorities will have higher employment growth rates
i. Asian, Hispanic, and African Americans
ii. Discrimination issues will be major challenge for future managers,
supervisors, and executives (THIS IS YOU GUYS!)
iii. Women will hold approx 48% of jobs by 2012
iv. White workers will have a decline in employment growth over the
next decade
c. Employee Pressures
i. Technology
1. Originally thought to help employment
2. Causes some downsizing of companies
3. Companies can do more with fewer people
ii. Employees expected to take on more tasks
1. Positions become more competitive (Education)
2. Longer work hours
3. Fewer home hours
4. People still fee they can’t make ends meet (Debt Issues)
5. Companies use more contingent workers (5% of
workforce)
II.
Business and the Economy
a. Size of Businesses
i. Most businesses (18 million) have no employees other than the
owner
ii. Only 1% of businesses in America employ 100 people or more
b. Role of Businesses
i. PURPOSE OF ANY BUSINESS IS TO MAXIMIZE
SHAREHOLDER WEALTH!
ii. Employment
iii. Make and distribute products people, governments, and businesses
need to function
c. Impact on Community
i. Pays wages to its workers
ii. Buys goods and services from other local businesses
1. Smaller businesses locate near lager ones to provide
services and products to larger business
2. Brings economic benefit (money) to local community
iii. Brings in more employees to growing business
1. Housing, food, automobiles, and entertainment
d. 6 Basic Activities of All Firms
i. Generating ideas
1. Ideas on new products or services
2. Existing business must continue to generate ideas
a. Research and Development
ii. Raising Capital
1. Businesses need capital (money) for buildings, equipment,
hiring, training, and to run day to day operations
2. Sources of capital
a. Debt (Loans)
b. Equity (Ownership: Stock)
c. Reinvested profits
iii. Employing and Training Personnel
1. Human Resources
2. Turnover
iv. Buying Goods and Services (Do it yourself or Outsource it)
1. For their own operations
a. Raw materials
2. To use for resale
3. Purchase of services necessary to run the business
a. Advertising
b. Accounting
c. Building maintenance
d. Security
v. Marketing
1. Marketing is the activities directed at providing the goods
and services wanted by a business’ customers
2. Advertising
3. Distribution
4. Point of Sale
vi. Maintain Business Records
1. Records kept so owners and managers can track
information for decision making
2. Government regulates accounting
3. Technology greatly has enhanced this piece
e. Types of Businesses
i. Producers: create the products and services used by individuals
and other busineses
1. Extractor: a business that takes resources from nature for
direct consumption or for use in developing other products
a. Pump oil
b. Mine coal
c. Cut Timber
2. Farmer: cultivate land and use other natural resources to
grow crops and livestock for consumption
3. Manufacturer: get supplies from other producers and
convert them into products
ii. Intermediaries: businesses involved in selling the goods and
services of producers to consumers and other businesses
1. Wholesalers
2. Retailers
3. Specialized Intermediaries
a. Transportation companies
b. Advertising agencies
c. Storage centers
d. Sales offices
e. Data processing
iii. Service Businesses: carries out activities that are consumed by its
customers.
1. Intangibles
2. Fastest growing part of the economy
3. Over 60% of all US employment is in service-producing
businesses
Ch 5-2: Forms of Business Ownership
I.
Business Ownership
a. Proprietorship (vocab)
i. Easiest to start
ii. Sole control of business
iii. Owner gets all of the profits
iv. Owner and business are one entity
v. Creditors can legally go after property not in the business
b. Partnership (vocab)
i. 2 or more people with a written contract
ii. Same set up as proprietorship but with 2 people
iii. Spreads out the risk between 2 people
iv. Easier to get capital from 2 people
v. Both partners have control of operations
c. Corporation (vocab)
i. Separate legal entity
ii. Has one or more “shareholders”
iii. Managed by a board of directors
iv. Can be public or private
v. All owners (shareholders) are not involved in day to day operations
vi. Board must approve access to profits (dividends)
II.
Choosing Form of Business Ownership
a. Proprietorship
i. Most exist as long as the owner lives
ii. Tax advantages
1. Business income is taxed the same as personal income
2. Business expenses can be used to reduce personal income
a. Example: Writing off dinner or golf as a business
expense because owner took a client
iii. Disadvantages
1. Owner’s assets and businesses assets are not separate
2. Owner’s debts and businesses debts are not separate
b. Partnership
i. Same advantages and disadvantages as proprietorships except it
applies to 2 people
c. Corporation
i. Liability of owner is limited to the amount invested
ii. Owners can share in profits without participating in operations
iii. Owner can sell stock
1. Capital gains (15% long term; 20% short term)
iv. Board approves distributions of profits to owners (dividend)
1. Owner pays income tax on dividends
v. More regulated by government
vi. Corp. pays tax on its profits
vii. Articles of Incorporation (vocab) must be filed with the
appropriate state government office
d. Other Forms of Ownership
i. Limited Liability Partnership
1. Partner cannot loose more than amount invested
2. Partner does not participate in day to day operations
3. Different from Partnership because both do not take part in
the operations of the business
ii. Joint Venture
1. A unique business organized by 2 or more other businesses
to operate for a limited time and for a specific project.
iii. S-Corporation
1. Offers the limited liability of a corporation
2. All income is passed through to the owners based on their
investment and is taxed on their individual rate
iv. Nonprofit Corporation
1. Does not mean non revenue producing
a. Any money left after all expenses are paid are
reinvested into the organization
2. Benefits community
3. Pays no corporate income tax
4. Must be organized like a corporation
5. Examples: Hospitals, Red Cross, DeSmet
v. Cooperative
1. Owned by its members, serves their needs, and is managed
in their interest
2. Allows members to purchase goods and services cheaper as
a group than they could individually
3. A large number of small businesses will have more
bargaining power than the individual business
4. Example: A group of local farmers
vi. Franchise
1. A written contract with an established company to operate
a business to sell their products and services in a set way
2. Franchiser: the company that owns the product or service
and grants rights to another business to sell the product or
service
3. Franchisee: the company that purchases the rights to sell
the product or service
4. This expands the franchiser’s company without making a
large capital investment
5. Franchisee can have a business that already has an
established product, service, and marketing plan
6. Franchisee pays a fee and a percentage of the profits to the
franchiser
7. Examples: McDonalds & Jiffy Lube
Ch 5-3: Organizational Structure for Businesses
Mission Statement (vocab)
Goal (vocab)
Policies (vocab)
Procedures (vocab)
Organization Chart (vocab)
I.
Principals of Effective Organization
a. Responsibility: the obligation to complete specific work
b. Authority: the right to make decisions about how responsibilities should
be accomplished
c. Accountability: taking responsibility for the results achieved
d. Unity of command: means there is a clear reporting relationship for all
staff of a business
e. Span of control: the number of employees who are assigned to a particular
work task and manager
f. Functional organizational structure: work and jobs are organized within
main business functions such as production, operations, marketing, and
human resources
g. Matrix organizational structure: work and jobs are structured around
specific projects, products, or customer groups