Introduction to Business
Business
Ownership &
Operations
Why It’s Important
You need to understand business
ownerships and operations before
starting a business.
Types of Business Ownership
The different ways that you can own a
business which we will discuss are:
• Sole proprietorship
• Partnership
• Corporation
We will also talk about
• Franchising
Making a Business
Decision
1. What are the advantages and
disadvantages of “going solo” in a
business venture?
2. How can having a partner help launch and
grow a business? Are there any
drawbacks?
Sole Proprietorship
A sole proprietorship is a business
owned by only one person.
Sole Proprietorship
The advantages to having your own
business are:
• It’s easy to start (and stop)
• You get to be your own boss
• Control over business operations
• You get to keep all the profits
• Pride of Ownership
• The taxes are usually low
Sole Proprietorship
The disadvantages to having your own
business are:
• You have to pay for everything
yourself
• You might have to use your personal
savings or borrow money from the
bank
• You might lack business skillscontinued
Sole Proprietorship
A serious disadvantage to owning a
sole proprietorship is that you have
unlimited liability, or full responsibility
for your company’s debts.
Partnership
A partnership is a business owned by
two or more persons who share the
risks and rewards.
To start a partnership you need to
draw up a partnership agreement,
which is a contract that outlines the
rights and responsibilities of each
partner.
Partnership
The advantages to partnership are:
• You might need only a license to
start and have to pay taxes only on
your personal profits.
• Each of your partners can contribute
money to start the business.
Partnership
• Banks are often more willing to lend
•
money to partnerships than sole
proprietorships.
Your partners can bring different
skills to the business.
Partnership
The disadvantages to partnership are:
• You not only share the risks with
your partners, you also share the
profits.
• You might not get along with your
partners.
• You share unlimited legal and
financial liability with your partners.
Corporation
A corporation is a business owned by
many people but treated by law as one
person.
To form a corporation, you need to get
a corporate charter from the state your
headquarters is in.
Corporation
To raise money, you can sell stock, or
shares of ownership in your
corporation.
For each share of common stock, the
stockholder gets a share of the profits
and a vote on how the business is run.
You also must have a board of directors
who control the corporation.
Corporation
A major advantage of a corporation is
its limited liability.
If your company loses money, the
stockholders lose only what they
invested.
Another advantage is that the
corporation doesn’t end if the owners
sell their shares.
Corporation
A disadvantage of a corporation is that
you often have to pay more taxes.
The government closely regulates
corporations.
It is more difficult to start a corporation
than a sole proprietorship or a
partnership and running a corporation
can be much more complicated.
Franchise
A business relationship between two parties
which gives the franchisee:
• The right to sell a product or service using
the trademark or trade name of the
franchiser
• The right to market a product or service
using the operating methods of the
franchiser
• The obligation to pay the franchiser fees for
these rights.
Franchise
• Product Distribution Franchises sell
the franchisers products only
(supplier-dealer)
• Business Format Franchises not
only use a franchiser’s product,
service, and trademark, but also the
complete method for conducting the
business (marketing plan)
Franchise
Pros of Franchise Businesses
• Established Brand and Customer Base. By far, the
biggest advantage of buying into an established
franchise is the strength of the brand and loyalty of its
customers.
• Marketing Support. Franchises often have the
support of a national campaign, as well as prepared
marketing materials for a local campaign.
• Reputable Suppliers. Franchisors often have
established relationships with suppliers for all the
materials franchisees need.
Franchise
Pros of Franchise Businesses
• Business Support. There's a saying in franchising: "You're
in business for yourself, but not by yourself" because you
have a network of support.
• Training. Some of the better (and more expensive)
franchise operations offer management and technical
training.
• Financial Assistance. Some franchisors provide loans and
other assistance to help franchisees.
• Access to Proprietary Methods. There's no need to
reinvent the wheel as franchisees get access to all the
trade secrets.
Franchise
Pros of Franchise Businesses
• Ongoing Research and Development, New Products.
Franchisees can stick to improving their operations and let
the franchisor spend the time and money developing new
products.
• The Boss is You. As with owning any business that you
own, you are in control of your destiny.
• Reduced Risk. For all of these reasons, starting a
franchise of an established brand often has less risk than
starting a business from nothing.
Franchise
Cons of Franchise Businesses
• Initial Payout (Franchise Fee and Start-up Costs). Some
of the bigger franchise operations can involve some very
large initial costs, often more than what it would cost to
start your own business.
• Royalty Payments. For as long as you are a franchisee,
you will have to pay some percentage of the monthly
gross back to the franchisor, reducing your profit
potential.
• Marketing/Advertising Fees. To receive the wonderful
marketing support from the franchisor, franchisees must
pay these fees, according to some contracts.
Franchise
Cons of Franchise Businesses
• Limited Creativity/Flexibility. Most franchise contracts have
very explicit standards, allowing little or no alterations or
additions to the brand, stifling any creativity on the part of
the franchisee. You must use their system, follow their
rules.
• Sole Sourcing. Some franchise contracts stipulate that
franchisors must buy supplies only from an approved list
of suppliers, possibly at a higher cost.
• Locked into Operation by Long-Term Contract. If you don't
do as much research as you should have and find yourself
with the wrong franchise, you may be stuck for many
years.
Franchise
Cons of Franchise Businesses
• Dependent on Franchisor Success. The reputation of
your franchise is only as good as that of the franchisor,
so any difficulties that the franchisor encounters will have
a direct impact on you.
• False Expectations. Opening a franchise rather than
starting your own business offers no guarantees of
success. You still need to be a sharp businessperson to
make it work.
• Risk. There's always risk in starting any new business.
Which type is best?
• Depends on your situation!
• They all have strengths and
weaknesses.
Fast Review
1. What are some of the advantages
of a sole proprietorship?
2. What is the difference between a
sole proprietorship and a
partnership?
continued
Fast Review
3. If a partner makes a bad business
decision, what responsibility do the
other partners have?
4. What are the disadvantages of a
corporation?