Chapter 5: Business Organizations
5-1: BUSINESS IN THE U.S. ECONOMY
Key Terms:
• Contingent workers
• Intermediary
• Service Business
The Changing U.S. Job Market
• Employment Data
– In 2007, 144 million people had jobs
– 2014 estimated 165 million
– “baby boomers” were born 1946-1964 (dominate
labor market until they retire in late 2010s)
– Average age of worker in 2020 will be over 50
– Currently, white non-Hispanic make up 70%
• Will drop to 66% by 2014
– By 2014, almost half (47%) of jobs will be women
• Pressure on Employees
– Downsizing by many companies
– Take on new tasks / work extra hours
– Pay decreased
– Now, 7 of 10 parents felt they didn’t spend
enough time with their kids
– Increase number of contingent workers
• No contract for long-term employment
• 5% (6 million) made up of contingent workers
• Take because they cannot find permanent employment
Business and the Economy
• Make the goods and services you use daily
• Almost 24 million businesses produce things
for our daily use
• Size of Businesses
– Must U.S. businesses are small
– 19.5 million have no employees except owner
– 4.5 million have less than 20 people
– 26,000 have 20-100 people
– 107,000 have 100+ workers
• Roles of Business
– Provide employment for millions of people
– Employee wages are used to purchase goods
– Most businesses pay taxes to federal and state
• Taxes spent on streets, police/fire, schools, hospitals
– ** make/distribute products needed by
consumers, government and other businesses**
• Impact on a Community
– When a new business opens, provides jobs
– Buys goods from other businesses in area
– When larger businesses open, others will relocate
• Contribute more jobs and income
• Business Activities
– Generate Ideas (improve/develop new ideas)
– Raise Capital (need $ to operate and hire)
– Employ/Train Personnel (recruiting, training)
– Buy Goods/Services (to be used for their product)
– Marketing Goods/Services (getting word around)
– Maintain Business Records (track performance)
Types of Businesses
• Producers
– Create the products
– Use resources to make something for people
• Extractor: takes resources from nature for products
(pump oil, mine coal, cut timber)
• Farmers: cultivate land, grow crops, raise livestock
• Manufacturers: get supplies from other producers and
turn them into products; sell products to others
• Intermediaries
– Businesses involved in selling goods of producers
to other businesses
– Most common types are retailers/wholesalers
– Include: advertising agencies, storage centers,
sales offices
• Service Businesses
– Does not make products; provide something
intangible—not able to touch/hold
– Include: dentists, doctors, lawyers, painters, pet
sitters, furniture movers, internet providers
– Fastest growing part of economy
• Over 60% of employment is in service businesses
5-1 Assessment
1.
2.
The largest number of U.S. businesses employ
1. >100 people
2. 50-100 people
3. 10-20 people
4. No employees except owner
Which is NOT one of the common business activities
1.
2.
3.
4.
3.
Producing goods/services
Employing/training personnel
Marketing goods/services
Maintain business record
A retailer is an example of
1.
2.
3.
4.
Extractor
Producer
Intermediary
Service business
5-2 Forms of Business Ownership
• Key Terms
– Proprietorship
– Partnership
– Corporation
– Partnership agreement
– Articles of incorporation
– Franchise
Business Ownership (3 forms)
• Proprietorship ** most common**
–
–
–
–
–
–
Business owned and run by 1 person
Easiest to start and end
(+) Sole control over all business decisions
(-) Also responsible for all debts incurred
Don’t need any government license or permits
Register business name with state, local and federal
government
• Partnership
–
–
–
–
–
Owned/controlled by 2 or more people in an agreement
Partners share in profits
Each is responsible if business fails
Can be verbal or written
Partnership agreement: written among all owners;
rules/guidelines of ownership and operations
– (+) can split investment and work required
– (-) no protection for personal assets of any partner
• Corporation
–
–
–
–
–
–
Owned by shareholders (stocks) and managed by board directors
Started by legal documents turned in to state
Most have several owners
More difficult to start; board directors/shareholders make decisions
Must follow the laws of the state they are in
Articles of Incorporation: written, legal document that defines
ownership/operating procedures for business
– Must create corporate bylaws (procedures for business)
– (+) business can easily expand/grow and new owners be added
– (-) decision making shared among many managers/owners
Other Forms of Ownership
• Specialized Partnerships and Corporations
– Limited liability partnership (some people invest but have no say in
day to day decisions, won’t lose any money)
– Joint Ventures (two or more businesses join together for a short time for
a specific project)
– S-Corporation (all income goes through owners based on how much
money each person invested)
– Limited Liability Company (LLC-combo or partnership/corporation;
owners are protected from losses, no bylaws are needed)
– Nonprofit Corporation (benefits public; do not pay taxes, raise funds)
• Cooperatives and Franchises
– Cooperative is owned by its members, serves the
needs of its people
• Members form this so they can buy things cheaper as a
group as they can individually
– Franchise (written contract that gives permission
to a business to sell its products in a certain way. )
• Franchiser: the company who gives the rights to use
• Franchisee: the company who pays for rights to run
company
• EX: Jiffy Lube, Century21, Merry Maids, Others??
5-2 Assessment
1. The form of ownership that gives 1 person
sole control over all business decisions:
2. T/F All investors in a partnership have full
responsibility for debts of business
3. The people who make the majority of policy
and financial decisions in a corporation are:
4. A special form of business organization that
combines corporation and partnership:
5-3 Organizational Structure for
Business
• Key Terms
– Mission statement
– Goal
– Policies
– Procedures
– Organization chart
Design an Effective Business
Organization
• Many new businesses fail in the first few years
• FEW businesses stay successful during lifetime
of the owner
• Need: skilled managers, good employees,
enough resources, effective procedures
• Setting Direction
– Mission Statement: short, specific written
statement of why business exists and what it
wants to achieve
– Set Goals: exact statement of results the business
expects to achieve
– Sets Policies/Procedures
• Guidelines used in making consistent decisions
• Description of the way work needs to be done
• Effective Organization
– Responsibility (obligation to complete specific work)
– Authority (right to make decisions about how
responsibilities should be accomplished)
– Accountability (taking responsibility for results achieved)
– Unity of Command (clear relationship and definition of the
leader for all staff to know)
– Span of Control (# employees assigned to a certain task or
manager)
Types of Organizational Structure
• Who reports to who?
• Organizational Chart: diagram that shows the structure of an
organization, classifications of jobs and how they are related
(p117)
• Functional Organizational Structure-work is arranged into
production, operations, marketing, human res.
– All people within category will work together
– Little contact with people in other categories
• Matrix Organizational Structure-work organized by specific
projects, products or customer groups
– People with diff backgrounds may work together to help
same customer or complete same project
5-3 Assessment
1. T/F The direction for a business comes from
its policies and procedures
2. The obligation to complete work is called:
3. Which is NOT shown on organizational chart:
1.
2.
3.
4.
Structure of organization
Work relationships
Job descriptions
Classifications of jobs