Exam 1

BUSINESS PLANS

-- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners' qualifications. A business plan forces potential owners to be specific about what they will offer. A business plan is mandatory for talking with bankers or investors.

Five types of social Audit Watchdogs

1) Socially conscious investors 2) Socially conscious research organizations 3) Environmentalists 4) Union officials 5) customers

OTHER FORMS OF HELP

A commercial loan officer can help: Design an acceptable business plan. Give financial advice. Lend money. An insurance agent can help you: Know the risks associated with the business. How to cover risks with insurance. How to prevent risks with safety devices. Service Corps of Retired Executives More than 10,500 volunteers from industry, trade associations, and education who counsel small business at no cost.

Multinational Corporations

A company that manufactures and markets products in many different countries and and has multinational stock ownership and management. not all large global businesses are multinational Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.

What is a Ponzi Scheme

A fraud by paying returns to existing investors from funds contributed by new investors. New investors are promised opportunities claimed to generate high returns with little or no risk. Fraudsters focus on attracting new money to make promised payments.

Social auditing

A systematic evaluation of an organization progress toward implementing socially responsible and responsive programs.

BENEFITS of HOME-BASED BUSINESSES

Ability to start your business immediately Minimal start-up capital needed No rent or excessive set-up charges Comfortable working conditions Reduced wardrobe expenses No commuting Tax benefits Elimination of office politics Low risk for trial and error

HOME-BASED FRANCHISES

Advantages: Relief from commuting stress Extra family time Low overhead expenses Main Disadvantages: Isolation Long hours

AFFILIATE MARKETING

Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.

WHO CAN INCORPORATE?

Anyone - truckers, doctors, plumbers, athletes and small business owners can incorporate. Normally stock is not issued to outsiders when individuals incorporate, so the advantages and disadvantages are not exactly the same as for large corporations. Major advantages are limited liability and possible tax benefits.

How to measure global trade

Balance of trade- the total value of a nations exports compared to its imports measured over a particular trade Trade surplus Favorable- when the value of a country's exports is more than that of its imports. Trade deficit unfavorable- when the value of a country's exports is less than that of its imports.

COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

CDFIs are playing a big role in the economic recovery. First formed in the early 1980s; by 2009, over $1 billion flowed into CDFIs from investment companies. Only 1% of loans were not paid back in the last 30 years!

GLOBAL FRANCHISING

Canada is the most popular target for U.S.-based franchises. China, South Africa, the Philippines and the Middle East are becoming popular despite high cost. Franchising is successful when the product is convenient, high quality, great service is included and the franchisee adapts to the region. International franchising goes both ways - some foreign franchises have come to the U.S.

Comparative and Absolute Advantage

Comparative Advantage-A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently. Absolute advantage- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries

Ethic codes

Compliance based codes-emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers. Integrity based codes- define the organizations guiding values create an environment that supports ethically sound behavior and stress a shared accountability

HOME-BASED BUSINESS GROWTH

Computer technology has leveled the playing field. Corporate downsizing has led many to venture on their own. Social attitudes have changed. New tax laws have loosened restrictions on deducting expenses for home offices.

ACCOUNTING ASSISTANCE

Computers simplify the process by helping with inventory control, customer records and payroll. A good accountant can help in: Deciding whether to buy or lease equipment. Deciding whether to own or rent a building. Tax planning. Financial forecasting. Choosing sources of financing. Writing requests for funds.

Corporate social responsibility

Concern businesses have for society. Based on a commitment to integrity, fairness and respect. CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist if societies fail.

CONVENTIONAL CORPORATIONS

Conventional (C) Corporation -- A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders

COOPERATIVES

Cooperatives -- Businesses owned and controlled by the people who use them- producers, consumers, or workers with similar needs who pool their resources for mutual gain. Worldwide, 750,000 co-ops serve 730 million members - 120 million in the U.S. Members democratically control the business by electing a board of directors that hires professional management.

Corporate Philanthropy and social initiatives

Corporate philanthropy- includes charitable donations Corporate social initiatives-include enhanced forms of corporate philanthropy.

Corporate responsibility and policy

Corporate responsibility- includes everything from hiring minority worked to making safe products minimizing pollution using energy wisely and providing a safe work environment. Corporate policy- the position a firm takes on social and political issues.

Trading with other nations

Countries with abundant natural resources need technological resources from other countries. Global trade allows countries to produce what they make best and buy what they need from others. Free trade- the movement of goods and services among nations without political or economic barriers.

DOWNSIDES of HOME-BASED BUSINESSES

Difficult to establish work habits Limited support system Isolation Work space may be limited Clients may be uncomfortable coming to your home Zoning restrictions Success is based 100% on your efforts

Unfair trade practices

Dumping-selling products in a foreign country at lower prices than those charged in the producing country

Export assistance centers and export trading centers

EACs provide hands on exporting assistance and trade finance support for small businesses that wish to directly export goods and services ETCs- help companies engage in indirect exporting by: matching a buyer and sellers dealing with foreign custom\s offices, documentations and conventions.

benefits of sole proprietorship

Ease of starting and ending the business Being your own boss Pride of ownership Leaving a legacy Retention of company profit No special taxes

e. t.

Entrepreneurial team -- A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make and market a new product.

Entrepreneurship

Entrepreneurship -- Accepting the risk of starting and running a business.

BOOSTING YOUR BUSINESS'SONLINE PRESENCE

Establish an identity. Be easy to find. Steal good ideas and make them your own. Look out for opportunities. Remember other forms of marketing. Be friendly!

FIVE STEPS to STARTING YOUR BUSINESS in SCHOOL

Find a problem or need. Zero in on specifics. Do research on campus, test products with students. Move forward with your ideas. Don't wait! Sacrifice.

YOU'RE NEVER TOO YOUNG to be an ENTREPRENEUR

Five reasons to start your business right away: You don't have a mortgage or kids to take care of. You can survive on little funds and work long hours. No disruption to your career path. It hasn't started yet! Use of your alma mater for resources.

FRANCHISING

Franchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. More than 825,000 franchised businesses operate in the U.S., employing approximately 17.5 million people.

TYPES OF PARTNERS

General Partner -- An owner (partner) who has unlimited liability and is active in managing the firm. Limited Partner -- An owner who invests money in the business, but enjoys limited liability. Limited Liability means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk.

MAJOR TYPES of PARTNERSHIPS

General Partnership -- All owners share in operating the business and in assuming liability for the business's debts. Limited Partnership -- A partnership with one or more general partners and one or more limited partners.

HOME-BASED BUSINESS ISN'T EASY

Getting new customers is difficult. Managing your time requires self-discipline. Work and family tasks are sometimes not separated. Government ordinances may restrict your business. Homeowner's insurance may not cover business-related claims.

How free trade benefits the world

Global trade has led the world in a new direction Literacy rates worldwide have increased from 56% in 1950 to 89% in 2011 Life expectancy in less developed areas rose from 40.9 years in 1950 to 69 years in 2011

MANAGING EMPLOYEES

Hiring, training and motivating employees is critical. Employees of small companies are often more satisfied with their jobs - they feel challenged and respected. Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions.

GOVERNMENT and ENTREPRENEURSHIP

Immigration Act passed in 1990 created a category of "investor visas" that encourage entrepreneurs to come to the U.S. Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support. Incubators -- Offer new businesses low-cost offices with basic services.

Importing and Exporting

Importing- buying products from another country. Exporting- Selling products to another country U.S. is the largest importing and the third largest exporting nation in the world.

EMERGING MARKETS, EMERGING ENTREPRENEURSHIP(Reaching Beyond Our Borders)

In emerging markets, entire industries and services are wide open for innovation. Many entrepreneurs in the developing world hold degrees and have worked at high-level companies. Entrepreneurs must often expand into different areas of business in order for their venture to grow.

SMALL BUSINESSES

Independently owned and operated, not dominant in its field of operation and meets certain standards of size. Businesses are "small" in relation to other businesses in their industries.

DISADVANTAGES of CORPORATIONS

Initial cost Extensive paperwork Double taxation Two tax returns Size Difficulty of termination Possible conflict with stockholders and board of directors

INTRAPRENEURS

Intrapreneur -- A creative person who works as an entrepreneur within a corporation. Intrapreneurs use a company's existing resources to launch new products for the company. Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damage.

Facing Ethical Dilemmas

Is it legal Is it balanced How will it make me feel about myself

An IDEA is a GOOD OPPORTUNITY IF...

It fills customers' needs. You have the skills and resources to start a business. You can sell the product or service at a reasonable price and still profit. You can get your product or service to customers before the window of opportunity closes. You can keep the business going.

DISADVANTAGES of FRANCHISING

Large start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors

LEARNING ABOUT SMALL BUSINESS

Learn from Others - Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs. Get Some Experience - Gain three years experience in the field; then start a part-time small business. Take Over a Successful Firm - Serve as an apprentice and eventually take over once the owner steps down.

LEVERAGED BUYOUTS

Leveraged Buyout (LBO) -- An attempt by employees, management or a group of investors to buy out the stockholders in a company. LBOs have ranged in size from $50 million to $31 billion and have involved everything from small businesses to giant corporations. In 2010, foreign investors poured $300 billion into U.S. companies.

LIMITED LIABILITY COMPANIES

Limited Liability Company (LLC) -- Similar to an S corporation, but without the eligibility requirements. Advantages of LLCs: Limited liability Choice of taxation Flexible ownership rules Flexible distribution of profits and losses Operating flexibility

ADVANTAGES of CORPORATIONS

Limited liability Ability to raise more money for investment Size Perpetual life Ease of ownership change Ease of attracting talented employees Separation of ownership from managem

ADVANTAGES of FRANCHISING

Management and marketing assistance Personal ownership Nationally recognized name Financial advice and assistance Lower failure rate

The MARKET

Market -- Consumers with unsatisfied wants and needs who have both resources and willingness to buy. Set out to fill the market's needs by offering top quality and great service at a fair price. One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs.

MARKETING RESEARCH

Marketing decisions need to be made long before introducing a product or opening a store. A marketing research study can help you: Determine where to locate. Whom to select as your target market. What is an effective strategy for reaching the market.

OTHER FORMS of PARTNERSHIPS

Master Limited Partnership -- A partnership that looks much like a corporation, but is taxed like a partnership and thus avoids the corporate income tax. Limited Liability Partnership -- Limits partners' risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision.

MERGERS and ACQUISITIONS

Merger -- The result of two firms joining to form one company. Acquisition -- One company's purchase of the property and obligations of another company

MICROPRENEURS

Micropreneurs -- Entrepreneurs willing to accept the risk of starting and managing a business that remains small, lets them do the work they want to do, and offers a balanced lifestyle. About half of U.S. micropreneurs are home-based business owners - writers, consultants, video producers, architects, bookkeepers, etc. Nearly 60% of home-based micropreneurs are men.

MINORITY-OWNED FRANCHISES

MinorityFran is an initiative to build awareness of franchising opportunities within minority communities. Domino's Pizza launched a minority franchise recruitment program called Delivering the Dream. Over 20% of franchises are minority-owned.

ADVANTAGES of PARTNERSHIPS

More financial resources Shared management and pooled/complementary skills and knowledge Longer survival No special taxes

ADVANTAGES of SMALL OVER BIG BUSINESS

More personal customer service. The ability to respond quickly to opportunities.

E-COMMERCE in FRANCHISHING

Most brick-and-mortar franchises have expanded to the Internet. Many franchisors prohibit franchisee-sponsored sites because conflicts can erupt. Sometimes "reverse royalties" are sent to franchisees who believe their sales were hurt by the franchisor's site. Other franchises are solely based online

PROGRESS ASSESSMENT

Most people who start businesses in the U.S. are sole proprietors. What are the advantages and disadvantages of sole proprietorships? Why would unlimited liability be considered a major drawback to sole proprietorships?

DISADVANTAGES of LLCs

No stock, therefore ownership is nontransferable Limited life span Fewer incentives Taxes Paperwork

ONLINE BUSINESS

Online sales reached $172.9 billion in 2010, 7% of all retail sales. All retail sales were up 2.5% in 2010. However, online retail sales grew 11%.

WHY TAKE the RISK?

Opportunity Profit Independence Challenge

Business in the Global Market

Over 90% companies do business globally believe it is important for employees to have international experience. U.S. organizations are also expanding abroad.

LEGAL HELP

Owners need outside consulting advice early in the process. Small and medium-sized firms cannot afford to hire experts as employees. A competent lawyer can help with: Leases Contracts Partnership agreements Protection against liabilities

SOURCES of CAPITAL

Personal savings Relatives Former employers Banks & finance companies Government agencies Angel investors Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.

MAJOR BUSINESS FUNCTIONS

Planning Financing Knowing customers Managing employees Keeping records

Outsourcing

Process by which a firm contracts with other companies to do some or all of its functions. US firms have outsourcing payroll functions, accounting and manufacturing for years. With the growth of global markets, companies have been shifting to offshore outsourcing with other countries.

WHO CAN FORM S CORPORATIONS?

Qualifications for S Corporations: Have no more than 100 shareholders. Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S. Have only one class of stock. Derive no more than 25% of income from passive sources. If an S corporation loses its S status, it may not operate under it again for at least 5 years

S CORPORATIONS

S Corporation -- A unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships. S corporations have shareholders, directors and employees, plus the benefit of limited liability. Profits are taxed only as the personal income of the shareholder.

WHAT DOES IT TAKE to be an ENTREPRENEUR?

Self-directed Self-nurturing Action-oriented Highly energetic Tolerant of uncertainty

SMALL BUSINESS DEVELOPMENT CENTERS

Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states. SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application - for no charge.

The SMALL BUSINESS INVESTMENT COMPANY

Small Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses. A SBIC must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has. SBICs are able to identify a business's trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments.

SMALL BUSINESS PROSPECTS ABROAD

Small- and medium-sized businesses accounted for 99% of recent export growth. Advantages of global trade for small businesses: Overseas buyers enjoy dealing with individuals. Small companies can usually begin shipping much faster. They provide a wide variety of suppliers. They can give more personal service and attention.

Major forms of ownership

Sole proprietorship- a business owned and usually managed by one person. Partnership- two or more people legally agree to become co owners of a business. Corporation- A legal entity with authority to act and have liability apart from its owners.

Tariffs

Taxes on imports making imported goods more expensive Two kinds of tariffs: protective-raise the retail price of imports so domestic goods are competitively priced Revenue- raise money for governments.

PLAY BALL but PLAY GREEN(Thinking Green)

The Nationals in D.C. have the first sports stadium to earn the Leadership in Energy and Environmental Design (LEED) Rating. 95% of the stadium's steel was recycled and low-flow toilets save millions of gallons of water New York stadiums for the Mets, Giants and Jets have also earned green certifications.

Balance of payments

The difference between money coming into a country from exports and money leaving the country from imports plus other money flows. The goal is to have more money flowing into a country than out- a favorable balance. An unfavorable balance is when more money flows out of a country

YOU'RE NEVER TOO OLD to be an ENTREPRENEUR EITHER!

The highest rate of entrepreneurship activity is in the 55-64 age group! Since 1996, older Americans have opened businesses at a higher rate than 20-34 year olds. Older entrepreneurs have greater experience and more financial resource

The TIES that BIND(Spotlight on Small Business)

There is no such thing as a perfect partner but ask these questions when you try to find your best match: Do you share the same goals? Do you share the same vision for the company? What skills does he/she have? Are yours the same? What can he/she bring to the business? What type of decision maker is he/she? Do you trust each other? How does he/she problem solve?

DISADVANTAGES of PARTNERSHIPS

Unlimited liability Division of profits Disagreements among partners Difficult to terminate

Disadvantages of sole proprietorships

Unlimited liability-any debts or damages by the business are your debts even if it means selling your home car or anything else limited financial resources management difficulties overwhelming time commitment few fringe benefits limited growth limited life span

Insider Trading

Using private information to further their own fortune or those of their family and friends. does financial damage to a company and investors are cheated.

VIRTUAL COMPANIES(Legal Briefcase)

Vermont allows a new kind of LLC that exists only online. Registration documents can be filed online, meetings can be held through online communication, and relationships can be established electronically. Virtual companies allow online contributors with different skills, availability and interest to interact and be successful.

TYPES of MERGERS

Vertical Merger -- Joins two firms in different stages of related businesses. Horizontal Merger -- Joins two firms in the same industry and allows them to diversify or expand their products. Conglomerate Merger -- Unites firms in completely unrelated industries in order to diversify business operations and investments.

WOMEN in FRANCHISING

Women own about half of U.S. companies, yet ownership of franchises is about 25%. Firms owned by women have grown at twice the rate of all companies. More women are becoming franchisors. Auntie Anne's and Jazzercise and are owned by women

Going global with a small business

small businesses may be the key in global growth only 1% of us small businesses export, yet they account for 30% o total us exports President Obama wants small businesses to help double exports by 2015