Business Dynamics Chapter 5

More than 770,000 franchised businesses operate in the U.S., employing approximately _____ million people

8.5

Explain the 80-20 or "Iceberg Effect"

80% of business comes from 20% of your customers who buy your product (20%). Basically that is to say that a relatively small activity accounts for a majority of your business.

Explain double taxation for corporations

So with this for the corporation is taxed. Then that final profit after taxes is partly given out to stockholders in dividends. Then, the second tax comes in as the stockholder. The dividend you get as a stockholder gets taxes again depending on your current income. This is because the dividend is considered a passive transaction.

A business owned, and usually managed, by one person

Sole Proprietorship

List the 3 forms of ownership

Sole Proprietorship Partnership Corporation

Other franchises are based solely _____

online

Sometimes "____ ____" are sent to franchisees who believe their sales were hurt by the franchisor's site

"reverse royalties"

What does "VIMS" stands for and what does it mean

(V)ertically (I)ntegrated (M)arketing (S)ystems It refers to the way that modern business is done today

_____ own about half of U.S. companies, yet ownership of franchises is about 21%

Women

List 6 characteristics of franchises who are likely to survive a recession

1. Focus on tried-and-true

List 5 advantages of LLCs

1. Limited liability (assets are protected) 2. Choice of taxation 3. Flexible ownership rules 4. Flexible distribution of profits and losses 5. Operating flexibility

List the 4 qualifications for S corporations

-Have no more than 100 shareholders -Have shareholders that are individuals or estates and are citizens or permanent residents in the U.S. -Have only one class of stock (Stock A vs. Stock B) -Derive no more than 25% of income from passive sources

List 7 disadvantages of corporations

-Initial cost -Extensive paperwork -Double taxation -Two tax returns -Size -Difficulty of termination -Possible conflict with stockholders and board of directors (Taxes and expenses will kill you when trying to start a corporation)

List 7 advantages of corporations

-Limited liability (corporation can get sued though) -Ability to raise more money for investment -Size -Perpetual life (permanent) -Ease of ownership change (just change stock) -Ease of attracting talented employees -Separation of ownership from management (See graph in powerpoint on "How Owners Affect Management")

List 4 advantages of partnerships

-More financial resources -Shared management and pooled/complement any skills and knowledge -Longer survival -No special taxes

List 4 disadvantages of partnerships

-Unlimited liability (of the general partner) -Division of profits -Disagreements among partners -Difficult to terminate

List 6 reasons for major benefits of sole propreitorship

1) Ease of starting and ending the business 2) Being your own boss 3) Pride of ownership 4) Leaving a legacy 5) Retention of company profit 6) No special taxes

List 6 characteristics that you should embrace/consider when picking a franchise

1. Focus on tried-and-true name brands 2. Stick to core goods and services 3. Be choosy about the site 4. Don't pinch pennies 5. Have a fallback choice 6. Don't assume the franchise will pay off

Disadvantages of home-based franchises

1. Isolation 2. Long hours

List 6 disadvantages of franchising

1. Large start-up costs 2. Shared profit 3. Management regulation 4. Coattail effects 5. Restrictions on selling 6. Fraudulent franchisors

List 5 advantages of franchising

1. Management and marketing assistance 2. Personal ownership 3. Nationally recognized name 4. Financial advice and assistance 5. Lower failure rates

List 5 disadvantages of LLCs

1. No stock, therefore ownership is nontransferable 2. Limited life span 3. Fewer incentives 4. Taxes 5. Paperwork

How is Contractual VIM broken down?

1. Producer's Cooperative 2. Franchise 3. Wholesale Cooperative 4. Retail Cooperative

Advantages of home-based franchises

1. Relief from commuting stress 2. Extra family time 3. Low overhead expenses

List 7 reasons for disadvantages of sole proprietorships

1. Unlimited Liability 2) Limited financial resources 3) Management difficulties 4) Overwhelming time commitment 5) Few fringe benefits 6) Limited growth 7) Limited life span

List some big name corporations (5)

1. Walmart 2. Exxon Mobil 3. Chevron 4. Berkshire Hathaway 5. Apple

____ percent of small business owners work 80 hours per week, while _____ work over 40 hours per week

13% 43%

If you get ___ ownership in stock of a company, you essentially control it. Legally, you have to get ____ ownership to technically own majority (percents)

30% 51%

If an S corporation loses its S status, it may not operate under it again for at least ___ years

5

Explain Corporate Owned VIM

A situation where the company owns everything from the supply (top) all the way down to retail (bottom). An example of this would be GoodYear Tires and (I think) Sharman

Explain wholesale cooperation (Part of contractual VIM)

ACE Hardware is an example of someone who does this. Let's say there are a bunch of smalls family owned hardware shops, but they cannot compete with the local Lowes. Lowes has the ability to order a lot from their manufacturers, get discounts, and thus can charge lower prices in retail. So now ACE approaches these family owned businesses and offers that they funnel all their orders through ACE so then ACE can put in a bigger order, allowing for those family owned hardware stores to get cheaper prices too. ACE will of course get a percentage. ACE controls them to the extent that they have to put ACE signs outside their stores and all, but these family owned shops to do not extensively have to carry all ACE products. Wholesaler powers over retailers.

One company's purchase of the property and obligations of another company. They decide to take their cash, not the stock.

Acquisition

List the 3 branches stemming from "VIMS"

Administrative VIM Contractual VIM Corporate Owned VIM

Why do many people want to start a corporation in Delaware or Iowa

Because its a lot easier to compared to other states. A lot less paperwork, and taxes are not bad there.

Most ____- and - ____ franchises have expanded online

Brick and mortar

Which country is the most popular for U.S.-based franchises

Canada

Many franchisors prohibit franchisee-sponsored sites because ___ can erupt

Conflicts

The joining of firms in completely unrelated industries. Similar to teacher's definition of conglomerate diversification

Conglomerate merger

A state chartered legal entity with authority to act and have liability separate from its owners (its stockholders). A legal entity that's created on paper as a legal entity away separate from its owners.

Conventional (C) Corporation

Businesses owned and controlled by the people who use them- producers, consumers, or workers with similar needs who pool their resources for mutual gain. Ex. "Sunkist" is controlled by the people who grow lemons.

Cooperatives

A legal entity with authority to act and have liability apart from its owners. A living thing

Corporation

This was an initiative to build awareness of franchising opportunities within minority communities

DiversityFran

This company launches a minority franchise recruitment program called Delivering the Dream

Domino's Pizza

A situation where full time employees will get immediate stock options in the company. This is meant to provide them with more incentive to work. Seen at KIND Bars.

Employees Stock Ownership Plan

True or False: The supplier-manufacturer-wholesaler-retailer-consumer hierarchy is still relevant today

False, actually this methodology has been outdated for about 60 years. Things are not done this way anymore

An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a produce or service (franchise) to others (franchises) in a given territory.

Franchise Agreement

Explain licensing vs. franchising (the franchise definition is part of contractual VIM)

Franchising: The person who franchises has an extensive say in what is done and what is not done. It is an in depth contract that has to be signed and agreed on. Licensing: Just like a franchise, but you give the other company the permission to produce things under your name. You do not have the same control as when you franchise. There is not a contract, but simply an agreement

All owners share in operating the business and in assuming liability for the business's debts (partnership)

General Parternshipn

An owner (partner) who has unlimited liability and is active in managing the firm

General Partner

Every partnership must have at least one ___ ___. This is someone who is open to unlimited liability. They must be able to identify which of you assumes unlimited liability.

General Partner

The joining of two firms in the same. Similar to teacher's definition of horizontal integration.

Horizontal merger

____ _____ goes both ways - some foreign franchises have come to the U.S.

International franchising

Explain Contractual VIM

Judging by the contractual's meaning, "agreed in a contract," and the types of contractual, it is safe to say that Contractual VIM has to do with agreements between various levels of business. The different scenarios that this plays out are in the different contractual VIMS

An attempt by employees, management or a group of investors to buy out the stockholders in a company. You are borrowing money, debt. Essentially this refers to using debt gained to further projects

Leveraged Buyout (LBO)

_____ have ranged in size from $50 million to $34 billion and have involved everything from small businesses to giant corporations

Leveraged Buyouts (LBOs)

A term that 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. If you put in say, $10,000, that's your limitation of liability.

Limited Liability

Similar to an S corporation, but without the eligibility requirements

Limited Liability Company (LLC)

Limits partners' risk of losing their personal assets to the outcomes of only their own acts and omission and those of people under their supervision. Does not happen too often

Limited Liability Partnership

An owner who invests money in the business, but enjoys limited liability

Limited Partner

A partnership with one or more general partners and one or more limited partners (partnership)

Limited Partnership

Type of sole proprietorship disadvantage where you have skills in one area like production, but you can't manage or do the finance part

Management difficulties

A partnership that looks like a corporation, but is taxes like a partnership and thus avoids the corporate income tax. So, as a partnership you would get taxes at 25% rather than 39%

Master Limited Partnership

The result of two firms joining to form one company. Joining through the issuance of stock. You buy out the other company's stock, not cash.

Merger

Over 20% of franchises are ____-____

Minority-owned

Explain retail cooperative (Part of contractual VIM)

Opposite of wholesale cooperative. In retail cooperative retailers will band together to get wholesaler. An example of this would be when retailers joined together to open up "True Value." This bigger level company allowed them to get lower sales from manufacturing (since they were ordering more), and were thus able to compete with the big boys like Lowes. Retailers join together to form a wholesaler.

This company links up restaurants with hungry patrons and allows people to order online while this company takes a small commission.

OrderUp

Explain Administrative VIM

Organization that has the power, respect, of other members in the areas to get their respect. There is no direct ownership, but there is just a major respect level.

Two or more people legally agree to become co-owners of a business

Partnership

China, South Africa, the _____, and the ____ ___ are becoming popular despite high cost

Philippines Middle East

A unique government creation that looks like a corporation, but is taxes like sole proprietorships and partnerships. Other than that, it look and functions just like a government.

S Corporation

Why was Bricks 4 Kidz successful as a franchise?

The business as low cost and easily reproduced. Thus, this led to over 200 franchises in the U.S. and 11 other countries. It was relatively inexpensive.

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 make is he/she Do you trust each other? How does he/she problem solve? These questions all pertain to....

The questions you should ask when you are trying to find the best match when picking your partner for your partnership

Explain Producer's Cooperative (Part of contractual VIM)

This is when there is a joining of forces by say, a lemon company with all their commodity items. You hire your own management to get structure. Ex. A bunch of lemon producers can't decide whose lemons are better, so they join to form "Sunkist." Then the money that is generated in the market will go back to "Sunkist" and to those lemon farmers. Producers join together. A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close association with the enterprise as producers or consumers of its products or services, or as its employees. (internet) Producer Cooperatives. Producer owned and democratically-controlled organizations that serve their members (who may or may not be themselves cooperatives) through cooperative marketing, support and/or purchasing. (internet)

Why would the government want S corporations?

To encourage corporations to create business and make jobs

Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else. (sole proprietorship)

Unlimited Liability

The joining of two firms in different stages of related businesses. Similar to teacher's definition of backward/forward integration.

Vertical merger

More ___ are becoming franchisors. Ex. Auntie Anne's and Jazzercise are owned by these types of people

Women

Worldwide, ___ serve one billion members!

co-ops

Members of co-ops ____ control the business by electing a board of directors that hires professional management

democratically

In 2012 ____ ____ poured $166 billion into U.S. companies

foreign investors

Anyone can _____. These could be truckers, doctors, plumbers, athletes, and small business owners

incorporate

Normally, stock is not issued to outsiders when _____ incorporate, so the advantages and disadvantages are not exactly the same as for large corporations

individuals

S corporations have shareholders, directors and employees, plus the benefit of ____ ____

limited liability

Major benefits of incorporating include ___ _____ and possible ____ ____ (multiple words)

limited liability tax benefits

Profits are taxes only as the ___ ___ of the shareholder

personal income

For a small ___ ___ of $42,000 franchisees receive software and training to launch OrderUp in their area

startup fee