Characteristics of Business

Dr. T. MitchellBonneville High SchoolIdaho Falls, Idaho

Management of Business Activities

• Products found in homes come from countless types and sizes of businesses. Any business that produces or distributes goods or services is called a business.

• Profit is the difference between earned income and costs.• Each business must manage at least three major

activities.– Production– Marketing– Finance

Types of Businesses

• Good producing businesses– Produce goods

• Mining• Construction• Farming

Types of Businesses

• Services businesses– Mostly labor to offer

mostly intangible products.• Wholesale and retail

marketing• Banking• Medical offices• Hotels• Fitness centers

Types of Businesses

• Industry– All businesses doing

similar work.• Publishing industry

– Producing and selling books and magazines

• Automobile industry– Manufacturers of cars

and trucks– Producers of

automobile products

Industry Growth

Innovation’s Impact on Management

• Management decisions are made in a dynamic environment.

• Managers need to know the impact of innovation.

• An innovation is something entirely new.

TYPES OF BUSINESS ORGANIZATIONS

Sole Proprietorships

• Most common type• 70 percent of all

businesses in the U.S.• Generates less than 5

percent of all sales

Sole Proprietorships

• Advantages– Easy to open and

close– Few regulations– Freedom and control– Owner keeps profits

• Disadvantages– Limited funds– Limited life– Unlimited liability

Partnerships

• A business operated by two or more people

• Agree on how profits and loses, and responsibilities, will be divided.

• Found in all types of businesses.

Partnerships

• General– Most common type– Each one is liable for

all profits and losses– Can put personal

savings at risk– Trade-off is sharing the

risk and reward– Found in almost all

types of business

Partnerships

• Limited Partnerships– At least one partner is not

involved in the day-to-day operations

– They are liable only for the funds invested

– At least one partner is responsible for all liability for debts

– There can be any number of limited partners who share in the profits

Partnerships

• Limited Liability Partnerships (LLP)– All partners are not

responsible for the debts or liabilities of the other

– Partners’ personal savings are not at risk

– Medical partnerships, law firms, and accounting firms.

– Fairly new form of business

Partnerships

• Advantages– Easy to open and close– Few regulations– Access to resources– Joint decision making– Specialization

• Disadvantages– Unlimited liability– Potential conflict– Limited life

Corporations

• Owned by individuals known as shareholders or stockholders

• Stockholders have a right to the profits but have limited liability risk

• Only risk is the value of the stock

Corporations

• Public company issues stock that can be freely bought and sold

• Private company retains control over stock sales

• Corporations make up 20 percent of businesses in the U.S.

Corporations

Corporations

• Advantages– Access to resources– Professional managers– Limited liability– Unlimited life

• Disadvantages– Start-up cost and effort– Heavy regulation– Double taxation– Loss of control

Business Consolidation

• Horizontal merger• Vertical merger• Conglomerate• Multinational

Corporation

Franchises

• Franchise– Made up of semi-

independent businesses

– Each business pays a fee to the parent company

– Fast-food is the most common

Franchises

• Advantages– A level of

independence– Parent company can

provide training in running a business

– They would provide quality goods, even decor

• Disadvantages– Big investment– No assurance of

success– Have to share profit

with parent company– Parent has some

control over the business• Meet operating rules

Cooperatives

• Not all businesses exist solely to earn money• A cooperative is a business operated for the shared

benefit of the owners, who are also customers• Same goods and services • Offer lower prices by reducing or eliminating profit

– Consumer, require some kind of membership payment– Keep prices low by making purchases bulk goods at a discount– Service, offer their members a service– Producer, mainly owned and operated by the producers of

agricultural produces

Nonprofits

• Several different types of nonprofits• Purpose of benefiting society (Red Cross)• Professional associations (American Bar Association)

– Promote common interests– Business associations– Trade associations– Labor unions– Museums

• Structure resembles that of a corporation• Must receive a government charter• Unlimited life• Raise most of their money from donations, grants and fees