Virtual Enterprise

Types of Income

• Disposable Income – Money left after taxes are taken out. Used to purchase necessary items.

• Discretionary Income – The money left after paying for basic living necessities such as food, clothing & shelter. Marketers who sell luxury items pay close attention to how you spend this money.

Consumers vs. Customers

• Customers -- ______ the product.• Consumers --_______ the product.

• Can you be both the customer & consumer?

• Can you be one without the other?

Goods vs. Services

• What is the difference between a good and a service?

• Tangible vs. intangible?

• What does Paradise Bay have? Goods or services?

Sole Proprietorship

• One person in control of all aspects of the business• Gov. exercises very little control over SP’s;

therefore, they can be established and run very simply.

• Accurate tax records and certain employment laws are about the only government regulations.

• …7 or less employees…..(unemployment/hiring/firing)

• Most common form of business ownership.• If a Sole Proprietorship fails and debts remain, the

entrepreneur’s private assets may be taken to pay what is owed.

Partnership

• Losses incurred will be shared by owners.• Little government regulation• Partnership agreements are the legal documents

signed by all partners. This agreement defines the rights and responsibilities of each of the owners.

• (Page 83) List of items in agreement• Liability is determined by percentage of

ownership or investment in the business.• Death clause??!!

Types of Partnerships

• General Partnership– Each partner shares equally in the

profits and losses.– Each partner has unlimited liability for

the company’s debts.– Each partner is taxed personally for the

profits.

Types of Partnerships• Limited Partnership

– Each limited partner is liable for any debts only up to the amount of his or her investment in the company.

– Each limited partnership must have at least one general partner who has unlimited liability.

– Limited partners have no voice in the management of the company.

– The withdrawal of a limited partner does not dissolve the partnership unless chosen to do so.

Corporation

• Treated independently of its owners. What does that mean?

• Since a corporation has the legal rights as a person, the corp., not the owners, pays taxes, signs contracts, and is held liable if the corporation fails. – Exception: IE Independent liability clause

• In other words……..The corporation is responsible for liabilities…not the individual owner!!

Corporation continued….

• Who owns the corporation?– Stockholders or Stakeholders

• Ownership is divided into shares of stock. The corporation decides how many shares they will publicly offer.– Why would they not offer all shares publicly? Why

hold some back? • Board of Directors – Responsible for electing the

company’s senior officers…CEO, CFO, VP’s, etc. Meet several times each year to make important decisions affecting the company.

• The senior officers are responsible for the day to day operations of the business….NOT the board of directors.

Corp’s Pg 3• Small companies may incorporate. The business will

need to hire a lawyer to help them file the articles of incorporation with the state responsible for chartering.

• Establishing a corporation is costly.• Corporations are taxed twice!!• The corp. pays taxes on its income and then the

dividends paid to the shareholders are taxed as individual income.

• Dividends - Distributions of profits to shareholders by the corporations.

• Foreign corporation – Doing business in a state outside of the one in which you were chartered. Must have permission, can be some fees involved.

S Corporations• S Corp or Subchapter S• Income is taxed as a partnership. • NOT taxed as a business.• Individual shareholders are taxed on the

profits they earn • This helps because most businesses lose

money in the first year and can count as a loss.• **See example on page 86• Can have no more than 35 shareholders.• No more than 20% of gross revenues from

investment income.

Limited Liability Corporation

• LLC• Protected from personal loss the same

as a corporation; however, amount of loss that can be claimed might be limited.

• Corporation loss is not limited• Business decisions, etc is ran more like

a partnership• Taxed as partnership, not corporation

Profit vs Not for profit

• For profit company - Profits earned quarterly/yearly can be reinvested into the company or distributed to shareholders as dividends.

• Not for profit company – Profits earned must be reinvested into the company to help achieve goals. This company cannot go public and sell shares in the stock market.

Franchise• Legal agreement that gives an

individual the right to market a company’s products or services in a particular area.

• Franchisor – Individual Corporation which owns the rights to all names, logos, methods of the particular business. (McDonald’s Inc.)

• Franchisee – Individuals who purchases the right to market and sell Franchisors products in a given area.

Franchise, cont’d.

• Royalty fees – weekly or monthly payments made by the franchisee. These payments are usually a percentage of the franchise’s income.

• Advertising fees – Paid to support television, magazine, or other advertising of the franchise as a whole.

Franchise, cont’d.

• The franchisee does NOT own the franchise company.

• The franchisee will have its own business which is to promote and sell the items of the franchisor corporation.– I.E. Wolfe Enterprises, Inc.

Statistics

• 72% of all new businesses are sole proprietorships

• Over 50 % of all new businesses started will fail within their first year of operation.

• Of those that remain, approximately 95% will fail within their first five years.

Business Plan

Components of a business plan

• The business’s objectives• A blueprint of how the company

proposes to achieve its business objectives

• Information on what your business will produce, how you will produce it, and who will buy your product or service

• Marketing Plan• Projected financial information

Business Plan

• A business plan is the document that explains a company’s goals and how it intends to achieve those goals.

• Business plans vary in content, but should include:– Introductory Content – Market Analysis – SWOT Analysis– Operating Procedures– Financial Analysis – Feasibility

Introductory Content

• 1. Table of Contents• 2. Statement of Purpose• 3. Executive Summary• 4. Mission Statement• 5. Business Objectives• 6. Company Description• 7. Description of Staffing

Statement of Purpose

• A brief statement defining why the business plan was written.– Start-up business applying for a loan– Existing company reporting to

stockholders on the condition of the company and future planso fo growth/purpose

Executive Summary

• A clear but brief overview and summary of the business concept. This summary is to be written by the CEO and will summarize the contents of the entire business plan.

Mission Statement

• A brief statement that sets the tone, defines the path, and provides direction for the company.

Business Objectives

• A set of specific, measurable, achievable, realistic and time-based goals that can be monitored and measured, that the company wishes to achieve.

Company Description

• Provides, a clear and concise picture of what the company does, what it will or does offer, where it does or will operate, when it will or does transact business, and how it will or does succeed.

Description of Staffing

• Brief highlights of key personnel including the CEO and management team.– Should also include an organizational

chart.

Market Analysis

• The three major components fo the market analysis are:

• Analysis of the real industry• Analysis of the virtual enterprise

industry• Marketing Plan

– The 4 P’s

Marketing Plan

• Product - the physical product/service offered to the consumer

• Placement - associated with channels of distribution that serve as the means to getting the product/service to the target customers

• Price - takes into account profit margins and the probable pricing response of competitors including list price as well as discounts, financing, and other options

• Promotion - decisions related to communicating and selling to potential consumers

Target Market

• a defined segment of the market that is the strategic focus of a business

• Name the characteristics of the target market:– Geographic (based on business location

or location of customers)– Demographic (Age, gender, race, ethnic

background, disability, education)– Psychographic (based on lifestyle

characteristics)

Market Segmentation

• used to help the company focus on different types of potential customers.

• Workable segments:– Age– Income– Product type– Geography– Buying patterns– Customer needs

SWOT Analysis

• Internal:– Strengths: a firm’s resources and capabilities

that can be used as a basis for developing a competitive advantage

– Weaknesses: list of areas where the company might struggle. Also included are the absences of certain strengths which may be viewed as weaknesses.

• External:– Opportunities: areas that may reveal certain

new opportunities for profit and growth.– Threats: changes in the external environment

which may present threats to the company.

Business Risks

• Risks Identified: possible areas where the business may be in jeopardy of reaching stated goals.

• Risks Addressed: clear evidence of understanding of identified risks and feasible solution/strategy proposed.

Operating Procedures

• Location: number of locations, square footage, type of space, advantage of location

• Process: acquiring products, storing products, distributing products/services

Financial Data

• The Financial Data of a Business Plan includes the following:

• Balance Sheet• 3 – year projected income statement• 1 – year projected cash flow

statement• Break-even analysis• Explanation of financials• Projections support the plan

Financial Terms• Balance Sheet: quantitative summary of the company’s

financial condition that includes assets, liabilities, and net worth

• Income Statement: accounting of sales, expenses, and net profit for a given period

• Cash Flow Statement: measure of the company’s cash position or change in cash position over a given period of time

• Break-even Analysis: tool used to determine when a business will be able to cover all its expenses and begin to make a profit

• Financial Write-Up: written summary/explanation of the financial documents

• Investment or Success: based on the business plan, judges will make an assessment of whether the business will be successful or investing/lending to the firm is advisable