1

Business Now:
Change is the Only
Constant

LO1

What is the role of business in the

economy?

LO2

How has business evolved?

LO3

What is the role of nonprofits in

the economy?

LO4

What are the core factors of

production?

LO5

What are the elements of the

environment affecting business?

LO6

How are business trends impacting

careers?

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Trends in a Twitter-Ready Format

The median household income in the U.S. is roughly
$50,000.
The top 40% of Americans earn 75% of the money.
Four in ten kids are born to single moms.
By 2010, birthrates had dropped to an all-time record
low.
Sixty percent of Americans now live in the South and
West Regions.
Twenty-six percent of men make six or more cell phone
calls a day.
2

Source: Twitter-Ready Consumer Trends you need to know by Matt Carmichael, AdvertisingAge magazine, October 20, 2010, accessed January 13, 2010
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Entrepreneurial Spirit

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Business Basics

A business is any activity

that provides goods and
services in an effort to earn
profit.
Nonprofit
organizations focus
on causes not profit
4
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Business Basics
Profit is the financial reward
that comes from starting
and running a business.
the money that a
business earns in
sales (or revenue),
minus expenses
5
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 Fotosearch/ Archive Photos/Getty Images

The History of Business:

Putting it All in Context

Mass Production
Factories

Work Specialization

Assembly Line

Consumer Power

Industrial Titans

Refining Production

Long-term
Relationships
Satisfied Customers

Wealth Creation

Productivity Gains

Growth in
Consumerism
Product Differentiation

Use of Technology

Increase in Living Standard

Decrease Costs

Manipulation/Competition

Hard Sell

Exploitation

No Customer Focus

Entrepreneurship
Era

Production
Era

Customer Focus

Efficiency

Industrial
Revolution

Marketing
Era

Relationship
Era

6
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 The Studio Dog/Photodisc/Getty Images

The Business of Doing Good

Many nonprofits work with businesses to improve
the quality of life in society.
Business-like establishments whose primary
goal is not profits.
Employ 1 out of 10 workers.

Contribute to the economy

Work with businesses to improve quality of life
7
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Factors of Production
Natural Resources
Capital

Human Resources

Entrepreneurship

Businesses rely on
some combination of
these factors
Entrepreneurship is a
key factor
Growing economies
support and promote
entrepreneurship
8

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The Business Environment:

The Context for Success

9
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Business Environment is Dynamic

and Ever-Changing
How did the Pizza Industry respond to the increase in
frozen pizza quality?

How has McDonalds responding to Starbucks morning

drive competition?
How has Starbucks responded to McDonalds?
How has technology changed the home phone and
area codes?

How are apps changing websites and software?

10
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Economic Environment
Government takes an active role to support businesses

Low Federal Tax Structure

Small Business Administration

Federal Trade Commission

Legislation & Enforceable Contracts

Corruption impacts the economic environment and can

increase the cost of running a business
11
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2008 Economic Crisis

The stock market tumbled and millions lost their jobs
Housing prices plummeted and foreclosures reached record levels
Economic turmoil in the U.S. spread around the world
The economy begun to recover in 2009 although unemployment
remains high

The Federal Reserve took steps to encourage a turnaround

President Barack Obama spearheaded economic stimulus to create
jobs, build infrastructure and stabilize the economy

The stimulus also added to the debt

12
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Flex Your Creativity: Use Boredom

to Build Your Brain
Boredom should be recognized as a
human emotion central to creativity
Can help activate less cerebral
resources
Trigger Aha Moments
Can stretch your capacity
Next time you are bored, dont whip
out your smartphone!
iStockphoto.com/sorendls

13
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Competition is Intense
Speed to Market companies must
transform concepts into products fast
Worker Advantage employees
contribute to competitive edge
Innovation creativity matters for
individuals and the economy
14
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Companies Must Focus on Customer

Satisfaction
Build Long-Term Relationships

Provide Value
Cheap Doesnt Equal Value

Customer Satisfaction = Profitability

15
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Brands that use Imagination and

Innovation

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16

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 The Studio Dog/Photodisc/Getty Images

Technological Environment
Business technology includes any tools to
become more efficient and effective.

Telecommunications
Computers
Digital Tools

Companies use technology for:

Computerized billing
Digital animation
Robotic manufacturing
Joachim Wendler/Shutterstock.com

Companies that are slow to adapt have

been threatened
17
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The World Wide Web has

Transformed Business
e-Commerce growth has slowed since the
recession

20%+ growth in the past 5 years

Companies connect with suppliers and

distributors

Online experiences can be customized

iStockphoto.com/hohos

Within five years, there will probably be

more mobile Web users than desktop users.
Source: http://www.businessweek.com/smallbiz/content/nov2010/sb20101112_047190.htm, accessed, January 17, 2011

18
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The Social Environment

Diversity
Aging Population

Rising Worker
Expectations
Ethics & Social
Responsibility
U.S. Population Projections: 2005 2050, February 11, 2008, by Jeffrey S. Passel and DVera Cohn, Pew
Research Center website, http://pewhispanic.org/files/reports/85.pdf, accessed January 17, 2011
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19
or

Changing Social Demands

Ethnic populations can offer robust profit potential
Investments in the Hispanic market have a $4 return
on every $1

A diverse staff can yield a powerful competitive

advantage
Diversity much be effectively managed
Younger generations leverage diversity more
20
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Economies Interact Around

the World
Technology
has forged
links

China and Indias

economies are
growing

Technology
Free Trade

War, terrorism and

disease are growing
threat

Job Migration

Blurred lines between

countries/world
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China and India Growing

at Breakneck Speed
In Asia, the average
persons living standards are
currently set to rise by
10,000% in one lifetime!
http://www.businessweek.com/magazine/content/06_13/b3977049.htm,
accessed January 20, 2009

22
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Business and YOU:

Making it Personal
The changing economy rewards creativity,
communication and caring.
There is less routine, so do what you LOVE

Business today is global and complex

There are a variety of exciting careers

Learn about the industry and the company
Be prepared to embrace change!

23
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Looking Back
Define business and the role of business in the economy.
Explain the evolution of modern business.
Discuss the role of nonprofit organizations in the economy.

Outline the core factors of production and how they impact the economy.
Describe todays business environment and discuss each dimension.
Explain how current business trends impact your career choices.

24

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o re n
pos
t eed Lteoa ra n p
u b .l i A
c l y a icgche tsss iRbel se e w
e b ds .i t M
e , yi n n

2
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w th ob lee socra ni nn epda, r ct .o p i e d o r d u p l i c a t e d , o r
o
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ii n
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Business
Formation:
Choosing The Form
That Fits

LO1

What are the characteristics of the four

basic forms of business ownership?

LO2 What are the advantages and

disadvantages of a sole proprietorship?
LO3 What are the pros and cons of
partnerships?
LO4 Why have corporations become the
dominant form of business ownership?
LO5 Why are limited liability companies
becoming an increasingly popular form of
ownership?
LO6 What are the advantages and
disadvantages of franchising?
26

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Business Ownership Options:

The Big Four
Sole Proprietorship the business is owned by a
single individual
Partnership two or more people serve as co-owners
of the business
Corporation the business is a separate legal entity

Limited Liability Company a hybrid with

characteristics of both a corporation and partnership
27
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Net Income by Form of Ownership

28
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Corporate Profit and Revenue

Corporate form of ownership reports 66% of
profits; representing only 18.3% of all entities
Companies like Walmart, Exxon, Apple and General
Electric have annual sales revenues in the billions
(hundreds of billions)
But, 24% of all corporations report revenue less
than $25,000
Source: U.S. Census Bureau. The 2011Statistical Abstract of the United States Tables 743 and 744:
http://www.census.gov/compendia/statab/2011/tables/11s0744.pdf, accessed January 23, 2011.
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29
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 David Gilder/Shutterstock.com

Advantages and Disadvantages of Sole

Proprietorships
Advantages:

Disadvantages:

Ease of Formation

Limited Financial
Resources

Retention of Control

Unlimited Liability

Pride of Ownership
Retention of Profits

Limited ability to attract

and maintain talented
employees

Possible Tax Advantages

Heavy workload and

responsibilities

Lack of Permanence
30
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General Partnerships:
Two Heads Can Be Better Than One
Advantages:

Disadvantages:

Pooled Financial Resources

Unlimited Liability

Shared Responsibilities

Disagreements

Ease of Formation

Lack of Continuity

Tax Advantages

Difficulty in
withdrawing from
agreement

31
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Limited Partnerships
Limited Partnership
includes at least one
general partner and at
least one limited partner

Limited Liability Partnership

All partners are actively
involved but they have some
form of limited liability. The
amount of liability differs
per state.

Jose Luis Pelaez Inc/Blend Images/Jupiterimages

Limited partners have limited liability.

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32
or

The Name Game

Choosing a name depends on the type of business
Most sole proprietorships and general partnerships operate under
their names
Must confirm name (or similar) is not being used

Many states required a DBA (doing business as) be filed

Corporations must be filed with the state and use special wording

Corporation, incorporated, company, limited or an abbreviation

The words bank or cooperative cannot be used unless approved by a

regulatory agency
Oliver Suckling/Shutterstock.com

Source: Naming Your Business, Business Owners Toolkit website, http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P01_4800; Choosing the Right Name for My Corporation or Limited Liability Company, SCORE website,
http://www.score.org/leg_choosing_name.html; Business Name Registration (Doing Business As), Business.gov website, http://www.business.gov/register/business-name/dba.html

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33
or

Corporations: An Artificial Person

Most common type of corporation is a C
corporation
A corporation is a legal entity, separate from its
owners
Requirements vary by state, many states are
corporation-friendly
Corporations are owned by stockholders
Articles of incorporations must be filed and
corporate bylaws adopted
34
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Stock Ownership in Major

Corporations

35
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Corporations:
The Role of Board of Directors
Elected by stockholders to oversee the operation of
their company and protect their interests
Oversee the operation of corporation
and protect investors interest
Establish mission and set objectives

Rarely get involved in day-to-day

management

Timm Schamberger/AFP/Getty Images

Responsible for monitoring the performance of the

corporate officers
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 The Studio Dog/Photodisc/Getty Images

Form of Business Aims for

Social Responsibility
Maryland created new business form: benefit
corporation
Like a C Corporation but includes provisions for
social/environmental goals
They are not nonprofits, they are legally covered to
focus on non-financial goals
Priority to employees, customers, environmentalists
Source: Maryland Signs Benefit Corporation Law, by Tasha Petty, Little Green Submarine website, http://www.littlegreensubmarine.com/maryland-signs-benefit-corporation-law/; Maryland First State in Union to Pass Benefit Corporation
Legislation, CSR Newswire website, http://www.csrwire.com/press/press_release/29332-Maryland-First-State-in-Union-to-Pass-Benefit-Corporation-Legislation.

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37
or

Advantages and Disadvantages of

Corporations
Advantages:

Disadvantages:

Limited Liability
Permanence
Easy to Transfer Ownership
Ability to Raise Capital
Specialized Management

Expense/complexity of
formation and operation
Double Taxation
Paperwork and Regulation
Complications when
operating in more than
one state
Conflicts of Interest
38

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Other Types of Corporations:

Same but Different
TYPE
S Corp.

KEY ADVANTAGE

LIMITATIONS

IRS does not tax earnings separately

Stockholders have limited liability

No more than 100 stockholders

Stockholders must be U.S. citizens or
permanent residents

Statutory
Close
Corp.

Not require to have a board or hold

annual meetings
Owners can participate in management
while maintaining limited liability

Limited number of stockholders

Stockholders must offer shares to
owner first before selling publicly
Not all states allow this corporation
type

Nonprofit
Corp.

Earnings are exempt from federal and

state income taxes
Members/directors have limited liability
Contributions made by individuals are taxdeductible

May have dues paying members but

no stockholders
Cant distribute dividends
Cant make political donations
Must keep accurate records to
document tax-exemption
39

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Stockholders Get Say on Pay

Board of Directors job is to protect the voice of
the stockholders
The Recession of 2008/2009 brought that
oversight into question regarding
CEO Pay
CEOs were enjoying high salaries
and perks while laying off workers
Congress passed the Dodd-Frank Act which
gives stockholders some voice in executive
compensation

Arcady/ Shutterstock.com

40

Source: New Law Has Effect on Pay for Executives by David Nicklaus, St. Louis Post Dispatch, page B1, January 7, 2007; Dodd-Frank's 'say on pay' could impact executive pay by Ronald D. Orol, Marketwatch Website: http://www.marketwatch.com/story/new-say-onpay-law-could-temper-ceo-pay-2010-08-26; Dodd-Frank: What it Means for Comp and Governance by Daniel J. Ryterband, Bloomberg BusinessWeek website: http://www.businessweek.com/managing/content/jul2010/ca20100716_567635.htm.

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Corporate Restructuring:
Mergers & Acquisitions
Mergers two companies
agree to a combination of
equals

Acquisitions when one

firm buys another

Large corporations constantly

look for ways to grow and
achieve competitive
advantage.
41

Tom Merton/OJO Images/Jupiterimages

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Types of Mergers & Acquisitions

42
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Divestitures: When Less is More

Divestitures allow the firm to streamline their
operations and focus
Spin-off setting up the division or part of the
business as a separate company
Sell stock to existing stockholders

Carve-out setting up a separate business from

an operation
Sell stock to outside investors
43
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The Limited Liability Company:

The New Kid on the Block
Advantages:

Disadvantages:

Limited Liability

Complexity of Formation

Tax Pass-Through

Franchise Taxes

Simplified Management and

Operation

Foreign Status in other States

Flexible Ownership

Limited to Select Industries

State Law Differences

44
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Which Would You Choose?

Which business form would be best for each of the
following businesses types?
T-Shirt/Screen Printing
Restaurant
Beauty Salon
Landscaping
Home/Office Cleaning

What if the business expanded, would you change the

form?
Would you consider a franchise for any of these
businesses?

What business form would you choose for a franchise?

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45
or

 The Studio Dog/Photodisc/Getty Images

Franchising: Proven
Methods for a Price
The franchisee uses the brand name, trademark and
practices of the franchisor

Growth in women franchises

Minority participation has increased under new
initiatives
A well-established method for operating a business
Source: Fit for Franchising, by Taylor Mallory, Pink Magazine June/July 2007, pinkmagazine.com website: http://www.pinkmagazine.com/franchise/women/2007/burzynski.html; Franchising Attracts More Women, Minorities by Julie Bennett, Startup Journal, accessed through Entrepreneur.com website:
http://www.entrepreneur.com/franchises/franchisezone/startupjournal/article61324.html; Female Franchisors Few and Far Between by Julie M. Young, e-magnify.com website: https://www.e-magnify.com/resources_articlearchiveresults.asp?categoryID=18; Fit to Be a Franchisee: Many Businesswomen Choose Franchises that Connect With Personal Interests by Nancy Lacewell,
June 7, 2006 Business First of Louisville website: http://www.bizjournals.com/louisville/stories/2006/05/22/story2.html.. Boosting Diversity in Franchising by Joan Szabo, December 5, 2006, Franchise Update website: http://www.franchise-update.com/article/188/. Bridging the Gap Between the Minority Community and the Franchising Industry, Minority Franchising website:
http://www.minorityfranchising.com/, accessed January 20, 2011; MinorityFran, International Franchise Association website: http://www.franchise.org/files/MinorityFran%20Broch%20by%20page.pdf, accessed January 20, 2011.

2013 Cengage Learning. All Rights Reserved. May not

posted to a publicly accessible website, in whole or in

be scanned,
part.

copied

or

duplicated,

46
or

Franchising in Foreign Markets

Franchising in foreign markets have shown great
opportunities for growth
Markets are less intense and
less saturated

McDonalds 12,693

Subway 7,235
Karen Cowled/Alamy

Curves 2,868

McDonalds has slightly more franchises in foreign countries

than the U.S.
47

Source: Entrepreneur.com website pages for individual franchisors: http://www.entrepreneur.com/franchises/mcdonalds/282570-0.html; http://www.entrepreneur.com/franchises/subway/282839-0.html; http://www.entrepreneur.com/franchises/curves/2822650.html, accessed January 22, 2011.

2013 Cengage Learning. All Rights Reserved. May not

posted to a publicly accessible website, in whole or in

be scanned,
part.

copied

or

duplicated,

or

Advantages and Disadvantages

of Franchising
Advantages:
Less Risk
Training and Support

Brand Recognition
Access to Funding

Disadvantages:
Costs
Lack of Control
Negative Halo Effect
Growth Challenges
Restriction on Sale

Poor Execution

48
2013 Cengage Learning. All Rights Reserved. May not
posted to a publicly accessible website, in whole or in

be scanned,
part.

copied

or

duplicated,

or

Franchising Costs

49
2013 Cengage Learning. All Rights Reserved. May not
posted to a publicly accessible website, in whole or in

be scanned,
part.

copied

or

duplicated,

or

Some Franchisees Are Quite Happy

When They Dont Earn Profit
Many customers like doing
business with nonprofit
franchisees.

Nonprofit franchising is a good

way for companies to be socially
responsible and build goodwill.
Nonprofits can boost their
fundraising efforts.

David Lee/Alamy

Ben & Jerry franchises its

PartnerShops to nonprofit
corporations.

Source: The Ben & Jerrys Law: Principles Before Profit, by John Tozzi, Bloomberg Business Week, April 26, 2010, pp. 65-66. Ben & Jerrys website, http://www.benjerry.com/scoop_shops/partnershops/, accessed August 2, 2009; Nonprofit Owned
Franchises: A Strategic Business Approach, prepared by Community Wealth Ventures and IFA Educational Foundation, March 2004

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posted to a publicly accessible website, in whole or in

be scanned,
part.

copied

or

duplicated,

50
or

Entering Into A Franchise Agreement

Know all the facts before signing the dotted line:
Terms and Conditions
Fees and Other Payments
Training and Support
Specific Operational Requirements
Conflict Resolution
Assigned Territory
Franchisors must provide a Franchise Disclosure Document (FDD)

The Federal Trade Commission (FTC) require:

The FDD must be written in plain English

The franchisor must be given 14 days to review the FDD
The Franchisee should have a lawyer review the document

2013 Cengage Learning. All Rights Reserved. May not

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be scanned,
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copied

or

51

duplicated,

or

Looking Back
What are the characteristics of the four basic forms of business ownership?
What are the advantages and disadvantages of a sole proprietorship?
What are the pros and cons of partnerships?

Why have corporations become the dominant form of business ownership?

Why are limited liability companies becoming an increasingly popular form
of ownership?

What are the advantages and disadvantages of franchising?

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