BA 101: Midterm #3

equity options

- sole proprietorship
- partnership
- corporation
- limited liability company (LLC)

sole proprietorship

A business owned by one person
- challenges: risk, personal exposure, credibility (as good as yours), raising additional capital

partnership

a business owned by two or more people
- unlimited liability
- limited life
- limited access to capital
- relatively unregulated
- single taxation

general partnership

partnership in which partners share equally in both responsibility and liability

limited partnership

partnership in which only one partner is required to be a general partner
- no mutual agency
- provision fro limited liability for some
- do not share risk/wealth equally

corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts
- separate legal entity
- limited liability
- unlimited life
- easy access to capital
- gov regulation
- double taxation

conventional (C) corporations

a state-chartered legal entity with authority to act and have liability separate from its owners-its stockholders

S corporation

a unique government creation that looks like a corporation but is taxed like a sole proprietorship or partnership

types of corporations

domestic: operate in state in which it is incorporated
foreign: operate in states other that state of incorporation
alien: organized in one country and operate in another

securities and exchange commission (SEC)

monitors the stock market and enforces laws regulating the sale of stocks and bonds
- sale of stock
- full disclosure
- due diligence

types of stock

common: voting rights (proxy); residual claims to assets
preferred: no vote; first claim on income (preferred dividend); first claim on assets after debt is paid

B corporations and benefit corporations

through products, practices, and profits, businesses should aspire to do no harm and benefit all
with a sustainable future objective

the B corporation

certified by nonprofit B Lab
- meet standards of social and environmental performance, accountability and transparency

the limited liability company

combines advantages of a corporation and partnership
positives it offers: pass through taxation, flexibility, limited liability
negatives it avoids: double taxation, burden of corporate structure, unlimited liability
- have operating flexibility - they're not required to keep minutes, file written resolutions, or hold annual meetings

franchise agreement

an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory

a cooperative (co-op)

is owned and controlled by the people who use it - producers, consumers, or workers with similar needs who pool their resources for mutual gain

merger

two firms combine into one

acquisition

one firm buys another
- horizontal: same industry
- vertical: distribution channel (suppliers/distributors)
- conglomerate: unrelated business

intrapreneurs

people who work as entrepreneurs within corporations

micropreneurs

entrepreneurs who start a business that remains small

incubators

offer new businesses in early development low-cost offices with basic services such as accounting, legal advice, and secretarial help

small business

one that is independently owned and operated, is not dominant in its field of operation, and meets certain standards of size in terms of employees or annual receipts

business plan

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 qualifications of the owner(s)

2 functions of business plans

1) guiding company by charting its future course and defining its strategy
2) attracting lenders and investors who will provide capital

opportunity analysis

2 areas of focus:
- determine how attractive an industry is overall as a "home" for a new business
- identify possible niches a new entrant can occupy profitably

feasibility analysis

the process of determining if a business idea is viable
- different from business plan
- screens out ideas before resources are committed

product or service feasibility analysis

determines degree to which a product/service idea appeals to potential customers

proforma statements

based on financial projections: balance sheet, cash flow, profit/loss statement

financial feasibility analysis

- capital requirements
- estimation of start-up capital required to launch
- estimated earnings
- forecasted income statements
- return on investment

venture capitalists

individuals or companies that invest in new business in exchange for partial ownership of those businesses

innovation

tool of entrepreneurs
exploit change as an opportunity to form a new business or service

financial forecasts

projected financial statements
- monthly for one year
- quarterly for next two years
- income statement, balance sheet, cash flow, capital expenditures

3 financial forecasts

pessimistic, most likely, optimistic

equity capital

personal investment
- called risk capital because investors assume risk of losing money if business fails
- does not have to be repaid with interest
- entrepreneurs must give up some ownership to outside investors

sources of equity financing

personal savings, friends & family, angels, partners, corporations, public stock sale

angels

private investors in emerging start-ups in exchange for equity stakes

crowdsourcing

practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, especially an online community, rather than from traditional employees or suppliers

initial public offering (IPO)

firm raises capital by selling stock shares to public for first time

debt financing

financing repaid with interest
- carried as a liability on balance sheet

sources of debt capital

commercial banks, asset-based lenders, trade credit, credit unions, commercial finance firms, small business investment companies (SBICs)

4 functions of management

planning, organizing, leading, controlling

information giving

a one-way process to present facts, etc.

communication

a two-way exchange in which the receiver understands the message in the same way the sender intended

leadership

the process of influencing and inspiring others to work to achieve a common goal and giving them the power and freedom to achieve it

management

the process used to accomplish organizational goals through p,o,l,c and other organizational resources

planning

- setting organizational goals
- developing strategies to reach those goals
- determining resources needed
- setting precise standards

leading

- guiding and motivating employees to work effectively to accomplish goals/objectives
- giving assignments
- explaining routines
- clarifying policies
- providing feedback on performance

organizing

- allocating resources, assigning tasks, and establishing procedures for accomplishing goals
- preparing a structure (organization chart) showing lines of authority and responsibility
- recruiting, selecting, training, and developing employees
- placing employees where they'll be most effective

controlling

- measuring results against corporate objectives
- monitoring performance relative to standards
- rewarding outstanding performance
- taking corrective action when necessary

vision

encompassing explanation of why the organization exists

mission statement

outline of fundamental purposes of an organization, including: firm's self-concept, philosophy, long-term survival needs, customers, social responsibility, nature of product/service

goals

broad, long-term accomplishments an organization wishes to attain

objectives

specific, short-term statements detailing how to achieve the goals

SWOT analysis

strengths, weaknesses, opportunities, threats

forms of planning

strategic, tactical, operational, contingency

strategic planning

determining the major goals of the organization and the policies and strategies for obtaining and using resources to achieve those goals

tactical planning

developing detailed, short-term statement about what is to be done, who is to do it, and how it is to be done

operational planning

setting work standards and schedules necessary to implement the firm's tactical objectives

contingency planning

preparing alternative courses of action that may be used if the primary plans don't achieve the organization's objectives

levels of management

top: president, vice presidents, CEO, COO, CFO, CIO
middle: plant managers, division heads, branch managers
supervisory (first-line): supervisors, foremen, department heads, section leaders
nonsupervisory: employees

organizing skills

human resources: communication and motivation
conceptual: ability to picture organization as a whole and the relations among parts
technical: ability to perform tasks in a specific discipline or department

staffing

hiring, motivating, and retaining the best people available to accomplish the organization's objectives

leadership styles

autocratic: make managerial decisions w/o consulting others
participative/democratic: managers and employees work together to make decisions
free-rein: managers set objectives and employees are relatively free to do whatever it takes to accomplish them

globalization

integration and free movement of people, goods, services, and capital across national borders

drivers of globalization

2 macro factors:
1) declining trade and investment barriers
2) technological change

3 major tech advancements

- communication
- information processing
- transportation

world trade organization (WTO)

conflict resolution entity/ "police force" for world trading system

international monetary fund

maintains order in the international monetary system

world bank

promotes economic development

united nations (UN)

attempts to maintain international peace and security

importing

buying products from another country

exporting

selling products to another country

free trade

the movement of goods and services among nations without political or economic barriers

comparative advantage

a country should sell the products it produces most efficiently and buy from countries the products it cannot produce as efficiently

absolute advantage

a country has a monopoly on producing a specific products or is able to produce it more efficiently than all other countries

free trade: pros

- the global market contains over 7 billion potential customers
- productivity grows when countries produce goods/services in which they have a comparative advantage
- global competition and less-costly imports keeps prices down, so inflation doesn't curtail economic growth
- free trade inspires innovation and keeps firms competitively challenged
- uninterrupted flow of capital gives countries access to foreign investments, which help keep interest rates low

free trade: cons

- domestic workers can lose their jobs due to increased imports or production shifts to low wage global markets
- workers may be forced to accept pay cuts from employers
- moving operations overseas b/c of competitive pressure often means loss of service jobs and increase of white-collar jobs
- domestic companies can lose their comparative advantage when competitors build advanced production in low-wage countries

outsourcing

process by which a firm contacts with other firms to do some or all of its functions

offshore outsourcing: pros

- less strategic tasks can be outsourced so companies can focus on areas where they can excel and grow
- outsourced work allows companies to create efficiencies that in fact let them hire more workers
- consumers benefit from lower prices generated by effective use of global resources and developing nations grow

offshore outsourcings: cons

- jobs may be permanently lost and wages fall due to low-cost competition offshore
- may reduce product quality and cause damage to companies reputation
- communication among company members, with suppliers and customers becomes harder

balance of trade

total value of a nation's exports compared to imports over a particular period
- trade surplus (favorable) countries exports > imports
- trade deficit (unfavorable) value of exports < imports

forces affecting trade in global markets

sociocultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces

sociocultural forces

culture: set of values, beliefs, rules, and institutions held by a specific group of people

economic and financial forces

exchange rates: value of one nation's currency relative to currencies of other countries
high value of the dollar: dollar is trading for more foreign currency; foreign goods less expensive

legal and regulatory forces

- no global/international system of laws
- US firms must follow US laws while conducting global business
- Organization for Economic Cooperation and Development and Transparency International fight to end corruption and bribery in foreign markets and have had limited success

environmental forces

- developing countries have transportation and storage systems that make international distribution difficult or impossible

strategies for reaching global markets

Licensing, Exporting, Franchising, Contract manufacturing, Joint venture, Strategic alliances, Foreign direct investment.

liscencing

when a firm provides the right to manufacture its product or use its trademark to a foreign company for a fee

franchising

A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.

contract manufacturing

a foreign company produces private-label goods to which a domestic company then attaches its own bran name or trademark

joint ventures

partnership in which 2+ firms join to undertake a major project

strategic alliances

partnership 2+ firms established to give each competitive advantage
- don't typically share costs, risks, management, or profits
- provide broad access to markets, capital, technical expertise

foreign direct investment (FDI)

the buying of permanent property and businesses in foreign nations

7 instruments of trade policy

tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties

tariffs

Taxes on imported goods
- provide protection to domestic producers against foreign competitors by increasing the cost of imported foreign goods
- pro-producer and anti-consumer, and reduce the overall efficiency of the world economy

EU

european union

USMCA

United States-Mexico-Canada Agreement (formerly NAFTA)

TPP

Trans-Pacific Partnership

subsidies

gov payment to a domestic producer
- help domestic producers compete against low-cost foreign imports, gain export markets

import quotas

direct restriction on the quantity of goods imported into a country