Business Dynamics MidTerm

Business

any activity that seeks to provide goods and services to others while operating at a profit

Goods

tangible products such as computers, food, clothing, cars, and appliances

Services

intangible products (that cant be held in your hand) such as education, health care, insurance, recreation, and travel

Entrepreneur

a person who risks time and money start and manage a business

Revenue

total amount of money a business takes in during a given period by selling goods and services

Profit

amount of money a business earns above and beyond what it spends for salaries and other expenses

Loss

when a business’s expenses are more than its revenues

Risk

the chance an entrepreneur takes of losing time and money on a business that may not prove profitable

Standard of Living

amount of goods and services people can buy with the money they have

Quality of Life

the general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide

Stakeholders

all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address

Outsourcing

contracting with other companies (often in other countries to do some functions of a firm, like production or accounting

Insourcing

opening offices and factories in a foreign country

Nonprofit Organization

an organization whose goals do not include making a personal profit for its owners or organizers

• use financial gains to meet social or educational goals

Positives of being an Entrepreneur

freedom to succeed, make own decisions, possible wealth

Negatives of being an Entrepreneur

freedom to fail, no paid vacations, no health insurance

Factors of Production

five resources used to create wealth:

• land (natural resources)

• labor (workers)

• capital

• entrepreneurship

• knowledge

Business Environment

surrounding factors that either help or hinder the development of businesses

Five Elements of Business Environment

• economic and legal environment

• technological environment

• competitive environment

• social environment

• global business environment

Government can Promote Entrepreneurship by

• allowing private ownership of businesses

• minimizing interference with the free exchange of goods and services

• passing laws that enable businesspeople to write enforceable contracts

• establishing a currency that’s tradable in world markets

• minimizing corruption

Technology

everything from phones to computers and the various software progams that make business processes more effective, efficient, and productive

Productivity

amount of output you generate given the amount of input (for example, hours worked)

E-Commerce

the buying and selling of goods over the internet

• Business-to-Consumer (B2C)

• Business-to-Business (B2B

Database

an electronic storage file for information

Identity Theft

the obtaining of individuals’ personal information, such as Social Security and credit card numbers, for illegal purposes

Empowerment

giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests

Demography

statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income

US Equal Employment Opportunity Commission (EEOC) Prohibits Laws Discriminating Against

• age

• disability

• genetic information

• national origin

• pregnancy

• race

• religion

• sex

Richest Demographic Group

ages 65-74

Intellectual Captial

significant portion of a company’s value

Scandals

shaken the real estate, mortgage, and banking industries

Restore Trust in Free-Market System

• punish those who have broken the law

• make accounting records more transparent

• consider what is ethical, not just is legal

Ethics

standards of moral behavior; that is, behavior accepted by society as right versus wrong

Ethical Dilemmas

must choose between two unsatisfactory alternatives

• Is my proposed action legal?

• Is it balanced?

• how will it make me feel about myself

Ethics Start at the Top

• managers can help instill corporate values in employees

• trust between workers and managers must be based on fairness, honesty, openness, and moral integrity

• overly ambitious goals and incentives can create an environment in which unethical actions can occur

Individual Factors Influencing Managerial Ethics

• values

• work background

• family status

• personality

Organizational Factors Influencing Managerial Ethics

• top-level management philosophy

• firm’s reward system

• job dimensions

Environment Factors Influencing Managerial Ethics

• competition

• economic conditions

• social/cultural institutions

Compliance-Based Ethics Codes

emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers

Integrity-Based Ethics Codes

define the organization’s guiding values, create an environment that supports ethically sound behavior, and stress a shared accountability among employees

Whistleblowers

insiders who report illegal or unethical behavior

Six Steps to Improve US Business Ethics

• top management must adopt and unconditionally support an explicit corporate code of conduct

• employees must understand that senior management expects all employees to act ethically

• managers and others must be trained to consider the ethical implications of all business decisions

• an ethics office must be set up with which employees can communicate anonymously

• involve outsiders such as suppliers, subcontractors, distributors, and customers

• the ethics code must be enforced with timely action if any rules are broken

Corporate Social Responsibility (CSR)

a business’s concern for the welfare of society

• based on a commitment t integrity, fairness, and respect

• some feel this is not a manager’s role

• proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail

Corporate Philanthropy

includes charitable donations

Corporate Social Initiatives

include enhanced forms of corporate philanthropy directly related to the company’s competencies

Corporate Responsibility

includes everything from hiring minority workers to making safe products

Corporate Policy

the position a firm takes on social and political issues

President Kennedy’s Four Basic Rights to Consumers

• the right to safety

• the right to be informed

• the right to choose

• the right to be heard

Insider Trading

an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends

Responsibility to Employees

• create jobs and provide a chance for upward mobility

• offer salaries and benefits that help employees reach their personal goals

• loss of employee commitment, confidence, and trust in the company and its management can be costly

Social Auditing

a systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs

Five Types of Watchdogs

• socially conscious investors

• socially conscious research organizations

• environmentalists

• union officials

• customers

Sole Proprietorship

a business owned, and usually managed, by one person

Partnership

a legal form of business with two or more owners

Corporation

a legal entity with authority to act and have liability separate from its owners

Advantages of Sole Proprietorships

• ease of starting and ending the business

• being your own boss

• pride of ownership

• leaving a legacy

• retention of company profits

• no special taxes

Disadvantages of Sole Proprietorships

• unlimited liability

• limited financial resources

• management difficulties

• overwhelming time commitment

• few fringe benefits

• limited growth

• limited life span

Unlimited Liability

the responsibility of business owners for all debts of the business

General Partnership

a partnership in which all owners share in operating the business and in assuming liability for the business’s debts

Limited Partnership

a partnership with one or more general partners and one or more limited partners

General Partner

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

Limited Partner

an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment

Limited Liability

the responsibility of a business’s owners for losses are up to the amount they invest; limited partners and shareholders have limited liability

Master Limited Partnership (MLP)

a partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax

Limited Liability Partnership (LLP)

a partnership that limits partners’ risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision

Advantages of Partnerships

• more financial resources

• shared management and pooled/complementary skills and knowledge

• longer survival

• no special taxes

Disadvantages of Partnerships

• unlimited liability

• division of profits

• disagreements among partners

• difficulty of termination

Conventional (C) Corporation

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

enables many people to share in ownership

Advantages of Corporations

• limited liability

• ability to raise more money for investment

• size

• perpetual life

• ease of ownership change

• ease of attracting talented employees

• separation of ownership from management

Disadvantages of Corporations

• initial cost

• extensive paperwork

• double taxation

• two tax returns

• size

• difficulty of termination

• possibly conflict with stockholders and board of directors

S Corporations

a unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships

profits are taxed only as the personal income of the shareholders

Qualifications for S Corporations

• have no more than 100 shareholders

• have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the US

• have only one class of stock

• derive no more than 25% of income from passive sources

if status is lost, it may not operate under it again for at least 5 years

Limited Liability Companies (LLC)

similar to an S Corporation but without the special eligibility requirements

Advantages of LLC

• limited liability

• choice of taxation

• flexible ownership rules

• flexible distribution of profits and losses

• operating flexibility

Disadvantages of LLC

• no stock; ownership is nontransferable

• fewer incentives

• taxes

• paperwork

Merger

the result of two firms forming one company

Acquisition

one company’s purchase of the property and obligations of another company

Leveraged Buyout (LBO)

an attempt by employees, management, or a group of private investors to buy out the stockholders in a company

Franchise Agreement

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

Advantages of Franchises

• management and marketing assistance

• personal ownership

• nationally recognized name

• financial advice and assistance

• lower failure rate

Disadvantages of Franchises

• large start-up costs

• shared profit

• management regulation

• coattail effects

• restrictions on selling

• fraudulent franchisors

Cooperative (Co-Op)

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

Entrpreneurship

accepting the risk of starting and running a business

Five Reasons to Start Business Right Away

• potential for long-term results

• dont have a mortgage or kids to take care of

• can survive on little funds and work long hours

• no disruption in your career path; it hasnt started yet

• more adaptable and have higher risk tolerance at a younger age

Major Reasons People Take the Entrepreneurial Challenge

• opportunity

• profit

• independence

• challenge

Needed to be an Entrepreneur

• self-directed

• self-nurturing

• action-oriented

• highly energetic

• tolerant of uncertainty

Idea is a Good Opportunity if

• it fills customers’ needs

• have the skills and resources to start a business

• can sell the product or service at a reasonable price and profit

• can get your product or service to customers before the window of opportunity closes

• keep the business going

Entrepreneurial Teams

a group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make, and market a new product

Intrapreneurs

creative people who work as entrepreneurs within corporations

Micropreneurs

entrepreneurs willing to accept the risk of starting and managing a business that remains small, lets them do the work they want to do, and offers them a balanced lifestyle

Benefits of Home-Based Businesses

• ability to start your business immediately

• minimal start-up capital needed

• no rent or excessive set-up charges

• comfortable working conditions

• reduced wardrobe expenses

• no commuting

• tax benefits

• elimination of office politics

• low risk for trials and error

Disadvantages of Home-Based Businesses

• difficult to establish work habits

• limited support system

• isolation

• workspace may be limited

• clients may be uncomfortable coming to your home

• zoning restrictions

• success is based 100% on your efforts

Boosting your Business’s Online Presence

• establish an identity

• be easy to find

• go beyond blogging and creating content

• look out for opportunities

• remember other forms of marketing

• make sure your website has a mobile option

• be friendly

Immigration Act of 1990

created a category of “investor visas” that encourage entrepreneurs to come to the US

Enterprise Zones

specific geographic areas to which governments try to attract private business investment by offering lower taxes and other government support

Incubators

centers that offer new businesses low-cost offices with basic business services

Jumpstart Our Business Startups (JOBS) Act of 2012

offers tax breaks in order to raise funds and create jobs

Self-Employment Assistance (SEA) Program

allows participants to collect self-employment payments instead of regular unemployment checks

Small Business

a business that is independently owned and operated, is not dominant in its field of operation, and meets certain standards of size (set by the Small Business Administration) in terms of employees or annual receipts

Importance of Small Businesses

• 65% of the nation’s new jobs

• more personal customer service

• ability to respond quickly to opportunities