Economics - Business Organizations

Economics Chapter 8: Business Organizations

Chapter Overview

• Chapter 8 explains how businesses are started and the advantages and disadvantages of:
  • Sole proprietorships
  • Partnerships
  • Corporations
• Section 1 explains the steps involved in starting a business.
• It also covers the four elements of business operation that entrepreneurs need to consider.

Getting Started

• Entrepreneurs: People who decide to start a business and are willing to take risks.
• As an entrepreneur, you'll need to:
  • Collect information about the business.
  • Understand the factors of production.
  • Learn about taxes and laws related to the business.
• The form of ownership chosen has significant effects:
  • Types of taxes the business must pay.
  • Liability for the debts of the company.
  • The way the firm can obtain financial resources.
• Federal and state governments offer help to small businesses to encourage economic growth.
• Small Business Administration (SBA): A national-level organization that helps finance startups.
  • Startup: A beginning business enterprise.
• Small Business Incubators: Private or government-funded agencies that assist new businesses by providing:
  • Advice.
  • Low-rent buildings.
  • Low-cost supplies.
• The Internet offers a great deal of information to help entrepreneurs.

Elements of Business Operation

• Entrepreneurs must consider the following elements:

Expenses

• Include wages, equipment, utility bills, rent, supplies, and inventory.
• Inventory: Extra supply of items used in a business, such as raw materials or goods for sale.
• "You have to spend money to make money."
• Wages:
  • Pay employees and yourself.
  • Pay yourself a wage equal to what you would earn elsewhere initially. Avoid paying yourself too little or too much when starting the business.

Advertising

• Information about your company and the service or product you are selling.
• During the startup phase, advertising reduces profit; there's no immediate return on investment.

Record Keeping

• Track all expenses and income.
• Necessary for any business to be successful, from small businesses to large corporations.

Risk

• Balance the risks against the advantages of being self-employed.
• Weigh the benefits against the risks involved in owning the business.
• Profit:
  • Profit = Business\ Receipts - Total\ Business\ Expenses
  • Receipts:
    • How much money you take in.
    • Income received from the sale of goods and services.
    • Slips of paper documenting a purchase.