UNIT 1.

2
TYPES OF
ORGANIZATIONS

Business & Management

Pages 20 – 36
INTRODUCTION
Private Sector Public Sector

 Owned privately  Owned by Government

 Operated privately  Operated by Government

Differences in the Types of Organizations:

Ownership & Control
– Who owns and who runs the business?
Raise Finances
– How/Where will the business get the $$$ to start?
Profit Distribution
– What will the business do with $$$ from profit?
 PRIVATE V. PUBLIC
Non Government Owned: Government Ownership:

 Private Individuals  Indian Railways

 Donald Trump  Nuclear Power
 David Glass  Petroleum
 Warren Buffet
 Social Security
 Businesses
 Military
 Tyson – Mexican Original
 Education
 Sears – Discover
 Gap & Old Navy & Banana
Repulic
 Size – Varies 1 to Million
TYPES OF PROFIT BASED BUSINESSES
Sole Trader / Proprietorship Partnership (Medium Sized)

 Business owned &  Business owned by 2 or

operated by ONLY one MORE people
person  Law Offices of Cypert,
 Mikey’s Pub Clark & Harwell
 Bernal True Value  Hanke Brother’s
Hardware
 Dom’s Gifts
Corporation
 Jenna’s Salon
Business owned by
 Usually Small shareholders (investors)
Tyson McDonald’s
Wal Mart Target
REASONS TO BE IN THE PUBLIC SECTOR
Access to Public Services Economies of Scale

 Greater # of people  Decrease Costs by one

benefit entity serving many
 Education  Military
 Health Care  Post Office
 Parks  Fire Department
 Utility Companies
 Water
 Electricity

 Gas
REASONS TO BE IN PUBLIC SECTOR
Protection! Reduce Unemployment

 Police Government Employs:

 Legislative System • Teachers
• Consultants
 Executive System • Engineers
• Doctors
 Judicial System
• Lawyers
• Contractors
 PRIVATIZATION
 The change in ownership from a public sector company
to a privately owned business.
 Very Common Today for many reasons:
 See page 21, Box 1.2 a
 BENEFITS OF
PRIVATIZATION:
 Efficiency Gains  Incentives to Innovate
 Must compete!  Discover new ideas
 Meet customer needs in different ways
 Lower Costs of Production
 Owners choose better!
 Less Financial Burden
 Customers get benefit $$  Taxpayer savings

 Increased Choice  Sources of Government Revenue

 Government makes money when they sell
 Better quality
to an individual or business!
 Variety of goods
REGULATORY BODIES
MONITOR THE CONDUCT & PERFORMANCE OF PRIVATIZED
COMPANIES.

Powers of Regulatory  Examples of Regulatory

Bodies: Bodies:
 Securities Exchange Commission
 Customer Service (SEC) – Regulates the sale of stocks
 Quality, Timely, Effective and bonds
 
 Pricing Policies  Food & Drug Administration (FDA) –
 Fair Groceries, Medicine, Cosmetics, Skin
Care Products, etc…
 Control Business Activity
 Regulates standards, rules  Federal Aviation Administration (FAA) –
 Helps make decisions Airline Industry
ENTREPRENEUR
One who takes RISKS to:
Manage – decision maker!
Plan
Organize
 See Figure 1.2 a, p. 22!
 Marisela & Marisol –

 Therese Alberchism
 Walt Disney
 Pieter Snelder
 Mary Kay
A BUSINESS IDEA - ? IS NEEDED?
Niche Marketing Unique Selling Point

 An Unfilled Gap!  Creative

 IPOD  Original
 IPhone
 Different
 GARMIN
 Interesting

 Fun
FINANCE – WHERE WILL YOU GET THE $
$?
Accounting – Looks Back Finance – Looks Forward

 Accountants  Where?
 Help analyze business  Savings
records and make  Bank
decisions!  Family
 How much will be needed  Entrepreneurs
to start the business?  Other Businesses
HUMAN RESOURCES
Who do I need to work in my business?
 Designers
 Engineers
 Machinists
 Marketing Experts
 Finance / Accounting
 Administrative Staff
 Hire, Fire, Train & ReTrain, Motivate!
 Delivery Personnel
 Lawyer
 ENTREPRENEURIAL SKILLS – NEEDED
TO PLAN, ORGANIZE & MANAGE A
BUSINESS.
Industrial Skills Personal Skills

 Computation  Leadership
 Logic  Personality

 Management  Communication

 Negotiation  Time Management

 Finance/Accounting  Self Confidence

 Marketing  Passion

Stakeholder Groups = employees, suppliers, government

FIXED ASSETS
 Anything of value that is owned
 Will last LONGER than 1 year
 CapitalEquipment
 Machinery
 Computers
 Land
 Building

 Location, Location, Location

 Expensive for a good spot, but may be worth it in consumer
sales!!!!
 Access to customers:
 Population, Climate, Seasons,
SUPPLIERS – WHERE WILL I GET
MERCHANDISE TO SELL?
 Raw Materials

 Finished Stock of Production

 Support Services
CUSTOMERS – WHO WILL BUY?
 Marketing Research
 Who shall we target?
 Products Wanted/Needed
 Where is the gap?
 Right Price
 How much will they spend?
 Right Place
 Where are they shopping?
 Size of Market
 How wide is the need?
MARKETING –
CONVINCE CONSUMER TO BUY!
 Product
 Price

 Promotion

 Place

 Turned Down Doesn’t Mean No Good!

 Re-evaluate and re-market
LEGALITIES –
BUSINESS LAWS TO CONSIDER
 Consumer Rights
 Copyright
 Protects written work Life of author +70 years after death of
the author
 Patent
 Protects Inventions for 20 years
 Employees
 Child Labor, Overtime, Working Conditions
 Licenses
 Sell tobacco, alcohol
 Permits
 Sell guns, other amo
REFLECTIVE WRITING
 Choose a business

 Using figure 1.2a on pg. 22 write a paragraph on each of

the 9 factors as it relates to your chosen business.

 36 sentences = one paragraph per figure

BUSINESS PLAN
 Document stating how a business will begin, run and
continue to flourish
 Items Included:
 Executive Summary
 Goals & Mission Statement
 Financial Information
 Human Resources
 Marketing
 Production Plans
www.bplans.com
Business Plan Evaluation Handout
REASONS TO START A BUSINESS:

Capital Growth
 Property & Land increase in value over time
Earnings
 Earn more working for yourself than someone else
Transference & Inheritance
 Give business to children (George’s, Tyson, Stephens)
Challenge
 Boost self esteem , Find Niche!
Autonomy
 Independent – Freedom – Flexibility
Security Can’t get fired!
Hobbies - Have a passion for what U do!
IDENTIFYING MARKET OPPORTUNITIES
THE BEST INDUSTRIES FOR STARTING A
BUSINESS RIGHT NOW
 Where is there a GAP in  Innovative Ideas &
the market? Creations
 JUMP Zone
 Pass Your Plate
 Fast Lanes
 Oxygen Bar

 Developing the
Entrepreneur’s
Personal Qualities &
Skills!
PROBLEMS FACED BY START UPS
40% Fail in 1st Year

Lack of Capital – $$$$$ runs out

Fixed Capital – long term assets (buildings, land, equip)
Collateral – Asset placed as security against a loan.

Cash Flow Problems - Meeting payment terms

Working Capital – Meeting day to day money needs of business.

Credit Period –Time allowed to pay back on credit too long!

Budgetary Problems – Costs too high, forget about taxes

PROBLEMS FACED BY START UPS
Marketing
Don’t meet customer needs; MUST FIND niche!!!!!
Cheap flights to Spain, France, Germany, Italy and more - easyJet.com

lastminute.com: Save up to 70% on last second travel deals!

Unestablished Customer Base

Requires Marketing $$$
PROBLEMS FACED
BY START UPS
People Management
Skilled People Training Time
High Turnover Organizational Structure Fit?

Legalities
Registration Consumer Protection Laws
Insurance Copyright / Trademarks

Production
Stockpiling? Wastage? Increased Costs?
Unhappy Customers? Loss of Sales?
PROBLEMS FACED BY START UPS
High Costs of Production
Machinery Equipment Technology
Rent Advertising Insurance

Poor Location
Good ones cost $$$$, new business can’t afford!

External Influences
Oil Crisis
Recession
QUESTION 1.2.1 PG. 26
 Identify 2 reasons why a lending institution (BANK)
might be reluctant to fund the expansion plans of Reload.

 Explain 2 problems that Reload might have in building

a customer base in new overseas markets such as
Scotland.
 QUIZ
 OUTLINE PAGES 1-4

 How This Kid Made $170 Million in Two Years | Inc.com

 Finding the Perfect Business Partner, Planning and Strategy Article - Inc. Ar
ticle

 Starting a Business in Arkansas - Arkansas SBDC: New Businesses

 Fortune 500 Company Information

TYPES OF ORGANIZATIONS
Non – Profit &
Profit Based Non- Governmental

Sole Traders  NPOs

 NGOs (PVOs)
( Sole Proprietorships)
 Operational
NGOs
Partnerships  Advocacy NGOs
 QUANGOs
Corporations
 Charities
 Pressure Groups
Sole Trader
 ONLY One person
 Most Common type of business

 Small & Family operated

 Finance – use personal savings

 Owner IS the BUSINESS

 Can be sued personally for business
 Lose personal assets
 SOLE TRADER
Advantages Disadvantages
 Unilimited
 Few Legal Rules Liability
 Receive all Profits
 Limited Sources of $$

 Be your own BOSS


High Risks
 Workload & Stress
 Personalized customer
service
 Lack of ability of other
employees
 Financial Privacy

Higher Costs of Production
QUESTION 1.2.2.

TYPE IN A WORD DOCUMENT

TURN IN

i. Analyze the costs and benefits to

Natalie in operating as a Sole
Trader.
ii. Examine whether sole traders, like
florists, benefit from a high degree
of specialization.
 PARTNERSHIPS
 Owned by 2 or people, = MAX = 20
 Finance – partner’s personal investment

Silent Partners
 Investors that do not work in the business
 PARTNERSHIP AGREEMENT
DEED OF PARTNERSHIP OR PARTNERSHIP DEED

Contribution –
 How much will each give to business?
Duties – Who will do what?
Finances – How will profits & losses be divided?
New Partners – Guidelines for new members
Withdrawal – Guidelines for getting out
Ending Partnership – What to do when closing doors
 PARTNERSHIP
Advantages Disadvantages

Financial Strength  Unlimited Liability
 Decision Making
 Division of Labor Difficulties
 Instability with

Financial Privacy partnership changes
Trust Issues

Raising Capital limited
FRANCHISE
A legal agreement
between a company and
a distributor to sell a
product or service under
special conditions
FRANCHISE TERMINOLOGY
Franchisor
Parent company of a franchise
agreement that provides the
product or service.
Example: McDonald’s, Inc. –
Ray Kroc founder
FRANCHISEE
The distributor of a franchised product
or service.
Example:
McDonald’s NWA, Walter & Bill Mathews
FRANCHISE RESEARCH
Advantages Disadvantages
 Specialized Products  % revenue to parent co.
 follow company policy
 Special Training
 decision making
 Advertising
 Store Location

http://www.mcdonalds.com/corp/franchise/whyMcdonalds/susanSingleton.html

http:// www.mcdonalds.com/corp/franchise/whyMcdonalds/steveWailingEng.htm l
OBLIGATIONS OF OWNERSHIP
To Customers – Best goods at lowest prices
To Workers – Respect rights
 To Management – Treat employees fairly
To Competitors – Trade fairly
To Investors – Information & good decisions
To the Public – Observe the laws, keep environment
clean.
 INTRAPRENEUR
An employee who is
given the freedom to
work as an
entrepreneur within a
company
 Advantage
 ESOP -
Employee Stock
Ownership Plan
QUESTION 1.2.3, PG. 30 - READ
 Define the terms franchise & Ordinary Partnership

 Outline the advantages & disadvantages of running the

restaurant as a partnership.

 EXP is a small business. Explain the potential

problems that this might create, compared to larger
restaurants. (Disadv pg. 27 – 29)

 Examine the benefits to the owners of EXP in

remaining a small business. (ADV pg. 27 – 29)
 CORPORATIONS
Owned by Shareholders - Owners of stock
Stock - Unit of ownership in a corporation (1 share = 1 vote)
Joint Stock Companies – Stock held by many people!

Incorporated - Owners are legally separate from the business.

Limited Liability
Corporations can be sued & sue others without affecting owners
financial stakes past investment.
Local Company Stocks:
Arkansas Stocks
Dow Jones Industrial Average
 CORPORATIONS
Board of Directors
Electedby shareholders to run
the company
Report to shareholders annually
Wal-Mart Stores, Inc. - Board o
f Directors
 LIMITED COMPANIES
Private Limited Co. Public Limited Co.
 NO public sale of stock  Sell shares to public
 Family & Friends only  ‘PLC’

 “Ltd.”  Dilution of Control =

 Board approves sale of more voters & less

stock control
 CONTROL co. better  Take Over Bids = trying

 Less capital raised to buy out company

 See pg. 31, Table 1.2a
 George's Farms
 REQUIRED BUSINESS
DOCUMENTS
Memorandum of
Articles of Association
Association
 Name of Company  Regulations
 Purpose  Procedures

 Address  Board of Director’s

 Rights
 Original # Shares of
 Roles
Stock  Powers

 $ Price Stock / Share  Administration Issues

 AGM – Annual General Meeting
 Profit Distribution
ARTICLE OR C
ERTIFICATE OF
INCORPORATI
ON
FLOATING A COMPANY
A business sells all or part of its business to investors.
 WHY BUY SHARES OF STOCK?
Dividends – share of profits from a company
 Biannual (twice a year) payment to investors
 Each share receives a dividend payment
 Example = $.31 * 100 Shares = $31.00

Target Financial Statement

Capital Growth
 More $$ earned v. savings accounts
 Buy Low Sell High
 GOOG: Google Inc.

Voting Power
 1 Share = 1 Vote; More shares = more Influence over Corp.
INSTITUTIONAL & COMMERCIAL INVESTORS
LARGEST SHAREHOLDERS OF OTHER COMPANIES
ANNUAL GENERAL MEETING (AGM)
Allow owners to vote on business issues
 Vote on Resolutions (promises / declarations)

 Re-Elections of Board of Directors

 Advisors to the company

 Investor Questions to B of D, CEO, Directors

 Approve Financial Accounts

 ANNUAL REPORT
– GIVEN TO SHAREHOLDERS
 Profit & Loss
 Assets
 Liabilities
 Capital
 Cash Flow
 Audit Report
 Listed on websites
 Nikebiz : Investors : Nike is a Growth Company : Annual Reports
 Brinker International Inc. Annual Report 2006
 CORPORATION
Advantages Disadvantages
 Raise a lot of $$$$ with  Annual Reports – costly
Permanent Capital – no
repay  Bureaucracy
 Limited Liability  Articles of Inc., etc.
 Continuity OR Divorce of  Legal Services
 Advertising
Ownership & Control
 AGM
 Directors own many shares =
better performance
 Economies of Scale – lending
 NO guaranteed DIVDEND
$$ easier!  Communication Problems
 Management Specialists
 NON – PROFIT ORGANIZATIONS
(NPOS)
 Profit is NOT the goal.
 Providing a SERVICE is the goal.
 Leisure
 Tourism
 Special Causes
 Public Libraries
 State Schools

 Museums

 Government Hospitals

 Social Services

 Profit is returned into the

business for the benefit of
its members
NGOS – NON GOVERNMENTAL
ORGANIZATIONS
 Private Sector
 Private Voluntary Organizations (PVOs)
NGOS – NON GOVERNMENTAL
ORGANIZATIONS
Operational NGO Advocacy NGO
 Relief Based  Promote or Defend a
 Community Projects cause
 Raise awareness

 Promote ACTION

 Invisible Children
 Lobby
 Public Relations
 Mass Demonstrations
 Invisible Children - Invisi
ble Children
QUANGOS
QUASI-AUTONOMOUS NGOS)
 Semi – Non Government Organizations
 Government Funded
 Employees Independent of the Government
 Support interests of the Government
 Employees may not be paid
 Appointed b/c of expertise
 Example Article:
 The attack of the quangos

 The cost of quango Britain hits £170bn

CHARITIES
 NPOs
 Collecting Donations

 Benefit Society

 Paid & Volunteer Postions

 USA > 1 Million

 Top-Rated Charities - American Institute of Philanthropy

 Marketing
 CelebrityEndorsements
 Charity Events
 Promotional Events
 Online Donations
 CHARITIES
Advantages Disadvantages
 Financial Support  Volunteer turnover
 Lack of profit
 Exempt from Taxes
 Paid employees can earn more
 Donors get tax relief elsewhere
 Trustee’s no $$$
 Register to become a  Bureaucracy & Registration
limited corporation for
limited liability protection for
process
employees and management.  Reporting process

 Charity Fraud

 Economic Factor
 PRESSURE GROUPS
 Gain public & media support for a cause
 Influence Governmental Legislation

 Force Business & Govt. to look at costs

 Project BLUE Helps Combat Ocean Pollution

 PRESSURE GROUP EXAMPLES
 Unison – trade union for public sector workers
 National Union of Students (NUS)
 National Union of Teachers (NUT)
 National Farmer’s Union (NFU)
 British Medical Association (BMA)
 Institute for Public Policy Research (IPPR)
 Royal Society for the Prevention of Cruelty to Animals (RSPCA)
 National Society for the Prevention of Cruelty to Children (NSPCC)