Transcript Forming A Business Unit

Ass. Prof. Dr. Özgür KÖKALAN
İstanbul Sabahattin Zaim University
Chapter Objectives
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Define small and large businesses and identify the
industries in which most small firms are established.
Discuss the economic and social contributions of small
business.
Compare the advantages and disadvantages of small
businesses.
Explain how franchising can provide opportunities for
both franchisors and franchisees.
Summarize the four basic forms of business ownership
and the advantages and disadvantages of each form.
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Size of Business
 What makes a business small, medium or large ?
 Quantitative factors: the sales, the amount of
capital and son on.
 Qualitative factors: the legal formation of business
unit, the business units degree of penetration with
local markets, nationwide or worldwide and so on.
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 Variables affecting the size of your business
include:
 How easily can you set up this type of
organization?
 How much financial liability can you afford to
accept?
 What financial resources do you have?
 How many people do you empoly?
Most Businesses Are Small or
Medium Sized Businesses
 What is a Small or Medium Sized Business
(SME)?
 A firm is independently owned and operated,
 it is not dominant in its field
 It has relatively small annual sales and profits
 It has limited number of employees.
In Turkey, more than 96 percent of total businesses are
small or medium sized businesses (KOBİ)
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Major Industries Dominated by Small Businesses
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Contributions or Small or Medium
Sized Business to the Economy
 Creating New Jobs
 Creating New Industries
 Attracting New Industries
5-7
Advantages of SME’s
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Easy to form
Facing low costs
Covering the isolated market niches
Effective in owner – worker relations
Effective in customer services
Flexible
Innovative and creative
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Disadvantages of SME’s
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Weakness in competing with large businesses
Limited growth or unconscious growth
Limited financing
Lack of Managerial Skill (Inadequate Management)
5-9
Business Plan
 Creating a Business Plan
 Business plan—written document that provides an orderly
statement of a company’s goals, the methods by which it
intends to achieve those goals, and standards by which it
will measure achievements.
 Typically includes following components:
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Executive summary
Introduction
Marketing
Financials
Resumes of principles
5-10
Business Plan
 Before writing the business plan, several questions need
to be answered, including:
 How would you explain your business idea to a friend?
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What purpose does your business service?
How does your idea differ from those of existing business?
What is the state of the industry you are entering?
Who will be your customers?
How will you market your goods or services?
How much will you charge?
How will you finance your business?
Where do you want to open your business?
What characteristics qualify you to run this business?
Three Alternatives for SME’s
 Start up a new company
 Buy an existing company
 Franchising
The Franchising Alternative
 The Franchising Sector
 Franchising—contractual agreement that specifies
the methods
 Franchising growing rapidly
 Franchising is also popular overseas
5-13
The Franchising Alternative
 Franchising Agreements
 Franchisee: small business owner who contracts to
sell the goods or service of the franchisor in exchange
for some payment
 Franchisor: owner of the franchise. Franchisor
typically provides name recognition, building plans,
site selection help, accounting systems, and other
services
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The Franchising Alternative
 Benefits of Franchising
 Advantages include:
 Recognizable company name
 Business model that has proven successful
 Tested management program
 Business training
 Selecting location
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The Franchising Alternative
 Problems of Franchising
 Disadvantages include:
 High start up cost
 High royality fee
 Coattail effect
 No individual freedom
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Advantages of Large Business
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High budget for Research & Development (R&D)
Cost efficiency because of large scale production
Financial strenght
Capable management
Efficiency in production
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Disadvantages of LB’s
 Inflexibility
 Gaining more political power in society.
 High start up cost.
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Types of Business According to
Their Fuctions
 Businesses are classified into three groups. These are:
 Manufacturing companies: they produce tangible
products ( commodities products) such as electronic
goods, cars, textiles and so on.
 Service companies; they produce intangible products
through direct contact between employees and
customers such as hotels, law firms and so on.
 Marketing and sales companies; They sell products
that are produced by different firm. They are
intermadiaries between manufacturer and customer.
Many people see this kind of businesses as service
businesses
Types of Business According to
Equtiy Ownership
 Domestic Business
 Private Busines
 Business with government or public ownership
 Mixed Business
 Foreign Business
 Private Busines
 Business with government or public ownership
 Mixed Business
Legal Structure of Private Business
 There are four legal structure of private businesses.
These are:
 Sole Proprietorship
 Partnership
 Corporations
 Cooperatives
Alternatives for Organizing a
Business
 Sole Proprietorships
 Sole proprietor—form of business ownership in
which the company is owned and operated by one
person.
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The Advantages of Sole
Proprietorship
The advantages of Sole Proprietorships
 easy to form and dissolve
 management flexibility
 the owner retains all profits
The Disadvantages of Sole
Proprietorship
The disadvantages of Sole Proprietorships
 the owner’s financial liability for all debts of the
business (Unlimited liability)
 Limited financial resources
 Lack of managerial skill
 Limited life span
Alternatives for Organizing a
Business
 Partnerships
 Partnership—form of business ownership in which
the company is operated by two or more people
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The Advantages of Partnership
The advantages of Partnership
 easy to form
 complementary managerial skills
 Wider financial capacity
The Disadvantages of Partnership
The disadvantages of Partnership
 unlimited financial liability by the owners
 if one partner wants to leave, the other partner
may have to purchase the remaining portion of
the company, or risk sale to someone else
 upon death of one partner, a new partnership
must be formed
 difficult to dissolve
 Business profıts are shared among partners
Alternatives for Organizing a
Business
 Corporations
 Corporations—business that stands as a legal entity with
assets and liabilities separate from those of its owner(s).
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The Advantages of Corporation
The advantages of Corporation
 Limited liability
 they can generally draw upon the specialized
skills of many employees
 Unlimited life span
 Expanded (Unlimited) financial capabilities
Stock Ownership and Stockholder
Rights
 Stock Ownership and Stockholder Rights
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Preferred stock owners have limited or no voting rights;
receive dividends before others
Common stock owners have voting rights but only
residual claims on assets and are the last to receive any
income distributions
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The Disadvantages of Corporation
The disadvantages of Corporation
 Double taxation – the corporation pays state and
local taxes, and then the owners have to pay
income tax on stock dividend earnings
 difficult to form and dissolve.
 excess paperwork
Comparing the Three Major Forms of Private Ownership
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