Business in United States of America

1. Forms of Business Organization

2. Fundamentals of Marketing

3. Management

4. Accounting and Finance

5. International Trade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Forms of Business Organization

 

Forms of Business Ownership.

An organization that is owned, and usually managed, by one person is called a sole proprietorship. That is the most common form of business ownership.

When two or more people become co-owners of a business, the organization is called a partnership.

A legal entity that has an existence separate from the people who own it is called a corporation.

Sole Proprietorships.

A Sole proprietorship has lots of advantages:

1. Ease of starting and ending the business. All you have to do to start a sole proprietorship is buy the needed equipment (for example, a saw, a word processor, a tractor, a lawn mower, or a welder) and put up some announcements saying you are in business. It is just as easy to get out of business; you simply stop. There is no one to consult or to disagree with about such decisions. You may have to get a permit or license from the government, but that is usually no problem.

2. Being your own boss. "Working for others simply doesn’t have the same excitement as working for yourself," – that’s the way sole proprietors feel. You may make mistakes, but they are your mistakes – and so are the many small victories each day.

3. Pride of ownership. People who own and manage their own businesses are rightfully proud of their work. They deserve all the credit for talking the risks and providing needed goods and services.

4. Retention of profit. Other than the joy of being your own boss, there is nothing like the pleasure of knowing that you can make as mush as you can and do not have to share that money with anyone else (except the government, in taxes). Store owners and service people are often willing to start working early in the day and stay late because the money they earn is theirs to keep.

5. No special taxes. All the profits of a sole proprietorship are taxed as the personal income of the owner, and he or she pays the normal income tax on that money. Owners do have to file an estimated tax return and make quarterly payments. It is wise for small business owners to pick up a packet of information for small business owners from the local Internal Revenue Service office.

There are also a number of disadvantages:

1. The risk of losses. When you work for others, it is their problem if the business is not profitable. When you own you own business, you have the risk of losing almost everything – your time, your money, and your business. What you keek, if you fail, is the pride of having tried, and the experience.

2. Unlimited liability. When you own your own business, you and the business are considered one. That is, any debts and damages incurred by the business are your debts and you must pay them, even if it means selling your home, your car, and so forth. This is a serious risk and one that requires careful thought and discussion with a lawyer, insurance agent, and others. As the owner, you are liable for everything.

3. Difficulty in management. Most business need some management; that is, someone must keep inventory records, accounting records, tax records, and so on. Many people who are skilled at selling things or providing a service are not so skilled in keeping records. Sole proprietors may have no one to help them. It is often difficult to find good, qualified people to help run the business. Some employees can be careless, tardy, dishonest, unreliable, and incompetent. It is hard to own a business, manage it, train people, and have time for anything else in life.

4. Overwhelming time commitment. Perhaps the most common complaint among sole proprietors is the fact that good employees are hard to find. Therefore, the owner must spend long hours working. The owner of a store, for example, may put in 12 hours a day, at least 6 days a week. This is almost twice the hours worked by a salaried laborer, who may make more money.

5. Few fringe benefits. If you are your own boss, you lose many of the fringe benefits that come from working for others. For example, you have no health insurance, no disability insurance, no sick leave, no vacation pay, and so on. These benefits may add up to 30% or more of a worker’s income.

6. Limited growth. If the owner becomes incapacitated, the business often comes to a standstill. Furthermore, a sole proprietorship relies on its owner for most of its funding. Therefore expansion often is slow and there are serious limits to how much one person can do. That is one reason why many individuals seek partners to assist in business.

7. You are on your own. The greatest advantage of a sole proprietorship can also be a major disadvantage. You have nobody to help or to blame if something goes wrong.

8. Limited life span. If the sole proprietor dies, the business no longer exists.

Exercise 2. True or false?

1. It is difficult to start a sole proprietorship.

2. A sole proprietor doesn't have to share his profit with anybody except the government, in from of taxes.

3. A sole proprietor has limited liability.

4. Fringe benefits are few.

Partnerships.

It is ot difficult to form a partnership, but it is wise to get a counsel of a lawyer experienced with such agreements. Lawyers’ services are expensive, so would-be partners should read all about partnerships and reach some basic agreements before calling in a lawyer. It is often easier to form a partnership agreement than to operate one or end one, and many friendships have ended after friends became partners. With some care, however, partnerships have these advantages.

1. More financial resources. Naturally, when two or more people pool their money and credit, it is easier to pay the rent, utilities, and other bills incurred by a business. There is a concept called limited partnership that is specially designed to help raise capital (money). A limited partner invests money in the business, but doesn’t have any management responsibility or any liability for business losses. The agreement form necessary for a limited partnership is more complex than that needed for a simple partnership (called a general partnership). For example, the agreement must mention the amount of money involved, the share of profits each person receives, and so on. You will need a lawyer’s help with such agreements. The point here is that partnerships feed more money into the business for growth.

2. Ease of management. It is simply much easier to manage the day-to-day activities of a business with carefully chosen partners. Partners give each other free time from the business, and provide different skills and perspectives. Many people find that the best partner is a spouse. That is why you see so many husband/wife teams managing restaurants, service shops, and other businesses.

There are also some disadvantages:

1. Unlimited liability. Each general partner is liable for the debts of the firm, no matter who was responsible for causing those debts. Like a sole proprietor, partners can lose their homes, cars, and everything else they own if the business fails or is sued by someone. Such a risk is very serious and should be discussed with a lawyer and an insurance expert. A general partner, then, is an owner (partner) who has unlimited liability and is active in managing the firm. (As mentioned earlier, a limited partner risks an investment in the firm, but is not liable for the business’s losses).

2. Devision of profits. Let’s say two people form a partnership. One puts in more money and the other puts in more hours. Each may feel justified in asking for a bigger share of the profits. Sharing the risk means sharing the profit, and that can cause conflicts.

3. Disagreements among partners. Disagreements over money are just one example of potential conflict in a partnership. Who has final authority over employees? Who hires and fires employees? Who works what hours? What if one partner wants to buy expensive equipment for the firm and the other partner disagrees? Potential conflicts are many. Because of such problems, all terms of partnership should be spelled out in writing to protect all parties and to minimize misunderstanding in the future.

4. Difficult to terminate. Once you have committed yourself to a partnership, it is not easy to get out of it. Questions about who gets what and what happens next are often very difficult to solve when the business is closed.

Exercise 3. True or false?

1. It is easier to start a partnership than to stop it.

2. A limited partner has no management responsibility.

3. General partners have equal responsibilities for a firm's debts.

4. Partnership is more difficult to manage than a sole proprietorship.

Corporations.

Although the word corporation makes people think of big business like General Motors, IBM, Ford and so on, it is not necessary to be big in order to incorporate (start a corporation). Incorporating may be beneficial for small businesses also.

The purpose of forming a corporation is to get away from the disadvantages of sole proprietorships and partnerships. One of the more worrisome aspects of owing your own business or having a partner is the fear of losing everything you own if someone sues the business or the business loses a lot of money. A corporation is a state-chartered legal entity with authority to act and have liability separate from its owners. What this means for the corporation's owners (stockholders) is that they are not liable for the debts or any other problems of the corporation beyond the money they invest. Owners no longer must worry about losing their house, car, and other property because of some business problem – a very significant benefit. A corporation not only limits the liability of owners, it enables many people to share in the ownership (and profits) of a business without working there or having other commitments to it. The concept of incorporation is not too difficult, even though the procedures for incorporating are often rather complex. Most people are not willing everything to go into business. Yet, for business to grow and prosper and create abundance, many people would have to be willing to invest their money in business. The way to solve this problem was to create an artificial being, an entity that existed only in the eyes of the law. That artificial being is called a corporation. It is nothing more than a technique for involving people in business at a minimal risk. The advantages of such an entity are:

1. More money for investment. To raise money, a corporation sells ownership (stock) to anyone who is interested. This means that millions of people can own part of major companies like IBM, Xerox, and General Motors. If a company sold 10,000,000 shares for $50 each, it would have $500 million available to build plants, buy materials, hire people, build products, and so on. Such a large amount of money would be difficult to raise any other way. So a major advantage of corporations is their ability to raise large amounts of money.

2. Limited liability. It bears repeating that a major advantage of corporations is the limited liability of owners. Corporations in England and Canada have the letters "Ltd." after their name, as in British Motors, Ltd. The Ltd. stands for limited liability and is probably the most significant advantage of corporations. Limited liability means that the owners of a business are responsible for losses only up to the amount they invest.

3. Size. That one word summarizes many of the advantages of corporations. Because they have large amounts of money to work with, corporations can build large, modern factories with the latest equipment. They can also hire experts or specialists in all areas of operation. Furthermore, they can buy other corporations in other fields to diversify their risk. (What this means is that a corporation can be involved in many businesses at once so that if one fails the effect on the total corporation is lessened.) In short, a major advantage of corporations is that they have the size and resources to take advantage of opportunities anywhere in the world. Corporations do not have to be large to enjoy the benefits of limited liability and more money for investment. Many doctors, lawyers, and individuals and partners in a variety of businesses have incorporated.

4. Tax advantages. Once a person, partnership, or group of individuals have incorporated, they often receive significant tax advantages. They can deduct expenses for automobiles, meals, trips, and much more from their taxes. They can reinvest profits into the corporation to postpone paying taxes, and more. One of the most important tax advantages is tax-free fringe benefits, such as retirement funds.

5. Perpetual life. Because corporations are separate from those who own them, the death of one or more owners does not terminate the corporation.

6. Ease of ownership change. It is easy to change the owners of a corporation. All that is necessary is to sell stock to someone else. This means that new owners can be brought in easily as well.

7. Separation of the ownership from management. Corporations are able to raise money from many different investors without getting them involved in management, so the owners/shareholders are separate from the managers and employers. The owners elect a board of directors. The directors select the officers. They, in turn, hire managers and employees. The owners thus have some say in who runs the corporation, but no control.

There are also a few disadvantages:

1. Initial cost. Incorporation may cost thousands of dollars and involve expensive lawyers and accountants.

2. Paperwork. The papers to be filed to start a corporation are just the beginning. Tax laws demand that a corporation prove all its expenses and deductions are legitimate. A corporation, therefore, must process many forms. A sole proprietor or partnership may keep rather casual accounting records; a corporation, on the other hand, must keep detailed records, the minutes of meetings, and more.

3. Two tax returns. If an individual incorporates, he or she must file both a corporate tax return and an individual tax return. The corporate return can be quite complex.

4. Size. Large corporations sometimes become too inflexible and too tired down in red tape to respond quickly to market changes.

5. Social security. A corporation has a high social security and unemployment compensation burden; that is, it must contribute to these funds.

6. Termination difficult. Once a corporation is started, it is relatively hard to end.

7. Double taxation. Corporate income is taxed twice. First the corporation pays tax on income before it can distribute any to stockholders. Then the stockholders pay tax on the income (dividents) they receive from the corporation.

Exercise 4. True or false?

Small businesses cannot be corporations.

Corporate owners are responsible for business' debts.

Shareholders are separated from company management.

Corporations are taxed only once.

 

2. Fundamentals of Marketing

 

Exercise 5. Match the words and their definitions:

1. Marketing a. Getting goods to the right place at the right time in the right quantity.

2. Product b. A process of studying people's wants and needs and satisfying them by exchanging goods and services, resulting in profits for sellers.

3. Place c. Money paid by customers and received by sellers.

4. Promotion d. A good or a service and everything connected with them– package, guarantee, brand name, etc.

5. Price e. Combination of different tools such as advertising, publicity, personal selling etc in order to sell goods or services.

A popular slogan that describes modern-day marketing is, "Find a need and fill it". What does it mean? It means that business must do some market research to find out what goods and services people and organizations want and need. Listening should come first. Then marketers must do whatever it takes to satisfy those wants and needs. The ultimate goal is to make money (profit) by producing and selling goods and services. Marketing, then, can be defined as follows:

Marketing is the process of studying wants and needs and satisfying those wants and needs by exchanging goods and services; this results in satisfied buyers and creates profits for sellers.

When developing programs to satisfy market wants and needs, marketing managers work with several variables known as the marketing mix. A marketing mix is the strategic combination of product decisions with decisions on packaging, pricing, distribution, credit, branding, service, complaint handling and other marketing activities. All these activities are often combined under four easily remembered categories called the four P’s: product, place, promotion, and price.

Product

From a marketing viewpoint a product is not just the physical good or service. A product consists of all the tangibles and intangibles that consumers evaluate when deciding whether or not to buy something. When people buy a product, they evaluate its price, package, guarantee, image created by advertising, reputation of the producer, brand name, service, buyers’ past experience, store surroundings etc. Therefore a successful marketer must begin to think like a consumer and evaluate the product as a total collection of impressions created by all the factors listed.

The major function of packaging, for example, is to attract the attention of the buyer. To do this a package needs visibility. Visibility is achieved through the creative use of colour, shape, texture, design and size. Using these cues, one can easily identify most of the popular consumer products. For example, most people can easily recognize a Coke bottle, a box of Tide, a pack of Marlboro cigarettes from several meters away.

Another function of packaging is to give consumers added convenience for their money through the use of easy-open cans, clear plastic wraps, squeezable ketchup bottles and so on. In the future we may expect to see more packing innovations that will enable us to keep meat and milk without refrigeration, keep fresh vegetables for months etc.

One more function of packaging is to protect the goods from environmental factors such as rain and sun; against breakage and harm from animals.

Packaging also helps the middleman by grouping goods into easily managed sizes; retailers to price items, store them on their shelves, reduce errors etc.

Branding, like packaging, changes the product by changing consumer perceptions.

A brand is a name, symbol or design (or a combination of them) that identifies the goods or services of one seller or group of sellers and distinguishes them from those of competitors. A brand name is that part of the brand consisting of a word, letter, or group of words or letters comprising a name that differentiates the goods or services of a seller from those of competitors. Brand names such as Colgate, Sony, Del Monte, Campbell etc. give products a distinction that tends to make them attractive to customers.

A trademark is a brand that has been given legal protection. It includes the brand name and the pictorial design.

People are often impressed by certain brand names, even though they say they know there is no difference between brands in a given product category.

Exercise 6. True or false?

1. Product is just a physical good.

2. A good marketer must think like a consumer.

3. We can identify many consumer products looking at their packaging.

4. People often buy certain products just because of their brand names.

Place

Place, or distribution, means getting goods to the right place at the right time in the right quantity. The distribution mix includes eight main functions– research, risk bearing, storage, selling, buying, credit, transportation and grading.

Two institutions have emerged to perform the distribution function: wholesalers and retailers. They are known as marketing middlemen because they are in the middle of distribution network that connects producers with consumers.

Marketing middlemen have always been viewed by the public with some suspicion. Surveys have shown that about half the cost of the thing we buy are marketing costs that are largely to pay for the work of middlemen! But if there are no middlemen, then consumers or someone else will have to perform their tasks, including transportation, storage, finding suppliers etc. Yes, middlemen add costs to products, but these costs are usually more than offset by the values they create. Middlemen, such as retailers, add time utility to products (utility is value added to raw materials) by making them available when they are needed; add place utility by having them where people want them; add possession utility by doing whatever is necessary to transfer ownership from one party to another, including providing credit; add information utility by opening two-way flows of information between marketing participants.

A retailer is a marketing middleman who sells to consumers. The success of any retail establishment depends largely on its sales workers. Courteous and efficient service from behind the counter or on the sales floor does much to satisfy customers and build a store’s reputation. Whether selling furniture, electrical appliances or clothing, a sales worker’s primary job is to interest customers in the merchandise. This is done by describing the product’s construction, demonstrating its use, and showing various models and colours.

Different products call for different retail distribution strategies. There are three categories of retail distribution: intensive distribution, selective distribution, and exclusive distribution.