Economics

NOTES: COPY

CHAPTER 7

Entrepreneur

A risk taker- you are an entrepreneur if you opening a business of your own or a franchise. EXAMPLES:

·       Ben and Jerry’s

·       Fred Smith’s story…Fred Smith wrote a paper in college. The assignment was to invent a plan for a business. He made the plan for Fed-Ex. The Professor gave him a C and said it would never work. It did work. Today the paper is framed in Fred Smith’s office.

FOUR ELEMENTS IN BUSINESS

1.     Expenses     2. Advertising     3. Receipts and Record Keeping     4. Risk

1.     Expenses: Costs, things that you have to pay for.

(1)  Inventory- all of the products you have to sell (Imagine how much it takes to stock Best Buy), insurance, rent, employees

2.     Advertising- Helping to sell a product or business

EXAMPLES:

·       Commercials, radio, tattoos, billboards, changing billboards, internet pop-ups, banners on airplanes, previews on movies, blimps, performers mention products, team sponsors, Nascar (all of the car, his uniform everything advertising), concerts, wall of baseball field, channel one…

·       Subliminal Advertising (now illegal) was popular in the 70’s. Putting one frame in a movie saying buy a coke, stuff like that.

·       Product Placement: inside movies (Reese’s pieces in E.T.),

·       Car Wraps:

3.     Receipts and record keeping- must keep good records and receipts to see if you are making money, know your net worth, and for government taxes

a)   ASSETS: What you owe (bills, mortgage)

EXAMPLES: house and what’s inside, cars, stocks, cd’s, retirement.

b)   Liability: What you own (what you have paid off)

EXAMPLES: examples include: home equity, college, loans, credit cards

c)    NET WORTH: How much money you are worth. Assets minus (vs.) Liability

·       (assets vs liabilities) what you own vs what you owe

You can have a negative net worth. Some people have a negative net worth after college-college loans make you negative. You have more assets than liability.

4.     Risk-risk your financial status and reputation

Sole Proprietorship: One Owner

ADVANTAGES	DISADVANTAGES
All profits are kept for yourself	Losses are not shared (you lose everything)
	Unlimited liability (responsibility)
	Personal assets are in play (bank can take your house)
Control of all decisions (you make all the decisions)	Owner not expert in all areas
Fewer government regulations	Very time consuming
	Hard to get loans
	Lack of longevity  (few businesses last a long time)

If you own a business it is a good idea to get insurance. If you do not have insurance people can come after your personal assets.

Start Up Assistance:

Programs that help your new business get started, government programs and other organizations have programs that help you get started. EXAMPLES: Businesses like FedEx and Fred Smith may help you with getting a loan.

·       Small business Administration

·       Small Business Incubator (To help get it started)

PARTNERSHIPS: Owned by equal Partners

ADVANTAGES	DISADVANTAGES
Losses are shared	Profits are shared
More areas of Expertise	Shared Liability (You’re responsible for your partners bad decisions)
Shared decision making	Slower decision making (going through more people)
More $ for start up	Lack of longevity ( most will fail)
More likely to secure a loan

PARTNERSHIP: Owned by equal Partners

YOU NEED A PARTNERSHIP AGREEMENT: To cover yourself

·       How much money does each partner need to come up with

·       How will the profits be divided

·       How much does everyone have to work

TWO MAN PARTNERSHIP: Example: Two Man and a Truck

                                       

LIMITED PARTNERSHIPS: Partners that are not equal

ADVANTAGES	DISADVANTAGES
Investors can only lose initial $ (You only lose the money you invest) The owner can lose everything)	No say in decisions

LIMITED PARTNERSHIPS- Partnerships That Are Not Equal

General Partner- Majority owner of the company, Person who runs the company

Minority Owner- Own a smaller amount of the company, Only invests money.

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Joint Venture: Temporary Partnership or temporary merger (joining) of companies.

TYPES OF MERGERS

·       Horizontal

·       Vertical

·       Conglomrate

HORIZONTAL MERGER (Think Equal)

            Merger between companies at the same level (competing companies)

                        Example:

·       ATT&T and T-Moble

·       Exxon merged with Mobile

·       BP and Shell

·       Home Depot would merge with merge

·       Taco Bell and KFC

VERTICAL MERGER (Different levels)

Companies that sell to each other. People are at different levels.

                        Examples:

·       KFC could merge with Tyson

CONGLOMERATE MERGER (Nothing in common)

Merger between companies that have nothing in common

Examples:

·       Walt-Disney OWNS Movies, ABC, ESPN

·       Maybelline and Purina Dog Food

·       SONY

·       MITSUBISHI

MERGER ADVANTAGES

MERGER ADVANTAGES	MERGER DISADVANTAGES
Efficiency (merging of jobs)	Loss of jobs
Lower Costs	Less Competition
Loans