Exploring the World of Business PDF

# Exploring the World of Business ## Chapter 2.1 ## The Environment of Business - In a free enterprise system, people are free to produce the goods and services they choose. - Individuals are free to use their money as they wish: spend it, invest it, save it, or donate it. - Business owne...

# Exploring the World of Business ## Chapter 2.1 ## The Environment of Business - In a free enterprise system, people are free to produce the goods and services they choose. - Individuals are free to use their money as they wish: spend it, invest it, save it, or donate it. - Business owners must compete in order to continue to operate. - The amount of money earned over and above the amount spent is called profit. - Businesses that spend more money than they earn operate at a loss. ## The Need for a Risk-Taker - Entrepreneurs transform ideas for products or services into real-world businesses. - Motivated self-starters willing to take necessary risks to create profitable and useful businesses. ## Entrepreneurships ### Pros - You are your own boss. - You create opportunities for earning money. - You create and control your work schedule. - You choose the people you serve - You select the people who work with you. - You benefit from the rewards of your own hard work. - You choose your own work hours. ### Cons - You probably need to work long hours. - You lose the security of steady wages and medical benefits an employer provides. - You market your own services or products. - You pay for your own operating expenses. - You must be motivated and energetic each day. - You face the possibility of losing money. ## Types of Business Operations - **Service business** - Provides a needed service for a fee. - Travel agencies, styling salons, movers, repair shops, medical centers. - **Merchandising businesses** - Buys finished products and resells them to individuals or businesses. - Department stores, florists, hobby shops. - **Manufacturing Businesses** - Buys raw materials and transforms them into finished products through the use of labor and capital. - Bakery, shipbuilder ## Forms of Business Organization - **Sole Proprietorship** - a business owned by one person. ### Advantages - Easy to set up - All profits go to the owner - Owner has total control. - Few regulations to follow. ### Disadvantages - Limited expertise - Hard to raise money - Owner has all the risks - Hard to attract talented employees - **Partnership** - a business owned by two or more people. ### Advantages - Easy to start - Skills and talents are pooled. - More money available. ### Disadvantages - Conflicts between partners. - Profits must be shared. - Owners share all risks - **Corporation** - a business that is recognized by law to have a life of its own. - Charter: legal permission that gives a corporation rights and privileges. - Start out as a sole proprietorship or partnership and need to expand. - Shareholders are the legal owners of the operation. ### Advantages - Easier to raise money - Easy to expand - Easy to transfer ownership - Losses limited to investment ### Disadvantages - Cost more to start up. - Complex to organize. - More regulations. - Higher taxes.