investment
the purchase of capital resources used to produce goods and services; it may consist of shares in a corporation, real estate, or plant and equipment
financial markets
coordinate exchange of money between borrowers and lenders
long-term loans
bonds; borrowers get the cash they need while lenders earn interest
bonds
certificates of a corporation's or government's indebtedness to the holder
trade credit
like a charge account, buyer makes a purchase and seller allows for payment at a later date
equity
ownership; stockholders are owners; bond holders are creditors
common stock
ownership in a company, claim to share profits, voting privileges; higher potential rate of return, but greater risk
preferred stock
ownership but no voting privileges, preferential treatment
depreciation
value lost in assets as they become obsolete or wear out
retained earnings
undistributed profits
The Dow
Dow Jones Industrial Average; stock market indicator
sources for funding small firms
1. Personal savings2. Family and friends3. Forming a partnership4. Selling stock to incorporate5. Commercial bank loan6. SBA loan programs7. Venture capital
goes public
when a corporation first issues shares of stock
IPO
initial public offering; new issues market, offered for sale by underwriting firm
NYSE
New York Stock Exchange (world's largest)
AMEX
American Stock Exchange
NASDAQ
National Association of Securities Dealers Automated Quotation
SEC
Securities and Exchange Commission
prospectus
financial information including risk involved of corporations and mutual funds
bull market
rising market
bear market
declining market
balance sheet
company's financial status: assets, liabilities, net worth
assets
what you own
liabilities
what you owe
income statement
statement of earnings, profit-and-loss statement
Who becomes an entrepreneur?
-Start at early age-Develop and sale ordinary products-Spot new markets and develop new markets for them-Work to perfect ideas they have had for years-Work within existing businesses
Strategies entrepreneurs use
-Unexpected markets-Changing market conditions-Improve a product or process-Provide and alternative good or service-Identifying population trends
Advantages of small businesses
-Ability to adapt-Ability to satisfy special markets
Disadvantages of small businesses
-Poor management-Inadequate financing-Inability to hire highly qualified workers
Advantages of sole proprietorship
-Easy to start, few forms to complete, few restrictions, free to make all decisions-Gain all profits of business-No separate tax-Can react quickly to problems-Achieve success through individual efforts
Disadvantages of sole proprietorship
-Unlimited liability-Limited funds-Fragile business existence-Limited potential
Advantages of partnership
-Easy to form and not subject to special taxes-Potential growth-Partners offer fresh ideas and talents
Disadvantages of Partnership
-Unlimited liability-Limited life-Limited funds-Organization; conflicts between partners
Advantages of a Corporation
-Limited liability-Ease of transfer of stock ownership-Unlimited life-Ability to raise funds
Disadvantages of a Corporation
-Expense to organize-Taxation; taxed on profits and stockholders taxed on profits-Regulations
S Corporations
-No more than 35 stockholders-No corporate income taxes; no double taxation*Special type of business organization
Not-for-profit Companies
-Serve particular educational, social, charitable, religious purposes-Not subject to income taxes(Red Cross, Urban League, March of Dimes)*Special type of business organization
Government-owned Corporations
-Postal service, FDIC, Public utilities, Rapid transit system*Special type of business organization
Limited Liability Companies (LLC)
-Must have two or more members-Function as partners or shareholders-Taxed as partnership-Limited liability-State regulations and strict tax rules-Limited life*Special type of business organization
Cooperatives (Co-ops)
-Associations of individuals or companies that perform business functions for their members-Three types: housing, consumer, producer co-ops*Special type of business organization
Franchises
-A license to operate an individually owned business as if it were a part of a large chain of stores-Franchisee: purchases the franchise-Franchiser: corporation that sells its franchises to others-National advertising campaigns, name recognition, reputation-Must buy from certain producers-Corporations can dictate decoration and method of operation*Special type of business organization
Some sources for funding small business start-ups
-Personal savings-Family and friends-Forming a partnership-Selling stock to incorporate-Commercial bank loan