Understanding Entrepreneurship and Business Structures
Entrepreneurship
Entrepreneurship is the process of initiating a business venture, organizing the necessary resources, and assuming the associated risks and rewards.
Social Entrepreneurship
Social entrepreneurship focuses primarily on creating social value by providing solutions to social problems, with a secondary purpose of generating profit and returns.
Business Structures
Sole Proprietorship
A sole proprietorship is an unincorporated business owned by an individual for profit. Proprietorships make up the majority of businesses in the United States. This form is popular because it is easy to start and has few legal requirements. A proprietor has total ownership and control of the company and can make all decisions without consulting anyone.
However, this type of organization also has drawbacks:
- The owner has unlimited liability for the business, meaning that if someone sues, the owner’s personal as well as business assets are at risk.
- Financing can be harder to obtain because business success rests on one person’s shoulders.
Partnership
A partnership is an unincorporated business owned by two or more people. Partnerships, like proprietorships, are relatively easy to start.
To avoid misunderstandings and to make sure the business is well planned, it is wise to draw up and sign a formal partnership agreement with the help of an attorney. The agreement specifies how partners are to share responsibility and resources and how they will contribute their expertise.
The disadvantages of partnerships are:
- The unlimited liability of the partners.
- The disagreements that almost always occur among strong-minded people.
Corporation
A corporation is an artificial entity created by the state and existing apart from its owners. As a separate legal entity, the corporation is liable for its actions and must pay taxes on its income.
Unlike other forms of ownership, the corporation has a legal life of its own; it continues to exist regardless of whether the owners live or die. And the corporation, not the owners, is liable in case the company gets sued. Thus, continuity and limits on owners’ liability are two principal advantages of forming a corporation.
The major disadvantage of the corporation is that it is expensive and complex to do the paperwork required to incorporate the business and to keep the records required by law. When proprietorships and partnerships are successful and grow large, they often incorporate to limit liability and to raise funds through the sale of stock to investors.
Starting a Business
Starting From Scratch
One of the most common ways to become an entrepreneur is to start a new business from scratch. This approach is exciting because the entrepreneur sees a need for a product or service that has not been filled before and then sees the idea or dream become a reality.
The advantage of starting a business is the ability to develop and design the business in the entrepreneur’s own way. The entrepreneur is solely responsible for its success. A potential disadvantage is the long time it can take to get the business off the ground and make it profitable.
Buying an Existing Business
Because of the long start-up time and the inevitable mistakes, some entrepreneurs prefer to reduce risk by purchasing an existing business. This direction offers the advantage of a shorter time to get started and an existing track record.
Franchising
Franchising is a business arrangement where a firm (franchisor) collects upfront and ongoing fees in exchange for other firms (franchisees) to offer products and services under its brand name and using its processes.
Goals and Planning
Goals
A goal is a desired future circumstance or condition that the organization attempts to realize.
Planning
The concept of planning usually incorporates both ideas; it means determining the organization’s goals and defining the means for achieving them.
Strategic Goals and Plans
Strategic goals, sometimes called official goals, are broad statements describing where the organization wants to be in the future. These goals pertain to the organization as a whole rather than to specific divisions or departments.
Strategic plans define the action steps by which the company intends to attain strategic goals. The strategic plan is the blueprint that defines the organizational activities and resource allocations—in the form of cash, personnel, space, and facilities—required for meeting these targets. Strategic planning tends to be long term and may define organizational action steps from two to five years in the future. The purpose of strategic plans is to turn organizational goals into realities within that time period.
Tactical Goals and Plans
After strategic goals are formulated, the next step is to define tactical goals, which are the results that major divisions and departments within the organization intend to achieve. These goals apply to middle management and describe what major subunits must do for the organization to achieve its overall goals.
Tactical plans are designed to help execute the major strategic plans and to accomplish a specific part of the company’s strategy.
Operational Goals and Plans
The results expected from departments, work groups, and individuals are the operational goals.
Operational plans are developed at the lower levels of the organization to specify action steps toward achieving operational goals and to support tactical plans. The operational plan is the department manager’s tool for daily and weekly operations. Goals are stated in quantitative terms, and the department plan describes how goals will be achieved. Operational planning specifies plans for department managers, supervisors, and individual employees. Schedules are an important component of operational planning.