Page 131 - Business Principles and Management

Unit 2

defined as assets less liabilities. If there are profits, York gets the total amount. She
must also absorb losses. Because she owns the land and the building, she does
not have to pay rent, although she must pay the cost of maintenance and taxes for
the property.

ADVANTAGES OF PROPRIETORSHIPS
The fact that almost three out of four businesses are proprietorships indicates that
this form of organization has definite advantages. Can you list any of the advan-
tages before reading further?

OWNER IS BOSS There is a great deal of pride and satisfaction in being one’s own
boss and being responsible only to oneself. The proprietor can be inventive and
creative in working out ideas to make the business a success.

OWNER RECEIVES ALL PROFITS Very closely related to the first advantage is the fact
that all the profits belong to the sole proprietor. As a result, the owner is more
likely to work overtime and to think continually of how the business can oper-
ate more efficiently.

OWNER PERSONALLY KNOWS EMPLOYEES AND CUSTOMERS Because most proprietor-
ships are small, the proprietor and the employees know one another personally.
This relationship can lead to mutual understanding and a feeling of “family” as
employer and employees work side by side in daily business activities. Sole pro-
prietors often develop close relationships with their customers as well.

OWNER CAN ACT QUICKLY IN DECISION MAKING Sole proprietors
can make decisions without consulting others, so they can
business note act promptly when the need arises. If an unusual opportu-
nity to buy merchandise or equipment arises, or if the
owner wishes to change the location of the business or to
sell on credit terms rather than on a cash basis, there
are no dissenting partners to stop such action. Thus, the
Entrepreneurs are the lifeblood of the U.S.
management of a proprietorship is flexible and can adjust
economy. Many of the most successful busi-
rapidly to changing conditions.
nesses in the United States started in a home
garage, including: Ford, Apple Computer,
OWNER IS FREE FROM RED TAPE A sole proprietor can usually
Mattel, Hewlett Packard, and Disney.
begin or end business activities without legal formality.
The risk of business start-up failure is
Sole proprietorships can be organized without a lot of
very high. Not all business start-ups end
legal documents or government red tape. In some types of
up as failures. One study showed that
businesses, however, such as restaurants, it is necessary to
about 30 percent of start-ups show a profit, obtain a license before operations can begin.
about 30 percent break even, and 30 per-
cent lose money. Businesses close because
owners don’t make enough money, they PAY LESS INCOME TAX THAN A CORPORATION For most sole
want to move on to new things, or they proprietorships, the income tax is less than for the cor-
get tired. Real failures (loss of money) are poration type of business, which is explained in the next
most often due to lack of planning in busi- chapter.
ness goals, marketing, management, and
financing. Entrepreneurs can lower risk DISADVANTAGES OF PROPRIETORSHIPS
by researching and writing a strong busi-
ness plan. There are many advantages to owning your own business.
However, there are also some disadvantages facing the
sole proprietor.

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