Page 31 - Business Principles and Management

Unit 1

FIGURE 1-3 You can find all types of businesses represented by franchises.

Franchises from A to Z
Agway Nathan’s Famous, Inc.
Budget Rent-A-Car Orange Julius of America
Century 21 Pizza Hut
Denny’s Quik Print, Inc.
Eureka Specialty Wood Products Roy Rogers
Fairfield Inn by Marriott Sbarro, Inc.
Goodyear Tire Centres TCBY Systems
Howard Johnson Uniclean Systems
International Dairy Queen Virtual Window Fashion Store
Jiffy Lube Wendy’s Old Fashioned
Hamburgers
Kwik Copy
Lawn Doctor, Inc. Yogi Bear’s Jellystone Park
Midas International Corp. Ziebert Tidycar

In spite of the possible dangers, the number of franchises has grown steadily.
Although they make up fewer than 5 percent of all businesses, there are more than
500,000 franchise businesses in the United States. Figure 1-3 lists the variety of
businesses operating under franchise agreements. Franchising is especially popular
in the retail and service industries. Franchise businesses account for over 35 per-
cent of all retail and service revenues each year.

RISKS OF OWNERSHIP
The success of a business depends greatly on managerial effectiveness. If a busi-
ness is well managed, it will likely earn an adequate income from which it can
pay all expenses and earn a profit. If it does not earn a profit, it cannot continue
for long. An entrepreneur assumes the risk of success or failure.
Risk—the possibility of failure—is one of the characteristics of business that
all entrepreneurs must face. Risk involves competition from other businesses,
changes in prices, changes in style, competition from new products, and changes
that arise from economic conditions. Whenever risks are high, the risk of business
failure is also high.
Businesses close for a number of reasons. One out of every four to five busi-
nesses fails within three years, and about half cease operations within six to seven
years. However, those figures include firms that voluntarily go out of business, such
as by selling to someone else or by changing the type of ownership. The results of
one study indicated that only 18 percent of all small firms failed within eight years
of opening, whereas 28 percent closed voluntarily. The reported causes of business
failure are shown in Figure 1-4. Most often, economic and financial factors cause
businesses to fail.

OBLIGATIONS OF OWNERSHIP

Anyone who starts a business has a responsibility to the entire community in
which the business operates. Customers, employees, suppliers, and even competi-
tors are affected by a single business. Therefore, a business that fails creates an
economic loss that is shared by others in society. For example, an unsuccessful

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