Business Ownership: How Sweet It Can Be!Standard: 12.5.3

Grades: Grade Twelve

Students analyze the aggregate economic behavior of the U.S. economy.

Distinguish between short-term and long-term interest rates and explain their relative significance.

Standard: 12.4.4

Students analyze the elements of the U.S. labor market in a global setting.

Explain the effects of international mobility of capital and labor on the U.S. economy.

Standard: 12.4.1

Students analyze the elements of the U.S. labor market in a global setting.

Understand the operations of the labor market, including the circumstances surrounding the establishment of principal American labor unions, procedures that unions use to gain benefits for their members, the effects of unionization, the minimum wage, and unemployment insurance.

Standard: 12.1.4

Students understand common economic terms and concepts and economic reasoning.

Evaluate the role of private property as an incentive in conserving and improving scarce resources, including renewable and nonrenewable natural resources.

SOCIALIZE BRAINSTORM

In this lesson, you will research the three basic types of business organization: sole proprietorships, partnerships, and corporations. Considering the advantages and disadvantages of each, they function as consultants offering advice on which form of business is best suited for different business scenarios. The case studies all feature real- life entrepreneurs who started businesses producing chocolate candy

and cookies—they all result ultimately in “sweet” success stories. Once students have made their recommendations, they are provided the identities of their clients and asked to prepare reports that tell the rest of the story—what happened to each founder and business. Products featured in this lesson that almost every student will recognize are the Hershey chocolate bar, Mars M&Ms and Famous Amos chocolate cookies.

KEY CONCEPTS

Business, Entrepreneur, Entrepreneurship, Legal   Forms   of   Business , Risk

YOU WILL

Identify the advantages and disadvantages of sole proprietorships, partnerships and corporations.

Provide advice on choosing a form of business organization to people interested in starting a business.

INTRODUCTION

You have a small bag of M&Ms or Hershey’s kisses. The chocolate candy is a hint as to what you will be studying next.

You are going to be studying the “sweets” industry—more specifically, people and businesses that produce chocolate and chocolate-related products

PROCESS

Activity 1: Three Types of Business Organization

There are many different goods and services that a new business can offer, but there are only only a few ways to organize a business. The vast majority of businesses start out as sole proprietorships or partnerships. A third option is to set up a corporation. In the United States, about 70 percent of all businesses are sole proprietorships, 20 percent are corporations and the remaining 10 percent are

partnerships. Each type of business has distinctive characteristics.

A sole proprietorship a business that is owned and managed by one individual who receives all the profits and bears all losses.

Advantages of a Sole Proprietorship

Easy and inexpensive to form: A sole proprietorship is the simplest and least expensive business structure to establish. Costs are minimal, with legal costs limited to obtaining the necessary license or permits.

Complete control. Because you are the sole owner of the business, you have complete control over all decisions. You aren’t required to consult with anyone else when you need to make decisions or want to make changes. 

Easy tax preparation. Your business is not taxed separately, so it’s easy to fulfill the tax reporting requirements for a sole proprietorship. The tax rates are also the lowest of the business structures.

Disadvantages of a Proprietorship

Unlimited personal liability. Because there is no legal separation between you and your business, you can be held personally liable for the debts and obligations of the business. This risk extends to any liabilities incurred as a result of employee actions.

Hard to raise money. Sole proprietors often face challenges when trying to raise money. Because you can’t sell stock in the business, investors won't often invest. Banks are also hesitant to lend to a sole proprietorship because of a perceived lack of credibility when it comes to repayment if the business fails.

Heavy burden. The flipside of complete control is the burden and pressure it can impose. You alone are ultimately responsible for the successes and failures of your business.

A partnership a business that is owned and managed by two or more individuals who receive all profits and bear all losses. Types of Partnerships        

There are three general types of partnership arrangements:

General Partnerships assume that profits, liability and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.

Limited Partnerships (also known as a partnership with limited liability) are more complex than general partnerships. Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are attractive to investors of short-term projects.

Joint Ventures act as general partnership, but for only a limited period of time or for a single project. Partners in a joint venture can be recognized as an ongoing partnership if they continue the venture, but they must file as such.

Forming a Partnership                  

To form a partnership, you must register your business with your state, a process generally done through your Secretary of State’s office.

You’ll also need to establish your business name. For partnerships, your legal name is the name given in your partnership agreement or the last names of the partners. If you choose to operate under a name different than the officially registered name, you will most likely have to file a fictitious name (also known as an assumed name, trade name, or DBA name, short for "doing business as").

Once your business is registered, you must obtain business licenses and permits. Regulations vary by industry, state and locality.

If you are hiring employees, read more about federal and state regulations for employers.

Partnership Taxes                   

Most businesses will need to register with the IRS, register with state and local revenue agencies, and obtain a tax ID number or permit.

A partnership must file an “annual information return” to report the income, deductions, gains and losses from the business’s operations, but the business itself does not pay income tax. Instead, the business "passes through" any profits or losses to its partners. Partners include their respective share of the partnership's income or loss on their personal tax returns.

Partnership taxes generally include:

Annual Return of Income Employment Taxes Excise Taxes

Partners in the partnership are responsible for several additional taxes, including:

Income Tax Self-Employment Tax Estimated Tax

Filing information for partnerships:

Partnerships must furnish copies of their Schedule K-1 (Form 1065) to all partners by the date Form 1065 is required to be filed, including extensions.

Partners are not employees and should not be issued a Form W-2.

The IRS guide to Partnerships provides all relevant tax forms and additional information regarding their purpose and use.

Advantages of a Partnership

Easy and Inexpensive. Partnerships are generally an inexpensive and easily formed business structure. The majority of time spent starting a partnership often focuses on developing the partnership agreement.

Shared Financial Commitment. In a partnership, each partner is equally invested in the success of the business. Partnerships have the advantage of pooling resources to obtain capital. This could be beneficial in terms of securing credit, or by simply doubling your seed money.

Complementary Skills. A good partnership should reap the benefits of being able to utilize the strengths, resources and expertise of each partner.

Partnership Incentives for Employees. Partnerships have an employment advantage over other entities if they offer employees the opportunity to become a partner. Partnership incentives often attract highly motivated and qualified employees.

Disadvantages of a Partnership         

Joint and Individual Liability. Similar to sole proprietorships, partnerships retain full, shared liability among the owners. Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.

Disagreements Among Partners. With multiple partners, there are bound to be disagreements Partners should consult each other on all decisions, make compromises, and resolve disputes as amicably as possible.

Shared Profits. Because partnerships are jointly owned, each partner must share the successes and profits of their business with the other partners. An unequal contribution of time, effort, or resources can cause discord among partners.

A corporation is a business that is owned by stockholders and that has legal rights and responsibilities as if it were a person. Advantages of a Corporation

Limited Liability. When it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected. Shareholders can generally only be held accountable for their investment in stock of the company.

Ability to Generate Capital. Corporations have an advantage when it comes to raising capital for their business - the ability to raise funds through the sale of stock.

Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.

Attractive to Potential Employees. Corporations are generally able to attract and hire high-quality and motivated employees because they offer competitive benefits and the potential for partial ownership through stock options.

Disadvantages of a Corporation

Time and Money. Corporations are costly and time-consuming ventures to start and operate. Incorporating requires start-up, operating and tax costs that most other structures do not require.

Double Taxing. In some cases, corporations are taxed twice - first, when the company makes a profit, and again when dividends are paid to shareholders.

Additional Paperwork. Because corporations are highly regulated by federal, state, and in some cases local agencies, there are increased paperwork and recordkeeping burdens associated with this entity.

An entrepreneur is a person who starts up a new business, taking on risk and hoping to make a profit.

PROCESS

Activity 1: Three Types of Business Organization

Additional information is provided below on several issues.

Liability:

You may not be familiar with the term “liability.” To help them grasp its importance, discuss specific

circumstances in which liability could be an issue for sole proprietorships and partnerships. The most common situation is debts owed when a business experiences financial difficulties or fails. If a business is not fully insured, there is also the possibility of loss due to disaster (e.g., fire, flood) or lawsuits. Unlimited liability means that the owner’s personal assets can be used to pay for any debts of the business.

Finance Options:

Corporations have more options when they need to obtain additional financing. For sole proprietorships and partnerships, the only source of money is often personal assets. On rare occasions, they may be able to borrow money from family members, friends or a bank. Corporations have the option to issue more stock. Also corporations typically find it easier to borrow money – through loans from the financial markets (commercial banks, credit unions, insurance companies). And corporations can issue corporate bonds.

Tax Implications:

Tax law permits corporations to deduct the full cost of employee benefits, such as medical insurance, thus reducing corporate tax liabilities. But sole proprietorships and partnerships are not permitted to deduct these costs directly from their business income (the costs may be partially deductible as an adjustment to income). For some business owners, this is a major disadvantage of the sole proprietorship and partnership forms of ownership.

Sole proprietors and partners pay individual income tax on their companies’ earnings. In contrast, a corporation is taxed as a separate entity that pays tax on its income. The stockholders also pay personal income tax on any dividends they receive. The effect is referred to as “double taxation” and in this case, it is the corporate owners that have a tax disadvantage.

Life of the Business:

There are probably examples of sole proprietorships and partnerships in your community that dissolved when a key person became ill or died – a medical practice, a law firm, a neighborhood store, or a mechanic’s shop. News reports occasionally tell of acrimonious splits among business partners (and even families) who are unable to agree on the management or sale of these forms of business.

REQUIRED ACTIVITY (YOU MUST COMPLETE)

Sweet Success

You will do this part as a sole proprietor, partner, or corporation, your choice.

Client 1: Elise MacMillan and her brother Evan co-founded The Chocolate Farm in Englewood, Colorado, in the late 1990s.

Siblings taste success, and how sweet it is Young brother and sister team share in a chocolate business

By Ross Atkin Staff writer of The Christian Science Monitor / February 7, 2001

Like many youngsters, Elise Macmillan loves playing around in the kitchen. In her case, though, these culinary experiments haven't led to just messy pots and pans, but to profits.

Elise, 12, is co-founder with her brother, Evan, 15, of the Chocolate Farm, a successful gourmet business in Denver that sells her chocolate creations to a growing clientele.

The business has outgrown the family kitchen and now operates out of the Denver Enterprise Center, a small-business incubator, where the siblings share a commercial kitchen with other companies. The R&D work, however, is still handled by Elise in the Macmillan home, about a 20-minute drive away.

"At the Enterprise Center, where you pay by the hour to use the kitchen, we concentrate on making our products," says Elise during an early-morning phone conversation, conducted before leaving for middle school. "At home, when I have as much time as I want, I can experiment with things. I get ideas from friends and family, and then I change them a little bit."

Elise's kitchen adventures began at age 3, when her Canadian grandmother showed her how to make Rice Krispie Treats. Thereafter, says her mother, Kathleen Macmillan, Elise was forever creating confections from chocolate chips.

"I'd open the refrigerator and find chocolate melted on celery with peanut butter and all kinds of funny things," Mrs. Macmillan says.

These sessions, including an occasional microwave explosion, didn't go unnoticed by Evan, who several years ago was selected to serve on the advisory board of the Young Americans Bank, which is for those 21 and under.

The bank promotes financial education and entrepreneurship and holds an annual Holiday Marketplace, so Evan encouraged Elise to participate. She concocted something called a Pig in Mud, which is a marshmallow dipped in melted caramel and pecans, then dipped in chocolate. She also sold molded chocolate cows on a stick and "Farm Eggs," jelly beans dipped in chocolate.

The themed-base candies, inspired by the farming backgrounds of Evan and Elise's grandmothers, were a hit and sold out quickly.

After that the Macmillans' Chocolate Farm began filling orders from family and friends, but its reputation for fun, well-made products was soon to reach a wider audience, helped by a presence on the Internet and selection for the Ernst and Young Entrepreneur of the Year Award winner in 1999.

Elise has a knack for product development and packaging, and Evan is the "business guy" and computer master.

He knew the Internet's potential from designing a website about author John Steinbeck for a school project. E-mails poured in, making it one of the most visited Steinbeck sites on the web. "It was amazing," says Evan. "I've taken down the site because it was taking a lot of time to answer all the questions people sent it."

For the Chocolate Farm, he's developed an inviting website (www.chocolatefarm.com) that reflects a grasp of e-commerce.

Mrs. Macmillan and her husband stay in the background. They support the business while making sure Evan and Elise run it as much as possible. "It's their business, and we want them to learn," she says. "But like any parents, we want to prevent huge mistakes, the pain of which will be more than the lesson."

David Gonzales, director of the Denver Enterprise Center, says young people have more entrepreneurial potential than many realize, but the key to its proper development is parents.

Speaking of the role Elise and Evan's mother plays, Dr. Gonzales says, "She's kept everything in perspective for them. These kids don't have a big head about the business, which could tend to happen. They've had a lot of publicity, but the kids are really grounded."

Gonzales says he was impressed with their demeanor and the way they carried themselves from the moment they applied for space in the Enterprise Center. The Chocolate Farm is viewed as a pilot project that could lead to a youth-business incubator.

The center provides a sense of community to budding entrepreneurs, and the Macmillan children have fit right in. "The other people in the kitchen really like them," says Gonzales, who adds they have a good relationship with low-income people from the neighborhood hired by the Chocolate Farm and other companies. The Chocolate Farm generates more orders than the Macmillans can handle alone, so about a dozen part-time workers help, in addition to friends, who also get paid.

Gonzales says that having the Chocolate Farm in the center, where tenants generally stay three years, has been an inspiration to other entrepreneurs. He notes: "People are watching and saying, 'My gosh, look at how they're doing all this stuff. We better get with it.'"

Elise is the one who usually has her friends come and work in the kitchen. Evan concentrates on office tasks. He orders chocolate by the ton, writes checks for rent and work performed, and keeps tabs on what's selling, amongst other duties.

Their most popular item is a sampler called the Chocolate Farm Classic, which sells for $20 (including shipping). It comes with two chocolate cows on a stick, two Pigs in Mud, eight Chocolate Paws (with pecans and caramel), six Chocolate Clouds (dipped marshmallows), and Lemon Sheep Munch (a white chocolate and lemon chips mixture shaped like a sheep).

Business picks up around Christmas and Valentine's Day, and filling orders could be overwhelming, with thousands visiting the company website daily, except the family works together to keep the business from burdening the children.

"There's a lot of teamwork," says Elise. "We get together in little meetings and discuss everything."

The children know schoolwork takes priority over business. And while they think of the business often, they stay busy with other pursuits, too. Evan, a freshman at Cherry Creek High School, is on the school tennis team and plays year round, and Elise, a seventh-grader, plays the violin, takes jazz dance classes, and is on her school's track team.

Elise doesn't keep tabs on how much time she devotes to the business, but mostly goes in on weekends, sometimes spending five or six hours.

The family insists on quality in every aspect of the business, says Gonzales, who points to the work they've done to attractively decorate a 2,500 square-foot office space in the Enterprise Center and to the Chocolate Farm's newly published cookbook, a visual delight.

When the new office opens, the plan is to invite school classes in for field trips so that they can learn about starting a business, and maybe try their hand at making a chocolate cow or two.

A business can be a wonderful family activity, Gonzales says, because "it gives you an opportunity to focus on something that involves the whole family, which is great. There are very few activities that do that."

Client 2: Milton Hershey broke ground for his chocolate factory near Lancaster, PA in 1903. It was the beginning of what would become Hershey Foods Corporation .

Incredible and inspiring, the story of Hershey's begins with the tale of one determined pioneer: Milton S. Hershey. Raised in rural central Pennsylvania, Milton Hershey would not only become known for the delicious milk chocolate bar that bears his name, but for his philanthropy and open-hearted generosity which still touches the lives of thousands.

The captivating story of Hershey's spans nearly a century and a half of industrial and social change. It was in the year 1894 that candy manufacturer Milton Hershey made the decision to try adding chocolate coating to his caramels. Calling this new enterprise the Hershey Chocolate Company, he located it near the area he had been born, amid the rolling farmland of Derry Township, PA. By the summer of 1905, with the milk from nearby dairy farms and the spirit of hard-working local people, his new factory started turning out delicious milk chocolate.

For the farm boy who never had much of a chance at education, providing that opportunity for others was always an important priority. As early as 1909, Hershey and his wife Catherine established the Hershey Industrial School, a school for orphan boys we know today as the Milton Hershey School. In 1918 and with no fanfare, Hershey transferred the bulk of his considerable wealth, including ownership in the Hershey Chocolate Company, to the Hershey Industrial School.

Client 3: Forest Mars invited Bruce Murrie, an investment banker and son of the Hershey company president, to be his partner in M&M Ltd. The M&Ms we still eat today were first sold to the public in 1941. The letters in "M&M" stand for Mars & Murrie. Eventually, Murrie left the business but Forest Mars became the owner of Mars, Inc.

Forrest Mars invented the recipe for M&Ms chocolate during the Spanish Civil War. Mars saw soldiers eating pieces of chocolate covered with a hard sugary coating. The coating preventing the candy from melting in the hot sun. Forrest Mars received a patent for his manufacturing process on March 3, 1941.

M&Ms chocolate were first sold to the public in 1941, packaged in cardboard tubes. In 1948, the packaging changed from a tube to the brown plastic pouch known today. The letter "m" is printed on each candy with vegetable dye.

In 1954, "M&Ms Peanut Chocolate Candies were introduced. That same year, the M&Ms Brand characters and the famous slogan "The milk chocolate melts in your mouth, not in your hand" were both trademarked.

Client 4: Wally Amos launched the Famous Amos Cookie Company in a Hollywood, CA storefront on Sunset Boulevard in 1975.

In 1975, inspired by a passed-down family recipe, Wally Amos perfected the ultimate chocolate chip cookie. By using only the best ingredients, like semi-sweet chocolate chips and flavorful nuts, these homemade-tasting cookies became famous just by word of mouth. Today, Famous Amos® cookies continue to be enjoyed by true cookie lovers everywhere.

REQUIRED ACTIVITY (YOU MUST COMPLETE)

You will read about one of these persons and the business he or she created, then write your findings about what happened to the entrepreneur and the business. Be sure to include answers to the following questions.

1. What has happened to the founder of the business?

2. Is he or she still involved with the company?3. What other things has he /she done?4. Who owns the business?5. How has the business changed?6. Has the company been involved in any mergers or acquisitions?7. What products does the company sell?

Private vs. Public Corporations

A look at Mars, Inc. offers an excellent opportunity to discuss public vs. private corporations. In the 1960s, Forrest Mars, Sr. purchased his stepsister’s interests in Mars, Inc. Owning 80 percent of the company, Forrest then had little problem convincing the rest of the board members to sell their shares to him. Since his death in 1999, his three children have owned and managed the company: Forrest Mars Jr. (President), John Mars (CEO), and Jacqueline Badger Mars (Vice President). As a privately-held (closed) company, Mars, Inc. is not required to report information about its business to the public.

In contrast, public (open) corporations are required by federal law to disclose information about their finances and operations to anyone interested in reading about them. The purpose of this legislation is to give people information about companies in which they might invest. The Securities and Exchange Commission (SEC) is the federal agency that monitors whether public corporations are abiding by the law—providing prospectuses and regular financial reports.

What are the advantages of a privately-held company?

Are there any disadvantages?

Privately-held companies are very much a tradition within the candy industry—unusual in today’s business world. Most of these companies can trace their roots back several generations to an immigrant with a recipe and an affinity for sweets.

Risk Management through Diversification

Your research findings also provide an opportunity to discuss how companies try to reduce risk through product diversification. Both Hershey Foods and Mars have purchased manufacturers of other chocolate candy bar brands and non-chocolate candies. Hershey Foods also used to sell cocoa mulch, a byproduct of the chocolate making process, to gardeners, but no longer does. Mars has a long history in the pet food and care business that can be traced back to the first company Forrest Mars, Sr. established in Europe. During the period Forrest partnered with Bruce Murrie, Uncle Ben’s Rice was introduced. Other Mars ventures include hot and cold drink vending machines and electronic automated payment systems.

Ownership of Famous Amos Cookies changed hands several times between 1985 and 1998, eventually being purchased by Keebler Foods Company . Keebler was acquired by Kellogg Company in 2001, helping expand what is viewed as a cereal company into the snack foods market as well.

REQUIRED ACTIVITY (YOU MUST COMPLETE)

What do you view as the top three factors to consider when choosing the form for a new business. Take account of what you have learned as you write about these factors. Were there any other important factors that you think are missing from the list?

The resources needed to start and expand the business Your level of expertise starting and managing a business

Your willingness to share decisions and profits The level of liability you and any potential partners are willing to accept The tax implications of your choices Your willingness to re-invest earnings into the business How long you see yourself and any partners involved in the venture Whether this venture is something you want to live on after you and any partners are gone.

REQUIRED ACTIVITY (YOU MUST COMPLETE)

1. Collect packaging from candy and other sweets sold in vending machines and near the checkout counters of grocery stores. Identify the major manufacturers and their products. You will probably be surprised that despite the many different brands, most candy is produced by a few large corporations. Mars and Hershey Foods together control about three quarters of the candy rack.

2. Identify examples of sole proprietorships, partnerships and corporations in your local community or state. Interview the managers of the businesses chosen, if possible, to find out why the form of ownership was chosen and how it affects their work. Most large corporations can also be researched on the Internet.

Activity 2: Sweet Opportunities

Students can choose whether to be a sole proprietor, partner, or corporation as you prepare your oral/written recommendations. If time is limited, you may want to assign each group just one or two clients. After you finish reading the client stories, prepare oral/written recommendations as to which business organization you believe to be best.

Make sure you provide reasons for your recommendations as well as list at least one negative with suggestions on how to minimize that negative effect.

REQUIRED Quiz

1. What accounts for the differences in your recommendations?

2. What are the negatives you identified and what are your solutions for dealing with them?

3. Why do you think most new businesses are sole proprietorships and partnerships?

4. What do you see as the biggest disadvantages of sole proprietorships and partnerships in the long term?

5. What are the advantages of setting up a limited versus general partnership?

6. Are there any disadvantages?

7. Under what circumstances might a business operating as a sole proprietorship or partnership decide to incorporate?

Make an oral/written recommendation as to what form of business organization you think is best for each client. State the reasons for your position. There will also be some disadvantages to the business form you choose. Identify at least one negative and suggest how you might minimize it.

Client 1: When I was three years old, I started making candy with my grandmother. I am now 10 and I want to

sell chocolate candy with a farm theme to my friends and family. My product ideas include Brown Cows(chocolate cows on a stick), Pigs in Mud (marshmallow dipped in caramel, nuts and chocolate) and Farm Eggs(jelly beans dipped in chocolate). The start-up expenses for my business are pretty small: a few candy molds,candy and chocolate.) My parents have agreed to loan me the money I will need and to let me work in thefamily kitchen. Schoolwork has to take priority over business so if I have more sales than I can handle, I willprobably ask friends or my older brother to help. My brother is also pretty good at math and computers so hecould help me with keeping track of my expenses and advertising. I really like the product development andpackaging part of the business.

Client 2: After apprenticing for another candy maker, I started my first candy business at age 18.Unfortunately, my first attempt at starting a business (as well as my second) was a failure. After a rocky start,my third try was more successful – I have just received a fortune from the sale of my caramel business. Duringmy world travels, I discovered and decided to buy new equipment that makes chocolate. Today, only thewealthy can afford chocolate. With this new technology, I think I can make a chocolate that everyone canafford. In my mid-thirties, I know very little about making chocolate but I am willing to take the time to learn. Iwant my life to center on inventing new candies, building this new business, and laying out a new communitythat will be a wonderful place for the people I hire to live. I prefer to leave day-to-day operations of thecompany—handling production, sales, marketing and distribution—to someone else.

Client 3: I have substantial experience working in the candy industry. I helped my father introduce a verypopular chocolate bar in the U.S. and have worked in the factories of two of the best chocolate makers in theworld. Today, I am a thirty-plus year-old businessperson operating a company I started selling candy and petfoods across Europe. While traveling in Spain recently, I saw a candy-coated chocolate that I think will sellwell in the U.S. I would like to create a new American business producing this candy. I have at least 80percent of the money for getting started but I am concerned about getting the chocolate used in production.There is a war going on and it may be difficult to get this important ingredient without taking on a partner whohas a connection to a chocolate maker. I like the challenge of building businesses and finding ways to makethem operate more efficiently. I also prefer making decisions on my own.

Client 4: I am in my late thirties. I have worked myself up from handling mail to being an agent for a well knownentertainment agency. I now represent several famous musicians. People say I am an enthusiasticand tireless promoter. To help my clients get jobs, I use bite-sized chocolate chip cookies as a calling card.

My aunt taught me how to bake cookies when I lived with her as a teenager. Before I dropped out of highschool and joined the air force, I was getting vocational training in the food trades but I have never run my ownbusiness. Some of my friends in the entertainment industry have encouraged me to open a store that wouldsell my cookies. They have offered to help finance my venture in exchange for partial ownership. My cookieswould look and taste very different from the cookies sold in the grocery stores today.

REQUIRED ACTIVITY (YOU MUST COMPLETE, GRADED AS A TEST)

Starting any business is risky. There is no guarantee a business will be profitable. When there is more than one owner, there is also the chance that there will be disagreements on how to operate the business.

You can choose whether to be a sole proprietor, partner, or corporation as you prepare to present your new “sweets” business. Make sure you provide reasons for your choices as well as listing at least one negative with suggestions on how to minimize that negative effect. You will include a drawn picture ad promoting your business to show when you are presenting your business to the class as well as a jingle describing it, i.e.: “melts in your mouth, not in your hand.” You will include a start-up cost proposal that will include costs of equipment, insurance, rent, supplies, etc.

Name _______________________________ Date _____________ Period ______ Score _______Economics – Colvin

How Sweet It Is!

Use this form to calculate your start-up costs; I have included the obvious, it’s up to you to personalize.

Name of Item Cost Running Total

Rent/Mortgage $1,000.00 $1,000.00

Security Deposit for rental 3,000.00 4,000.00

Insurance 300.00 5,300.00

Glossary Terms:Business Ownership: How Sweet It Can Be!

BankA financial institution that provides various products and services to its customers, including checking and savings accounts, loans and currency exchange.BorrowTo receive and use something belonging to somebody else, with the intention of returning or repaying it--often with interest in the case of borrowed money.BusinessAny activity or organization that produces or exchanges goods or services for a profit.CapitalResources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools and equipment. In the context of credit transactions, capital is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective borrower is likely to be as determined by the borrower's current financial assets and net worth.ConsumptionSpending by households on goods and services. The process of buying and using goods and services.CorporationA legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. CostsAn amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something.Credit

The opportunity to borrow money or to receive goods or services in return for a promise to pay later.DebtMoney owed to someone else. Also the state or condition of owing money. Can be individual, corporate or government debt.DecisionA conclusion reached after considering alternatives and their results.DeductibleRegarding insurance policies: A set amount an insured person must pay per loss before the insurance company will pay a claim.DemandThe quantity of a good or service that buyers are willing and able to buy at all possible prices during a period of time.DiversifyTo invest in a variety of stocks, bonds, money market accounts, etc., in order to spread risk. EntrepreneurOne who draws upon his or her skills and initiative to launch a new business venture with the aim of making a profit. Often a risk-taker, inclined to see opportunity when others do not.ExchangeTrading a good or service for another good or service, or for money.ExpensesPayments for goods and services.GoodsTangible objects that satisfy economic wants.IncentiveAny reward or benefit, such as money, advantage or good feeling, that motivates people to do something.IncomePayments earned by households for selling or renting their productive resources. May include salaries, wages, interest and dividends.Income TaxPayments made by individuals and corporations to the federal government (and to some state and local governments) based on income received (both earned and unearned).InsuranceA practice or arrangement whereby a company provides a guarantee of compensation for specified forms of loss, damage, injury or death. People obtain such guarantees by buying insurance policies, for which they pay premiums. The process allows for the spreading out of risk over a pool of insurance policyholders, with the expectation that only a few policyholders will actually experience losses for which claims must be made. Types of insurance include automobile, health, renter's, homeowner's, disability and life.InvestmentThe purchase of capital goods (including machinery, technology or new buildings) that are used to produce goods and services. In personal finance, the amount of money invested in stocks, bonds, mutual funds and other investment instruments.JobA piece of work usually done on order at an agreed-upon rate. Also a paid position of regular employment.LiabilityLegal responsibility to pay for damages or losses one has caused.

MarketsPlaces, institutions or technological arrangements where or by means of which goods or services are exchanged. Also, the set of all sale and purchase transactions that affect the price of some good or service.

Money

Anything that is generally accepted as final payment for goods and services; serves as a medium of exchange, a store of value and a standard of value. Characteristics of money are portability, stability in value, uniformity, durability and acceptance.PartnershipA business with two or more owners who share the firm's profits and losses.ProductA good or service that can be used to satisfy a want.ProductionA process of manufacturing, growing, designing, or otherwise using productive resources to create goods or services used to satisfy a want.ProfitIncome received for entrepreneurial skills and risk taking, calculated by subtracting all of a firm's explicit and implicit costs from its total revenues.ResourcesThe basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.RiskThe chance of losing money.SaleAn exchange of goods or services for money.ServicesActivities performed by people, firms or government agencies to satisfy economic wants.Sole ProprietorshipA business owned by one person who receives all the profits and is responsible for all the debts incurred by the business.StockAn ownership share or shares of ownership in a corporation.SupplyThe amount of a good or service that producers are willing and able to offer for sale at each possible price during a given period of time.WantsDesires that can be satisfied by consuming or using a good or service. Economists do not differentiate between wants and needs.WorkEffort applied to achieve a purpose or result, often for pay; skills and knowledge put to use to get something done; employment at a job or in a position; occupation, profession, business, trade, craft, etc.