Sole Proprietorships and Partnerships

Characteristics of Entrepreneurs

□Entrepreneur – person who assumes the risk of starting, owning, and operating a business for the purpose of making a profit

□Half of all businesses end within the first five or six years

□Self-starters, enjoy working on their own□Obtain work experience in the field

before starting businesses of their own

Preparing a Business Plan

□Should be done before starting a business□Business plan

□Written document that describes the nature of the business, the company’s goals and objectives, and how they will be achieved

□Helps lay out the risks and responsibilities involved in starting a business; helps decide if you should really go into business

Reasons for Failure

□Did not prepare a business plan□Unrealistic plan□Plan is just prepared because the

bank required it*Plan needs to be realistic and well-

designed*

Elements of a Business Plan

□Nature of the business□Description of products and/or services,

estimated risk, size/location of business, background of entrepreneur(s)

□Goals and objectives□Results expected in the short term and in

terms of sales volume/profits

□Marketing plan□Customers and demand for the

product/service, prices, competitor comparison

Elements of a Business Plan (cont’d)

□Financial plan□Investment needed to start/maintain business,

projected income/expenses/profit, cash start-up and cash flow needs

□Organizational plan□Legal form of ownership, legal factors

(licenses, leases, contracts), organization chart, job descriptions/skills needs by employees, physical facilities (buildings, equipment, tools)

□Click here to see a sample business plan

Sole Proprietorship

□ Business owned and managed by one person□ Over 16 million in the U.S.□ Proprietor – owner/manager

□ Responsible for providing expertise, money, and management

□ Receives all profits earned by the business□ Debts – creditors have first claim against the assets

□Creditors – those to whom money is owed

□ Click here to read an article about the basics of the sole proprietorship

□ Click here to read an article about the advantages and disadvantages of sole proprietorships

Partnership

□Business owned by two or more people□After it is formed, statement of financial

position (balance sheet) must be prepared□Includes total assets, liabilities, and capital of

the owners at the start of the business

□Key factor to its success – partners clearly agree upon each person’s responsibilities

Partnership (cont’d)

□Partnership – learn more by clicking here (often referred to as a general partnership)□Click here to read an article about the

advantages and disadvantages of partnerships

□Limited partnership – learn more by clicking here

Businesses Suited for Partnerships

□Sell more than one product or service□Each partner handles a specialized phase

of the business□Example – restaurant where one partner

focuses on food preparation while the other one is in charge of customer service

□Also common for businesses that form as sole proprietorships□Example – accountants, financial

consultants, lawyers

Business Name

□Can do business under the name or names of the owner or owners

□Many states prohibit using and Company or & Co., unless it identifies additional partners□“Company” must be identified by registration

at a public recording office (ex. county clerk’s office)

□Can do business under a trade name, but creditors must know all those responsible for the business

Reference

□Evarard, Kenneth E., Burrow, James L. (2001). Business Principles and Management. Mason, OH: South-Western.