Small business decisions making (Chapter 2) Flashcards
What is a sole trader business?
A sole trader (proprietor) business is a business owned and operated by one person who owns and runs the business.
Advantages include: low cost of entry, simplest form, complete control, less costly to operate, no partner disputes, owners right to keep all profits,
Disadvantages include: personal (unlimited) liability for business debts, end of business when owner dies, difficult to operate if sick, need to carry all losses, burden of management,
What are the different types of legal structures?
A number if different legal structures are possible when deciding how to own and operate a small business.
Unincorporated enterprise: (sole trader and partnership)
Incorporated enterprise: (privately or publicly owned companies and cooperatives)
trusts
What is a partnership business?
A partnership is also an unincorporated busines ownership structure, most partnerships requires a minimum of two and a maximum of 20 partners.
Advantages: low startup costs, less costly to operate than a company, shared responsibility and workload, pooled funds and talent, minimal government regulations
Disadvantages: personal unlimited liability, possibility of disputes, difficulty in finding a suitable partner, divided loyalty and authority,
What is an incorporation?
many small business’ begin as sole traders or partnerships and as their business grows their are advantages in changing the ownership of the business so then the business goes through a process to become a registered company and a separate legal entity.
What is a proprietary (private) company?
is an incorporated business with a minimum of two and a maximum of 50 private shareholders, this is the most common type of company structure in Australia.
Purchasing an established business
when an established business is purchased, he business is already operating and everything associated with the business is included in the purchase.
Advantages: sales to existing customers pf generate instant income, a good business history increases the likelihood of business success, a proven track record makes it easier to obtain finance, the seller may offer advice and training
Disadvantages: the existing images and policies of the business may be difficult to change especially if the business has a poor reputation, some employees may resent any change to the business operation,
Setting up a business - commencing from scratch
the most common reason for setting up a new business is the recognition of a gap in the market, where it is clear that existing providers are not catering fo the demand for particular products or services.
advantages: the owner has the freedom to set up the business exactly as he or she wishes, the owner can determine the lace of growth and change, there is no goodwill for which the owner has to pay
disadvantages: time is needed to develop a customer base (also employ staff and develop lines of credit from the suppliers), if the startup period is slow then the profits may not be generalised for some time
buying a franchise
A business that is based on the purchase of a franchise licence from a franchisor, which is an agreement allowing a person the rights to use the business name, logo, business systems and distribute the products or services of an existing business.
Advantages: a business plan and proven business methods already exist, volume buying is possible often resulting in cheaper stock, well planned advertising often exists, equipment and premises design are usually established and operated
Disadvantages: the franchisee must share any burden of the franchisors business mistakes, contracts may be biased in favour of franchisor, the franchisor often charges additional service fees for advice,
examples is boost juice
What are the different types of business locations?
. shopping centres
. retail shopping strips
. online presence
. home-based business
why is business location so important?
because Different types of business’ will be suited to different locations and the business owner must consider a number of factors when determining the most appropriate location for the particular business, local zoning determines where some business’ can operate. (zoning is a means by which local councils allocate land for different uses, such as residential, commercial, recreational and industrial) eg. clothing store wouldn’t be looking for the same location as a manufacturing business
what are factors affecting choice of business location?
. visibility . cost . proximity to customers and suppliers . proximity to competitors . complementary business'
what is legal and financial advice?
while small business owners are immersed in the day-to-day operations of their business’, solicitors, accountants and bank managers keep up to date with changes that occur in the business’ legal, economic and financial environment.
what support services are available?
. solicitors . accountants . bank managers . technological advice . community-based services . formal networks - private . formal networks - federal, state and local governments . informal networks
what is establishment cost?
include those costs involved in setting up the business (eg. legal fees, furniture, stock, computer hardware, fixtures, phone and electricity connection etc.)
what is operating costs?
include those costs involved in the ordinary day-to-day running of the business. (eg. wages, advertising, insurance, interest on loans, telephone and electricity bills, stationary, rent, accountant fees etc.)
