business ownership

• Small business classifications


  • Non-employing businesses (sole proprietorship and partnership without employees)
  • Micro-businesses ( employing between 1 and 4 people)
  • Other small businesses ( employing between 5 and 19 employees)
• Small business definition


  Small business in which the owner and manager is the same person and which employs fewer than 20 people
• Small business characteristics


  • They are independently owned and operated
  • They are closely controlled by the owner/manager who also contributes most, if not all, of the operating capital
  • The principal decision-making is made by the owner/manager
• Reasons for becoming a business owner


  • Profit motive
  • A desire for greater freedom/independence - to be your own boss
  • Identifying a market opportunity
  • Unemployment
• Personal qualities of successful business owners


  • Expertise
  • A detailed knowledge of their product or service and the market into which it is being sold
  • A range of other management issues including marketing, management, human resources, finance, the law and accounting
• Entrepreneurship


  The ability to recognise a business idea, accept the risk and transform it into an actual functioning and successful business
• Entrepreneurial qualities


  • Determination
  • Confidence
  • Cordiality and patience
  • Humility
• External support resources


  • Accountants
  • Lawyers
  • Bank managers
  • Sponsored assistance programs
• Components of a comprehensive business plan


  • A description of the business and the most appropriate business structure
  • A description of the product or service
  • A market analysis that would include marketing strategies
  • An analysis of the personal strengths and weaknesses of the owner
  • A detailed list of establish cost and the expected sources of finance
  • Projected sales figures and estimated running costs
• Types of business operations


  • Retail/trading
  • Service
  • Manufacturing
  • Mixed businesses
• Retail/trading


  Business purchase finished goods for the sole purpose of resale. Inventory is purchased from wholesalers/manufacturers at a cost price and then sold to consumers through a retail outlet at a markup selling price.
• Service


  Performs a service for the customer so in fact what is benign sold is the time, labour and expertise of the business. There is no physical exchange of goods.
• Manufacturing


  Business that actually produces the goods it sells using a production process to transform raw materials into a finished product.
• Mixed businesses


  A business will combine one or more types of operation.
• Liability types


  • Unlimited liabilities
  • Limited liabilities
• Unlimited liabilities


  The legal status of sole proprietorship and partnership is that they are not recognised as separate legal entities, so the owner(s) is personally liable for the debts of the business.
• Limited liabilities


  The legal status of a company that exists as a separate legal entity, so the owners have no further responsibility for liabilities incurred by the business.
• Ownership structures


  • Sole proprietorship
  • Partnership
  • Proprietary company
  • Public company
• Sole proprietorship


  Is owned by a single individual, operating the business in their own right under their own name or a registered business name. Is not separate legal entity, so the owner would be taxed as an individual and would have to declare all income earned from the business in there own personal tax returns.
• Advantages of sole proprietorship


  • It is easy and cheap to set up a business
  • Registering the business through ASIC costs $36 for one year and $84 for three years
• Disadvantages of sole proprietorship


  • The owner has unlimited liability
  • All debts and liabilities incurred by the business is also extend to personal assets of the owner
  • The business has a limited life
  • There is limited access to capital, as all start-up capital must come from one person
• Partnership


  Is two or more persons in business together operating under their own name or registered business name with a view to making a profit. Partnership are generally made up of 2 or 20 legal persons. It is not separated legal entity. Require its own Tax File Number and partnership tax return must be submitted to the ATO each year. Partners would be taxed as individuals on the profit from the business that they received in their personal tax return and face personal income tax rate.
• Advantages of partnership


  • It is relatively cheap to set up
  • Register a business name through ASIC for three years costs only $84 and a partnership agreement would attach a solicitor's fee
  • Tax advantages can exist where the partners are married
• Disadvantages of partnership


  • Control over decision making is shared among the partners
  • The owners have unlimited liabilities
  • Partnership has limited life
  • Profits are shared among the partners
• Proprietary company


  A business that exists as a separate legal entity that is entitled to do business in it own right. A solicitor normally prepare the necessary document required for incorporation. It can be owned and operated by one person being both shareholders and director. It can have no more than 50 non- employee shareholders. It has it own separate legal entity.
• Advantages of proprietary company


  • Limited liability
  • There is a greater ability to attract capital to the business as there is limited liability
  • The life of the business is ongoing due to it being a separate legal entity
• Disadvantages of proprietary company


  • Establishment cost are high
  • Register a proprietary company can cost anywhere from $462 to about $1000
  • There are higher compliance costs as a result of the need to comply with tax laws
  • It is regulated by the ASIC as well as the ATO and a separate tax return is required by both these bodies each year
• Public company


  A large business structure that is also incorporated. It has it own legal existence. It can publicly raise funds by advertising and selling shares through the Australian Securities Exchange ASX. Has to make its financial reports public. There is non limit on the number of shareholders a public company can have. It must have a minimum number of officeholders consisting of three directors and at least one secretary.
• Advantages of public company


  • Limited liability means the owners have no further responsibility for any liabilities incurred by the business
  • Directors have no personal responsibility for any debts unless they caused the debt
  • There is a greater ability to attract capital to the business
  • Greater transferability of ownership as shares are easily traded on the ASX
  • The life of the business is ongoing due to it being a separate legal entity
• Disadvantages of public company


  • Establishment costs and ongoing administration and compliance cost are high
  • There is a greater separation between ownership and control
  • There are higher compliance cost as a result of the need to comply with tax law
  • It is regulated by ASIC as well as the ATO and a separate tax return is required by both these bodies each year
  • There are greater disclosure requirement such as annual general meetings providing all shareholders with financial reports
• Advantages of starting a new business


  • Almost total freedom in determining how the business pirates
  • Freedom to set customer expectations
  • No need to pay for goodwill
• Disadvantages of starting a new business


  • No track record
  • No customers bases
  • Larger start up capital required that will essentially have to be provided by the owner
  • More difficult to obtain finance
• Advantages of buying an existing business


  • A proven track record can increase the chance of success
  • All assets, practices, suppliers and customers are already established
  • An immediate income stream is available
  • Previous owners can current employees can assist in the change of ownership as they can provide helpful advice
• Disadvantages of buying an existing business


  • Previous success may have been dependent on the skills of the previous owner and their relationship with customers
  • Difficult to change existing procedures, staff and customer expectation
  • Must pay for goodwill
  • Existing assets may require major renovation, repair or even replacement
• Franchise


  An arrangement under which one party grants to another party certain rights, including the use of the franchise name and business practices. Being a franchise offers the support and advice of large financial corporations that has vested interest in ensuring the success of the franchisee. The business owner purchases the right to use the name and business system of a larger business in return for a certain fee.
• Advantages of buying a franchise


  • Recognised brand name/ national advertising
  • Established reputation and business practice
  • All equipment necessary to commence operations
  • Bulk buying power through the franchise group
• Disadvantages of buying a franchise


  • High purchase price, ranging from $15000 to upward of a million dollars
  • Ongoing franchise fees
  • Rigid guidelines for operations
  • Competition from fellow franchisees
  • Dependence on the operation of the franchisor
• Factors contributing to successful small businesses


  • High demand for their product or service
  • A location that is visible and easily accessible for customers
  • A through business plan that details all aspects of the firm's operations
  • Sufficient starting capital that can support the business and the owner until it is functioning in a profitable manner
  • A strong knowledge of the goods or service that they are selling
  • Business acumen
  • Humility
  • Friendly and fair
  • Resilience
• Factors contributing to 80% of small businesses failing


  • Competition from other small and large businesses
  • Poor locations
  • Insufficient start-up capital to support the business or the owners until sales are established
• Ethical considerations when commencing a business


  • Treatment of employees
  • Products sold
  • Type of service
  • Impact on society and the environment
  • Methods of accounting and financial reporting