Types of businesses - Advantages/disadvanges

Sole trader- when an individual operates and manages a business, which is a growing form of organisations. The person has full responsibility for the financial capital of their business. Does not have protection from limited liability! Can go bankrupt and still have to pay. Simple to establish and operate. Owner keeps of profits. Partnership- a business that is owned between 2-20 people. Some partners may choose to only invest but not contribute anything (expertise) else which are called sleeping partners. Partnerships end when death occurs, when a partner goes bankrupt or on agreed terminations. Do not have protection from limited liability. Partners may fall out due to terminations. However responsibility is shared and easy to raise capital. Private limited suitable for small-medium sized operations- may have a single director. Easy for capital to raise because they are protected from limited liability so investors raise capital easily. Could trade internationally. Cannot sell shares, however could convert. Easy to establish. Have to publish some financial information! Public limited- a large operation that needs at least a capital of 50,000 to start up. It has shares, makes capital from this whch are easily brought and sold. However they could easily be takenover if majoroity of the shares are brought. It has to publish some financial information! Easier to get loans because they have a good capital and popularity. Has limited liability! Sources of finance internal external Internal re-investing profits (re using the profited money in the business or to give to dividends ), working capital (reduce day to day needs and improve credit terms with suppliers), sale of assets (Sell assets they no longer need/surplus ) External- loan capital (borrow money from the bank on terms), share or equity capital (sell shares), government grants (government offers schemes to help out, e.g. business start up scheme) Sole trader- owners savings, banks, government grants and loans Evidence needed, could loose control, security for people who are lending Partnership- owners savings, banks, government grants and loans Problems introducing a new partner, lack of collateral (security for loan) Private-loans, government grants, owners savings, private share issues Getting the share holders on to agreeing, finding new shareholder, loss control of existing shareholder, collateral issue, loan risky. Public banks, factories, government grants and loans, shares

State of stock market and economy, financial performance, reputation, could loose control of shares are sold.

Business planning
Business planning- a detailed statement setting out the proposals of a business or explaining how to develop business. A summary of proposals key features, aims and objectives, market research, details of requirements (assets etc. ) info about manager, financial forecasting (estimated inflow outflow etc.) This gets updated regularly- new competitors, new assets etc. Vital. Could compare what was expected and what happened so they could take an action if anything goes wrong.

Financial planning
Statement of sources of finance= how the capital for the assets bought will be raised borrowed / working capital/ Forecasting cash flows- the money expected to go in and out of the business, useful to show potential borrowers or potential share holders. Banks and other investors- financial and business plans are extremely vital so having these documentations are needed to persuade lenders and investors. Good forecasted profit could increase sales of shares. Suppliers- financial plans could persuade suppliers to give goods on longer credit terms, also reassure to give large amounts or to help expand- so they are sure that they are going to be paid.

Business advice
Business advice from professional advisers, business links, trade associations etc. are given to new businesses. About financial advice, taxation information, fact sheets, management issues. etc

Resource management: To make sure everything is managed well.

Physical- space to work, keep equipment and deliver, e.g. physical assets (building, vehicle) try to keep capital spent on these as little as possible. Financial financial targets are extremely vital! Managing budgets such as cash flows etc. is also important. If outflows are too much then action should be taken. Human information on the staff, employers and suppliers. The number of workers needed to make efficient performance.

Information helps make decisions, has historical data, sales, employee details, budgets, expenditure, financial info, Customer details, suppliers. Benefits of resource management: Achieve allocative efficiency make sure the resources are available at the right amount at the right time. Prevents having to much- saves money Minimise waste Maximise capacity Reduces costs and outflows

Business software- having up to date information leads to having good databases forecasts budgets and spreadsheets. Databases- gather large amounts of information such as employee details, stock records, fixed asset schedules, customer records, supplier records etc. which could be used to make new decisions. Spreadsheets- store numerical information of the business in categories. Could provide reports on sales per day/week/total, sales per area, best selling/worse selling, trends etc. so they could improve sales. (E.g. if someone makes more sales in one area, promotion in other areas may be needed) Budgets- spreadsheets help monitor budgets, and calculating variances. A main use of spreadsheets are to create cash flows, could see if anything is going wrong, have model ideas shown to see impact, which also overcomes the risk issue. Could make a what if scenario immediately. Brining all these together could lead to a year ends account which is also another spreadsheet to see how the business done overall in total.

Costs and revenues

Profit is the main aim of every business: Profit- revenue-total cost Fixed costs- Fixed costs do not change, they stay the same when the business alters it level of input and output (on a short term- e.g. rent is a fixed cost but this may increase in the future) Variable costs- Variable costs directly link with output of the business. They include costs such as labour, fuel material etc. Semi variable costs- cots that have fixed and variable elements, such as phone bill- land line cost is compulsory but the money you pay changes depending on how often it is used.

Profits and breakeven

Breakeven is the point where the company is not making a loss or profit- when the revenue is equal to the costs. How to calculate breakeven: Total fixed costs / selling price- variable cost per unit = amount of units needed to reach breakeven.