Restaurant Business as One of the Most Rewarding Type of Small Businesses - Essay Example

Experience of Small Business Restaurant Description of the activities of the business Restaurant business is one of the most rewarding type of small businesses. Personally, I have witnessed one of my uncles advance so much economically because of owning one of them. His restaurant is a fast food restaurant located in the middle of one of the busy streets in Saudi Arabia. The main types of food served at the restaurant are chicken, chicken burgers, fries, burgers, pizza, sandwiches, junk food among other fast meals. Fresh fruit juices are also served at the restaurant. The restaurant offers quick dining for those who have time to sit and eat but for those who have no such time, quality food packaging services are offered. The legal ownership structure of the business The legal ownership structure for the restaurant in question is sole proprietorship. The business is classified under sole proprietorship type of business because only one person legally owns the business, and he and the business are treated as one entry. He did not partner with anyone in or outside the family in the setting up of the business or running it. Instead, he is the overall manager of the business, overseeing operations, and employees like chefs, customers attendants and cashiers. At the end of every month, all the profits or losses are upon him alone and he carries liability for any debts incurred. Alternative possible structures An alternative for sole proprietorship is General Partnership. In this type of business ownership structure, two or more people mutually agree to pull together their financial resources and set up a business. In this case, all of them are legal owners of the business and share profits accrued or losses incurred equally. All of them partake in the management of the business. Just as in sole proprietorship, the business owners have unlimited liability hence they are equally and personally liable for debts incurred by the business (Dossett, 2011). Limited Partnership is another alternative form of ownership structure that could be applied to a small business. This structure is composed of limited partners and general partners. The general partners partake in the management of the business and fully share in its profits and losses. The limited partners on the other hand do not partake in the management of the business but share in its profits. However, their losses are determined by the extent of their investment (Reed, 2010). Peacock (2004) states that as for a Limited Liability Company, no partner is personally liable for any debts incurred by the business. Before commencing with business, all partners make a written agreement detailing the organization of the business, alienability of interests, provisions of management, and distribution of profits and losses. Sole proprietorship as the most appropriate structures Sole proprietorship is the most appropriate type of business ownership structure, especially for a small business. It is best fitted for hardworking individuals and those who can learn to sacrifice for a better tomorrow. This is because the owner can decide to plough back a large portion of the profits accrued over a period just to ensure that the business expands within a short period. As for partnerships, not all partners could be ready to make this sacrifice. It is easy to make decisions in sole proprietorship since opinions are sought before undertaking anything. Such structure protects a business from the weaknesses that are found in some form of partnerships like family businesses where decisions are emotionally driven instead of being driven by logic. The owner is not obliged to hire any family members but qualified persons for the business. Out of the hard work of the month, there is no one to take away any portion of the profit from the owner. Reed (2010) points out that such businesses are not subject to government taxes. Personal reasons for operating the business The fast food restaurant was opened because the owner wanted to maximize the potentials of the busy streets in the town. Due to its strategic location, the business serves people who are busy in town and do not have enough time to sit and take a heavy meal. He had realized that other fast food restaurants in the street were located at its extreme ends and as a result, the purchase of snacks from supermarkets was high around the middle of the street. He therefore decided to tap the market of people who wanted variety and something hot compared to what can be found in the supermarket. Above all these reasons, his coffee business was not so profitable hence he took this as the best related alternative. Motivations for owning the restaurant verses the objective of wealth maximisation As state above, the main reason for owning the restaurant business was to cater for a pool of customers who were opting for what they could not have opted to. This means besides considering customer needs, the owner aimed at maximising the profitability of situating his business in a high demand zone and far from competitors. Contrastingly, the objective of wealth maximization takes care of the employees wealth, shareholder wealth, customers, vendors and all other parties who are interested in the business. It also profits the internal and external parties of the business. Its main motivation is to increase the wealth of stake holders rather than profits. The objective of wealth maximization is superior to the objective of profit maximization. This is because being totally profit-oriented does not guarantee the survival of a business since it only considers owner whether the other parties are satisfied or not. Acs, Carlsson, and Thurik (1996) explain that the objective of wealth maximization leads to increased branding, goodwill and reputation of the company. It is therefore reasonable to conclude that for a business to survive for long, its owners or management should behave way that is reasonably consistent with the maximization of the wealth of the business stakeholders. Key characteristics of small business identifiable in the restaurant business All the five key characteristics of small business outlined by Holmes, Hutchinson, Forsaith, Gibson and McMahon (2003) are identifiable in the fast food restaurant. First, my uncle is the owner and the manager of the restaurant hence ownership and management are not separate. Only he controls the operations of the business and if he has to make any consultations for decision-making, it his closest family like his wife. The business involves simple and little contractual relations for example suppliers of some food stuffs. This conquers with Holmes et al (2003) who state that the number and level of contractual relations for small businesses are kept at the minimal level. There is unlimited liability for the owner of the business and because of this, its equity cannot be publicly traded. In relation to this, he alone is directly liable for any debts incurred by his business. In case of nay, he has to use his own assets or personal assets to pay the debt. This means his personal security is needed to secure business debt. Since he is the only owner, business is guided by his personal objectives. These objectives also influence business decisions directly (Holmes et al, 2003).   References Acs, Z. Carlsson, B. and Thurik, R. (1996). Small Business in the Modern Economy. Cambridge, Ms. Blackwell Publishers. Dossett, M. (2011). Four Types of Business Ownership. Online: http://www.ehow.com/info_8162541_four-types-business-ownership.html. Viewed on 24th August, 2011. Holmes, S. Hutchinson, P. Forsaith, D. Gibson. and McMahon, R. 2003. Small enterprise finance. Milton, QLD. John Wiley & Sons. Reed, S. (2010). Ownership Structure Types. Online: http://www.sos.wa.gov/corps/registration_structures.aspx. Viewed on 24th August, 2011. Peacock, R. (2004). Understanding Small Business:  Practice, Theory and Research. Adelaide.  Scarman Publishing. Read More