Car Wash Full Service in Kapolei - Essay Example

?Car Wash Full Service in Kapolei When starting a new business it is necessary to make objective decisions concerning the structure of the proposed business. Most business owners consider the significance of financial decision over other factors that affect the business. Although credible financial decision determines the sustainability of the business, a business owner need to consider other factors that would affect the business in the long-term. The form of business ownership is a significant decision that investors ought to make before settling into their business. Sole proprietorship, partnership, C Corporation and S corporation are the basic forms of business ownership (Cockburn, 1996). After considering the different forms of business ownership, we settled for a partnership as the most appropriate form of bushiness. The choice for partnership was determined by the pros and cons of other forms of business ownership and available finances. Sole Proprietorship Advantages Simple to start due to minimal legal requirements Low initial cost Minimal legal requirement Speedy decision-making process No sharing of profits Disadvantages Unlimited liability Difficulties in raising sufficient capital since it is dependent on the owner’s financial abilities Lack sharing of duties and ideas Have difficulties in attracting high calibre employees Partnership Advantages Relatively easy to establish Able to raise considerably high capital Benefits from combination of skills and expertise from each of the partner Benefits from different skills of each of the partners and, hence cost effective Liabilities of each partner are limited to their capital contribution The continuity of the business is not attached to an individual’s health or bankruptcy Disadvantages Slow decision making since all partners must be consulted Not easy to start since all partners must have a common business objectives and priorities Reduced levels of income since profits are shared between all partners Individual are liable for business mistakes or misappropriation committed by other partner Lacks flexibility since all partners must be consulted when making a decision to change the business in inject more capital into the business C Corporation A C corporation is a business that owned by shareholders and its taxation requirements is different from those of its owners (Prentice, 1998). Advantages C corporations have low risks since the government is responsible for its audits and tax returns The owners (shareholders) have limited liabilities to the business debts C Corporation benefits from writing-off of debts and business expenses C corporations are able to raise high capitals through sale of shares to different investors The majority shareholders or business owners benefit from a variety of stocks sold by the corporation Disadvantages Slow decision making since all shareholders must be consulted when making a major business decision through the annual general meeting Business owners are not directly involved in running the business Not easy to start since, the corporation needs to comply with strict legal requirements from the government S Corporation S corporation is considered a regular corporation with less than 100 business owners (shareholders). The corporation passes its net income and losses to the shareholders as stipulated under the Internal Revenue Code, Chapter 1 (Ogus, 1994). Advantages Shareholders have limited liabilities to the company’s debts. Thus, shareholder’s assets cannot be sold to pay the corporation’s debts in case of bankruptcy. S corporations are exempted from paying federal taxes since losses and profits are passed through shareholders tax reports Shareholders can become employees of the corporation and earn tax-free salaries The credibility associated with the business makes it possible for the business to attract high calibre employees and customers Disadvantages Formation is expensive and time consuming due to the legal and taxation formalities that the business is expected to comply with before been issued with operation licence. S Corporations have shareholding restrictions. For instance, the corporation is only allowed to have less than 100 shareholders and foreign ownership is prohibited. The corporation are subject to IRS compliance since dividend is payable to the shareholders as salary. The corporations also face inflexibilities in allocating income and losses due to availability of different classes of stock. Financial statements are vital in various businesses particularly those owned by more than one individual. Unlike partnerships and sole proprietorship, S corporations require maintaining accurate and meticulous records and reports for all incomes and expenses. In addition, corporations require maintaining accurate records for each of their stockholder’s financial holdings (Hirshleifer, 2005). Generally, S corporations and C corporations have similar accounting statements and requirements. A balance sheet is a basic financial statement for both S corporations and C corporations. Both the C and S corporations have similar balance sheets despite the presence of minor differences related to the filing of tax returns (Bade, & Michael, 2001). In S corporations a balance sheet is purposed for tax requirements rather than accounting purposes. Other than the balance sheet, corporations are also required to prepare their income statements. This financial statement contains the revenues and expenses of the business for a particular trading period. Corporations are also required to preparing their statement of owner’s equity for each trading period (Bade, & Michael, 2001). In this statement, corporations record their retained earnings or income that was not distributed to the shareholders at the end of a particular trading period. Finally, corporations are required to prepare their cash flow statements. Cash flow statements summarize the different sources of cash that are available to the business (Hirshleifer, 2005). In addition, the statement indicates the different ways or channels through which the business utilizes its cash. Cash flow statements are prepared to establish whether the business has sufficient cash to sustain its operations in the following trading period. Due to the few legal and taxation requirements, sole proprietorship requires fewer financial statements. A sole proprietorship requires preparing balance sheets, income statements and cash flow statements. In addition to these financial statements, a partnership requires preparing owner’s equity statements. This statement indicates the amount of money that, different partners are willing and able to retain into the business at the end of each trading period. Rationale The idea of setting the car wash and service business as a partnership was inspired by availability of complementary knowledge and expertise. Each of the partners had a specific area of expertise that was required for the business. The ability to raise sufficient capital for the business was the next factor that promoted our choice for partnership. Due to the high initial capital required to start the business, it was unrealistic for the partners to venture into the business as sole proprietors. The choice of partnership for our car was and full service business was settled after considering the pros and cons for each of the different forms of business organization. To enhance the competitive advantage of our business, we considered introducing a new product into the market. Combing motor vehicle servicing and washing was our new product into the industry. The two services complement each other since customers are not only concerned with the external appearance of their vehicles but, also its performance. Combining the two services would therefore give our business an added advantage over other business in the industry. In addition, the equipment and personnel required to provide the two services will compliments each other. For instance, maintenance of car wash equipment will be carried out by mechanics working in the repair and maintenance sector of the business. In addition, the maintenance section of the business would not seek for external assistance for engine wash and internal cleaning required during maintenance. We also made our choice based on cost benefit analysis of running the business as a corporation or a sole proprietorship. Forming a partnership eliminated the aspect of competition that would arise if each partner decided to set his own business. This factor would give us an opportunity to concentrate on our services and customers. We ruled out both the S and C corporations due to the rigorous legal requirements and large starting capital required for the business. References Bade, R. & Michael, P. (2001). Foundations of Microeconomics. New York: Addison Wesley Cockburn, T. (1996). Disclosure obligation in business relationship. Sidney: Federation. Hirshleifer, J. ( 2005). Price theory and applications: Decisions, markets, and information. London: Cambridge University Press. Ogus, A. (1994). Regulation: Legal Form and Economic Theory. Oxford: Clarendon Press Prentice, D. (1998). orporate Personality in the 20th Century. Oxford: Hart Publishing Read More