The Distribution of Business Structures in Australia - Case Study Example

Responses to tutorials xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecturer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Business structures Research conducted on Australian businesses indicated that sole traders are the most popular business structures comprising about 50% followed by companies 33%, partnerships 16% and other structures less than 2% (Australian Government 2011). Andran (2010) maintains that choice of a business structure is one of the critical challenges facing people who intend to start up businesses and sustain them in the long term. The best structure for a business depend on a number of variables including the expected income from the business, number of relationships involved and the expected business life time. In determining the type of business structure to apply, several factors need to be considered. Firstly, one needs to assess the business needs in terms of experience, knowledge and determination which are all pivotal in running a successful business. Secondly, legal requirements with regard to legal formalities required for the proposed business need to be evaluated and the taxation process determined. Risk is the third factor that should be considered which mainly depends on the amount of money invested into the business. These factors are all essential in determining the business structure that fits best to a given business idea. The distribution of business structures in Australia as earlier mentioned can be analyzed based on the advantages and disadvantages of each of the structures. The sole trader kind of business structure is evidently the most popular in Australia. The major reason why people prefer this kind of business is the ease of start up. In actual fact, it is the easiest and the simplest form of business among all the other types. No legal documents or filling requirements are needed when starting up the venture except for the Schedule C found in the individual tax return. Federal employer ID number is also not required as the business can be run under the Social Security Number of the owner. Another reason why sole trader business is common among Australians is due to convenience whereby the owner can run it concurrently with his formal employment. It can be treated as a part time job whereby the owner operates it only when he is free from his part time employment. In this case, he is able to continue supplying capital into the business before it is able to pick up and at the same time reduces tax payable on employment income at the eventuality of losses (Andran 2010). Control also makes sole trade operations quite common. Spadaccini (2007) describes a sole trade as a form of business where the owner and the business are one entity; the owner and the business are essentially one. The direction of the business is entirely dependent on the decisions of the owner as he is by no means under the authority or dictatorship of another person. Besides that, all profits made from the business belong to the owner alone which provides him with a greater opportunity expand his business. He is able to make decisions quickly and respond to the needs of customers faster than in other forms of business structures. Despite these advantages, sole traders have not been without their share of challenges which is the reason why it has not gained 100% prevalence in Australia. To begin with, the law does not view sole traders as separate entities from the owners which imply that they are subject to limited liability. This means that the owner will be liable for any kind of debt encountered by the business. Starting up sole trade business might be quite difficult if the owner has financial constraints. Besides that, limited resources may hinder the owner from exploiting the full potential of the business idea he had in mind (Ha 2001). Although companies are quite expensive to establish, they seem to be relatively popular in comparison to partnerships. This is because they have a greater access to venture capital and have unlimited liabilities meaning that the business is responsible for its own debts. Despite this, people dislike them not only because they are expensive to begin but also because many legal and tax reporting requirements are involved (Epstein 2010). Shareholders make little contribution towards the running of the business in terms of decision making. Partnerships are not as common as sole traders and companies probably due to division of income despite the fact that they do not generate as much income as companies. The partners are subject to limited liabilities which again makes partnership structures uncommon. However, a small percentage of the population likes them because partners can share in financing the business, carrying out of tasks and in losses which is contrary to sole proprietors. The remaining 2% consist of other business structures largely made of trusts. Trusts are upcoming forms of business structures gaining popularity because they enable distribution of assets and incomes among many members of a family (Spadaccini 2007). Computerizing Small and Medium Size Enterprises Information and Communication Technology applications as well as other forms of automations such as e-business and e-commerce provide a wide range of benefits to most of the inter-firm and intra-firm business transactions and processes. In addition to improving knowledge and information management, such applications reduce costs of transactions as well increase the reliability and speed for both business-to-customer and business-to-business transactions. According to Fadhi (2011) automation of systems improves quality of services through enhanced communication with both new and established customers. Although e-commerce has not yet received much prevalence in the world of commerce, it is particularly an appropriate method of computerizing the small and medium sized businesses. Setting up automated systems or establishing e-commerce in a business is not an easy undertaking and the owner needs to put into consideration several factors. The first consideration is evaluation of firm’s short- and long-term goals. The point of concern here is whether the venture will be able to accomplish the firm’s ultimate goals against other alternative. As a matter of fact, automation would only be necessary if its potential benefits outweigh those of the existing manual systems (Aberle 2010). Therefore, it is important to draw a comparison between the two options and only the one with more benefits should prevail. Another point to note is that automation is only possible if there is an existing manual system that is well maintained. A second consideration when setting up ICT applications within a business is availability of resources to invest and maintain the system. Adopting this system is definitely expensive despite its many potential returns. Pratali (2003) suggests that the business needs to be sure of consistent internet connections, availability of ICT competencies, network infrastructure and other internet-related support services. Lack of these prerequisites will lead to collapse of the entire ICT system which might cause detrimental effects to the business. A third point that needs to be considered before setting up the system is the kind of automation most appropriate for the business. Selection of a suitable computer system is particularly important as it is the foundation upon which the system is build. The two computer system options are minicomputers and microcomputers. Although the two options can be used in SMEs, microcomputers are most preferred due to their networking capabilities and multitasking operating systems (Mukherji 2002). The type of computer is also a point of consideration when computerizing the business. This involves selection of the right programs, equipment and applications to match the specific tasks that need to be automated. Computer programs comprise of the software that determines the information to be fed in the computer and its output after it has performed the task according to the given instructions. There are three general types of software; compliers and interpreters, operating system software and application software. Equipment on the other hand includes the hardware which comprises of several components such as the processor, computer memory, ROM, RAM, DOS and storage. Consultation of the right vendor is important in selection of the most suitable software and hardware. Once this is accomplished, personnel within the firm need to be trained on usage of the computers and computer security procedures established. In addition, maintaining equipments and supplies used in daily computer operations should be put in place (Pratali 2003). There are many business problems that can be solved using computer applications. The most common applications include transaction record keeping for receivables ledger, receipt journals and general journals, preparation of reports and statements such as income statements, balance sheets or inventory status report as well as maintain staff payment records, creating brochures and maintaining customer lists. Besides this, computers can be used for advertisement purposes (Dembla et al 2007). Advertisement using manual systems is rather complicated and costly. For instance, mass mailing to consumers and suppliers is time consuming, tedious and expensive not forgetting the probability of losing the mails during the process. On the hand, computerization will ensure faster conveyance of messages to stakeholders through e-mails or via the firm’s website. Consequently, communication within the firm is streamlined eliminating any form of confusion and misunderstandings. Another important area where computers would come in handy is in the planning process. Planning is key to the success of any business hence it should be handled with much care. It entails preparation of financial forecast and programs that need to be achieved within a set timeline. This process is quite complicated and difficult and is almost impossible using manual systems. Computers contain a wide range of applications which can execute tasks based on past and present operations to make predictions about the future. Other simple computer applications such as word processing, critical path analysis, spreadsheet and accounting programs increase efficiency of the firm by ensuring documents are well edited, properly recorded, stored and they are up-to-date ((Mukherji 2002). References Aberle, C. 2010. Why computerize my small business? Part1- understanding and automated business. Retrieved on 2nd March 2012 from http://ezinearticles.com/?Why-Computerize-My-Small-Business?-Part-I---Understanding-an-Automated-Business&id=4105723. Andran, F. 2010. Advantages and disadvantages of sole trader. Retrieved in 2nd March 2012 from http://blog.thecompanywarehouse.co.uk/2010/05/24/advantages-and-disadvantages-of-a-sole-trader/. Australian Government. 2011. Choosing the right business structure. Retrieved on 2nd March 2012 from http://www.ato.gov.au/businesses/PrintFriendly.aspx?ms=businesses&doc=/content/00182084.htm. Dembla, P., Palvia, P., & Krishnan, B. 2007. Understanding the adoption of web-enabled transaction processing by small businesses. Journal of Electronic Commerce Research, 8 (1). Epstein, D. 2010. Business structures. St. Paul: Thomsons/West. Fadhil, N. 2011. Managing company’s financial among small and medium non-manufacturing companies. Far East journal of psychology and business, Volume 2, Issue 1, p. 17-36. Ha, T. 2001. Business structures for legal practitioners in Australia and Vietnam: a comparative study. Dissertation: Thesis (LL. M.)-Monash University. Mukherji, A. 2002. The evolution of information systems: their impact on organizations and structures. Management Decision, 40 (5), 497-507. Pratali, P. 2003. Strategic management of technological innovations in the Small to Medium enterprise. Journal of Innovation Management, 6 (1), 18-31. Spadaccini, M. 2007. Business structure. Irvine: Entrepreneur press. Read More