Small Business Management - Scholarship Essay Example

?Running Head: SMALL BUSINESSES IN NEW ZEALAND In New Zealand most of the ideas of becoming entrepreneurs by people remain unimplemented. These individuals have no knowledge of how to turn their dreams into reality. Despite the notion that starting up an entity is tideous people should know that with proper planning, endurance as well as passion, actual businesses can be set up. (ehow.com, 2011) This is going to be a study about the topic of small businesses in New Zealand and more specifically, there will be a comprehensive answer to be provided to the study question, “Which are the merits and demerits of setting up a small business in New Zealand?” Before embarking on the study’s specifics, it is essential to have a look at the overall advantage of owning and starting a business in New Zealand. Recent surveys have been carried out globally and these have come up with various findings and conclusions. As per the World Bank’s survey of 2006 where around 150 economies were focused on, New Zealand took the number one spot in terms of ease of carrying out business. The World Economic Forum put New Zealand in the 16th ranking out of 100 economies in terms of competitiveness and besides that, public institutions of New Zealand ranked top in judicial independence, tax collection, corruption absence, organised crime and property rights. Ethically, New Zealand’s situation put it among the most ethical areas of doing business in the world and this considered the corruption undertakings. Transparency International rated it second together with Finland after Iceland. This is as per 2005’s study of 159 countries using CPI- Corruption Perceptions Index. New Zealand was also considered stable, open as well as competitive economically, has a business oriented governance, and cost competitive structures with low policy in inflation, flexible labour market and low rates of corporate tax. (wellington.govt.nz, 2011) According to Oliver and English, in their book, a small business refers to a business that is personally owned or managed. It may also be taken to be that entity which is void of managerial staffs that are specialists or does not form part of a bigger entity. Also, the definition says that such a business should be employing a maximum of 50 workers in manufacturing, a maximum of 10 employees in services and not exceeding 25 workers in the remaining sectors. If this definition is something to go by, then the sector of small businesses in New Zealand consisted of approximately 297,000 firms as at 2007. Of the 297,000, about 280,000 businesses are often known as ‘micro’ enterprises since their employees are less than 5 persons. The ‘micro’ enterprises are usually common in retail trade, construction, property, finance as well as business services industrial sectors. Setting up a small business in New Zealand is not without merits. Among the merits of starting such a business are; one can become his or her own boss, exercise own talents, be in state of independence; remove dependence upon a fixed salary or wage; one has a chance to make his/her own money; one is at a vantage point in realising accomplishment, recognition and personal worth; one can come up and implement own products, services and ideas; and one is given a chance at enjoying work than he/she finds satisfying and successful. Having a sole proprietorship can make a person attain a level of family economic security as well as self and lastly, one may be in a position to provide valuable things to the community. Disadvantages of setting up a small business are that one may fail in business and lose all the borrowed and own capital. One may also be forced to work hard, sometimes up to 15 hours in any given day which results to lesser time spent with friends and family. Income may vary and behave in a volatile manner due to factors beyond oneself control. Also there is the very huge pressure arising especially while making decisions and solving problems of the business and these may call for expert intervention which might not be affordable at the given point in time. One will also still have a boss or bosses despite being one’s own boss. This is where suppliers, customers, bankers and banking agencies become bosses. Also there is the eventual hating of one’s business as others might get it hard to get out of the whole scenario without loss incurrence’s. (Oliver and English, 2007 pp3-5) Demerits also do exist relating to small businesses. These demerits may include; A situation of disadvantaged owners of business, where such persons are unable to handle self financial affairs; and also a business situation of professionals who cannot limit professional liability or those with a high extent of indemnity exposure professionally. There is the claim upon assets by the business creditors where most people are highly vulnerable and creditors may arise from a much unexpected place. There is the will challenging subsequent to owner of the business’ demise. This means that the estate of the deceased may not end up in the intended hands. Another disadvantage comes in the property Act. This Act defines specific assets of the business as relationship property which is to be shared equally where the relationship breaks up. If assets would have been owned in another kind of ownership, as well as leased this property would not be subjected by the relationship’s partner or the spouse of the beneficiary. (Brown, 2005 p8) However, the merits as well as the demerits presented are overlooking the fact that the definition given at the starting point of the study does not restrict on the type of business ownership. It simply notes out that the most likely type of business that may be common to be rated under small businesses category is the sole proprietorship. This is since numerous of individually owned businesses are likely to be small compared to others. Thus, a small business entity in New Zealand might even involve partnerships, limited partnerships, and companies. Each of these types of business ownerships has unique advantages and disadvantages alike, while considered under small business ownership. Ird.govt.nz looks at these advantages and disadvantages in more detail. For instance, a sole proprietorship according to the website is merited for the facts that, the owner has the entire ability to enjoy the control, ownership as well as the management of the entity. This is since he/she is trading individually. He/she is able to enjoy all the profits arising from the business operations. Also of merit is the ability of the sole trader to set up a business entity without having to undergo a legal or formal process to start it up and employ some of other individuals to aid in operating this business. There is a major disadvantage that is inherent to sole traders, though. The trader is personally obliged to cover all the debts and taxes that may be incurred in running this business type. A partnership on the other hand may refer to a business scenario where two or more persons carry on a business as a team. The advantages of a partnership may be the fact that the responsibility of operating the business is shared amongst the partners. Losses, if incurred are shared equally as well as profits where the agreement of partnership does not state otherwise. The major disadvantage is that each of the partners is personally liable in case of any partnership debt. Taxes are also paid on each partner’s share of the partnership income unlike a situation where taxes would be paid from one front, which also makes a partnership approach to a small business undesirable. There is also the option of a limited partnership. This partnership type exists legally and formally as an entity with its own rights. The business remains separate from the partners. The advantage of a limited partnership is that in case of liability, the partner responsible is personally obliged to carry his cross and the other partners, thus, will not be attached to the same. A disadvantage may come in where there needs to be a tideous legal and formal registration of such a business by the office of companies. A company may also be another approach of a small business set up. This business type exists legally and formally as a person with its own rights. It remains a separate business entity from the stakeholders of all type. The major advantage is the separation of the business rights and obligations from those of the owners. This business type has a right of ownership of assets as a merit. Another advantage is that the share of losses of any liability of a partnership remains limited to the type of shareholding in the company. The company also remains responsible to paying its own debts and liabilities. The main disadvantage of a company is that it involves a complex process of registration and legal process to become a recognised company by the office of companies. (ird.govt.nz, 2008) As per the lawinz.co.nz website these business types have various advantages and disadvantages associated with them. Mellett, a lawyer says, in the website, the advantage mostly associated with sole proprietorships is that there is ease is setting up and running it since there exists no registration requirement. A demerit is evident under this business ownership where the owner of this business has an unlimited liability with regards to the business and this translates to the fact that all personal assets always have a potential of risk. Also sole proprietors are without credibility in any given market place if they decided to dispose of their business. A partnership on the other hand has an outstanding advantage of there being no need for registration so as to start business as well as this business type providing a vantage point of effectively sharing costs of operations of the business. Disadvantages associated with a partnership business are with the inclusion of all partners, thus own assets are at a high risk of being attached. There may also be complications involved if any of the partners passes on and makes a wish of exiting the business. Limited liability companies according to Mellett harbor one principle advantage of continuity in existence as long as the name of the company still lies in the registrar of the companies’ office, shares remain transferrable and thus ownership can be passed through generations and also the credibility in the market place. Disadvantages are also evident in this business type where directors are needed to fully understand what is expected of them in the law of companies. Also, there is a demerit where the protection accorded to a company may vanish where there is a requirement of making a provision of personal guarantees to creditors or lenders. He (Mellett) further notes that a trading trust is also another alternative of a business ownership in New Zealand which has grown in popularity over time. It is now an option of business ownership to operating and owning a business entity. A trading trust is similar to a typical family trust, but it is different since it can invest in assets, do business and enjoy profits from business undertakings. The advantage associated to trading trusts is its flexibility in terms of allocation of profits from business to the trading trust’s beneficiaries. Mellett, however does not provide a disadvantage of doing this type of business in his article. (Mellett, 2011) The conclusion of the study is that starting a small business is advantageous as well as disadvantageous. This implies that any negative aspect associated with setting up a small business may not stop a person from indulging. In New Zealand as per the surveys carried, it is very easy to carry out business; it has competitive public institutions with low corruption levels, low organised crime and upholding of property rights. The nation is also ranked highly in terms of ethics of carrying out business with many countries considered in the survey. It is also of essence to realise that as the study puts, a small business can be of any type. The types include sole proprietorships, partnerships, limited liability partnerships, companies or trading trusts. The study states that most of small businesses are often run by sole traders. However, merits and demerits of starting or even carrying out a small business are fully dependent upon the type of business. So, in any given front, the advantages and disadvantages are fully decided by the business type. This is in pursuit of answering the study question, “Which are the merits and demerits of setting up a small business in New Zealand?” Reference: Brown, John William. (2005). New Zealand Master Trusts Guide. CCH New Zealand Limited. Edition 2, illustrated. p8. ehow.com. (2011). How to Start a Small Business in New Zealand. Retrieved 30 March 2011 http://www.ehow.com/how_5993999_start-small-business-new-zealand.html ird.govt.nz. (2008). Starting A Business - Operating As A Sole Trader, Partnership Or Company. Retrieved 30 March 2011 http://www.ird.govt.nz/yoursituation-bus/starting/structure/ Mellett, Ian. (2011). Appropriate Legal Structures for your New Zealand Business. Retrieved 30 March 2011 http://www.lawinnz.co.nz/legal-entities-available-for-your-business.html Oliver, Leith and English, John W. (2007). The Small Business Book: A New Zealand Guide for the 21st Century. Allen & Unwin. Edition 5, illustrated. pp3-5. wellington.govt.nz. (2011). Business: New Zealand’s Advantages. Retrieved 30 March 2011 http://www.wellington.govt.nz/move/business/business.html Read More