Type of Business and Financial Risks - Coursework Example

? Business Report Introduction Following the increasingly high demand for high quality toys, which are both traditional and electronic, my friend Jay and I are planning to establish a toy shop in Witney, Oxfordshire. This toy shop is entirely a new business venture. The reason for choosing this location is because Witney has hardly any toy shops despite the market demand for these two types of toys being high. This is also a good opportunity for this kind of business within such a location. The business establishment would require a capital of ?50,000. ?25,000 would be borrowed capital, which would be used in refurbishing the retail premises while the other ?25,000 from my savings would be used in the purchase of the required stock as well as the initial running costs. Type of Business The type of business to be established would be a partnership business. In a partnership business, the law requires that at least two partners form the business. According to the Partnership Act 1890, a partnership business should consist of at least two partners with common business with a view of making profits (legislation.gov.uk, 2013). A partnership is typically an agreement between at least two people willing to finance and operate a given business. The minimum number of the people forming the business is two. Unlike some other forms of business such as sole proprietorship, partnership businesses are entities, which are separate from their partners. In a general partnership, losses and profits flow all through to the tax returns of the partners. In this case, the general partners have equal authorities and responsibilities in running the business. All partners need to be involved in everyday activities of the partnership business (Entrepreneur Media, Inc., 2013). All general partners are involved in making decisions. The law also gives any partner to represent the partnership business even without the other partners’ knowledge. Given than one of the partners decides to sign a certain contract on the partnership’s behalf, the entire partnership and all other partners would be responsible for the contract (Kirkland, et al., 2008). Procedures to be initiated To establish the partnership business, there are a number of procedures that we need to follow. These procedures are regardless of whether the partnership would be general, limited, family, or incorporated. The following steps would have to be followed: i. First, we have to determine the number of partners. In our case, the business would be formed by two partners, my friend and I. We would agree between ourselves, as the business partners on, the most important or key issues. One of the key issues to be considered is the limits of liabilities. The limits of liability could be set according to our capital investment, contribution to the business, or the use of goodwill. We would also agree on the level of authority that each of us would hold concerning the partnership business and its operations. Such agreement on authority level would mainly reflect on the issue of making binding agreements and signing contracts on the partnership’s behalf (Global Syndicated News, 2012). ii. Secondly, we would draw up a legal Partnership Agreement that would highlight the key aspects of the partnership business including the roles, liabilities, and authority with regard to each partner. Under the same agreement, we would state about the distribution of assets and profits. In the Partnership Agreement, we would consider partnership elements such as the business name, terms of the agreement, capital employed, provisions of profits and losses, salaries and withdrawals, restrictions and management duties, banking, books to be used, voluntary termination, cases of death, as well as arbitration. Each of these elements would be stated clearly in our Partnership Agreement (The Wall Street Journal, 2013). iii. We would then proceed with an application for a Tax File Number (TFN) for our business (The Wall Street Journal, 2013). iv. We would also apply with consumer affairs v. After our application is approved, we would be issued with a certificate of registration. This certificate would be a documented proof that our partnership business was formed. The certificate would have indication of the endorsed date of registering the business (The Wall Street Journal, 2013). Financial Risks Financial risks are common to all types of business. As a partnership business, we are subjected to financial risks of varying categories. Things are a bit different when it comes to partnership business especially our case where I would be the sole contributes of investment money other than the borrowed money from the bank. It seems that I would be subjected to the highest level of risk given that I am entitled to the business creditors beside the risk of losing my used savings given a situation where the partnership would incur losses or would not work. The market attractiveness in terms of demand is the main drive for our business location (Donovan, 2012). There could be the possibility of unperceived situations whereby the market turn out to be poor and unfavorable for our business. In this case, I would lose my savings, and be subjected to debts. There are also risks associated with the end of the partnership especially if one of us dies (legislation.gov.uk, 2013). The Partnership Act 1890 provides that a partnership would end after one of the partners dies. This would be risky especially if there is no agreement made prior to the death of either of us as the business partners. If this happens to my friend, I would risk losing my investment. There is also the risk of facing high liabilities given the business can hardly support the repayment of the borrowed money (Oughton & Omand, 2003). Customers The main customers to our business are mainly parents, especially those with young children. Also children at the age of using toys, both traditional and electric could be part of our customers. Some adults are as well interested in the use of toys especially parents would mostly buy their children the toys of choice while others would provide their children with money to purchase these toys. Some people purchase and use toys for leisure or just to pass their time. This group of people would also form part of our customers. In this region, most families consist of professional with mostly 2 children. This aspect form a good ground for gain market confidence and gaining the anticipated returns. The market has been concluded as good and very promising to our business line (Kirkland, et al., 2008). The major problem is case of discrimination by some children in terms of the purchased toys. These children understand their rights as provided by the Sale of Goods Act 1979. There could be circumstances in which some customers could find legal to return purchased toys or seek for refunds. These cases pose the risk of facing inevitable difficulties in terms of losses or poor reputations from the customers. This case would contribute to losses or risk the business position. The Sale of Goods Act 1979 seem to give the toy buyer legal rights to react against any dissatisfaction arising to poor quality of products or unsatisfactory contractual agreements. The Act applies specifically to contracts in terms of goods transferred or even agreed to be transferred in exchange for money. According to the provisions of the Act, it would be safer to deal with adult customers. Section 3(2) of the Sales of Goods Act 1979 provides that goods sold or delivered to the minors or the mentally incapacitated, any member from these two groups would only pay reasonable amount given that such goods are necessary (legislation.gov.uk, 2013). While the mentally incapacitated could form part of our customers, it could be difficult to deal with them. Toys are necessary to children but it could also be tricky to deal with customers who are directly children without parental guidance. Some children could purchase our products without their parents’ consent. It could also happen that some parents hardly want to expose their children to toys. The toys could be described as unnecessary by the parents. The mentally incapacitated could buy the toys without clear mind, which could also render such purchased toys as unnecessary by parents or their guardians. To avoid the effect of this Act, we would restrict our business sales. We would only allow adult customers or children who are guided by their parents. Depending on the value of the toys that children purchase, we can formulate a way of making confirmation that the purchases are known to their respective parents. This could be through a strict rule that children purchasing toys without physical parental guidance should provide their parents’ phone conducts for confirmatory enquiries. This way, our business would be safe. Some other times, we make some sound judgments about the risks involved when we decide to sell toys to children without a clear understanding about their parents’ concern about it (legislation.gov.uk, 2013). Conclusion We will not be solely discriminative on adult customers or adult-guided child customers. Sometimes, risks are worth taking but it depends on the nature of the risks. As long as our operations would be legal and clean, our business would thrive and survive various difficulties (Kirkland, et al., 2008). The main idea is to formulate a legal business that would initiate fair business operations and market competitions. We would be ready to fight through any challenging factors to the success of our partnership business. Bibliography Atiyah, P., Adams, J. & MacQueen, H., 2012. Atiyah's Sale of Goods. 12th ed. s.l.:Longman. Donovan, D., 2012. The Difference Between Business Risk and Financial Risk. [Online] Available at: http://creditexpert.dnb.com/small-business-information/the-difference- between-business-risk-and-financial-risk/ [Accessed 21 November 2013]. Entrepreneur Media, Inc., 2013. Partnership: Definition: A legal form of business operation between two or more individuals who share management and profits. The federal government recognizes several types of partnerships. The two most common are general and limited partnerships. [Online] Available at: http://www.entrepreneur.com/encyclopedia/partnership [Accessed 21 November 2013]. Global Syndicated News, 2012. How to write a Business Partnership Agreement. [Online] Available at: http://www.thesociety.org.au/home/2012/06/30/how-to-write-a-business- partnership-agreement/ [Accessed 21 November 2013]. Kirkland, L. N. et al., 2008. A Practitioner's Guide to Corporate Restructuring. 1st edition ISBN 978-1-905121-31-1 ed. s.l.:City & Financial Publishing. Legislation.gov.uk, 2013. Insolvency Act 1986. [Online] Available at: http://www.legislation.gov.uk/ukpga/1986/45/contents [Accessed 21 November 2013]. Legislation.gov.uk, 2013. Partnership Act 1890. [Online] Available at: http://www.legislation.gov.uk/ukpga/Vict/53-54/39 [Accessed 21 November 2013]. Legislation.gov.uk, 2013. Sale of Goods Act 1979. [Online] Available at: http://www.legislation.gov.uk/ukpga/1979/54/contents [Accessed 21 November 2013]. Oughton, J. & Omand, D., 2003. Managing risks with delivery partners. s.l.:Office of Government Commerce. The Wall Street Journal, 2013. How to Start a Business with a Partner. [Online] Available at: http://guides.wsj.com/small-business/starting-a-business/how-to-start-a- business-with-a-partner/ [Accessed 21 November 2013]. Read More