Sole Proprietorship Businesses and Poor Management Indicators - Assignment Example

Question 1 1. Sole proprietorship businesses are owned by one individual. The person fulfills the day to day obligations of the business. The owner takes all the profits and owns all the business assets while taking all the liabilities and responsibilities. Partnerships businesses are formed by two or more individuals sharing ownership of a single business. The partners ought to make a legal agreement which stipulates how decisions are to be made, how profits are to be shared, how disagreements are to be resolved, how future partners are to be admitted into the partnership, how partners may be bought out, and which steps are to be taken to dissolve the partnership if need arises. In General Partnership businesses partners split management responsibility as well as liability in addition to profits or losses as per their internal agreement. Equal sharing is the norm unless a written agreement is made that dictates otherwise. Limited Partnership are formed when partners have limited liability to the degree of their investment and limited input in relation to decisions in management. Joint Venture businesses work like general partnership though for a single project or for limited time period. If the partners have another project, they are required to file accordingly. In addition they divide acquired assets when the partnership dissolves. Corporations businesses are treated by law as a unique entity from its owners. The owners are its shareholders. They elect a board of directors to govern its chief policies and decisions. The corporation does not dissolve when ownership changes. Limited liability Company(LLC) provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The owners form the members. Duration of the LLC is ordinarily determined during the filing of the organization papers but can be extended if members vote to do so close to the expiration date. “LLCs must not have three or more of the four characteristics that define corporations: Limited liability to the extent of assets, continuity of life, centralization of management, and free transferability of ownership interests” (The money alert, 2010). 2. The areas that need my attention are company number, ABN, GST, is the area zoned for shops, offices, shop license, health regulations, trading hours, fire regulations, timber, building equipment/supplies, kitchen fit outs. In addition, waste water, electricity and gas, environmental protection, flammable liquids, scales, weights and measures, lay-by sales, poisons, industrial cleaning chemicals and lease agreements. Lastly, second-hand dealers, occupational health and safety, waste disposal, signs, export/import. I will need an ABN number, a fair work information statement, registration as a PAYG withholder, asset protection permit, banned product list, imports control permit, permit to display or place an exhibition of good for sale on a footpath or road and permit to distribute hand bills. I will go to Bayside city council for advice on what permits I need and to government of Victoria at www.vic.gov.au/blis 3.Fair trade aims to protect those involved in trading by setting rules and laws that covers “dealings with suppliers, wholesalers, retailers, competitors and customers, unfair market practices, industry codes of practice, mergers, product safety, collective bargaining, product labelling, price monitoring, and the regulation of industries” (Business Victoria, 2010). This will help me make fair dealings with others. Consumer protection refers to respecting of consumer rights. This will affect me since I deal with consumers and I will need to ensure my products do not harm them (Department of Justice Victoria, 2007). Equal opportunity refers to businesses responsibility to not discriminate people based on color, creed, disability and gender when hiring. This will ensure I am a fair employer as I will have several positions to fill (Victoria Equal Opportunity and Human Rights Commissions, 2005). Occupational health and safety refers to legislation, regulations and standards that pertain to occupational health and safety that aim to ensure employees are safe at work. This will ensure that I keep my hardware store safe for my employees and the neighborhood. Question 2 1. Some of the poor financial management indicators are lack of a sound financial plan or a financial budget. This is usually quite important for any business. It helps the business to know what needs to be executed and how. It puts forth the financial goals of the business clearly and enables the owners to counter check for progress. In this case the business is not cohesive since there is not plan to tie it together. The credit has exceeded the limit and there are mortgages that exceed the capabilities of the business as the business tries to access more funds. Another poor financial management indicator is the lack of book keeping. Without accounting books being used appropriately, there are poor records or no records of the financial undertakings of the business. Book keeping is essential for any business. Lack of it is what has led to business quotations and invoicing to be unclear. Another poor financial management indicator is the lack of company polices for accounting principles. The couple do not have set rules and conduct themselves as per the moment. Thus they are prone to poor financial decisions that do not have any sound backing. 2. In order to set the business on better financial standings certain procedures would be necessary. The business needs to implement a financial plan. This plan will need to take all the factors as they currently are and come up with a plan to rectify the problems. The plan will highlight the course of action to collect debts, pay up on the taxes and superannuation, repay the mortgages and increase the output of the four divisions. Another procedure would be to get a debt collector. This is because the owners have been compromised and would not be fully effective in collecting owed debts. In addition collection of the debts is imperative if the business can hope to gain some financial boost. Another procedure would be creating some legal distance between the business and the family assets. The business can be registered as a corporation so that it is an entity. This will discourage the business from using personal assets to bail out the business and instead concentrate on generating income that will support the business. Another procedure will be effect sound accounting procedures and book keeping. These two are completely necessary to keeping the business in good financial form. It is only through these that the real state of the business can be determined and decisions made accordingly. In addition, I would recommend that the business acquire accounting software that would help automate book keeping. Due to the back log, it would be hard to manually do the reports, balance sheets and income statements. The software would tremendously help. Another procedure would be the hiring of qualified staff to handle the accounting and financial demands of the business. While it may seem cheaper for the couple to run the business largely by themselves, they are lacking necessary skills that are detrimental to the business. The business needs to have a financial analysis and an accountant is a priority for the business in its current shape. The accountant in addition will fulfill the legal requirements of the business like filing taxes and any penalties incurred. Question 3 1a) the attitude of internal staff to the process of preparing a Business Plan is important because they will be part of implementing it. They also have a lot of input to give as they are well equipped with the experiences of the business and if they are motivated and positive about the procedure, it has a higher success rate. b) Michael could have better prepared his staff for their involvement in the preparation of the Business Plan by asking them how satisfied they are with their job, asking of ideas to improve the business, areas of weaknesses in the business. He could also have a meeting to discuss what they see as the way forward for the business so they feel part of the process and a part of the positive change. Michael could also have discussed with the employees his vision for the company and why he thinks the plan is good for the employees as well so they could be sold on it. 2a) Bread shop Feasibility study (Proposals, 2009). Description of the Project: The shop will produce bread, rolls, scones, croissants and bagels. The business will be partnership retailing shop. The products will be baked in the shop. The shop is 70x80 feet located at 770 Bay St, Victoria, BC V8T 5E4. It is in a residential upper middle-class neighborhood. Market feasibility: The business falls under the baking industry. It is quite competitive though people still like fresh made bread in the neighborhood. The shop has potential to make profits since they shop has been doing well and owners are introducing new products other than the bread (Startupbizhub, 2010). The market will be people and restaurants in the neighborhood. The sale projections are 500 loaves of bread, 500 bagels, 300 croissants, 200 rolls and 200 scones daily. Technical feasibility: The shop has operating equipment which will be used. Equipment to make the bagels, croissants and cakes will be added as well as an additional oven. The staff (2) will remain in addition to the new owners who will be management personnel. Financial Feasibility: The total capital required is $125,000. The monthly budget is $10,000. Management Feasibility: Mr. John will be the manager of the shop while Wendy will be the supervisor and they are the only founders and business partners. b) Classic Furniture Pty Ltd Feasibility study (Proposals, 2009). Description of the Project: The business will import antiques from Indonesia through GOLMAXINDO (Traders city, 2009). The furniture will be imported and finished at the shop. Market feasibility: The business will have additional import costs but the cost of production will be reduced. The market target remains the same. The reduced cost are projected at $20,000 chairs, 30, 000 chests and 15, 000 tables. Technical feasibility: The store will not need new operating equipment. Financial Feasibility: The total capital required for the import is $120,000. The monthly budget is $5,000 for fees and other import requirements. Management Feasibility: A new supplier will be contracted for the imports. c) Window cleaning business Feasibility study (Proposals, 2009). Description of the Project: The business will entail cleaning building windows. The business will be sole proprietor offering a service. Mr. John will go to the buildings for the cleaning. He will operate from his home located at 20 Murdock Street, Clayton Sth  VIC  3169. Market feasibility: The business falls under the cleaning industry. It is not highly competitive since though there are many cleaners there are vast opportunities. People in small buildings make a good market target as they are underserved. The cleaning projections are 20 windows per. Technical feasibility: The business will need a complete squeegee, a complete T-bar, a glass scraper, scrapper blades microfibre/Scrim, bucket, window cleaning pole, ladder and step ladder, water storage, car with a roof rack, cleaning fluid, a bag and gloves (Window Cleaning Coach, 2010). Financial Feasibility: The total capital required is $ 1,000. The monthly budget is $500. Management Feasibility: Mr. John will be the manager of the business. Question 4 1. Fixed costs are expenses not affected by changes in sales or production like rent. Variable costs are costs which change according to changes in production unit volume like labour costs. Working capital refers to the liquid assets a business has access to carry out its business. If a business has $125, 000 as the current assets and $75,000 as the current liabilities then working capital is $50,000. Start up costs refers to costs incurred related exclusively to the implementation of a project or business plan like a survey of target market. 2a) Current assets are classified as current since they are expected to be used or sold in a short period of time like cash, marketable securities and inventories. Non current assets are so classified since they are not easily liquidified to cash or expected to be sold in a business cycle like one year. Examples are equipment, real estate and trademarks. Current liabilities refer the sum of debts and liabilities a business owes within the next one year like payments to suppliers, insurance payment and utilities. Non current liabilities are debts and liabilities not due within the year like bank loans, mortgage and pension. Owner’s equity refers to sum of total liabilities deducted from total assets for a business or individual. Operating costs are frequent expenses occurring in the running of a business like wages and rent. Account receivables are dealings undertaken to bill clients for services or products received like invoicing. Accounts payable refers to a business’ obligation to its creditors due to services or goods it has received like a bill. b) Current Equity Capital CASH IN CASH OUT Investment 28,000 Current loan 20,000 Current assets 20,000 Milk purchase 7,500 Non current assets 20,000 Wages 4,000 Sale of milk 7,000 Rent 1,000 Expenses 2,000 TOTAL 75,000 TOTAL 34,500 Current equity capital 40,000 c) Assets Liabilities Proprietorship Stock Mortgage Capital motor vehicles Shares in XYZ Co. Ltd creditors Land Buildings Patents Debtors Cash at Bank S. Romero Goodwill d) 23,000=100% 9,000= 100÷23,000x9,000=39.1 percent as net worth for Mandy. 3. Debtor’s turnover refers to profit made when a business takes money from people or a bank. Stock turnover refers to conversion of stock or products returns in a business. b) Stock level 25,000 ÷100x45= 11,250. 11,250x8= 90,000+ 25,000=115, 000 worth of stock. c) When stock does not turn over as fast as expected it leads to lower profits. 4. A profit and loss statement refers to financial statement which sums up expenses, costs and revenues in a business for a duration of time like a quarter or fiscal year. A balance sheet shows the assets and liabilities of a business as it is on a specific date. 5a). Direct cost refers to the cost object of a product like the actual buying price of a raw material. Indirect cost refers to costs which are not part of the cost object but are linked to the final cost of the item like advertising. Variable cost refers to costs that change in relation to business actions. b. No information given c. Mark up is a result of both the fixed and variable costs. 6. Cost of good is calculated by beginning inventory + purchases-ending inventory. 7a) Charges per hour should be 30,000 ÷ 1680= 17.85. b) Weekly turnover 22,610+ 21,000=43,610. 43,610÷27%x100% = 161518.5÷52 weeks= 3106.1 8 a) Break even sales refer to the least sales which a business should make to fulfill its key dues and interest accrued. b) 100,000-47,000=53,000 contribution margin. Break even sales 47,000+37,000=84,000. At break even sales, the business is not profitable since it is just able to meet its total costs. c) Liquidity ratio (current ratio) 158,000÷208,000=0.75 References Business Victoria., 2010. Fair trading standards. Web. Available at http://www.business.vic.gov.au/BUSVIC/STANDARD.HTML/PC_50947.html Accessed 24th August, 2010. Department of Justice Victoria., 2007. Consumer protection. Web. Available at http://www.justice.vic.gov.au/wps/wcm/connect/DOJ+Internet/Home/Consumer+Protection/ Accessed 24th August, 2010. Human Rights Commision., 2005. Equal opportunity. Web. Available at http://www.humanrightscommission.vic.gov.au/Home.asp Accessed 24th August, 2010. Proposals., 2009. Suggested outline for feasibility study. Web. Available at http://sampleproposal.net/category/feasibility-study/. Accessed 24th August, 2010. Startupbizhub., 2010. How to open a bread store. Web. Available at http://www.startupbizhub.com/how-to-open-a-bread-store.htm. Accessed 24th August,2010. The Money Alert., 2010. Business types of ownership. Web. Available at http://www.themoneyalert.com/businesstypesofownership.html. Accessed 24th August, 2010. Traders City., 2009. Antique reproduction furniture. Web. Available at http://www.traderscity.com/board/products-1/offers-to-sell-and-export-1/antique-reproduction-furniture-6077/ Accessed 24th August, 2010. Window Cleaning Coach., 2010. Window Cleaning. Web. Available at http://windowcleaningcoach.com/equipment.html. Accessed 24th August, 2010. Read More