A Short Small Business summary

Small Business

Small business is a term that we use day-to-day. That is because in the past decade the rise of small businesses has been higher than in earlier decades. This is could largely be attributed to the increasing number of services and opportunities that are available to small business owners, to enable them to start and keep their business running.

Small business guidelines

There really isn’t any guidelines for when the term small business is used, however it is often defined as a business which has a small number of employees and/or the nature of the business. How few employees is debatable, and the definition of when a business changes from a small business to a larger corporation varies by country and industry. This number is however generally less than 100 employees.

Types of businesses that are small businesses

Small businesses due to their nature, are in most cases sole proprietorship, partnerships, or privately owned corporations. In many countries, small businesses, are most often related to: accountants/book keepers, restaurants, consultancy services, guest houses, photographers, small shops, hairdressers, tradesmen, solicitors, lawyers, small-scale manufacturing, customised jewellery etc.

Mode of operation

Small businesses in some cases are located in private homes, for two main reasons. The first is because it is economical and in most cases convenient. The second reason is that there are several tax benefits with having your business in your home.

In a nutshell

Running a small business is an exciting venture, and a great way to introduce yourself into the business world, and to gain business sense and creating economic livelihood. If you are interested in starting your own small business, find out more about your industry and your business market potential. I would also recommend getting some advice from an accountant or lawyer specific to your industry and local area.

Good luck with your new venture!

2

Why Not Create Your Own Franchise?

Popular franchises

Ever thought of creating your own franchise?

If you have a secret family recipe that gets all your friends drooling, keep it your secret, start your own small restaurant and franchise your business. Maybe it is not a family recipe; it could be just about any idea, from accounting to writing! There are many people out there like you who are looking for an opportunity to invest in an idea started by someone else, that someone could be you.

Of course the routes will differ depending on the nature of your business…always do your homework.

12

Operating a Franchise

Advantages, disadvantages of franchise

It is quite likely that having decided to start your own business you might consider a franchise. A franchise is basically the sharing of a business idea; you will be buying the right to use the name of an already established business, that is familiar to many people. The person selling the opportunity is known as the franchiser and you will be known as the franchisee. Examples of popular franchises are Kentucky Fried Chicken (KFC) and MacDonald’s. A franchise opportunity will have its pros and cons.

ADVANTAGES

  • You will be acquiring a product that is already tried and tested.
  • You will likely be given help with staff training.
  • You won’t have to worry about stock as the franchiser usually supplies stock.
  • You are given business advice to help you, such as that of location choice, staffing hours and regulations, advertising and promotion.
  • It is easier for you to acquire finance. Banks will feel more secure loaning money to undertake a venture that has already acquired a status in the market place

DISADVANTAGES

  • The franchiser has the real control; you do not have as much autonomy. You probably at some point have patronized or entered a franchise, or maybe quite a few, have you noticed that there is a large similarity in the products offered and also the look of the organization? That is because things are pretty much prescribed for each of these ventures
  • Franchise ventures are usually very expensive and after paying a hefty price to acquire a franchise you will still have to pay a levy on sales or profit to the franchiser
  • You will not have much flexibility since pretty much everything is chosen for you. You must use the franchiser’s name, stock and follow business practices laid down by them

Having said that, franchises can be quite lucrative ventures; most are expensive but depending on your area of interest you might find a franchise to suit your needs.

If you decide to buy a franchise, it is advisable that you seek the advice of an experienced lawyer who is familiar with franchise agreements. Make sure that you understand the terms of the agreement before you sign.

8

Choosing A Business Structure

Business structures

Before you organise your operation, you need to identify a business structure that best suit your needs and the demands of your business. You might want to take into consideration issues of complexity in setting up, availability of capital and the tax advantages and disadvantages of each. Today we take a look at the soletrader and partnership structures.
Which business structure

SOLE TRADER

The sole trader or sole proprietorship business structure is by far the easiest to set-up and is favoured by many entrepreneurs. This business is owned and operated by one person who might employ others to work in the business. It is unincorporated, meaning there are no legal formalities involved in setting up. However, depending on what your business will be, you might need to obtain certain licenses to operate, for example, if you decide to sell liquor you must first obtain a liquor license. With this structure you can use your own name or coin a business name that suits you. Sole trader businesses are mostly labour intensive as technology is often too costly and sole traders usually have limited capital available.

Advantages

– There are very few formalities in setting up, except for necessary licenses or permits.
– You incur all the business profits.
– Even if you employ a few workers, you are the major decision-maker.
– Personal satisfaction and pride in owning and running your own business.
– Books are not audited by the Inland Revenue or Tax authorities.
– You are your own boss.
– You can provide personal assistance and attention to your customers because of the ‘smallness’ of the business.

Disadvantages

– You will have unlimited liability, therefore, if the business fails, you stand to lose even your personal possessions in order to pay off its debts.
– It is usually hard to obtain capital and so you will probably have to rely on savings or borrow from family and friends.
– Your prices may be higher because there are no economies of scale (advantages of large scale production) available, as is the case with larger producers who benefit from mass production.
– Usually you have to rely on your own experience and expertise when it comes to decision-making.
– Your working hours will probably be very long, especially in the initial stages of operation.
– It might get lonely at times, especially if you are working alone and have no one to share your vision with.

Partnership

PARTNERSHIP

A partnership is a business owned and operated by two or more people. The maximum number of partners is twenty, but where it concerns professionals such as accountants or solicitors the numbers could be higher. Partnership has some similarities to the sole trader structure, in that, there are no legal requirements in setting up, except observing local laws as they pertain to licenses or permissions necessary for establishment. Usually the word company follows the business’ name. There could be several types of partners in a partnership, which is usually dependent on their level of involvement in the business.

Types of Partners

Ordinary partners – They play an active role in the day-to-day running of the business.
Sleeping partners – They have a financial interest in the business but do not participate in the day-to-day running of the business.
Limited liability partners – Partners who stand to lose only what they invested in the business in the event of bankruptcy.
Unlimited liability partners – They stand to loose even their personal resources if the business goes bankrupt. Be prepared to work harder if you are an unlimited liability partner because you will undoubtedly want to see things run smoothly and the business thrive.

Advantages

– Business is easy to set-up.
– A group of people working together can share ideas and thus decide on the best course for the business.
– Books are not audited by the Inland revenue or tax authorities neither are they made public.
– More capital is available since partners pool resources.
– Partners share all the profits.
– You and other partners could have the opportunity to specialise in your area of expertise.
– Partners will be involved in the day-to-day running of the business
– Depending on the size of the partnership you may be able to provide personal service to customers.

Disadvantages

– The business incurs unlimited liability so partners (except for limited liability partners) stand to lose not only what they invested in the business but also their personal belongings if the business goes bankrupt and the debts cannot be covered by the business’ resources.
– Each partner is legally and financially liable for the others. Therefore, if one partner is unable to meet his or her liability (debt) the other partners have to stand that liability.
– Profits have to be shared.
– Sometimes partnerships ‘die’ after the death or leaving of one member. Therefore, partners should consider preparing a written agreement that will ensure the continuation of the business in event of this occurring.

It is advisable that if you choose this business structure you should insist that you and your fellow partners sign a Partnership Agreement. It does not have to involve lawyers; you can all come up with a reasonable agreement accepted by all partners.

What should be stated in a Partnership Agreement?

Here are some of the basics you will need to cover:

– Structure and the internal running of the partnership The amount of capital agreed to and is contributed by each partner.
– If partners are very active in the partnership, will they be paid a salary, if so, how much and what are the terms for salary increases?

Will there be an interest charged on drawings (amounts taken from business by partners for personal use) – if so, how much?

Will there be a payment of interest on capital (amount invested in the business by each partner), if so, how much?

– How will profits and losses be shared? Usually profits and losses are shared in the ratio of contributed capital. However, consideration could also be given to the active involvement of each partner, and ration accordingly.

– What will happen if one partner leaves or dies?

These are just guidelines, but it is strongly advised that at least these issues be dealt with, it could save future headaches. Of course, more information could be added based on your concerns and those of the other partners.

Where a Partnership agreement is not drafted there will be no interest charged on drawings or paid on capital. Profits and losses will be shared equally among partners and loans received by partners will attract an interest of 5%.