There are many alternatives of starting of starting businesses. One can start up a new business which was none existent before, one can buy a new existing business or one can buy a franchise.
In our case, Mr. Sorefoot is starting a new business. Starting a new business gives one an opportunity for people to realize their dreams, they also have the freedom to select the equipments, location, products and services, employees, avoid undesirable policies and procedures, avoid many legal commitments and requirements. He will be his own boss have freedom to follow any path of business and he cannot be fired.
I would advice Mr. Sorefoot to open the business.
This is because in reference to his business plan, he has highlighted all the essential areas required in a business plan.
He has given an executive summary which give highlight to all his key areas and this is very exhaustive.
In his business description, he has describes the business as sole proprietorship, this kind of business comes along with many advantages and challenges few. He also has expertise skills from his wife who was a KPMG accountant which combines well with the skills of Sorefoot who was a salesman. This will give his business a competitive edge over his competitor like the Tafia sports and the Uphill sports who don’t have qualified personnel to serve their businesses of sports wear.
In respect to the market, his target is the general public including the school children, because he opens daily unlike the market traders who open on market days unlike some of his competitors in the market. There is also advantage from the fact that Mr. Sorefoot is an ex-rugby player who has strong links with the local sports club and his wife is a chairperson of the local youth group and a member of PTA of an infant school, all this is likely to have a positive impact to his sales since as they have a good relationship with them. His business has a competitive advantage over his rivals because he can access the quality wear unlike the market traders who sell poor quality products. His business is located at a secondary prime area there fore he can access a good share of the market unlike the Uphill traders and the market traders who are poorly located. He will have a competitive advantage over Tafia traders who have low range of products.
Since Mr. Sorefoot has two plasma screens, he also plans to have promotion to schools and clubs, his strategy on the giving discount , holding evening display as well as the limited advertising on the local paper is promote his business sale because there will be increased customer awareness of his products this is likely to improve sales.
From the information given in the case study, the kind of market is perfect competition which offers free and fair competition in the market, it’s the forces of demand which set the equilibrium prices, therefore the business is likely to do well since there is free entry in and out of the market, meaning that there are no barriers of entry as in the monopoly.
From the projected financial analysis, Mr. Sorefoot firm is likely to do well, this is because his major source of capital is a loan bank, the pay back period is long enough to allow him expand his firm. He also have some saving in his account which he shares with his wife will help him to sustain his business in times of hard ship.
He should carry on with the business because he has the confidence and the self drive, more so he has set his objective, which is to make profits. He also considered his technical know how in sales and his wife was an accountant. Combining all that in addition to hiring a qualified employee is going to take his job to higher height.
Mr. Sorefoot has the knowledge of good sports wear since he was a rugby player, this is likely to satisfy his customers with good quality of products, more so he gets his products from known brands such as Nike, Adidas, Reebok and Canterbury. Since most of the people spend their leisure in sporting activities, this will match his job objective.
Recommendations to Mr. Sorefoot before starting his business [bounce sports]
Since he has analyzed his strength and weaknesses, he should capitalize on the strength while trying to counter the weaknesses. He should look for primary prime location; plough his profit so that he can have more money for advertising in the local media. He should also seek a qualified employee to suite the post he will create. He should also seek to be price competitive by finding out where the Tafia sports gets its supply from so to become price competitive.
Mr. Sorefoot should also include the description of problems he is likely to face in his operations and how he will solve them.
Mr. Sorefoot should consider the legal costs, the political environment in the country, if there is political stability in the country, then he should invest in the business other wise unstable political environment is not conducive for investors. He should also the security in the area.
The profit expectations are a bit high for the new firm there fore though it’s a feasible business, they should be reduced.
He should know that poor management contributes for the fall of almost all small scale business failure, the inability to deal with the unexpected occurrences, these occurrences such as changes in the exchange rate, changes in the taxation rates. He should therefore set money aside to deal with the uncertainties in the businesses, he should he seek a favorable insurance policy to take care of these uncertainties and occurrences such as fire and theft.
He should be innovative to think of new ideas and way to manage his business during the hard times. Desire and persistent along with innovative thinking proves all odds, therefore, the business can even change the direction if things go bad.
He should consider the government policies towards these small scale business, the government could be giving incentive or disincentives.
He should start attending some classes on management of business; since he is not trained entrepreneur the classes will help him to manage his business.
The kind of business Mr. Sorefoot is a sole proprietorship. This is form of business owned by a single person who assumes all the risks coming into the business and he is responsible for the profits and the losses. This form of business is the oldest and simplest form of business. This form of business owned by Mr. Sorefoot has many advantages and disadvantages.
Advantages of entrepreneurially managed firm.
There are few formalities required to start up the business. Mr. Sorefoot can begin the business easily because he is required to acquire only the license and capital as the basic needs. The other statutory needs are very few as compared to other business forms like the company or the partnership.
The proprietor of the business is responsible for making all the decision. The operations, policies and goal rest on the individual and the management is contracted. This makes him to make decision fast and no disagreement while making these decisions therefore very little time is wasted.
The owner of the business receives the rewards of the business alone. The rewards will come from good management and labor directly. This makes owner to be very careful while running the firm so that eventually he will attain his objectives, that to make profit like the case of Sorefoot.
There is close monitoring of the day today activities of the business since he is responsible for controlling, directing, organizing and planning. This means that the owner can take the corrective action needed soonest possible whenever any thing goes haywire without having to go through a long chain of command.
The costs of dissolution are low. This is because this will not require many people whom to breakup with many people. Therefore one will not need to hire special auditors and accountants and lawyers to carry out the dissolution.
This kind of business makes it easy for one to invest his personal assets into the business. Mr. Sorefoot can put his personal assets like the house hood furniture if he doesn’t have enough capital.
This business form is easy to be transferred to a willing buyer any time since it’s easy to dissolve.
The owner of the business can take relatively high risks in the business.
It’s most secretive, cheapest and flexible form of business.
Disadvantages of entrepreneurially managed firm.
There is likelihood of having limited capital, this is because one mainly get capital from his personal savings, borrowing donations or grants. This is a challenge as compared to other businesses like the companies who can raise money through the sale of shares.
The entrepreneur cannot acquire borrowed funds unless he shows the capability of paying back within the required period and at the lenders rate.
The liability extends to the personal belonging. If Mr. Sorefoot cannot payback the loans acquired to run the business, then his personal property like the beds can be taken by the leader.
The business pays high tax rates than those individuals forming the companies because they are required to pay the personal income taxes unlike those in the company.
It’s difficult to get the right people for the right jobs; like in our case Mr. Sorefoot business has limited expertise.
There is lack of continuity and stability because it largely depends on the one individual. In our case the firm is dependent on Mr. Sorefoot family.
Question four part B
LEGAL FORMS OF BUSINESS:
Beside the sole proprietor form of business, there are other forms of legal businesses and they include:
This is an association of two or more people as the owners of the business who come together as partners with the sole reason of making profits. There is no limit on the number of the partners. The partners can be:
Ordinary/ general partners
In general partner partnership, all partners are liable for the debts of the business and all have equal right to the business.
In limited partner’s partnership, the partner’s liability is limited to the amount of capital the individual has contributed.
Normally one individual is charged with the responsibility of running the day today activities of the firm.
Partnership offers the opportunity to pull the resources together in terms of the capital and technological know-how.
The partnership can be created by oral agreement or by written agreement, but its preferable a written agreement because it offers future reference.
Advantages of a partnership
It’s easy to start because it requires little capital from each partner as compared to the sole proprietorship.
It benefits from the variety of unique talent from the many partners.
It’s easy to bring in more partners when more capital is required.
Control of the business is spread to the partners depending on the sections you have in the business.
DISADVANTAGES OF A PARTNERSHIP
There is unlimited liability to ones personal property.
There is higher tax rates compared to the company because the partners are charged with income tax.
There is lack of stability and continuity when a partner dies or resigns because anew partnership deed must be drawn.
This is an entity which is entitled to:
Engage in various practices prescribed by the company act
A company is enacted by an act of the parliament and it’s owned by shareholders who are who are treated as one because they don’t own directly but through the shares.
The company’s legal form control capital resources and the resources are owned by the company its self and not the individuals. A company must meet the following legal documents.
Articles of association
It sets forth the purpose of the company and the means to finance it. It also maintains the by-laws and these indicate how the company will be operated in regards on how to elect the directors, duties of the office bearers, voting and by- election procedures.
Certificate of ownership
This could be in terms of shares, bonds or stock. They indicate how much participation one has in the company. The stock could either be:
When a company is formed, shares are sold to those who wish to risk of investing into the company.
Bonds are sold to individuals who want to invest into the company.
Debentures are types of bond with security and the type of bond depends on the interest rate.
ADVANTAGES OF A COMPANY
There is limited liability meaning that you are liable to the extent of your participation.
The company’s legal form gives it an opportunity to borrow funds externally, meaning that it can acquire enough capital unlike the sole proprietors.
It has the capacity to attract highly motivated personnel.
It’s easy to transfer the ownership by selling out your shares to the willing buyer. It’s easy to acquire brokers to sell and trading of the shares.
Its perpetual in nature, the stability and continuity exist over a longer period than other forms of business.
It’s highly regulated which make it hard to operate, you have to have to hire a company lawyer who has to be the legal advisor avoid misunderstanding and organizational problem within the firm.
There is also double taxation because it pays the corporate taxes and dividends are also taxed.
It contracts very high overhead costs.
It needs an elaborate accounting system therefore becoming an expensive business.
This is a legal form of business recognized by law. It’s a voluntarily business organized formally at a cost, capitalized and controlled by members who own the business.
The owners share the risks and benefits proportional to their participation.
It gives the members an opportunity to all members to pull the resources together.
It must serve its members and if there margins above the cost, they must be returned to the members as dividends.
The major objective of cooperatives is to promote the economic wellbeing of its member.
There are four categories cooperatives, namely:
Secondary cooperative society
Country wide society or union
Cooperatives are in most cases based on some principles since they offer an opportunity to all its members. Some of the principles are:
The have voluntary and open membership.
Cooperatives are democratically member controlled
The members must participate economically
Cooperatives must be independent and have autonomy
They must encourage cooperation among other cooperatives.
They must have a concern for the community
They should insist on education training and education flows.
There is limited liability that is up to your level of contribution.
There is always a broad based capital because of pushing of the resources together.
They can exist all along even with the exit of some members.
The ownership is not transferable.
The owners have limited participation in the managements
Though there is limited liability, who is usually responsible for the debts of most cooperatives which cause them to collapse.
Sometimes a cooperative may lack adequate resources to meet its objective.
A firm’s success depends on both internal and external factors. The external factors are called opportunities and threats whereas the internal environment is called the strengths and weaknesses.
The internal environment consists of the resources within the firm. These resources include the employees, the management, the capital available and the technology the firm is currently using.
The external environment consists of the market, technological changes, the government policies, socio- cultural issues and the other global issues. These are factor that the management cannot control within the firm.
The market is an external that determines the success of the small scale business.
The markets consist of:
The kind of competition determines future of the business. The competition may be fair or unfair. The market structure consists of number of player in the market, barriers of entry into the market, and the product differentiation. Depending on the number the market structure can be:
The best environment for the small firm is the perfect competition; this is because there is free entry and exit into the market, there is perfect knowledge of all the information in the market, there are many sellers and buyers.
Government policies also determine the success of the small firms. Some policies like the subsidies support them whereas the increases in the taxes e.g. the value added taxes. The government control of the prices can either be supportive or destructive to their growth.
Global issues like the natural calamities such as hurricane and earthquake also determine their future. Changes in the technology can affect their success. Though some firms can lack the capital to adjust from the obsolete technology; adoption of the new technology improves the efficiency in production.
Internal factors also affect the business future. The way the employees are handled and treated by the management determines their productivity, the benefits, salaries and the allowances determine the level of motivation.
The financial resources available to the company also determine its future interns of whether it can expand, can hire qualified personnel who come demanding higher packages, can the company adopt to the changing technology which come along with the cost.
The mode of management also determines the future of these small scale businesses. The manager key responsibilities are to:
If these functions are not carried out effectively, then these firms are likely not to succeed. The managers must ensures that are democrats so that they don’t fallout with their management, they must manage by objectives to be successful.
From the above analysis it’s clear that for the small scale business to be successful they should not only consider the external factors but also the internal factors which go hand in hand to achieve the objective of these firms.
Charles L. Martin (1992), Starting Your New Business: a guide for entrepreneurs,Thomson Crisp Learning.
David Karlson (1994), Avoiding Mistakes in Your Small Business, Thomson Crisp Learning.
Fred S. Steingold (2006), Legal Guide for Starting and Running a Small Business,Nolo.
How to start a business, electronic article, retrieved on first may 2007.
Ivan Taback, Samuel Weiner, Martin M. Shenkman (2003), Starting a Limited Liability Company, John Wiley and Sons.
Larry J. Robson (1999), It’s Your Business!: Start a New Business, Expand Your Business, Or Move Up the Ladder Starting …,Universal-Publishers.
Stephen C. Harper (2003), The McGraw-Hill Guide to Starting Your Own Business: A Step-by-Step Blueprint for the First Time,McGraw-Hill.