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Types of businesses Advantages/disadvanges
Sole trader- when an individual operates and manages a business, which is
a growing form of organisations. The person has full responsibility for the
financial capital of their business. Does not have protection from limited
liability! Can go bankrupt and still have to pay. Simple to establish and
operate. Owner keeps of profits.
Partnership- a business that is owned between 2-20 people. Some partners
may choose to only invest but not contribute anything (expertise) else
which are called sleeping partners. Partnerships end when death occurs,
when a partner goes bankrupt or on agreed terminations. Do not have
protection from limited liability. Partners may fall out due to terminations.
However responsibility is shared and easy to raise capital.
Private limited suitable for small-medium sized operations- may have a
single director. Easy for capital to raise because they are protected from
limited liability so investors raise capital easily. Could trade internationally.
Cannot sell shares, however could convert. Easy to establish. Have to
publish some financial information!
Public limited- a large operation that needs at least a capital of 50,000 to
start up. It has shares, makes capital from this whch are easily brought and
sold. However they could easily be takenover if majoroity of the shares are
brought. It has to publish some financial information! Easier to get loans
because they have a good capital and popularity. Has limited liability!
Sources of finance internal external
Internal re-investing profits (re using the profited money in the business
or to give to dividends ), working capital (reduce day to day needs and
improve credit terms with suppliers), sale of assets (Sell assets they no
longer need/surplus )
External- loan capital (borrow money from the bank on terms), share or
equity capital (sell shares), government grants (government offers
schemes to help out, e.g. business start up scheme)
Sole trader- owners savings, banks, government grants and loans
Evidence needed, could loose control, security for people who are lending
Partnership- owners savings, banks, government grants and loans
Problems introducing a new partner, lack of collateral (security for loan)
Private-loans, government grants, owners savings, private share issues
Getting the share holders on to agreeing, finding new shareholder, loss
control of existing shareholder, collateral issue, loan risky.
Public banks, factories, government grants and loans, shares
State of stock market and economy, financial performance, reputation,
could loose control of shares are sold.
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Business planning- a detailed statement setting out the proposals of a
business or explaining how to develop business. A summary of proposals
key features, aims and objectives, market research, details of
requirements (assets etc. ) info about manager, financial forecasting
(estimated inflow outflow etc.) This gets updated regularly- new
competitors, new assets etc. Vital.
Could compare what was expected and what happened so they could take
an action if anything goes wrong.…read more
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Reduces costs and outflows
Business software- having up to date information leads to having good
databases forecasts budgets and spreadsheets.
Databases- gather large amounts of information such as employee details,
stock records, fixed asset schedules, customer records, supplier records
etc. which could be used to make new decisions.
Spreadsheets- store numerical information of the business in categories.
Could provide reports on sales per day/week/total, sales per area, best
selling/worse selling, trends etc. so they could improve sales. (E.g.…read more