Types of Business Structures in Australia
For the purpose of this assignment, business of manufacturing of scoots tools is selected.
In Australia there are primarily five types of business structures. They are: Sole Proprietorship, Partnership, Trust, Company and Cooperative society. Following factors are to be considered while selecting the appropriate business structure:
- Control: It depends on the level of control that the managers want to take on the business. If they wish to operate the business individually without the intervention of other people they must opt for the sole proprietorship form of business rather than opting for partnership firm and company form where the control over the management of the business is shared between two or more individuals.
- Limitation of Liability:The potential legal liability of the business has an impact on the choice of business structure. If the managers are willing to protect his personal assets from the debts and liabilities of business, then it must opt for company form of business organisation.
- Cost and complexity of formation: It is easier and economic to set up the proprietor form of business as it involves less legal formalities than setting up of a corporation that requires fulfilment of numerous legal formalities.
- Tax Implications: There are various tax exemptions available with different forms of business organisations. The business structure must be chosen as per the ability of business to bear the tax burdens.
Sole-proprietorship:
- Advantages
- Ownership of business is in sole control of a single person.
- It is the simplest and most economic structure to establish.
- Owner has sole right over the profits and assets of the business.
- Disadvantages
Owner has the limited access to the funds as required to operate business.
Business is subject to the owner’s life and health.
Partnership form:
- Advantages:
- It allows sharing of responsibilities and obligations of business.
- The contribution of different assets such as collective efforts of human resources, skills helps the business to grow smoothly.
- The funds required to manufacture the scoot tools will be available from the partners as and when required.
- Disadvantages:
- The partners of manufacturing firm will have unlimited liability.
- There is no permanence of the business as it is subjected to partnership termination and dissolution.
- Transfer or termination by one partner can affect the on -going functioning of the business.
- The manufacturing concern cannot expand itself in future as there are limits on maximum number of partners in a firm.
Company:
- Advantages:
- It will be easier for the manufacturing concern to raise funds from various sources to carry out its operations.
- There will be good scope of expansion of manufacturing business.
- The personal assets of the operators of business will be protected by the debts and liabilities of company as company has a separate legal entity.
- The business of manufacturing of scoots tools can have unlimited life in case of company form of business organisation.
- The business will enjoy various tax exemption benefits.
- Disadvantages:
- The managers will have to incur large sums to incorporate the company to operate as a manufacturing business.
- The owners of the company will have to sacrifice the control over business to the board of directors.
- The business will have to comply with the strict and huge legal formalities and other regulations applicable on the manufacturing business.
The information that is required to start a manufacturing concern can majorly be classified into classes i.e. financial information and the non-financial information. Such information can be collected from various sources so that they can help the proposers of business plan to turn the plans into reality by successful execution.
Financial information: This kind of information is expressed in the monetary terms and helps to determine the financial feasibility of any business plan.
The prices of the products produced by competitor firms:
The information regarding the product prices of rivalry firms will be required to determine the prices of the products that the manufacturing concern is going to produce. The product pricing policies defined before the commencement of business will help the company to determine the profitability potential of the business.
The rates of interest charged by various providers of finance:
The proposers will have to identify the extent of borrowing cost of the business to be incurred while arranging the funds to set up the business. This information will helps them to understand the financial feasibility of the manufacturing business.
The information regarding the overall cost to be incurred to operate the business:
Before commencing the manufacturing business, it is important for the business proposers to estimate the direct and indirect cost that the business will have to incur in order to carry out its manufacturing expenses. The correct cost information will help them to make sound economic decisions (Zimmerman & Yahya-Zadeh, 2011).
Non-financial information: The information which is generally not expressed in the financial terms but is capable of influencing the decision of the proposers of business plan.
The demand and supply of the scoots tools in the market:
The information regarding demand of the product that is proposed to be manufactured by the firm must be analysed before starting the actual manufacturing operations because it will help the firm to decide the quantum of products to be manufactured. Also, if the supply of the scoots tools in the market is relatively higher than its demands, then the firm must not plan its business in this particular segment.
The applicable laws and regulations:
Before initiating the manufacturing business it is of utmost important to identify all the applicable laws and regulations on the business. A manufacturing concern may have to comply with laws relating to environment protection along with various other requirements under various laws such as corporate social responsibility of the business etc.
To operate the business of manufacturing of scoot tools, the firm require to record and maintain proper financial data of the transactions and events related to the business. Such accounting practices can be undertaken with the help of various accounting software such ERP (Enterprise resource programme), MYOB, SAP, QUICKBOOKS etc. (Bodnar & Hopwood, 2012). The implementation of such software facilitates the accounting and financial functions of the company in the minimum time with minimum efforts. Such accounting software will help the manufacturing business in complying with the applicable financial reporting requirements as well as managing the relevant records such as inventory records, payable records, bank reconciliation statements (Anandarajan, Anandarajan & Srinivasan, 2012).
Other than the accounting software the various supporting system such as decision support system, management information system and expert support systems can be utilised to facilitate the operations of the business. These systems will enable the manufacturing firm to retain its critical information records in one place.
- Accrual assumption: The accounting transactions must be recorded in the financial records on the basis of accrual concept. Under this assumption expenses are recorded at the time of transaction but incomes are recorded when they are recognised in the books.
- Going concern assumption: accounting of the company is done on the assumption that business will continue to exist for a foreseeable period.
- Consistency assumption: The same accounting method shall be applied for all the financial years (Schipper, 2003).
- Time period assumption: The financial reports of the entity must adopt a consistent approach in reporting the uniform period.
Capital expenditure decisions that could be undertaken in the course of business:
- Purchase of new machinery for the manufacturing the scoot tools
- Repairs of the machinery of manufacturing the scoot tools
- Renovation of the factory building (Murthy, 2011).
The financial planning and budgeting for the manufacturing business will be done by anticipating the possible incomes and revenues from the business and estimating the expenses and costs of the business. The estimation of income and expenditure can be done on the basis of trends of demands and supply followed by the other firms in industries (Hansen, Mowen & Guan, 2007).
References:
Anandarajan, M., Anandarajan, A., & Srinivasan, C. A. (Eds.). (2012). Business intelligence techniques: a perspective from accounting and finance. Springer Science & Business Media.
Bodnar, G. H., & Hopwood, W. S. (2012). Accounting information systems. Upper Saddle River: Pearson.
Hansen, D., Mowen, M., & Guan, L. (2007). Cost management: accounting and control. Cengage Learning.
Murthy, G. (2011). Capital Expenditure Decisions. Retrieved from: https://dspace.vpmthane.org:8080/jspui/bitstream/123456789/1403/1 /3%20Capital%20Expenditure%20Decisions.pdf Accessed on: 18.06.2018.
Schipper, K. (2003). Principles-based accounting standards. Accounting horizons, 17(1), 61-72.
Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control. Issues in Accounting Education, 26(1), 258-259.
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