Presentation on theme: "Going Into Business VCE Accounting Unit Two. vce accounting - going into business 2 Going Into Business As you read this PowerPoint you will use the information."— Presentation transcript:
vce accounting - going into business 2 Going Into Business As you read this PowerPoint you will use the information to answer a series of questions ClickClick on the picture to open the questions in Word
vce accounting - going into business 3 Small Business When is a business 'small'? When does 'small' suddenly become 'large'? These questions are basically impossible to answer. Therefore we will not attempt any formal definition. Small businesses do however have the following 3 characteristics. 1The manager tends to be the owner. 2The owner tends provides most of the money to finance the business. 3There are a small number of workers.
vce accounting - going into business 4 Small Business More than 90% of Australian firms employ fewer than 100 people. A small manufacturing business is one that employs less than 100 people and a small trading or service business is one that employs less than 20 people. Small businesses are of great importance in the Australian economy as there are so many of them. Large firms depend on smaller firms to help them provide materials or distribute what they produce.
vce accounting - going into business 5 Why establish a small business? There are many reasons people go into business and therefore become self ‑ employed, but these are the main ones.
vce accounting - going into business 6 Why establish a small business? independentThe desire to be independent and have control of their activities causes many people to leave their secure employment to establish their own business. original ideaThe chance to put into practice an original idea or change an existing one may cause a creative thinker to start a business rather than sell the idea to an existing business..
vce accounting - going into business 7 Why establish a small business? financial rewardsMany people believe greater financial rewards are possible compared with being an employee, because of the greater income possible but also because of the chance to make a capital gain when the business is eventually sold. This is the profit motive and is probably the main reason for establishment of a small business.
vce accounting - going into business 8 Why establish a small business? challengeSome people respond to the challenge to test their abilities. prestigeOwning and managing your own business carries with it a certain amount of prestige, marking the person as one who is self ‑ reliant, ready to take a risk, and an independent thinker. at home and set their own hoursSome people wish to take the opportunity to work less than full time or the equivalent of full time but to do so at home and set their own hours.
vce accounting - going into business 9 Why establish a small business? familysecurityThe motivating reason for family security is the chance to develop a family business and provide security for children who will have the opportunity to work in the business and carry it on if they wish.
vce accounting - going into business 10 Why Establish a Small Business? profit motive independent It is likely that several of these objectives will apply in any given situation; it would be rare, however, not to find either the profit motive or the desire to be independent as the main force behind the decision to start a new business.
vce accounting - going into business 11 Success or Failure of Small Business
vce accounting - going into business 12 Role of professional advisers ……………Successful firms will call on experts of many kinds from time to time as needed. It is not only at the start of a new business that advice is needed; frequently, at some later stage of operations, success depends on good advice not available within the firm. Advice should be sought from at least the following ……………
vce accounting - going into business 13 People who give professional advice - professional advisers 1Solicitor The solicitor will take care of any legal technicalities of your business, for example contract of sale, leases, licensing agreements, local government requirements.
vce accounting - going into business 14 People who give professional advice - professional advisers 2Accountant The accountant performs many functions and should also give ongoing advice. Before commencing business you should work with your accountant to: –prepare a budgeted cash flow statement for the next few months; –analyse the business's figures and advise accordingly; –prepare a projected profit and loss statement that will indicate where the business is headed (that will be useful if funds have to be borrowed); –help arrange finance after advising on the different types of finance available.
vce accounting - going into business 15 People who give professional advice - professional advisers 3Business agent The agent will give you all the details about any business you are planning to buy. You do not pay a fee to a business agent ‑ the seller of the business pays him or her.
vce accounting - going into business 16 People who give professional advice - professional advisers 4Government and other advisory bodies There are many government agencies that provide help for small businesses. These agencies operate at local, state and Commonwealth levels. Most provide information and advice both by individual consultation and through various publications. There are also advisory bodies other than those operated by the various governments, many of which are provided by trade associations, that is, associations formed by the owners of businesses operating in a particular area.
vce accounting - going into business 17 People who give professional advice - professional advisers 5Banks Bank officers should be able to provide financial advice for minimal or no cost. It is also desirable to establish a good working relationship with your bank manager from the outset and not leave an approach until a time of financial difficulty.
vce accounting - going into business 18 People who give professional advice - professional advisers 6Possible supplier Many suppliers are willing to provide advice on marketing, pricing and so on, because the success of any of their customers means additional business for them.
vce accounting - going into business 19 People who give professional advice - professional advisers 7Insurance brokers The broker will be able to advise on the types of insurance that should be carried and the appropriate extent of cover (protection against loss).
vce accounting - going into business 20 Establishing a new business business structure 1Decide on the best business structure considering the type of operation, legal liability and tax considerations. business plan 2Prepare a business plan ‑ sales budget, production or purchasing budget, expense budget, budgeted cash flow, projected profit and loss statement. finance 3Organise the necessary finance
vce accounting - going into business 21 Legal nature of small business Businesses may be classified by their legal nature or by the type of operation that they conduct. Below is a classification by legal nature. Basically there are three legal structures under which a business may operate, each of which has its advantages and disadvantages. 1. Sole Proprietorship 2. Partnership 3. Company - private (Pty Ltd) or public (Ltd)
vce accounting - going into business 22 Nature of the business operation There are three main types of businesses: manufacturing, trading and service. Manufacturing Manufacturing firms are involved with obtaining raw materials then processing them in some way to change them into a particular finished product ready to sell. Trading Trading or merchandising firms are involved with buying goods then reselling them, hopefully at a profit. Service Service firms, as the name implies, are engaged in providing a service for which they charge, for example a taxi firm or a doctor's practice. Some businesses combine two or even all three of these activities, for example a garage that sells petrol and that also services cars.
vce accounting - going into business 23 Legal nature of small business Sole Proprietorship It is natural to think of a small business as a sole proprietorship, that is, a business owned by one person. Many small businesses in your town or suburb will be in this category. accounting entityA sole proprietorship is an accounting entity quite separate from the sole proprietor (or owner). accounting principle accountingThis is an accounting principle which means the business is considered to be separate and distinct from the owner for accounting purposes.
vce accounting - going into business 24 Legal nature of small business Sole Proprietorship legalA sole proprietorship is not, however, considered to be a separate legal entity. unincorporated enterprise, unlimited liabilityA sole proprietorship is an unincorporated enterprise, that is, it has no legal existence apart from that of the owner. The owner would, therefore, be fully liable in law for all the business's debts and is said to have unlimited liability for the firm's liabilities (debts). assets liabilitiesIf the firm's assets (the things of value it owns) are not high enough to pay its liabilities (the amounts it owes to individuals and organisations), the owner must make up the shortfall from private assets.
vce accounting - going into business 25 Legal nature of small business Sole Proprietorship Some advantages are: 1.it is cheap to set up and is simple to operate 2.the owner has full control of the business 3.the owner gets all the profits
vce accounting - going into business 26 Legal nature of small business Sole Proprietorship Some disadvantages are: 1.the owner must pay for all the losses by him or herself 2.liability is unlimited; the owner must sell his or her personal belongings to pay for any debts the business has 3.some lending institutions do not like to lend to these types of businesses 4.there is only one person to provide all the money, experience and skill
vce accounting - going into business 27 Legal nature of small business Partnership A partnership may be defined as two to twenty people who own a business together with a view to making a profit. This type of firm is similar to sole proprietorship in that the partners have unlimited liability for the partnership's debts because it is also an unincorporated enterprise. In the eyes of the law the partners are the partnership ‑ there is no separate legal entity, exactly as in a sole proprietorship.
vce accounting - going into business 28 Legal nature of small business Partnership Some advantages are: 1.it is cheap to set up and it is simple to operate 2.losses and debts can be shared 3.there are several owners to provide money, experience and skill
vce accounting - going into business 29 Legal nature of small business Partnership Some disadvantages are: 1.liability is unlimited, which means the partners must sell there personal belongings if the business cannot pay its debts. 2.profits have to be shared between partners 3.partners must agree on all the major decisions 4.if a partner leaves the partnership is finished
vce accounting - going into business 30 Legal nature of small business Company incorporated enterpriseA company is an example of an incorporated enterprise. shareholdersThe business is owned by a group of people who buy shares in the company. These people are called shareholders. A company is a separate legal entity, it can sue and be sued in a court of law. The shareholders' liability is limited to any amount unpaid on their shares. This means that once the shares are fully paid, the shareholder is no longer responsible for the company's debts.
vce accounting - going into business 31 Legal nature of small business Company Some advantages are: 1.liability is limited as a company is a legal entity; 2. more money can be raised because a private company can have from two to fifty shareholders, while a public company may have five or more owners with no upper limit
vce accounting - going into business 32 Legal nature of small business Company Some disadvantages are: 1.setting up a company is expensive 2.there is a loss of control because the shareholders have little say in the company's day to day operations. 3.various government requirements apply, including having an annual audit by an external accounting firm.
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