What is Small Business? Topic One

THE ROLE OF ACCOUNTING IN THE SMALL BUSINESS SECTOR The accountant looks after the business’s financial situation including the maintenance of a good accounting system and the financial direction of the business both internally, and externally (ie tax). Specifically, financial support can cover the following areas: The accountant looks after the business’s financial situation including the maintenance of a good accounting system and the financial direction of the business both internally, and externally (ie tax). Specifically, financial support can cover the following areas:

The Role of Accounting evaluate future prospects evaluate future prospects design accounting systems design accounting systems computer packages computer packages

The Role of Accounting taxation taxation pricing pricing manage inventory manage inventory sources of finance sources of finance investment investment budgeting budgeting We will cover a number of these areas throughout the Year 11 course.

Going Into Business Small business is defined in different ways. The Australian Bureau of Statistics uses a definition for small business that is based on a 2005 Federal Government report. The bureau suggests a business is regarded as being small if it has the following management and organisational characteristics: Small business is defined in different ways. The Australian Bureau of Statistics uses a definition for small business that is based on a 2005 Federal Government report. The bureau suggests a business is regarded as being small if it has the following management and organisational characteristics: it is independently owned and operated it is independently owned and operated it is closely controlled by owners/managers who also contribute most, if not all of the operating capital it is closely controlled by owners/managers who also contribute most, if not all of the operating capital the principal decision-making functions rest with the owners/managers the principal decision-making functions rest with the owners/managers

Why start a business? People choose to go into business for a variety of reasons. The decision to do so is one of the more critical ones that people will ever make. Some of the more common reasons for gong into business include: People choose to go into business for a variety of reasons. The decision to do so is one of the more critical ones that people will ever make. Some of the more common reasons for gong into business include: to seek independence to seek independence to seize a business opportunity to seize a business opportunity to increase personal wealth to increase personal wealth to market a particular skill to market a particular skill to achieve position or status to achieve position or status as an extension of a hobby as an extension of a hobby to provide a needed service or product to provide a needed service or product as a result of experiencing difficulty in finding suitable employment. as a result of experiencing difficulty in finding suitable employment.

Starting Out You can: You can: Buy an established business Buy an established business (this one is for sale in Blairgowrie for $ ) (this one is for sale in Blairgowrie for $ )

Starting Out Set up a new business Set up a new business

Starting Out Buy a franchise Buy a franchise

FORMS OF BUSINESS OWNERSHIP The form of business ownership adopted is of particular importance when going into business. The form of business ownership adopted is of particular importance when going into business. Business ownership will determine, among other things: Business ownership will determine, among other things: the costs of establishment the costs of establishment the registration and legal requirements the registration and legal requirements the liability of the owner(s) the liability of the owner(s) the nature and extent of the reporting requirements to regulatory authorities such as Corporate Affairs the nature and extent of the reporting requirements to regulatory authorities such as Corporate Affairs

TYPES OF BUSINESSES TYPES OF BUSINESSES Business in Australia is conducted in a number of forms including a sole proprietorship, partnership, franchise and company. The form chosen will depend on a number of factors including: Business in Australia is conducted in a number of forms including a sole proprietorship, partnership, franchise and company. The form chosen will depend on a number of factors including: The number of persons involved The number of persons involved The size and type of business The size and type of business Taxation considerations Taxation considerations Perceived need for capital Perceived need for capital

Sole Proprietorship: This means that the business is owned by one person. The owner is normally responsible for the day-to-day operations of the business, as well as making decisions about the management of the business. Many local businesses are in this category. EG:

Sole Proprietorship: Advantages: Advantages: Owner retains full control and ownership of the business Owner retains full control and ownership of the business Owner receives all profits Owner receives all profits Disadvantages: Disadvantages: The owner is responsible for the debts of the business The owner is responsible for the debts of the business The owner may lack the necessary capital and expertise. The owner may lack the necessary capital and expertise.

Partnership: This may be defined as an association of two or more persons to co-own a business with a view to making a profit. A partnership agreement is prepared to detail the rights, duties and obligations of each partner. EG: This may be defined as an association of two or more persons to co-own a business with a view to making a profit. A partnership agreement is prepared to detail the rights, duties and obligations of each partner. EG:

Partnership: Advantages: Advantages: Combined capital, skill and experience Combined capital, skill and experience Disadvantages: Disadvantages: Each partner is liable for the business’s debt. Each partner is liable for the business’s debt.

Partnership Agreement ne/partnership-agreement.html ne/partnership-agreement.html ne/partnership-agreement.html ne/partnership-agreement.html

Company: This type of business organisation normally vests ownership with a group of shareholders who are usually separate from the management of the business. Institutions and persons buy shares in a company but their rights of ownership of the business can be limited. A company is an accounting entity in itself, and is recognised by law. This type of business organisation normally vests ownership with a group of shareholders who are usually separate from the management of the business. Institutions and persons buy shares in a company but their rights of ownership of the business can be limited. A company is an accounting entity in itself, and is recognised by law.

Company: Advantages: Advantages: Limited liability Limited liability Many owners can contribute finance Many owners can contribute finance Disadvantages: Disadvantages: Complexities in establishment Complexities in establishment Lack of control where there are many owners Lack of control where there are many owners Many government regulations surrounding company structures. Many government regulations surrounding company structures.

SETTING UP A BUSINESS Type of Business: RESTAURANT Type of Business: RESTAURANT Regulations: Regulations: Health and safety Health and safety Register business name Register business name Employees Employees Superannuation Superannuation Insurance Insurance Food handling Food handling Liquor license Liquor license

Setting up a Business Type of business: Restaurant Type of business: Restaurant Assets RequiredEstimated CostsFinance Required Tables and Chairs$5000Cash - owner Cooking facilities$30000Loan Cash Register$1000Cash - owner Premises$ Mortgage Fixtures and Fittings $50 000Loan

I WANT A RETURN ON MY INVESTMENT Alicia Bowler has been working s a hair dresser for 10 years. She currently earns $550 per week and has $ saved in the bank earning 5% per annum interest. Alicia Bowler has been working s a hair dresser for 10 years. She currently earns $550 per week and has $ saved in the bank earning 5% per annum interest. She has decided to establish her own salon. She has decided to establish her own salon.

I want a return on my Investment! As part of the all-important planning and setting-up stage, Alicia has a number of important decisions to make: As part of the all-important planning and setting-up stage, Alicia has a number of important decisions to make:

I want a return on my Investment! How much capital should I invest? How much capital should I invest? How many employees will I require, and what are the legal requirements affect their wages? How many employees will I require, and what are the legal requirements affect their wages? What prices will I need to charge? What prices will I need to charge?

I want a return on my Investment! What profit can I achieve? What profit can I achieve? What legal and government requirements do I need to meet? What legal and government requirements do I need to meet? What records will I need to keep, and how should I keep them? What records will I need to keep, and how should I keep them?

I want a return on my Investment! Minimum desire return on capital invested: Minimum desire return on capital invested: $ x 5% = $ $ x 5% = $ Salary $400 x 52 weeks = $ Salary $400 x 52 weeks = $ Desired minimum profit = $ Desired minimum profit = $21 800

I want a return on my Investment! If Alicia makes a profit of $3 000 If Alicia makes a profit of $3 000 And we compare her profit and her investment, And we compare her profit and her investment, The return on her investment of $ will be: The return on her investment of $ will be: (3000/20000)*100 = 15% (3000/20000)*100 = 15%

THE ENTITY PRINCPLE The entity concept is based on the principle that: The entity concept is based on the principle that: The owner’s and the business’s financial information should be kept separate and distinct. The owner’s and the business’s financial information should be kept separate and distinct.

The entity principle Never mix the two. They are separate legal entities. Never mix the two. They are separate legal entities.

The accounting entity V legal entity The entity concept discusses above applies only for accounting purposes. But the form of business ownership adopted will also determine the legal standing of the business. The entity concept discusses above applies only for accounting purposes. But the form of business ownership adopted will also determine the legal standing of the business.

The accounting entity V legal entity Sole proprietorships or partnerships do not give the business a separate legal personality, that is, they are not regarded as a legal entity on their own right. Sole proprietorships or partnerships do not give the business a separate legal personality, that is, they are not regarded as a legal entity on their own right.

The accounting entity V legal entity A company however is a separate legal entity in the eyes of the law as it is an incorporated body. A company however is a separate legal entity in the eyes of the law as it is an incorporated body.

FINANCIAL DATA AND FINANCIAL INFORMATION financial data is the collection of data to input into the accounting system. financial data is the collection of data to input into the accounting system. financial information is the outcomes of the accounting system in the areas of: financial information is the outcomes of the accounting system in the areas of: profit profit cash cash financial position financial position owners and users of accounting information make decisions relating to the business. owners and users of accounting information make decisions relating to the business.

Non Financial Information Business owners often require non financial information about their business, in order to assess their performance and make comparisons to other business ventures. This can include: Business owners often require non financial information about their business, in order to assess their performance and make comparisons to other business ventures. This can include: Number of hours worked, location of business, marketing strategies, weather patterns, seasons, etc. Number of hours worked, location of business, marketing strategies, weather patterns, seasons, etc.