New Zealand Business Structures: Sole Proprietorship, Partnership & Limited Company - Essay Sample

Introduction

The standard legal business structures in New Zealand are sole proprietorship, partnership, and limited company. Sole proprietorship structure allows business owners to be the sole owner of the business will all rights dictated by them. A partnership is a structure where two or more individuals conjoin to own a business where they share profits. The limited company allows ownership of the business through shareholding/.the shareholders appoint directors who run the business on their behalf.

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Organisations and Corresponding Business Structure

Madam Bookkeeper, located at unit 6, 10 Loft Place, Kumeu, Auckland, is an example of a sole proprietor business structure. Madeleine Harman and Jessica Grubisa are in partnership business co-owning the Harman Grubisa fashion company. Burger Fuel is a limited company structured business.

The Advantages and Disadvantages Associated With Ownership Structures

Sole Proprietorship

Advantages

Setting up a sole proprietorship is secure, and a business can run immediately without many requirements. The startup costs are minimal and manageable because there are no legal and registration fees. As a business owner, you get a chance to enjoy all the profits and control of operations are flexible. It is also possible to use the income to pay off for losses.

Disadvantages

All business debts are a liability to business owners, increasing the chances of losing personal assets. The growth of the business is slow due to a lack of finances from banks. Accessing loans and investments is a challenge to sole proprietors making it challenging to sell to potential customers who prefer established companies.

Partnership

Advantages

As business collaborates, it is easy to share daily business operations, which can turn to cost reductions. Partners get an opportunity to work on their areas of interest where they feel they can perform well. Sharing capital investments ease the constraints of raising capital. There is also an opportunity to pay off debts using their income.

Disadvantages

The individual personal assets are at risk because all business debts are a liability. There is no separation of debts, so one party can be liable to a fellow partner's debts. Taxes are an individual responsibility depending on partners' income.

Company

Advantages

The liability of business shareholders is limited to each shareholders' contributions. The tax rates are reduced compared to individual rates. Selling and marketing of business are better when pitched to potential customers. There is a possibility that the business will grow at a faster rate compared to a sole proprietorship. Raising of funds to run the business is easy because banks and investors can have the interest to be shareholders on the business (Hill et al., 2014).

Disadvantages

Companies go through strict regulations compared to partnership and sole business owner. The growth and expansion of companies require high startup capital. The company directors are responsible for business operations, and there are high chances that the directors can fail to honour shareholders' interests.

Business Life Cycle

The five business cycles are launch, growth, shakeout, maturity, and decline, as illustrated in the image below.

Stage One: Launch

The launch stage is the initial stage of business where a business start to offer services or goods to its potential customers. The launch stage is characterised by low sales, and it is at this stage where business owners focus on marketing to reach out to potential customers. Losses are witnessed at this stage due to high startup costs with low sales.

Stage Two: Growth

The growth stage of business is a time when a business start to increase their sales. The increase in sales translates to profit, which makes it possible for the business to break-even. It is worth noting that at this stage, the business still lags in profit because of the slow sales cycle. The cash flow starts to increase, allowing the business to have surplus money to assist in the business expansion (Telles, 2013).

Stage Three: Shakeout

The shakeout phase represents an increase in sales through at a slow rate. The slow growth rate is attributed to market saturation and the emergence of new competitors. The business is likely to witness peak sales during this period. The profits can start to drop due to an increase in the costs of managing customer base and operations.

Stage Four: Maturity

It is at this stage when sales start to decrease because of thin profit margins. The cash flows become constant, prompting high cash generation, which can be more than the profit. The business at this stage can be reinvented, or new investments are made to ensure that the organisation remains relevant in the industry. The reinvention allows the business to adapt according to marketplace dynamics.

Stage Five: Decline

It is the stage where sales, profit, and cash flow drops. The business owners and shareholders have to contend with their shortcomings. The competitive advantage of the business is lost, and market exit is initiated.

Burger Fuel Analysis

Organisational Planning

BurgerFuel organisational strategy is to identify markets for their products through brand and conceptualisation. Based on the business cycle BurgerFuel reached the maturity stage where it faced losses due to split with their international partners. The full strategy of BurgerFuel is to compete with already established brands in the market. The operational strategy for BurgerFuel is to acquire small businesses making it possible to market the company's gourmet burgers currently on demand. The company also is gearing towards a focused market strategy with a discrete description of markets to focus on.

Management Functions

The management at BurgerFuel is responsible for planning, leading, organising, and controlling all the business functions. Profit maximisation at BurgerFuel is made possible if the management team chose premium pricing as their option. The reason for premium pricing is to cover up for extra costs witnessed through product differentiation. It is the responsibility of managers at BurgerFuel to lead in developing plans to help in the identification of strategies to help in cost reduction. The cost reduction structure should not harm the business.

Organisation Design

Organisational design is the corporate level strategy that is aimed at ensuring that BurgerFuel's stakeholders are satisfied with their business model. BurgerFuel should pursue a horizontal organisation structure. Horizontal integration at BurgerFuel gives managers an opportunity to decide on ways to invest the organisation's assets and cash inflows per all the stakeholders. The organisational design that follows horizontal integration favours all business stakeholders because it reduces cost structure, adapts to market rivals, reinvents the business goals, and increase BurgerFuel's bargaining power (BurgerFuel, 2020).

Part II

Accounting Cycle

An accounting cycle is an organised process that involves keeping records, invoicing, and crediting all business transactions. The transactions are recorded with a particular period, often each quarterly. The accounting cycle allows a business to record cash flow reports and cash flow reports and balance sheets. Closing financial records for a given period prompts for the creation of new records for the upcoming accounting period. There are various roles in the accounting cycle, which include proper analysis (Rude, 2003). The accounting cycle ensures that the accounting department has a clear and concise analysis of all business transactions. The accuracy in transactions is beneficial in budgeting. Tracking of customer payments is made possible through the accounting cycle because the accounting department can identify pending payments affecting their customers. It makes it possible for the accounting department to understand the state of business so that they can be able to plan for the future. Scheduling for upcoming business is made possible when all costs are identified through the accounting cycle.

Standard Financial Statements

The standard financial statements are balance sheets, income statements, and cash flows statement and statements of shareholders' equity.

Explanation

The balance sheets are financial statements used to record business assets, shareholders' equity, and liabilities. The income statements are used to write a report on the revenue of a business within a particular period. Costs and expenses are also recorded in the income statement. The cash flow statement is used to record all inflows and outflows of cash within a business. The statement of shareholders' equity is a financial report that outlines changes in shareholders' equity as recorded at the beginning of an accounting period.

What Each Financial Statements Tell Us

The balance sheet tells us about assets as compared to liabilities. The balance sheet, however, does not inform us about the flows in and out of accounting books. The income statements inform us about revenues earned by a business during its operation period. The net profit recorded during the financial period tells us about the earnings or losses made during a specific accounting quarter. The cash flows statement informs us about available cash that can be utilised in running daily business operations. The statement of shareholders' equity, on the other hand, tells us about the changes in shareholders' ownership during the financial period. The shareholders are able to evaluate their status of investments made in their business. The company decided on stock issuance is determined by the status of shareholders' equity.

Business Decision Making

The balance sheet assists business owners and shareholders in having a clear picture of the financial health of a company through an analysis of assets and liabilities. The investors use assets and liabilities listed to decide whether to invest or lend money to the firms. The business shareholders, on the other hand, carry out budgets and credit lending based on the balance sheet position. The assets listed in the balance sheet can be used in liquidation decisions in case the business is failing. The income statements are used to project on business profitability over a given period. Businesses can use income statement data to carry out a performance comparison with their competitors. The decisions on operating expenses are made based on income statement data (Carraher et al., 2013). The cash flow statement provides business managers with insight on available cash and if it can comfortably payout all their expenses over a short period. The cash flows statements cancel out cases of net income manipulations because it indicates the reality of business ability to sustain their daily operations. The statement of equity is used by business shareholders to decide if they can continue investing in the company or quit. High dividends are an indicator of performing business, therefore, encouraging business investors to continue investing in a business.

BurgerFuel Internal Performance Measures

Accounting Performance Measures and Control

Authorised Approvals. BurgerFuel management team is hierarchical, therefore allowing for authorisation of all accounting transactions taking place within the firm. The purpose of authorising all transactions is to prevent cases of fraud and loopholes for employees to steal money.

Assets Audits. BurgerFuel uses both internal and external audits to assist them in cash reconciliations and verification of actual balances compared to accounting balances. The purpose of audits is to ensure that all financial reports are accurate. Assets liste...