Small Business Owner: Finance and Accounting Questions - Essay Example

?Running Head: Small Business Owner Small Business Owner Inserts His/her Question The business I have chosen is a small UK based company that provides security alarm systems for businesses and homes. It is named Alert Alarms and it is based in Lincoln. The company has many clients throughout United Kingdom. The company specializes in alarm system and burglar alarm to clients. There are safety concerns for many people in United Kingdom due to increase in criminal activities. The company employees less than 80 people and most of them are on contractual basis. Alert Alarms advocate superior services to clients and aim at client satisfaction at all costs. Question 2 The legal ownership of Alert Alarms is sole proprietorship. The company is owned by a single owner and all the investment is the done by single owner. There also no protection of personal assets in sole proprietorship (Resource Nation, 2011) and this is the case with Alert Alarms. All these characteristics make the business a sole proprietorship. Sole proprietorship also allows businesses to save on taxes to a certain extent but the debt of the business is secured. People who have lent money to the business can claim their money even if they have to sell the personal assets of the business owner. Alert Alarms is a small business and its debt is not limited. This makes it a sole proprietorship. Question 3 There are many alternatives to sole proprietorship. Alert Alarms could have registered itself as a partnership. Partnership is a legal ownership structure in which two or more people contribute to the initial investment of the business. All the partners are a part of the business and they all have unlimited liability of their business that is their personal assets are not protected against the debt of the company. Corporation is another type of legal entity where shares are sold to general public. This type of company follows the going concern assumption meaning that death of the founder or owner does not end the legal existence of the company. Also there is a divide between owners and management in corporation. Corporations are also subject to double taxation. Limited Liability Corporation allows owners to protect their personal assets and also provide flexible structure for owners. This type of corporation does not allow selling stock in the company meaning the shares are not transferable. S corporation is another type of business entity that cannot have more than 100 shareholders (IRS, 2011). This type of legal entity allows shareholders to avoid double taxation. All these legal ownership structures were an alternative of Alert Alarms. Question 4 Alert Alarms is a small company therefore its priority should be to avoid taxes as much as possible. The company does not need great amount of debt nor does it require raising money through distribution of shares. The priority for small businesses is to save as much money as possible in taxes because it is the only outside expense for the company. There are no corporate taxes in sole proprietorship; the owner only has to pay personal taxes (New York Times, 2007). It is also easy to set up and this is why Alert Alarms can function in the best way under sole proprietorship. The only other legal structure that could have worked would have been partnership. But there is a significant threat of disagreement in decision making therefore sole proprietorship is the best for Alert Alarms. Question 5(a) The motivation behind operating Alert Alarms is profit. The owners actually want to provide better services to customers and in this way they want to earn profits. Like all small businesses Alert Alarms also attempt to lower costs in every way possible. Motives of the business owner must be to reduce costs by hiring the right people and doing most of the managerial work himself. According to the website of the company it claims to provide superior services to customers and in this brings value to the company. This implies that profit seeking and customer satisfaction is the main motives of the business owner with cost effectiveness. Question 5 (b) Wealth maximization requires maximizing of cash inflows from business activity (Business Blog, 2007). Wealth or cash flows can either be maximized by providing a product or service that is unique or by reducing costs. These two things are ways in which wealth can be maximized. The business is actually following the basic principles of wealth maximization. Alert Alarms is trying to provide high quality of services to the customers and this is how the business is aiming to maximize its cash flows. In order to maximize wealth the company has also made itself a sole proprietorship so that taxes can be saved. For small business owner wealth maximization is everything because they do not have the shareholders. They do not have to worry about shareholder satisfaction or positive brand image. They just want to maximize their wealth for their self interest. Wealth for them means cash and this makes wealth maximization important for small business owners. They have to maximize cash in order to operate efficiently and for a long time. Because they do not enjoy monopoly power, they have to maximize profits by providing good quality of services at lower costs. Question 6 Alert Alarms is a small business that qualifies all the requirements of a small business as presented in Holmes et al, 2003. A small business is not expected to trade equity to the public and this is the case with Alert Alarms. A small business owner also does not enjoy limited liability and his or her personal assets serve as collateral for his or her business debts. There is also no separation of ownership and management. The sole proprietorship allows business owners to operate their businesses themselves therefore there is no divide of management and ownership. Contractual agreements are also kept to minimum in small businesses and this is the case with Alert Alarms. The total control of the business is in the hand of the owner of the business therefore all the strategies and goals of the business are also designed by the owner. This makes Alert Alarms a small business according to the Holmes et al, 2003. References Advantages and Disadvantages of Sole Proprietorships. (2007). New York Times. Retrieved from http://www.nytimes.com/allbusiness/AB4113314_primary.html Common Types of Legal Entities. (2011). Resource Nation. Retrieved from http://www.resourcenation.com/article/common-types-legal-entities Profit Maximization vs. Wealth Maximization. (2007). Business Blog 360. Retrieved from http://www.businessblog360.com/2007/11/08/profit-maximization-vs-wealth-maximization/comment-page-1/ S Corporation. (2011). IRS Government. Retrieved from http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Read More