Forms of Business
Institution Affiliation
Date
Introduction
The research from the various sources has shown that a small bakery shop requires a capital ranging from $10,000 to $50,000. This implies that the available money I have at hand will be enough to start even without additional capital. Also, comparing a bakery shop with other types of business venture, any business related to foods and beverages have higher chances of surviving. In that case, it is not necessary to start other forms of business, such as partnership, which tends to spread the risk of the business failing. Also, since the business is new, it more preferred to start with a small bakery shop and then expand later in life. Therefore, a sole proprietorship is my choice of a form of business that I recommend.
Sole Proprietorship Business Entity
A sole proprietorship is the simplest form of business entity that one can start. This form of business is controlled ad owned by one person who is responsible for all transactions in the business (Khan, 2017). The owner of this form of business can also pass his business to his or her beneficiaries.
Sources of Capital
Sole proprietorship form of business has many sources of capital. Despite having the capital to launch the business, more capital is needed to expand the business as well as meeting the needs of an unexpected situation. Therefore it is essential to focus on possible sources of capital. One of the primary sources of capital is plowing back earned profits (Melnyk & Shatska, 2019). Another source of capital for the business can be drawn from the sale of the business’ assets. However, to apply this source, the need must be urgent, and other sources are not available.
The business can also source its finance from banks through taking loans. Most financial institutions across the states offer loan services, and most of them take business assets as collateral for the loan. In case the business may fail to settle the debt, the bank can auction these assets. The disadvantage side of this source of finance is that the owner’s assets, such as cars, can also be auctioned since this form of business is characterized by unlimited liability (Melnyk & Shatska, 2019). Another source of capital can be contributions or donations from friends and family members. This source is more preferred since most of them do not charge any interests while others do not need the money back.
Advantages of Sole Proprietorship
One of the main advantages of the sole proprietorship is its easiness of starting the business. Unlike other forms of businesses, sole proprietorship requires few legal paperwork. This implies that the business will save much time since the few paper works have few requirements (Abor, 2017). Apart from saving time, this form of the business tends to save a lot of funds compared to other types of business. This statement is based on the fact that each document issued to any business form is done at a cost. The second advantage of the sole proprietorship is the quick decision-making process. The immediate decision-making advantage is given rise by a lack of consultation with the other member. Other forms of business must include other members or owners before approving any decision (Dungan, 2017). In this instance, there are higher chances of resulting in conflicts as one party or a group of members (depending on the form of business) may fail to agree on one thing.
The third advantage of operating a sole proprietorship form of business is that the owner will enjoy some tax benefits (Dungan, 2017). That is, instead of the business filing its tax returns, the owner of the business claim the gains and losses of the business on their tax returns. In this case, the entrepreneur does suffer from the effect of double taxing. In addition, it is much cheaper and easier to comply with the tax obligation in this instance where the person is taxed using the individual income tax rate. Another advantage of owning a sole proprietorship business is that the owner will enjoy full net profit realized without sharing with another person.
Another advantage of a business owned by one person is that he or she can assign responsibilities to his or her family’s immediate members. Examples of such members may include wife/husband, children, or even parents. In this case, trust and loyalty are likely to be at the highest level compared to when the strangers are working together (Khan, 2017). Also, the members are expected to work much harder since they are aware of the success or the failure of the business will directly affect them. Flexibility is another principal advantage of running a sole proprietorship form of business.
Disadvantages of Sole Proprietorship
The main disadvantage of a sole proprietorship form is business is that it has unlimited liability. This is mostly an issue when a business may be pushed to acquire a loan from financial institutions. Unlike other forms of business entities, the financial institution can take the business owner’s assets to settle the debt in case the debtor exceeds the due date. Loans are mostly acquired for several purposes, but the main reason is to expand business operations. Expanding business may entail either buying new or improvised baking equipment, opening another shop, or even increase the number of employees (Burns, 2016). Some other times expanding may involve investing in other ventures. There are some of the ways that the business may fail to pay its debt. One general reason is due to the unexpected performance of the economy.
The second disadvantage of the sole proprietorship form of business is the difficulty in raising additional capital. Despite having $50,000 to start the business, with time, the business may need additional capital. In this case, being the only owner business may be a challenge to source the capital compared to when the business is owned by more than one person. The business can source capital from financial institutions (Khan, 2017). However, it would be far much better if the owners of business contributed to the capital. The main advantage of acquiring the capital from the owner is due to low or no interest rates are issued on the funds.
Another disadvantage that can be associated with the sole proprietorship is poor decision making. The poor decision making mainly results from a lack of consultation from other people, unlike other forms of business organization. In addition to this point, when the decision-making process involves many people, it is more likely to more effective due to the exchange of ideas (Khan, 2017). However, this disadvantage can be solved through research using the internet since they offer good platforms where strategies or techniques can be derived from.
Alternative Form of Business
The alternative form of business would be a partnership business structure. This form of business is different from sole proprietorship from the concept that it can be formed by more than one person. In the partnership, the parties who run the business are called partners but are jointly referred to as a firm. A partnership is termed as the unseen legal relationship between the partners of the organization (Kindl & Casais, 2019). The primary elements of the partnership are an agreement between members, business to be run all and to share profit and loss realized from the operations. In addition, all partners are principals, and in other cases, one might be an agent of the other. Therefore, an interactive agency must be present for the partnership to take place.
Advantages of Partnership
Like sole proprietorship, the partnership can easily be formed and dissolved, and all that is needed is the agreement between the members. In addition, the registration procedure is simple, and in some instances, registration is not required (Kindl & Casais, 2019). The second advantage is that partnership has more substantial resources since it is formed by more than one person. That is, this form of business can raise more capital compared to the sole proprietorship. The third advantage of forming a partnership is higher managerial power. This advantage is the result of the involvement of many people in the decision-making process. Also, a combination of persons enables the pooling of technical skills and managerial capacity (Kindl & Casais, 2019). This combination can result in the effective application of expert services from the members. Business secrecy is another advantage of forming a partnership business structure.
Disadvantages of Partnership
One of the disadvantages of partnership is that its existence is highly dependent on the relation between the partners. In this case, if the partners are in disagreements, the business can easily be dissolved (Collinson & Liu, 2019). This issue is not common in sole proprietorship since the business is run and controlled by one person. The second disadvantage is that the profits are shared among the sole proprietorship, where only the owner who gains the total net profit.
Another disadvantage of partnership is the risks of implied authority. This instance is likely to occur when one of the partners is dishonest or incompetent. Other disadvantages include inflexibility to change its operations and unlimited liability to some partners.
Conclusion
In conclusion, a sole proprietorship is the best form of business to launch a bakery enterprise after the covid-19. It is the simplest form of business structure to start and run. Also, the set of this kind of business requires little capital to start, and the additional capital can be drawn from readily available sources. Also, the dissolving of the sole proprietorship can only be caused by personal reasons, unlike partnership and other forms of business. Finally, it is crucial to start with a small business structure and gain enough experience that is needed in other forms of business.
References
Abor, J. Y. (2017). New Venture Development and Sources of Financing. In Entrepreneurial Finance for MSMEs (pp. 21-50). Palgrave Macmillan, Cham.
Burns, P. (2016). Entrepreneurship and small business. Palgrave Macmillan Limited.
Collinson, S., & Liu, Y. (2019). Recombination for innovation: performance outcomes from international partnerships in China. R&D Management, 49(1), 46-63.
Dungan, A. (2017). Sole Proprietorship Returns, Tax Year 2015. Statistics of Income. SOI Bulletin, 37(2), 2-28.
Khan, M. A. M. (2017). Seminar Paper on Sole Proprietorship Business (Doctoral dissertation, Bangabandhu Sheikh Mujibur Rahman Science and Technology University).
Kindl, E. M., & Casais, B. (2019). Motivations and perceived opportunities for partnerships among international business consultancy firms. Review of International Business and Strategy.
Melnyk, A., & Shatska, Z. (2019). Business structures, as new forms of institution, in the context of civil society development. Social and legal aspects of the development of civil society institutions.