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I considered having a sole proprietorship

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I considered having a sole proprietorship

Question I

I considered having a sole proprietorship or a

partnership but eventually settled on the latter. One of the main reasons for considering

a sole proprietorship is because the idea to open a restaurant is mine. As I

have conceived the idea, and will be in charge of the daily running of the

business, a sole proprietorship seems proper. Pat seems to have his hands full

running his various business ventures, and it does not seem to matter whether

or not he plays any role in the business. Had he been willing to commit to

working for the restaurant, I would have employed him in a managerial capacity.

As the sole owner of the business I could engage Ron as an employee, especially

because of her skills as a chef. Besides, she is willing to leave her current

employment and commit fully to the restaurant. Aside from her possibly working

as a chef, she could engage in other managerial duties where the food and

kitchen are concerned.

 

 

 

The benefits of a sole proprietorship in this case would

include limited expenditure on organizational fees, and the fact that taxation

for business earnings would be on the basis of personal income. Sole proprietorships

do not often have a complex organizational structure and as such, money is

saved on resources that would otherwise be used on the same (Twomey et al., 2017). Lack of resources is the

most disadvantageous factor about this form of business. I need financial

assistance in form of capital investment, for the idea to be practical. I do

not have the necessary financial muscle and Ron has limited funds, so the

logical solution will be to engage Pat. As a result of having several ventures,

Pat can easily finance the business. This, together with his willingness to be

involved in the business made me consider a business partnership. Also, since I

have limited financial capital and I am subject to unlimited personal liability

for the business, its collapse may leave me financially crippled. This is yet

another disadvantage of a sole proprietorship.

 

 

 

I considered and eventually settled for a business

partnership for other reasons other than the financial aspect. Sure, Pat could

chip in financially, but Ron’s talent in the kitchen are handy too. Having

several ventures made Pat the perfect candidate for management as his expertise

in business are required. Besides, they are both willing to commit to the

business in various capacities. The advantage of a partnership is that each of

us contributes something different to the business, more like an informal

pooling of resources (Twomey et al., 2017).

The main disadvantage is the dissimilarity of the resources being pooled, which

presents the issue of liability. Technically, Pat will contribute more to the

business in form of financial capital. I considered a Limited Liability

Partnership (LLP) where our liabilities as partners would only extend so far as

our contributions to the same (Twomey et al.,

2017). However, Pat will most

likely be the most affected in case of a business failure and to shield him, I

disregarded the idea of an LLP. Instead, I considered a Limited Liability

Company (LLC). As a formal legal entity, Pat’s investment into the business

will be protected, as will Ron’s and I.

 

 

 

Question II

 

 

 

There are two main forms of financing and lending that a

start-up business like ours could consider. These are debt and equity finance.

Debt financing involves securing business funds from external debtors such as

various financial institutions (like banks and credit unions), relatives and

friends, credit from retailers and suppliers, and finance companies among

others. The loans acquired in this case may be short, medium or long-term.

Short-term loans usually do not exceed a few months and are secured to cover

temporary business needs. Such needs include buffering stock or paying

personnel. Short-term loans are ideal for established businesses that have an

identified source of repayment. Therefore, they are harder for new businesses to acquire. Medium to long term

loans are repayable from 1 to even 20 years depending on the amount taken and

how the monies are utilized. Such loans are ideal for start- up businesses with

many expenses such as purchasing equipment, acquiring stock, rent and operating

capital among other uses.

 

 

 

The advantages of debt financing include the retention

of business ownership (Cremades, 2018).

The financier or lender does not gain any control of the business. Their gain

is from interest earned on the credit they extend. The disadvantages of this

type of financing include that there is a time limit on when the loan should be

repaid (Cremades, 2018). In most cases

the repayment of said loans starts as soon as approval for the loan is granted.

Loans are often secured using collateral that may include fundamental business

assets or that of the owners. In this case collateral may be seized in case of

failure to repay the loan. The amount of money spent servicing a business loan

may impact negatively on a business, more so if its profitability is low. The

money spent on loan repayment could also be used to improve a business.

 

 

 

Equity financing on the other hand involves investments

from business owners or other stakeholders who then benefit from being granted

partial ownership. This form of financing and lending constitutes a wide

variety of sources including from strategic partners, relatives and friends,

venture capital, private investors, personal finances, crowd-sourced equity

funding, and crowd funding (Cremades, 2018).

Advantages of equity financing include less risk as its repayment arrangements

are not as immediate as those in debt financing. Business profits may not be

used to repay such loans and as such, there is more cash to spare. There are

also cases where investors in equity financing provide additional benefits to

the business, such as new skills. One disadvantage of equity financing is the

surrender of partial ownership or control rights of a business to the lender (Cremades, 2018). This implies that they will

have a say in business affairs. Another challenge of equity financing is that

is not always easy to find the right business investor. Since I had already

decided on a partnership form of business, equity financing was not an option.

Instead we opted for a long-term loan of five years.

 

 

 

Question 3

 

 

 

Since the business is a restaurant sourcing of

items such as food, groceries, drinks, cutlery will be necessary. While items

such as cutlery will not require a constant purchase, food, drinks, and

groceries will need to be purchased consistently. It, therefore, means that

finding a reliable supplier is vital to the running of the business (“Manage your suppliers”, n.d.). Identifying a preferred supplier and

preferred supply terms will equally lead to a stable running of the

business.

 

 

 

Different supply options exist. These include

cash buying form identified suppliers. It could also include credit supply,

whereby payment is made after a designated timeline. The timeline could be

thirty days, for example. Payment could also be made through cash, check bank

draft, standing order, and money transfer. Credit supply is the preferred

option as it will allow the restaurant to recoup its finances for the month.

Paying after the thirty days also makes it easier to make payment arrangements

monthly. Cash supply is not the preferred supply method since supply can only

be made at the availability of cash. As such, it is not a recommended supply

method for the restaurant since the business is still new.

 

 

 

Written contracts are necessary since they act

as a legally binding agreement between the restaurant and the supplier.

Contracts would thus have to be entered with the different suppliers based on

the agreed-upon terms. Timelines are essential in a contract; hence both

parties must perform within the stipulated discharge timelines (Twomey, Jennings & Greene 2017, p 331). Some items will have to be supplied more

frequently than others hence the contract term differences. The settling on

credit supply terms, as well as having contractual agreements with the

suppliers, is practical in the real world. Businesses function under contract

terms for the security of the parties involved. A breach of contract could lead

to litigation. In case the supplier fails to supply items on time, the contract

details the reprieve measures are taken. The supplier, for example, could have

the contract terminated by us. In the case of defective goods, the supplier

could supply other products free of charge according to the contract terms. As

far as the restaurant is concerned, the timely order of goods is expected. The

supplier would not be liable for late order challenges such as out of stock

goods. The supplier could also terminate the contract based on the nonpayment

of products.

 

 

 

A contract thus ensures a mutual relationship

between the suppliers and the restaurant. As the restaurant grows, the business

needs will change as well. A change in requirements automatically dictates a

change in contract terms to include the new demands. The contract can thus be

revised to include any changes. It is, therefore, essential to indicate that

the contract is subject to change if and when necessary. However, both parties

would have to agree as far as the changes are concerned. The contract could

also be terminated by the parties involved (Twomey, Jennings & Greene 2017, p 335)

 

 

 

Question 4

 

 

 

Operating a restaurant involves risks such as

work-related injuries. Since the operation of the restaurant consists of a

partnership, there is the likelihood that one o the partners may opt-out in the

future. Food poisoning is also a risk that comes with a restaurant operation.

Contracts breach is also likely. It is important to note that contracts include

suppliers, financiers, and employee contracts. A supplier could, for example,

breach contract terms or go out of business. Such a scenario would not only

result in hiring a new supplier but could affect the running of the business

within the transition period. Employees could also breach contract terms and

lead to litigation or termination. Both situations would warrant the hiring of

new employees. Running a restaurant requires the recruitment of an array of

employees, such as cleaners, cooks, servers, and dishwashers. Having reliable

employees in these brackets could be a challenge as employee turnover is high.

 

 

 

Accidents at the restaurant are common; hence

tort cases are likely to occur. A tort case involves injury at the workplace (Cornell Law School, n.d.). Injury

could be a result of employer negligence, such as the lack of safety

installation. It could be as a result of employee negligence. In case of an

injury due to employer negligence, the restaurant would be held in tort

litigation, which would cost the business financially. It is in this regard

that understanding the potential risk is essential to avoid unnecessary

litigation. Identifying potential risks is necessary, but is not enough.

Installing measures to counter the identified risks is crucial. These measures

include installing safety measures such as safety devices. Outlining safety

policies at the workplace and making it accessible to every employee is equally

important. Complying with the necessary regulations, such as insurance cover,

public health, food regulations, and labor regulations, for example, is

essential.

 

 

 

The insurance cover would cover damage resulting from fire, for example.

Food and public health regulations, such as employee medical tests would ensure

that the likelihood of food poisoning is reduced. Labor regulations such as

overtime, benefits, and pay would ensure that employees do not sue the

restaurant on the grounds of labor law abuse. Contract signing between the

restaurant and suppliers, full-time employees, and lenders, for example, would

shield the restaurant from the service agreement breach. Supplier contracts,

for example, would ensure that the suppliers fulfill their product delivery

agreement within the stipulated terms. As such, the restaurant would be assured

of a reliable supply of goods hence the smooth running of the restaurant. The

uptake of a long term loan, for example, shields the business financially as

the repayment period is longer. The lending contract protects both the lender

and the restaurant. Understanding UCC laws is thus paramount to the business. These

solutions are practical since they are applied in enterprises and contribute to

business stability due to the lowered risk level.

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