The legal status of small business:
There are loads of different ways that a business can be ran, each way has its advantages and disadvantages but the way you run such be the most beneficial way for your business. When applying that to a legal status there are 3 main ways of doing this:
- Sole trader
- Partnership
- Limited company
Your company is classed as a sole trader when you business is only run by one person, for example a freelancer is a sole trader as they are there own boss. This is a popular status for people who are starting a business as they don't want people telling them what to do with there business. As a sole trader you don't have to inform other people what you are doing or if you are changing something as you are fully in control. You also keep all profits for yourself and don't have to share any personal data about your company if you do not wish to. A popular example of a sole trader company is a freelance photographer, as they make a lot of money out of photographing weddings, parties or just a social gathering.
On the other hand, there are also negatives to becoming a sole trader as you could end up in debt. If your company can't pay the money that you owe someone then they could end up taking it from personal possessions, For example computers, TV or anything that is valuable to cover the debt. An disadvantage to being a sole trader is that you have to keep coming up with new ideas yourself for your business. So if you were a freelance photographer then you could add in a photo booth as well as taking photographs. This could help you get more customers as they will feel like they are getting more from you than a person who is just gonna take photographs.
Partnership:
When being in a partnership is when 2 or more people decided to go into business together or build a business together. This could happen because a couple of people have similar ideas for a business or want to make there own business doing that kind of thing. For example if a couple of people want to start there own comic book company but if they did it individual they would be against each other in the part of the business or they might not make it on there own so they work together on making the business. Also working in a partnerships means that you can split the responsibly's up from example person a could be doing the website for the company while person B could be creating the comic books. Another good thing about being in a partnership is if you are be hide on a project then your partner can help you out.
However, if you have a falling out or a disagreement then you could put the company in jeopardy. This is why it is important to plan out and make sure the other person knows and agrees with the changes you are going to make. This is another thing that is bad when going it a partnership you are not 100% percentage in charge of the business so you have to communicate more with people more than you do being a sole trader. This is why you have to get to know the people that you are going into business with before doing it. You also have to split the profits between the 2, 3 or more of you so you come out with less money than what a sole trade would if you had made the same profits.
Limited Company (LTD):
A limited company is a type of legal status that the title speak for itself as it has an limited amount of liability, which is a big advantage compared to partnership and sole trader companies. This means that the owners are financially and the finances that the business has is covered if it ever went into liquidation. This is one thing that investors don't have to worry about when putting money into the business. But there are also 3 kinds of limited companies these are public limited companies (PLC), Private Limited company and Private company limited by guarantee.
Public limited companies are set up by at least 2 members and up to 50,000 shares can be distributed to the public. Although it maybe impossible for you to go into liquidation, you are not 100% in charge of the company as there are other people that have shares on that company. So if you had idea for the company you would have to hold a meeting with all the share holders and tell them before doing it. For example if you hold shares to a film company, then you have the right to know what is going on with its finances. The more shares you hold in that company the more of a say you get in the company.
Private limited companies are very similar to PLC but can be ran by one or more members but these companies shares can't be public.
Private companies limited by guarantee are the less common type as it is not required any form of share capital however member are required to pay as fixed amount just in case the business goes bust, for example charities. These companies also don't make a profit as all there money goes into something that will help people that need it but they must come under what that charity is fighting against. For example, Zoe's Place all the money that is raised will go to the children that are sadly not going to live as long as other people.
The legal aspects of small business:
Legal aspects are things that must be put into a business by law. These are called legislation.
An example of a legal aspect that has to be in a small business is health and safety laws. These laws protect the health, well-being and safety of your employees. The health and safety is also put into place so employees feel that they are safe when going to work. So for example if you are working on a movie set an you bang your head on one of the lights above because the room your working in is to low than what the law says, then you can take that company to court.
Another legal aspect that needs to be in a business is contracts between the employee and employer. This contract can be a written or spoken agreement but personally I would go for a written agreement then if you take that person to court then you have more evidence than just a speak agreement. An example of this is if you have a photography business and you want a website to advertise your business so you hire a graphic designer to do your website for you as well as the updates for it. You will have to state everything that you want doing and that you will want it updating every month or so. As well as how long you want this doing for like a year or two. If the employer starts to slack for a few months then you can take them to court and get the money back that you have be paying them.
The tax liabilities of small business:
It is compulsory that every working people in the UK pays tax. You may wonder why we do this but the money that we give to the tax man goes to things like public schooling, policing, road works and lots more. Having the pay tax means that we have the NHS, meaning that we don't have to pay for every doctors or hospital appointment that we go to. When paying tax the money goes to the government which evening gets disputed out into different pots.
Just like working people, small businesses also have to pay tax's. Just like any other tax payer the profits that your company makes a certain percentage of that will go to the government (the taxman). Just like other tax payers the money goes to things like the NHS and more. Throughout the years this percentage has gone up and down. As you can see by this chart:
Sources if finance for small business:
Starting up a business can be hard especially if you don't have a lot of money in the bank. So that is why we have different types of funding and loans that you can get from other sources to help start up your business.
Getting grants and loans from the government is an example of a way of getting money to start your business. But its not just the government that you can get loans from, as projects like the prince's trust can provide you with the money you need. An advantage of getting a loan is that if you are new to the business industry then they will usually give you some professional advice about business that will help you start up. This is because you will have to pay back the money that you have taken from them and they want you give you the skills so you are able to do so. Another advantage is that you are able to withdraw a large amount of money with the government than with any other company because they have more money to give out than a family member or business have. An disadvantage to this is that it is hard to get the grant off the government as it is a popular way of getting money to start up a business and they wouldn't give out the money to just anymore. You have to have a good and original idea that they like to be accepted. Another disadvantage to getting a grant off the government is that you are limited to what you can spend as while you have their money, they monitor what you are spending weekly until you have paid them off.
Getting a bank loan is another way of getting money to start up your business, this is a good way of getting money because even if it is a long term financial agreement then you are able to lend you the amount of money that you need. But you have to have a business plan, they will not give you money just because you are asking for it, they will wanna know what you are spending their money to. They will also want your legal status because they are more likely to accept you if you are in a partnership than if you are a sole trader as there are more than one person looking after the money and they are more likely to pay it back if they are a partnership than a sole trader. But getting the lone is a very quick compared to other ways of getting money. On the other hand you may end up paying more that you have withdraw as it is interest on the money.
You can also take out an overdraft with the bank this given as an opinion when opening a bank account. An overdraft is where you can spend a much money as you want but you will have to paid it back. Just like getting a loan from the bank you have to pay back more than you have borrow because of the interest on the money. The longer it takes you to pay back the money the more interest that will be put on top of your payment. Your also able to pay back the money as quickly as possible without no penalties where as if you take out a bank loan you will have to pay penalties.
Financial systems suitable from small business:
When starting up a company you will want to make money but to be able to make that money you will need to have certain skills and systems to work out the most complicated of financial problem. Things like cash flow, you will need to know to be able to keep track of the money that is coming in and out of your company. If you don't keep on track of your cash flow then you could be losing out on money. By monitoring and know what cash is going in and out of your company, you can get rid of any unnecessary expenditure enabling you to save money. From this you will be able to work out the cash flow forecast. Cash flow forecast can also predict your business financial situation in years/month/days time. Doing this could help stop you going into liquidation.
Another useful skill to have when dealing with finances it to know how much shares you have in the market. It is good to research other competitors in the market that you are in and seeing how much shares they have, This is a good way of seeing if you are falling be hide and if you need to start thinking of ways to get more shares. For example if you are in the gaming industry then you would be researching how much Nintendo and Xbox are making and how much they sell.
How to control credit:
Control credit is basically what you do with the money that you have in you business, for example you will have to pay the company that supplies you with the stuff that you need. There are 2 different ways that money can be in and out of you business that is internal and external control systems.
Internal and external control systems are opposites when it comes to going in and out of your business. Internal credit control is the money that comes into your business, this is important to keep an eye on as it make sure that your business is running smoothly. Which means that external credit control is the money that goes out of your business which is also important to keep an eye on as you don't want to be paying more than what is going in.
Resources:
https://jahmelcoleman.wordpress.com/interactive-media/legal-and-financial-aspects-of-running-a-small-media-business/
Tax ratings- https://www.gov.uk/corporation-tax-rates/rates
Credit control: http://smallbuisnesslewis.blogspot.co.uk/2016/03/credhttp://smallbuisnesslewis.blogspot.co.uk/2016/03/credit-control.htmlit-control.html
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