THEORY AS PRACTISE - BUSINESS LECTURE
Business Firms
Sole Traders
Sole Traders - Self employer individuals.
Sole trading is still a form of trading today, this could either be in physical product, or services. Sole trading is very easy to start and we recognise it as being popular amongst most freelance designers. When sole trading you must always maintain record of you're trading, failure in doing this will result in breaching the law on tax in the UK. As traded grows, individuals will require more money to develop their trade and this is how a partnership can be formed.
Partnerships
Partnership - Working in a business of 2 or more.
A partnership is when two or more individuals get together with the intent of supplying a good service for pecuniary return (i.e. financial return). Partnerships like sole traders are easy to start, however they can be a bit more difficult to stop this can be due to partnership agreements or assessing how to split the finance of your partnership. Like sole traders you must keep track of you're trading for tax reasons. In a partnership you are jointly liable for each others debts, so trust in your fellow partner is key in this type of firm. Modern partnerships are often more complex, on the other hand limited partnerships provide a limit on debt liability. As a partnership grew it was evident that more funding was needed as trade grew, to attract this funding the government developed the Limited Liability Firm.
Limited Liability Firm (Ltd)
Limited Liability Firm - Incorporated firm or company.
In an ltd firm the more money you invest into that company will mean the more money you could potential loose out on if the company fails. Having said this the more money you invest into the company the more your trade is able to grow. However, to ensure potential investors are protected against criminals and fraudsters ltd firms must follow certain guidelines which exposed a lot of their company's figures to the audience. This means anyone who wants to can see how your company is performing, this can cause competition issues. Starting an ltd firm can be done through a solicitor for around £200. Stopping an ltd firm can be even more difficult than a partnership due to the firm being regarded by law as "a person". Once again this type of firm became too small to enable investment on a big scale, this is were Public Limited Company's come into place.
Public Limited Company (plc)
Public Limited Company - Shares of plc's are traded on the stock market.
Debt Issues
All firms will have a degree of debt. In essence they use other peoples money. In order to control your debt you must use other peoples money to make more than the cost of borrowing and running the firm.
To manage debt effectively you must...
- Control money flows.
- Know what has been spent on what.
- Have a very good idea of what is going to be spent on what.
