what is small business? topic one. the role of accounting in the small business sector the...

What is Small Business?What is Small Business?

Topic OneTopic One

THE ROLE OF ACCOUNTING IN THE ROLE OF ACCOUNTING IN THE SMALL BUSINESS THE SMALL BUSINESS SECTORSECTOR The accountant looks after the The accountant looks after the

business’s financial situation business’s financial situation including the maintenance of a good including the maintenance of a good accounting system and the financial accounting system and the financial direction of the business both direction of the business both internally, and externally (ie tax). internally, and externally (ie tax). Specifically, financial support can Specifically, financial support can cover the following areas:cover the following areas:

The Role of AccountingThe Role of Accounting

evaluate future prospectsevaluate future prospects design accounting design accounting

systemssystems computer packagescomputer packages

The Role of AccountingThe Role of Accounting

taxationtaxation pricingpricing manage inventorymanage inventory sources of financesources of finance investmentinvestment budgetingbudgeting

We will cover a number of these areas We will cover a number of these areas throughout the Year 11 course.throughout the Year 11 course.

Going Into BusinessGoing Into Business

Small business is defined in different ways. Small business is defined in different ways. The Australian Bureau of Statistics uses a The Australian Bureau of Statistics uses a definition for small business that is based definition for small business that is based on a 2005 Federal Government report. on a 2005 Federal Government report. The bureau suggests a business is The bureau suggests a business is regarded as being small if it has the regarded as being small if it has the following management and organisational following management and organisational characteristics:characteristics:

it is independently owned and operatedit is independently owned and operated it is closely controlled by owners/managers it is closely controlled by owners/managers

who also contribute most, if not all of the who also contribute most, if not all of the operating capitaloperating capital

the principal decision-making functions rest the principal decision-making functions rest with the owners/managerswith the owners/managers

Why start a business?Why start a business?

People choose to go into business for a variety of People choose to go into business for a variety of reasons. The decision to do so is one of the more reasons. The decision to do so is one of the more critical ones that people will ever make. Some of critical ones that people will ever make. Some of the more common reasons for gong into business the more common reasons for gong into business include:include:

to seek independenceto seek independence to seize a business opportunityto seize a business opportunity to increase personal wealthto increase personal wealth to market a particular skillto market a particular skill to achieve position or statusto achieve position or status as an extension of a hobbyas an extension of a hobby to provide a needed service or productto provide a needed service or product as a result of experiencing difficulty in finding as a result of experiencing difficulty in finding

suitable employment.suitable employment.

Starting OutStarting Out

You can:You can: Buy an Buy an

established established businessbusiness

(this one is for (this one is for sale in sale in Blairgowrie for Blairgowrie for $650 000)$650 000)


Set up a new Set up a new businessbusiness


Buy a Buy a franchisefranchise

FORMS OF BUSINESS FORMS OF BUSINESS OWNERSHIPOWNERSHIP The form of The form of

business business ownership adopted ownership adopted is of particular is of particular importance when importance when going into going into business.business.

Business Business ownership will ownership will determine, among determine, among other things:other things:

the costs of the costs of establishmentestablishment

the registration the registration and legal and legal requirementsrequirements

the liability of the the liability of the owner(s)owner(s)

the nature and the nature and extent of the extent of the reporting reporting requirements to requirements to regulatory regulatory authorities such as authorities such as Corporate AffairsCorporate Affairs

TYPES OF BUSINESSESTYPES OF BUSINESSES

Business in Australia is conducted in Business in Australia is conducted in a number of forms including a sole a number of forms including a sole proprietorship, partnership, franchise proprietorship, partnership, franchise and company. The form chosen will and company. The form chosen will depend on a number of factors depend on a number of factors including:including:

The number of persons involvedThe number of persons involved The size and type of businessThe size and type of business Taxation considerationsTaxation considerations Perceived need for capitalPerceived need for capital

Sole Proprietorship:Sole Proprietorship:

This means that the This means that the business is owned by business is owned by one person. The one person. The owner is normally owner is normally responsible for the responsible for the day-to-day operations day-to-day operations of the business, as of the business, as well as making well as making decisions about the decisions about the management of the management of the business. Many local business. Many local businesses are in this businesses are in this category. EG: category. EG:

Sole Proprietorship:Sole Proprietorship:

Advantages:Advantages: Owner retains full control and Owner retains full control and

ownership of the businessownership of the business Owner receives all profitsOwner receives all profits Disadvantages:Disadvantages: The owner is responsible for the The owner is responsible for the

debts of the businessdebts of the business The owner may lack the necessary The owner may lack the necessary

capital and expertise.capital and expertise.

Partnership:Partnership:

This may be This may be defined as an defined as an association of two association of two or more persons to or more persons to co-own a business co-own a business with a view to with a view to making a profit. A making a profit. A partnership partnership agreement is agreement is prepared to detail prepared to detail the rights, duties the rights, duties and obligations of and obligations of each partner. EG: each partner. EG:

Partnership:Partnership:

Advantages:Advantages: Combined capital, skill and Combined capital, skill and

experienceexperience Disadvantages:Disadvantages: Each partner is liable for the Each partner is liable for the

business’s debt.business’s debt.

Partnership AgreementPartnership Agreement

http://www.rpemery.com.au/online/partnership-agreement.html

Company:Company:

This type of business This type of business organisation normally organisation normally vests ownership with a vests ownership with a group of shareholders group of shareholders who are usually who are usually separate from the separate from the management of the management of the business. Institutions business. Institutions and persons buy and persons buy shares in a company shares in a company but their rights of but their rights of ownership of the ownership of the business can be business can be limited. A company is limited. A company is an accounting entity in an accounting entity in itself, and is itself, and is recognised by law.recognised by law.

Company:Company:

Advantages:Advantages: Limited liabilityLimited liability Many owners can contribute financeMany owners can contribute finance Disadvantages:Disadvantages: Complexities in establishmentComplexities in establishment Lack of control where there are Lack of control where there are

many ownersmany owners Many government regulations Many government regulations

surrounding company structures.surrounding company structures.

SETTING UP A BUSINESSSETTING UP A BUSINESS

Type of Business: RESTAURANTType of Business: RESTAURANT Regulations:Regulations: Health and safetyHealth and safety Register business nameRegister business name Employees Employees SuperannuationSuperannuation InsuranceInsurance Food handlingFood handling Liquor licenseLiquor license

Setting up a BusinessSetting up a Business

Type of business:Type of business:Restaurant Restaurant

Assets Required Estimated Costs Finance Required

Tables and Chairs $5000 Cash - owner

Cooking facilities $30000 Loan

Cash Register $1000 Cash - owner

Premises $500 000 Mortgage

Fixtures and Fittings

$50 000 Loan

I WANT A RETURN ON MY I WANT A RETURN ON MY INVESTMENTINVESTMENT

Alicia Bowler has been working Alicia Bowler has been working s a hair dresser for 10 years. s a hair dresser for 10 years. She currently earns $550 per She currently earns $550 per week and has $40 000 saved in week and has $40 000 saved in the bank earning 5% per annum the bank earning 5% per annum interest.interest.

She has decided to establish She has decided to establish her own salon.her own salon.

I want a return on my I want a return on my Investment!Investment!

As part of the all-important As part of the all-important planning and setting-up stage, planning and setting-up stage, Alicia has a number of important Alicia has a number of important decisions to make:decisions to make:


How much capital should I How much capital should I invest?invest?

How many employees will I How many employees will I require, and what are the legal require, and what are the legal requirements affect their requirements affect their wages?wages?

What prices will I need to What prices will I need to charge?charge?


What profit can I achieve?What profit can I achieve? What legal and government What legal and government

requirements do I need to meet?requirements do I need to meet? What records will I need to What records will I need to

keep, and how should I keep keep, and how should I keep them?them?


Minimum desire return on Minimum desire return on capital invested:capital invested:

$20 000 x 5% = $ 1 000$20 000 x 5% = $ 1 000 Salary $400 x 52 weeks = Salary $400 x 52 weeks = $20 800$20 800

Desired minimum profit = $21 800Desired minimum profit = $21 800


If Alicia makes a profit of $3 000If Alicia makes a profit of $3 000 And we compare her profit and And we compare her profit and

her investment,her investment, The return on her investment of The return on her investment of

$20 000 will be:$20 000 will be: (3000/20000)*100 = 15%(3000/20000)*100 = 15%

THE ENTITY PRINCPLETHE ENTITY PRINCPLE

The entity concept is based on The entity concept is based on the principle that:the principle that:

The owner’s and the business’s The owner’s and the business’s financial information should be financial information should be kept separate and distinct.kept separate and distinct.

The entity principleThe entity principle

Never mix the two. They are Never mix the two. They are separate legal entities.separate legal entities.

The accounting entity V legal entityThe accounting entity V legal entity

The entity concept discusses The entity concept discusses above applies only for above applies only for accounting purposes. But the accounting purposes. But the form of business ownership form of business ownership adopted will also determine the adopted will also determine the legal standing of the business.legal standing of the business.


Sole proprietorships or Sole proprietorships or partnerships do not give the partnerships do not give the business a separate legal business a separate legal personality, that is, they are not personality, that is, they are not regarded as a legal entity on regarded as a legal entity on their own right.their own right.


A company however is a A company however is a separate legal entity in the eyes separate legal entity in the eyes of the law as it is an of the law as it is an incorporated body.incorporated body.

FINANCIAL DATA AND FINANCIAL DATA AND FINANCIAL INFORMATIONFINANCIAL INFORMATION financial data is financial data is

the collection of the collection of data to input into data to input into the accounting the accounting system.system.

financial financial information is the information is the outcomes of the outcomes of the accounting system accounting system in the areas of:in the areas of:

profitprofit cashcash financial positionfinancial position owners and users owners and users

of accounting of accounting information make information make decisions relating decisions relating to the business.to the business.

Non Financial InformationNon Financial Information

Business owners often require non Business owners often require non financial information about their financial information about their business, in order to assess their business, in order to assess their performance and make comparisons performance and make comparisons to other business ventures. This can to other business ventures. This can include:include:

Number of hours worked, location of Number of hours worked, location of business, marketing strategies, business, marketing strategies, weather patterns, seasons, etc.weather patterns, seasons, etc.

what is small business? topic one. the role of accounting in the small business sector the...

Documents

business opportunityto

businesssmall business

number of forms

businessthe owner

number of factors

partnership agreement

financial direction

following areas