The Legal Form of the Business and Reason for Choosing the Legal Form
Discuss About The Business Continuity And Protect Operations.
The proposed business is a new apparel business which has been named as “Trendy Western Wear”. The business deals with clothes, accessories and bags with its location in Sydney and aims in positioning its business as the top retail store service in the locality. The intension of the business is to achieve 80% share in market and become a central hub for the activity of shopping for the local people. Trendy Western Wear missions to offer quality, name branded finished clothes in all sorts of sizes and styles to put up with all diversified shapes and body styles (Jo 2017). The legal form of the business will be a partnership form of business with all its liabilities dealt by two owner with a 1:1 partnership share ratio with a set of management and a set of employees.
In the chosen business “Trendy Western Wear” the legal form chosen is a partnership business form that operates between more than two persons sharing the profits and management. The federal government identifies different partnerships types. The two common are partnerships that are limited and general (Ward 2016). The main reason to choose the form of business is to enjoy the treatment of tax. A partnership does not have to income tax but "passes through" any losses or profits to the individual partners. During assessment of tax, the partnership must file a tax return (Form 1065) that reports its loss and income to the IRS. Additionally, each partner reports his or her share of income and loss on Schedule K-1 of Form 1065. Moreover there are other reasons to choose partnership is the legal form that includes the ease in establishing the business and meet the start-up cost as they liabilities are split. Sole proprietorship would have a trouble for a single owner and making it a corporation would have spoilt the privacy. The regulations are totally private and limited to the internal regulations. The partnership form of business is flexible form although it has been chosen as the legal form initially it can be easily changes if the circumstances changes (Finch 2016).
“Trendy Western Wear” in choosing the financing options had to analyse the financial positions of the partners and the economic climate before taking the decisions (Caruana 2016). The financing options are needed for the start-up funds, capital expansion and to hold on through the difficult times. Therefore in the organization has chosen the following sources to accumulate finance for the regulation and establishment the clothing business that are:
The Financing Options Chosen for the Business and Reason for the Choice
Factoring: Factoring is the new trending mechanism of obtaining finance. In this method the business sells at a discount its receivables to get cash up-front. This is often used by the entities with poor credit or by manufacturers of apparel businesses, which have to fill orders long before they receive the money. However, it is an expensive way to raise funds. Companies who sell the receivables generally pay a fee that's a percentage of the total amount (Page 2015). The exchange allows businesses to offer their receivables to dozens of factoring companies at once, along with hedge funds, banks, and other finance companies. These lenders will bid on the invoices, which can be sold in a bundle or one at a time.
SBA loan: The SBA stands for Small business administration, these are a common trend where the business can raise money with the help of the small enterprises who are ready to pay to the start-up firms in return of interest. Although there are various requirements and obligations that are to be followed in this process, it is a faster source of finance and the loan can be long term in nature (Kunz, Karpova and Garner 2016).
Crowd funding: There are several crowd funding sites that would enable the Trendy Western Wear to raise easy cash for a relatively low cost. It is online process where with the help of social sites and media funds can be obtained (Agrawal, Catalini and Goldfarb 2014). Moreover this a beneficial trend for the start-up businesses as this process along with raising the funds can promote he business with the help of advertisement and can establish a brand.
Raising funds from friends and family: Since the clothing business is a partnership firm of business and only involves two partners, they can easily seek for loans and funds from the friends and relatives. With less interest sum of money can be obtained for meeting the capital requirements (McKeever, 2016). Moreover, it will not need much legal requirements and the source would be a safe option.
Attracting investors: Trendy Western Wear would try to attract the investors who are ready to pay for the business in return of some interest. This would help in promoting the business. There a lot trending online sites where investors and the organisations meet to take part in the business financing sources.
Bank credit: The initial and the primary way to meet the current and the priority obligations is to raise money from the bank and taking bank loan (Burns 2016). The bank loan would also help in meeting some long term obligations since it is partnership form of business and involves only two partners. “Trendy Western Wear” can also take a bank credit with the help of the credit card to meet the preliminary expenses and for the initial stock accumulation and labour costs. The credit card would allow to meet the expenses in return of some expense to the bank. It is an easy and a safe process of funding.
Accounting for the Business
Service activity of accounting which is essential as it provides financial nature quantitative information to the different stakeholders which is proposed to be used for making the economic decision. These stakeholders consists of management, investors, suppliers, financiers, government, regulators and many more. Business accounting enables a number of long term and short term business decisions which helps an enterprise to grow as well as penetrate in market. In the business of Trendy Western Wear being apparel business need to employee accountant is who is a trusted financial advisor and business partner who provides solutions that are industry-specific to apparel companies (Drexler, Fischer and Schoar 2014). They must have the understanding of their industry by keeping up to date on emerging market issues and trends. The business personal desires and insights of the company must accomplish to remain profitable and the organisation must establish and maintain accounting policies according to the Generally Accepted Accounting Principles (GAAP). Apparel industry accountants perform specialized and advanced accounting assignments that involve complex and confidential industry data. The accounting industry is very eclectic and competitive, so apparel industry accountants use their internal insights to help manage narrow and enssetive margins of profit.
The industry of clothing is driven by innovation, design, ingenious products, trademark personalities, intense competition, and well-kept secrets. The accountants of apparel industry are not average CPAs who deals with the regular business and financial transactions. Instead, they deal with profit margins which are narrow, highly sensitive data and customized products that constantly change (Drexler, Fischer and Schoar 2014). Accountants Apparel industry will deal with sales, customers, purchases, inventory and manufacturers. Therefore the accounting process will include the steps for creating a section of business bookkeeping system for ongoing business expenses and for start-up expenses along with setting up bookkeeping system for depreciable expenses and for the income that the business would earns. The policies and procedures of the business will be according to the Australian Accounting standard Board (AASB) with s maintaining a separate management accounting and financial accounting practices for the business (Masari, Gianfrate and Zanetti 2014).
The accounting charts are accounts list used in the general ledger of an entity. The purpose of the chart is to utilize the software to aggregate information into financial statements of the entity. The chart is usually sorted in order by account number, to ease the task of locating accounts that are specific.
The sample chart of accounts for the Trendy Western Wear is as follows:
Accounting Chart for the Business
The special journals are shall be used in the Trendy Western Wear for the grouping of the similar type of transactions and permits a greater division of labour and reduces the time for posting (Wallace, and Webber 2017). If is a transaction cannot be measured in a special journal it is recorded in the general journal.it saves time and reduces the posting error. It also allows division of labour. When it comes to subsidiary ledgers it is a group of accounts with a common characteristics and facilitates the recording process making the general ledgers free from the details concerning the individual balances. This also helps in reduction of the possibility of the errors of posting and establishes division of labour (Kozlowski, Searcy and Bardecki 2015).
In the chosen business the special journals will be cash receipt journals and the sales journals. The cash receipt journal is the total of the other Accounts column that is not posted. The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column. And the sales journal separately records the sales that takes place in order to maintain proper management of accounting.
The periods that are closing very essential in departments of accounting. In the Trendy Western Wear the closing process of the accounts will take place at least once a year specially during the end of the financial year, and it is the time when the accountants are very busy clearing up issues, conducting reconciliations and correcting errors. The departments of accounting will specific procedures, including timelines and checklists, to make sure all transactions are performed and nothing falls through the cracks (Bryman and Bell 2015). Similarly, the adjustments will be made at that time during the yearend while preparing the financial statements. This will avoid confusion and will establish a systematic process of accounting.
Since, the start-up organisation Trendy Western Wear is a new business and is in the initial process of establishing and investing to accumulate the stocks to develop the business, it will retain the profits at the end of the years (Titman, Keown and Martin 2017). There is a need for making new investments. The considerations for taking the decisions is as follows:
- Financial status of the business: As the Trendy Western Wear is a start-up firm the business is in need for accumulation of the finance to meet its obligations.
- General state of economy: the general economic condition is to be considered while making the decision whether to retain or distribute the profit (Jakhar 2015)
- Legal, Contractual Constraints and Restrictions: The business must go by the rules and regulations and consider the decision.
- Tax policy: The tax policy is to be taken in hand
- Desire for current income: Trendy Western Wear is a start-up firm and is in need for making more investments therefore it must retain the incomes.
- Investor’s uncertainty: Since the business is a partnership firm there is an uncertainty for the investors for the accumulation of the funds. Hence retention must be considered.
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