Fundamentals of Financial Management
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Business organizations refer to the various kinds of business that individuals pursue. They could be partnerships, sole proprietorship, and joint stock companies. Their characteristics range from ownership to management. Small businesses refer to businesses that require little capital to start and have limited resources. Businesses have both aims and objectives. Aims refer to the expected changes that come about due to reaching the desired results. On the other hand, objectives refer to the processes and steps these businesses undertake in order to reach their goals and ultimately achieve the changes projected.
This essay explicates various issues relating to businesses.
A sole proprietorship is one of the types of business organizations. This is a business started and owned by one individual. Brigham and Houston (2009 pp100) refer to sole-proprietorships as family businesses where the family members support the owner in his work. This type of business requires little capital to start, and the owner could start it from personal savings over a long period.
A partnership is another business organization. This is a business formed by two or more people known as partners. The partners come together because of common business interests and common goals. According to Hall et al. (2008 pp 94) they formulate a partnership deed, which outlines the various rules governing the functioning of the partnership and the rights of each partner. A Partnership Act that is imposed upon the partners by the authorities in case they fail to formulate a partnership deed. They are thus required to follow the rules as outlined in the partnership Act. The main source of capital is the contribution by members.
Joint stock companies refer to business organizations that have artificial, human characteristics. They require large amounts of capital to start. The capital is generated through the issue of shares to the public.
A sole proprietorship business has several characteristics. Firstly, it operates on a small scale. These means its operations are limited to a small area and scale. They are owned and managed by one individual who oversees all the activities. Lastly, they operate with limited capital, which limits their further expansion.
According to Brigham and Houston (2009 pp 117), partnership businesses have various characteristics. For instance, the start-up capital is made available through partners’ contributions as agreed. It is managed by according to the agreement of partners. The partners share out their responsibilities based on their respective areas of specialization.
Characteristic attributable to joint stock companies include management by a Board of Directors, which is the body that ensures that the various issues toward achievement of goals are addressed effectively. In addition, companies have a larger capital base that is contributed by the public through subscription to the issued shares.
A business could be started because of various reasons. Individuals start businesses in order to create employment to both themselves and others. This view is vital as it helps reduce the level of unemployment in the country and the society. Businesses are started because of the desire for one to become an own boss. People want self-governance and independence. Individual start businesses because they wish to make profits. This is the main objective of starting businesses. Individuals always want to earn a return on their investments and generate extra cash that would be used for other investments.
Competitive advantage refers to the enormous advantages that one business has over others in its business environment due to various matters such as a strategic location. Brigham and Houston (2009 pp 117) assert that competitive advantage is strategic to a business, and it is achieved when the business stands out among the rest in the operating environment and ultimately make enormous profits.
Pricing refers to cost at which products are sold. Small businesses charge different prices with various objectives. Some charge high prices with a view to earn supernormal profits and generate enough cash for continued operations. Pricing is a vital aspect that needs to be properly analyzed before being settled upon. Small business that price their commodities and services fairly in the market would develop a competitive advantage over those, which price their products at the highest prices. Fair pricing by some small businesses wins them more customers over their competitors hence a competitive advantage.
The quality and the kind of product offered leads to a competitive advantage. Other factors that relate to products such as packaging and the quantities at which they are sold are determining factors for a business to develop a competitive advantage. In addition, businesses that offer products that are unique to the business environment will develop a competitive advantage due to the uniqueness of their products.
Place refers to the situation of the business. It is vital to consider the appropriate location before setting up a small business. Kennedy (2005 pp 124) observes that small businesses that are located in places with large populations enjoy a competitive advantage over their competitors who could be located in sparsely populated areas. This is because of the large number of people who form the customer base. Businesses located in peaceful areas free from violence enjoy a competitive advantage over competitors in polarized locations. This is because peace provides a supportive environment for business growth and development.
Promotional factors refer to factors that tend to improve and increase the marketability of a business’ products. Businesses that engage in vigorous promotional strategies through advertising would develop a competitive advantage over their competitors who do not promote the marketability of their products. Customer loyalty is achieved through promotions hence competitive advantage. This would be an advantage as the business would make more profits and a larger customer base compared to the one that does not engage in promotional activities.
There are various types of small businesses. They include retail, small businesses such as shops that sell goods to customers at various points. Another vital type of small business is the service business such as cycle repair. This involves providing services on a small scale. In addition, small businesses could be small manufacturing firms that operate on a small scale.
The growth of a small business refers to the steps a business undergoes to reach the desired profitability level. Kennedy (2005 pp 134) observes that growth is seen in terms of output. If a business is able to deliver larger amounts of output, then it is perceived to be growing. Small businesses also grow by attracting and retaining new customers. Through this, enough funds for growth would be acquired, and the business will forge forward to achieve its goals. A company would grow if it were able to sell more shares to the public hence raising adequate finances. The finances would see its growth to desired levels. In addition, it needs proper management.
Small businesses face various challenges in their growth. For instance, they are limited by inadequate funds. Most of them are not able to grow further due to the limited capital to finance the further desired growth. The lack of adequate funds retards growth.
Poor management limits the growth of small businesses. Poor management would lead to poor planning and control of the business. According to Hall et al. (2008 pp 100) the poor decisions resulting from their managers are a hindrance to their ultimate growth because of the uncalculated decisions that would lead to loss of the invested capital.
Aggressive competitors hinder their growth. These form a major hindrance to growth of small businesses because of the threats they offer. In addition, competitors make the other businesses unable to access their customers. The aggressive level of competition is, in fact, likely to lead to the collapse of the small business as they are driven out of the market. It would totally choke small businesses restricting their further growth.
Aims refer to the desired changes that could come about due to the achievement of certain desired results. Aims are seen in terms of the changes desired. A business would aim at achieving a new item into the organization that could change its position in the market Kennedy (2005 pp 120) assert that a business could aim at increasing the number of people who use a given product. This would be judged from the way the number of people who use a given commodity would change. If the number increases as per the business aim, then the desired change would have been achieved. In addition, a business could set an aim that states that all individuals must have acquired the necessary skills for performance of duties. The actual change is the acquisition of the results and increased performance.
On the other hand, objectives refer to the processes that must be undertaken in order to achieve a change. They are defined and strictly adhered to for the proper achievement of the desired change. A practical example relating to objectives could be to train employees on how to use the new equipment. This process must be undergone before the actual change that would involve the acquisition of skills is reached. In addition, a company could have an objective that state that they wish to promote sales. The process of sales promotion is the objective but the final change would be increased profitability.
In conclusion, a business organization refers to the type of business an individual engages in. They range from a sole proprietorship, partnerships, and joint stock companies. Small businesses refer to businesses that require little start- up capital and managerial skills. Their growth is hampered by factors such as limited capital, poor management, and aggressive competition. They need to be guarded for proper attainment of their business aims.
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