Business Structures, Objectives, and Strategies

Posted on May 19, 2024 in Economy

SOLE TRADERS

Most common type of business form. An individual owns the business.

Sole Traders can employ people, but these people are not business owners.

Personally responsible for the business debts and has unlimited liability.

SOLE TRADER

Advantages:

  • Simple to run
  • Quick and easy to set up
  • Easy to close/shut down

Disadvantages:

  • Full personal liability
  • Can pay a higher tax rate than a company
  • In charge of everything (paperwork, business debt)
  • The business is the owner (the business suffers if the owner becomes ill, loses interest, etc.)

PARTNERSHIP

Advantages:

  • Partners can provide specialist skills
  • Minimal paperwork once the partnership agreement is set up
  • Greater potential to raise finance – partners each provide the investment

Disadvantages:

  • A poor decision by one partner damages the interests of the other partners
  • Harder to raise finance than a company
  • Complicated to sell or close

LIMITED COMPANIES

Advantages:

  • Limited liability
  • Easier to raise finance
  • Stable form of structure
  • Tax-efficient income

Disadvantages:

  • Greater admin costs
  • Public disclosure of company information
  • Director’s legal duties

FRANCHISE

Advantages of Franchising to the Franchisor:

  • Capital
  • Risk Reduction
  • Speed of Growth

Benefits of Buying a Franchise:

  • Low failure rate
  • Profits
  • Business assistance

BUSINESS OBJECTIVES

Specific – objectives are aimed at what the business does, an objective specific to that business.

Measurable – the business can put a value to the objective.

Agreed by all those concerned in trying to achieve the objective.

Realistic – the objective should be challenging, but it should also be able to be achieved by the resources available.

Time-specific – they have a time limit of when the objective should be achieved.

INDICATORS THAT SHOW IF A FIRM IS SUCCEEDING

  • Change in profits
  • Changes in sales revenue (turnover) or market share
  • Change in share price (value of company)
  • Change in the number of outlets/number of countries present in
  • Change in the number of employees

FLAT STRUCTURE

Advantages:

  • Fewer layers mean lower costs
  • Better communication
  • Easier decision-making process between employees
  • It removes excess layers of management and improves the coordination and speed of communication between employees

Disadvantages:

  • Lack of opportunities for advancement
  • Difficult to implement in large companies
  • Can result in role confusion

HIERARCHICAL STRUCTURE

Advantages:

  • Clearer understanding of employee roles and responsibilities
  • Accountability for actions or decisions at different management levels
  • Clear lines of authority and reporting within the business

Disadvantages:

  • It may cause a lack of collaboration
  • It can cause managers to become territorial
  • It may create communication barriers

CENTRALIZED DECISION MAKING

Advantages:

  • Quick decision making
  • Reduced costs
  • Quick implementation of decisions
  • Improved quality of work

Disadvantages:

  • Managers and workers may be discouraged because of a lack of authority
  • Lack of employee loyalty
  • Bureaucratic leadership

TYPES OF NON-FINANCIAL MOTIVATING FACTORS

  • Promotion: Higher status or position in a firm.
  • Job Rotation: Some jobs are boring and repetitive, stop workers from getting so bored, and they learn to do other jobs.
  • Job Enrichment: Maybe involve contact with customers.
  • Autonomy: Let workers make their own decisions, and responsibility motivates workers as they feel valued.

TYPES OF FINANCIAL MOTIVATING FACTORS

  • Commissions/tips
  • Bonus paid once a year if the worker meets performance targets
  • Profit share or give them a share in the business
  • Any reward that is not the main income

RECRUITING INTERNALLY

Advantages of Recruiting Internally:

  • No cost & less time-consuming
  • No need for training
  • Builds strong relationships with employees
  • Motivates others to work hard to get high positions
  • Easy to pick the best talents within an organization very quickly
  • Long stay with the company when promoted to a high position

Disadvantages of Recruiting Internally:

  • The positions of the persons who are promoted will be vacant
  • There may be partiality in promoting employees
  • No new opportunities for external candidates
  • Dissatisfied employees may quit if their co-worker is promoted to high positions
  • All vacancies cannot be filled within organizations

MINIMUM WAGE

Advantages:

  • Higher wages for workers
  • Higher employee satisfaction
  • Motivation of workers might increase

Disadvantages:

  • Restrictions for companies
  • Potential job losses
  • Higher structural unemployment

Pricing Strategies:

  1. Cost-Plus Pricing: Cheaper & simple. Ignores competition & customers.
  2. Competitive Pricing: Charge less than competitors, profits low.
  3. Price Skimming: High profit, attracts competition.
  4. Loss Leader Pricing: Profit from other products, loss on the main product.
  5. Price Penetration: Low price at the beginning & then goes up. May lose customers.