The key characteristics and issues related to start-up of a new business in Australia will be analysed in this report. The key proposals and limitations of the key proposals for the small businesses in the Australian budget 2015-2016 and 2016-2017 will be outlined (Barajas, 2007). Finally, the ALL structures and start-up modes will be identified and compared with each other and the best suitable ALL startup mode and ownership structure will be selected for the proposed business. For this report, the proposed new business of Cupcake Shop (Coctail Cupcake Shop) is selected here.
Key proposals in the budget
The Australian Government announced its budget for the small business owner on Tuesday, 3 May 2016. There are several key proposals in starting small businesses in Australia in the Australian budget 2015-2016 and 2016-2017:-
An increase to small business tax discount rate- For the small businesses including sole traders, partnerships and other incorporated businesses having an annual turn-over of less than AUS$ 5 million, the tax discount rates will increase from 5% to 16% over the next 10 years commencing from 1 July 2016 to 25 June 2025.
An increase to small business turnover threshold- The small business threshold turnover will increase from AUS$ 2million to AUS$10 million allowing the small business sectors to access the more small business tax concessions(Edwards, 2014).
A Decrease to company tax rates-
- The company tax rates for the small businesses will reduce to 25% over the next 10 years commencing from 1 July 2016 to 25 June 2025.
- The company tax rates for the small businesses with an annual turnover of less than AUS$ 10 million, will decrease to 27.5% from 1 July to 2025.
Importing and exporting tax- The goods and service tax for the low value goods imported by the small business will be extended from the financial year 2016-2017.
TOFA Reforms- The taxation of financial arrangements (TOFA) rules will be reformed after 1 January 2018.
Improving an access to asset backed financing- To improve the access to asset backed financing by removing uncertainty in the tax treatment of the small business asset backed financial arrangements will be treated in the same way as other financial arrangements, such as loans or investments for the tax purposes.
Wage subsidies for the small business owners- The wage subsidies of upto AUS$ 10,000 will be provided over six months for the small business owners to employ the employees aged 25 or below. This will also include the subsidies upto AUS$ 6500 to the small business employers over six months for employing the most job seekers(Downs, 2015).
Incentives for the small business owners- Incentives will be given upto AUS$ 1,000 for the small business owners to provide the employability skills training to the youth job seekers during an internship of six weeks.
Changes to Div. 7A flagged- The changes will be incorporated to div. 7A flagged from July 2016.
There are several limitations of the key proposals for the small businesses in Australia. Firstly, the small business owners can start-up businesses independently or franchising with others by making the initial capital investment upto AUS$ 10 million. The small business owners can have the maximum of 15 employees as directed by Australian trade regulations 2015-2016. The small business owners will have to pay the self-employment taxes as per Australian taxation policies and norms. The small business owners will have to prepare the financial statements including profit& Loss A/c, Balance sheets, taxation statements, and financial audits(English &Moate, 2011). The Australian government directs the small business owners to employ the young job seeker limited to age 25 in their organizations. Along with this, the small businesses should have the employer ID by registering the firm through certification and approval from the regional secretory office.
Key characteristics and issues in starting and managing a small business
There are several characteristics involved while starting and running a small business in Australia. These characteristics are followings as:-
- The small businesses are private owned corporations/legal entities/franchised enterprises owned by the small business owners in partnerships or sole proprietorship or corporations.
- To start a small business in Australia, the business owner requires an initial capital investment of less than AUD$ 10 million.
- The small businesses in Australia have limited employees ranging from minimum to 15 employees.
- The small businesses vary on the basis ofannual revenues, gross profits, sales, shipment, assets, and number of employees.
- The small businesses in Australia include Grocery stores, cupcake shops, convenience stores, restaurants, guesthouses, health clinic, accountancy office, business shops, internet cafe and small-scale manufacturing.
- The small scale enterprises are consistently regulated by the regulated government authorities and require employer ID, trade name, certification and registration and statement of payment of self-employment taxes(Hastings, (2011).
- The small businesses in Australia can also be started with low costs and are part-time basis, e.g. real estate business, hair salons.
- Franchising is a type of small-scale businesses where the small business owners (Franchisees) are benefited from the economies of scale of large business enterprises (franchisors). The small business owners have the benefits of strong brand name and purchasing power of the large companies with their own affordable investments
The small business enterprises will face the legal issues, financial issues, expansion issues, HR issues, capital investment, and physical storage issues. For ex- the small business owners can have maximum of 15 employees in their business organizations. The small businesses in Australia can make the capital investment maximum upto 10 million AUD$. The small businesses will face the issues, such as following of legal structure, financial terms and conditions, size of balance sheets, registration of firm, certification and renewal of license. Some small businesses are regularly inspected by the government authorities, such as medical shop, health clinic, grocery shop, convenience stores, and agricultural shop(Roddick & Rickman, 2005). The small businesses have to follow the trade policies, employment legislations, union laws, and taxation payment policies.
Nature of a new or franchise enterprise in Australia
The nature of the proposed business enterprise will be franchised resulting from the franchising contract betweena small cupcake shop (Franchisee) and large Australian cupcake company, Classic Cupcake Company (franchisor). This cupcake shop will leverage the benefits of brand name and purchasing power of Classic Cupcake Company. It will be opened in the mid of educational hub at Melbourne where range of schools, college, coaching institutes and corporate offices are located(Smith, 2012).The administration of cupcake shop will be in the hand of business owner who will form and regulate the rules, guidelines and decisions for the employees or working staff.This shop will have a trade or firm name, employer ID number, federal and state license, sales and use tax permit, and statement of provision of payment of self-employment taxes. All legal formalities will be fulfilled in a registered secretary office of a regional branch in Australia.
The cupcake shop will be operated in an estimated area of 1500- 2000 square foot with the firm name of ‘Coctail Cupcake Shop’.The owner will make initial investment of AUS$ 100,000 for the overall business operations by crediting some money as loan from the banks and financial institutes.The proposed business of cupcake shop will have 13-15 employees including 1 shop manager, 1 marketing executive, 1 computer operator or receptionist, 2-3 cooking staff members, 3-4baristas, 1 greeter and 4-5 waiters etc. The shop manager will be responsible for the supervision and controlling the operations of cupcake shop who will give necessary guidelines and instructions for other staff members(Root, 2006).The proposed Cupcake Shop will offer a range of cupcake products in different flavors, sizes, and varieties. Along with this, it will offer additional food beverage items, such as snacks, teas, coffees, biscuits, juices, energy soft drinks, Sandwich, pasty, packed-ice creams and other food items.
Identification and comparison of ALL start-up modes
There are different types of ALL start up modes which are as following:-
Franchising- This is a type of All start-up mode in the Franchisor sells its assets, goods, and services through the franchised agencies or stores by making franchising contract with the franchisee firm. The franchisor keeps ownership in his hands but it grants the right and authorities to the franchisee firm to sell the franchised products and services under the trademarks and brand name of franchisor firm.
Exporting- This is a type of start-up mode in which the manufacturer or exporter exports the company’s products and services to the foreign or overseas firms through its own distribution channels or other host companies in the foreign countries(Toolkit media Group, 2008).
Joint ventures- This is a type of start-up mode in which the small business firm can start to sell the products and services of the multinational company with whom it makes trade contracts in the form of merger, acquisition, strategic alliance or take over.
New business enterprise as whole subsidiary- This is a type of start-up mode in which the ownership remains in the hand of a business owner as wholly-owned subsidiary. In this type of business form, the single business enterprise is responsible for overall business operations, management control and financial obligations(Turner, 2011).
Some other start-up modes include Investment in Online Businesses, Licensing, and Foreign Direct Investment.
Comparison among different All Start-up modes
Point of Difference
The single owner
The ownership remains in the hand of franchisee but sells the products under franchisor’s brand name
The members of strategic alliance or joint ventures
Personally liable for all financial obligations, management control and investment decisions
Not personally liable because the losses are shared by franchisor
Not personally liable the host company or distributional channels are also liable
The members are not personally liable
Source of financing
Own source of financing through either own funds or credit from banks as loans
Not individual financial sources as the franchisor is also involved to provide the financial assistance
Own source of financing but involves the flow of funds through the exporting channels or host companies in the foreign countries
The members are not personally liable for the source of financing
Start-up mode selected for the business and rationale
For the proposed cupcake business, the franchise enterprise is selected as a start-up mode which will result from the registering the franchise license granted by the large cupcake company of Australia, Classic Cupcake. The rationale behind choosing this start-up mode is that this is one of the safest and risk-free ways to start businesses. The company can also get benefit of the strong brand name, trademarks, and purchasing power of Classic Cupcake Company. The franchised form of small business enterprise will also providean opportunity to the franchisee firm to expand the businesses by accessing the large customer segments through using the brand identity of the franchiser. It will help in earning large profits and revenues through the large sales of the branded cupcake products. It will also assist in generating auto sales through the high brand awareness and customerloyalty(Curtis, 2012). It is effective to ensure the success of business because it is based on proven idea. The franchisor (Classic Cupcake Company) will give training to the franchisee (Coctail Cupcake Company) about the specialized branded products. The franchisor is an effective start-up business form because it will grant the rights and authorities to the franchisee to sell the franchised products in the selected territory or region. By using this start-up mode, it will be easy for the franchiseefirm to credit as loans from the banks as financial assistance for the firm.
Comparison and contrast of ALL ownership structures
There are different types of ownership structures for the small business enterprises operating in Australia. These ownership structures include sole proprietorship, Partnership, Limited Liability Company, and Corporation. These are following discussed as:-
Sole Proprietorship- This is the simplest ownership structure which is owned by a single person who is responsible for all financial obligations, such as investment decisions, financial losses and profits, and sales of assets. This ownership structure is easy to form and operate in which the complete managerial control and power remains in the hand of single owner.
Partnership- This is another ownership structure form of small business enterprises which is owned by two or more personsthrough making an agreement to make capital investment equally. The partners are equally responsible and personal liable to share the profits and losses(Smith, 2012). The decisions related to capital investments, product development, sale of goods and services, and business expansion, are taken by the partners collectively.
Corporation- It is a type of legal entity,independent from the founder or ownerthat is created to conduct the overall business operations and activities. The ownership remains in the head of founder or business owner, but the business operations and activities are operated and controlled by these entities.The main advantage of this structure is avoidance of personal liability.S Corporation is a good example for the small business franchise enterprises(Smith, 2012).
Limited Liability Company- This is a hybrid form of both partnership and corporation ownership which gives the owner the benefits of both ownership structures. The profits and losses are shared by the members or owners, but the owners are shielded from the personal liability.
Comparison of small business ownership structures-
The point of difference
Limited Liability Company
The partners are equal owners
The founder of corporation are owners
The partners are owners, but not equal
The owner has full control and authority on overall business operations
The partners have equal control and supervision on the overall business operations
The independent legal entities hold the management of all business activities and decisions but don’t have legal liability
Sharing of losses and profits
Alone responsible for all financial gains and losses
The partners are equal responsible for the financial obligations
Exempted from the liability of financial obligations
Owners responsible, but not personally liable
Limited liability protection
Partners are personally liable
Not personally liable
Limited liability and not personally liable
The ownership structure selected for the business and rationale and personal risks associated with this structure
The ownership structure for the proposed franchised business will be ‘S Corporation’ in which the franchisor will grant new rights and authorities to the franchised firm to sell the franchised products under the brand name, trademarks and significant purchasing power of the franchisor. This structure is selected for this proposed business because the franchisee firm will make the huge profits and revenues under the corporation of franchisor. The profits and losses will be netted in this franchised structure against the owners’ personal income. Under this ownership structure, the owner of Cupcake shop will enhance the customer base by selling the cupcake products or items of Classic Cupcake Company in the great quantities to the large customer segments(Buttars, 2014). The risks level is fewer in this type of ownership structure because the risks and losses are also shared by the franchisor. Some personal risks include expiry of cupcake items, product damage, financial loss, capital investment risks, employability risks, and consumer loss as these risks or threats that will not be shared with the franchisor because these are individual business risks.
This assessment described the legal provisions affecting the business owner of Cupcake shop while starting a small business in Melbourne, Australia. Several key proposals and limitations of the key proposals were outlined in the Australian budget for the session 2015-2016 and 2016-2017 that will affect the new business ventures of the new businesses greatly. Different ALL structures and start-up modes were compared and contrasted from each other on the basis of characteristics, purpose, and ownership. The key characteristics and legal issues of the small businesses were discussed in detail. For this assessment, the franchised start-up mode and S corporation were selected for staring the cupcake copy shop.
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