Business Solution

Sole proprietorship is a form of business wherein a single individual is the owner or proprietor of a business organization. He takes all the business management decisions himself and is also solely responsible for all the transactions carried on by the company. Sole proprietorship is a preferred form of business by small business owners. Even in USA, there are many small businesses which are run by individuals. This is because there are various benefits of sole proprietorship business. Some of the sole proprietorship advantages are listed below.

Advantages of Sole Proprietorship

Ease in Business Commencement: The business can be very easily started if there is only one owner. The legal costs involved in such a type of business structure is very low. The paperwork and formalities are also very less. Due to this many businessmen start as sole proprietors initially and later change the business structure when their businesses grow.

Absolute Control: Decision making power lies with a single person. The proprietor has complete control over each and every aspect of the business. He has full legal and financial responsibility. Hence, there is no question of any kind of conflict arising due to difference of opinion related to business policies. This is one of the primary sole proprietorship business advantages.

Avoidance of Double Taxation: One of the main sole proprietorship benefits is that the taxes to be paid are lesser compared to other forms of business which have business partnerships involved or in case a firm is a corporation. The reason for this is the absence of double taxation in a sole proprietorship firm. Double taxation means that the company and his owner both have to pay tax on the income generated by the business. The company pays the corporate tax and the owner pays income tax. This is not the case in sole proprietary firms. In the eyes of the law, the proprietor and his business are considered to be a single entity in case of a sole proprietorship firm. So there is no corporate tax that has to be paid. The owner only has to pay the income tax.

No Income Sharing: Another sole proprietorship advantage is that the owner has 100% right over the income generated through the business. Thus, financial planning becomes hassle free as the income remains in the hands of a single owner and he may keep it with him or re-invest it according to his discretion. The owner may also use the business income for non business purposes or for personal use. The reason for this is that in sole proprietorship, there is no distinction between business income and personal income.

Reduced Income Tax: In case the owner has just started the business or if the business is going through a slump, the proprietor may face some business losses. In such a scenario, the owner can deduct his business losses from his total income, including the income generated from sources unrelated to his business like interest on shares and sale of property. The income tax a proprietor pays is then calculated on the basis of this reduced income.

Ease in Business Dissolution: The business can be dissolved very easily. The proprietor reserves the sole rights to sell his business to anybody. The proprietor can also transfer his business on anybody’s name. There is no headache of calculating percentages of the sale proceeds to be given to different parties or conflict related to on whose name the business should be transferred. Thus, financial management becomes easy. This is one of the main advantages of sole proprietorship.

These are a few sole proprietorship advantages. Although all businesses are different and what may be an advantage for one could prove disadvantageous to the other. In sole proprietorship, the owner has full control over the income and the decision making, but at the same time he also has unlimited liability. Unlimited liability means that in case of a business bankruptcy, the owner has to single-handedly bear all the business debts or lawsuits if any against the company. Thus, there are a few risks associated with sole proprietorship firms as well. So if you are planning on starting a business and still deciding on the best suited business structure for it, look at both disadvantages and advantages of sole proprietorship and then arrive at a conclusion.

Making money in business sometimes seems impossible but you may think that there is a magic formula. Business isn’t an exact science, its about being creative. Although business decisions are often backed by facts and figures a lot of the decisions are made on a hunch, a feeling that the person has about a situation.

At first this seems to be a strange way to make important business decisions, almost a risky strategy but successful people are successful for a reason. Their minds seem to automatically be able to spot a good deal and their hunches make them a lot of money.

Unfortunately most people can’t do business on a hunch and need to have some kind of guidance.
Spotting a good deal.

On the surface most propositions seem like a good deal, the person seeking the finance has made it his business to get the money he needs. It’s only when you scratch the surface and dig a little deeper that you begin to unearth what is going on.

When you are investing you are looking for a good return on your investment. You don’t want to be shelling out money to fund somebody’s dream, you want a good return on your investment. You need to assess the risk.

Minimizing risk

There will always be a certain amount of risk with any investment but you can do a few things to minimize the risk.

In order to assess the risks you need to get as much info as possible. You need information about the companies past performance. You need to know their profit and losses for the past three years. You need to know the companies staff turnover. You need to know everything about the directors; what type of person they are, do they have any other business interests, have they ever filed for bankruptcy. After all you are not just investing in bricks and mortar you are investing in the person who will be using your money, hopefully putting it to good use.

Valuing a business

Its very difficult to put an exact formula into action when valuing a business. Most people think that a business can be assessed by using a multiple of the profits. To a certain extent it can be but there a number of other things that will affect the value. Your experience will play a large part in assessing the worth of a business.

As well as profits and losses you will also need to assess things like the following:

Is it a turnkey investment or will you need to also invest some time and effort?
Does the business have a lot of assets?
What is the potential of the business?

Business is not exact science and sometimes you need to use your hunches to get a better deal and make more money from your investments.

The success of an organization depends upon the style of governance. Every organization has its own management code which becomes the backbone of the company’s work culture. Do you know which style is right for you and your company? Would like to find out what style is being followed in your organization? The management styles are basically divided into autocratic and democratic style. Many more styles have come into existence with the increase in competition in the market. I will deal with the traditional autocratic and democratic style and the Laissez-faire management.

 Autocratic Management
"I am your boss. You have to do what I ask you to do. Do not ask questions and expect explanations for the orders given. Remember, that the boss is always right!"

Is this the situation in your company? The organization that has the manager dictating his terms and conditions to his employees follows the autocratic management. The autocratic manager makes decision without consulting the staff and he likes to remain in control at all times.

This style of management was widely followed during the 1960s and 1970s. Most of the managers selected during this period had military background. It was considered that their sense of discipline and organization will help in standardizing the work process of the company. The companies following the autocratic style did not allow creativity and free hand to the employees in their areas of expertise. This led to the downfall of many large companies as they had ‘an inability to change’. This style of management gets work completed on time as the decision making process is quick and usually done by one person in authority. The employees in such organizations are less motivated and have low job satisfaction. The company faces a high employee turnover. This style can be applied to industries where targets have to be met in a short time and time cannot be spared in taking a consensus from the employees.

Democratic Management
"I believe in your ability. I trust your decisions. I give you a free hand in organizing your department. I expect you will get the work completed in time according to the company policies and achieve the highest results. All the best."

Wow! What great feelings arise when your boss delegates you work combined with trust. It makes one determined to complete the task. This kind of management is called democratic management. In this style, the democratic manager empowers his employees with the responsibility of task completion. The employees can use their own methods to achieve the results on time. It involves all the staff members in decision making and chalking out the plan of action. This highly motivates each individual and creates a sense of belonging to the organization. This in turn helps in increasing the work quality and quantity. This is a popular style of management today. This kind of management is effective when the employees have strong job skills because they require minimal supervision. The decision making takes a long time as all the members of the staff involved in the particular work need to be consulted.

Laissez-faire Management
"Do whatever you like. Take any decision you want. If you need me, I’ll be in my office."

This style of management is the Laissez-faire management. Also known as the free-rein management. The term Laissez-faire was derived from the French expression, "leave it alone." In this style, the manager gives most of the authority to the employees. There is very little involvement of the manager. The manager does not sit idle. He watches over the employees and guides them as and when required. He sets goals and objectives for the business and leaves the employees to perform the work as they wish. This style of management can be applied in areas where the employees need to work independently, like outdoor salespeople, writers, engineers, scientists etc. The main drawback for this kind of style is that some employees pursue their own agendas rather than achieving the organization goals.

The right management style should be chosen after understanding your own personality. Understand the kind of boss you want to be. Then you should understand the ability of your staff and lastly, the work culture followed in your organization. If all the three factors point at choosing a particular style, make it the standard style for your organization. Remember, the success of an organization lies in the hands of a satisfied and well-motivated employees.