Question

Consider you are a small business advisor. You have been approached by a client, John Stratton, who is interested either in establishing a new electrical business, purchasing the existing Jim’s Electrical, or buying into the partnership of Jim and Wendy Burns.
Your client wishes to make sure that he has obtained as much information as possible about the establishment of a new business before making any decisions.
He requires advice from you about the steps he needs to take to establish a new business. Such information will include advice on the most appropriate business structure, the legal and taxation requirements of establishing a new business and possible sources of finance.
Further guidance on the case scenario:
Before you can provide advice to your client it is essential that you have a good understanding of his business and personal objectives.

You will also have to analyze the records of Jim’s Electrical to establish the viability of either a purchase or establishing a partnership with the existing owners.

As part of the process you will have to determine the level of your client’s knowledge of business operations and his commitment to the future success of the business.
You will need to establish a level of mutual trust and confidence with your client to obtain the information you need to assess their requirements. You will consider the information necessary to enable you to provide proper advice for your client.
Before giving advice you must have collected sufficient information about both the client and the business they are considering purchasing or establishing.
Comprehensive analysis of the records of the existing business is essential before proper advice on the purchase of all or part of the business can be given. As well it is imperative to have as full an understanding of the financial position of the client and the business skills that person will bring to the new business.

On conclusion of this element you will provide your client with a report providing him with advice on how to establish this business based on the information he has provided.

This report will contain relevant information covered in the previous elements relating to the business structure and the legal and taxation implications of establishing the business. Additionally you will need to provide information to your client on the risks and responsibilities of business ownership and the importance of establishing contingency plans to protect against unexpected occurrences. You should identify essential insurance schemes to protect the assets of the business, key personnel and the owner. You will also need to consider the internal control processes they will need to ensure the business operates successfully.

The client has approached you with his business idea. The client is not sure about the legal requirements, ethical requirements, risks and other aspects of the business. Based on this situation, please prepare a response to the following questions:
1.   How do you prepare your advice in this situation? Discuss.

2.   Prepare summary information to the client for the situations above-(having a brief Microsoft PowerPoint slides is ideal way to present these type of information to the clients).

3.   If you were starting a business, what tax considerations might cause you to prefer to set it up as a proprietorship or a partnership rather than as a corporation?

4.   Assume that you are considering for risk management through insurance for your business. What types of insurance policies do you generally procure for your business?

5.   What is contingency planning? Identify the issues that need to be addressed in a typical contingency plan.

6.   What are the standard financial analysis techniques? Briefly discuss ratio analysis and cost benefit analysis.

7.   Consider the sources of finance available for your client and identify the features of each. (You should consider at least two short-term sources and two long term sources)

8.   Identify the 10 employee entitlements that employer must abide by (National Employment Standards (NES) as per the Fair Pay Standards 2009.

Answer 1

1.) Mr. John Stratton must opt for partnership, as partnerships are a simplest and quickest ways to structure a new business. With this type of structures, avoid reMr.john can avoid the registration fees of creating a corporation or an LLC. The legal fees for starting a partnership tend to be lower because of simplicity of these business structures.

2) Therefore entering into a partnership agreement with Jim and Wendy Burns would be appropriate for Mr john.

3) Corporations must file taxes separately from the shareholders. Owners of corporation pays taxes on salaries, bonuses and dividends they earn from the organisation, as the company is an artificial person created by law. Whereas, sole proprietor and partnership are one and the same.

As a result, partners and sole traders not need to file a separate tax return for their business.They need to report the business income on their own personal tax return. This avoids the time and costs of filing multiple tax returns which is generally seen in corporations.

4)Risk ia an integral part of the business every organisation irrespective of its structure requires risk to be covered by any means. One of the common ways to cover risk is insurance, in the given cse following types of insurance will help the business to deal with any contingency.

a) Professional liability:

This insurance covers liability based on professional services. I for eg:y were to wire a home that eventually has an electrical fire due to problem with your wiring, this policy would protect you against a lawsuit, unless it’s proved that you were negligent in your work.

b)General Liability:

While professional liability insurance addresses incidents that arise only due to professional services, general liability insurance protects the company’s assets and covers general issues. Let’s say a customer comes to your office and has a slip and fall accident on your property, or you are accused of copyright infringement. This type of insurance may also be needed when working on certain large projects that mandate that the owner be included as an additional insured in case of a issue with the job site.

C ) Commercial Property:

Electricians invest a great deal into tools, signs, and buildings. Property insurance covers those items in case of a loss due to theft, fire, vandalism or other covered incidents.

D ) Workers’ Compensation:

This type of insurance protects ylthe workers if they are injured on the job. It is designed to take care of the medical bills and employee’s lost wages while they’re handicapped or disabled due to the injury. As the electricians are privy to a variety of health and safety concerns on the job, this coverage is crucial.

E)Health Insurance:

There are a variety of different options depending on the situation. For eg; One may want to purchase individual marketplace insurance if he is self-employed or a business policy that covers yourself and any employees. Steep fines have come into effect if organization don’t have coverage throughout the year.

F) Commercial Auto:

Whether you’re using a personal vehicle for work or have a dedicated vehicle for your business, required or not it is always a good idea to have your vehicle insured. Since the vehicle is used in business, you’ll want to make sure you have sufficient coverage if your vehicle happens to cause property damage while on the job.

G)Other Insurance Coverage to Consider:

Depending on your situation, it may be beneficial to add other insurance types.

Life insurance, Business interruption insurance etc.

5) A contingency plan can be defined as a course of action designed to help an organization respond effectively to a significant future event or situation that may or may not happen or a contingency. It is sometimes referred to as "Plan B," because it can be also used as an alternative for action if expected results fail to materialize.

It helps the business in dealing with adversity in tough situations.A contingency plan should also address positive events that might disrupt operations - such as a very large order or a big contract that the company least expects.

A good contingency plan should cover any event that might disrupt the entity's operations. areFollowing are some specific areas that are included in a contingency plan:

• Natural disasters, such as hurricanes, fires, and earthquakes, Tsunamis, Cyclones, floods etc.
• Crises, such as threatening employees or customers, on-the-job injuries, and worksite accidents etc.
• Personnel, such as death of a senior manager, or union members going on strike or other key leaders.
• Data loss, such as loss due to natural disasters, sabotage, or other criminal action (such as an attack on a website), Hacking, virus attacks.
• Mismanagement, such as theft, neglect of critical duties, or accidental destruction or any other incident.
• Product issues, such as a huge order that requires reallocation of plant resources, or a product recall.  

6) Standard Financial Analysis may be defined as the process of highlighting the financial strengths and weaknesses of a business by studying both the balance sheet and income statement elements. Financial statements produce a summary of data from which important analysis and interpretation can be made.

Following are some of the techniques:

1) External Analysis

2) Internal analysis

3) horizontal analysis

4) vertical analysis.

5) trend Analysis

6)Ratio analysis

7) cost benefit analysis.

Ratio analysis, is the most popular way to analyze the financial statements.The tool of ratio analysis performs in a way that it makes the process of comprehension of financial statements easier, at the same time, it reveals a lot about the changes in the financial condition of an organisation.

Cost benefit analysis may be used to compare completed or potential courses of actions, or to evaluate the value against the cost of a decision, project, or policy. It is prevalent in commercial transactions, business or policy decisions (particularly public policy), and project investments.

7) Sorces of finance:

There are plenty of ways in which an organisation can be financed, most popular long term source is Bank loans, Savings, Retained earnings.

Short term sources includes, working capital, short term loans etc

8) following are the 10 employee entitlements that an employer must abide,

Maximum weekly hours

requests for flexible working arrangements

parental leave and related entitlements,

personal leave

annual leave

service leave

long service leave

public holidays

notice of termination and redundancy pay

fair work information statement

This Mr. John Stratton must consider all the aspects before entering into partnership.

Thank you,

Hope it's clear.

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