Pros and Cons of Partnership as a Form of Ownership Essay

Custom Student Mr. Teacher ENG 1001-04 18 February 2017

Pros and Cons of Partnership as a Form of Ownership

Q.1 Identify the pros and cons of the partnership as a form of ownership?

A partnership is formed when two or more people engage in a business activity and share investment, profit and loss. Just like any other form of ownership, it has its advantages and disadvantages. Following we discuss some of the pros and cons of a partnership.

Pros of the Partnership

(1) Ease of Formation: Partnership is comparatively simple to form. All you need to form a partnership is an agreement. A verbal agreement is enough to start a partnership however it is much recommended that partnership be formed based on a written legal partnership agreement.

(2) Funding: Partnerships generally have a low startup cost. With two or more people investing capital in the company, the business will have a much stronger financial ground. Two or more people can also have better access to outside funds needed to run the business

(3) Divided Responsibility: In a partnership responsibilities of running a business are shared by the owners. Shared responsibilities ease the work load on individuals and can also increase productivity by splitting responsibilities in a way that individuals can use their special skills to maximize the output.

(4) Support: Owning and running a business can be very demanding, challenging and stressful. Having a business partner can give you a little peace of mind because a partner can provide moral support when needed.

(5) Taxation: The income profit/loss in a partnership flows through the business to individual partners for taxation. In other words the partners are taxed only on the basic of personal income i-e how much loss or profit a partner endured.

Cons of Partnership:

(1) Liability: In a partnership both partners have un-limited liability (not in LP and LLP). Both partners are responsible for not only their own actions but also the actions of their partners. So, if your partner fails to pay a debt, you personally are responsible for paying that debt and vice versa. If someone sues the partnership and the business doesn’t have enough money to cover the expenses than the partners personal assets will be at stake.

(2) Conflicts and Disagreements: Partnerships are for the long term and over the course of time conflicts arise and disagreement happens. Whether these are personal or management style conflicts. They can adversely affect the business. When general partners don’t agree it can delay the decision making time of the company and a bad conflict is enough to dissolve a partnership.

(3) Dependence on Partners: The success of any partnership depends heavily on contribution from all partners. If a partner withdraws the business will be crippled, if a partner dies the partnership can die with him. Moreover you can’t make any business decision on your own you’re dependent on your partner.

(4) Difficulty Withdrawing: It is not that easy to get out of a partnership. Whoever needs to withdraw will be personally liable for any monetary obligations due at the time of withdrawl.

Q.2 Discuss funding options for small business?

In order to run a business you need capital. Getting the money together to start a new business is the top priority of any entrepreneur. There are several ways to finance a small business. Following are some options for financing a small business.

(1) Personal Resources: Using your own assets is the most common form of small business financing. You can use money from your saving, ask family or friends for capital or use a credit card.

(2) Loans: In order to startup a new business, entrepreneur borrows money from the banks. The banks charge an interest rate on the money lent. The business owner must pay the original money borrowed plus the accumulated interest over the life of the loan. In today’s economy it is not easy to secure a commercial loan with the bank. A better and easier way for a new business to get a bank loan is with loan guarantee from the SBA.

(3) Angels Investors: Another way to fund a small business is by private investors. Angel Investors are individuals who have a lot of money and are looking to invest a large amount into a profitable business for financial gain and profits.

(4) Venture Capital: The companies who fund promising and high potential companies in exchange for ownership shares are known as venture capital firms. Venture capital is the money provided by venture capital firms to startup businesses that are perceived to have a long term growth potential. It has a high risk for investor but also has potential for above average profit returns.

3. Determine and discuss how managerial accounting can help managers with product costing, incremental analysis and budgeting?

Managerial accounting provides accounting information needed by managers inside an organization to run its day to day operations. It provides managers with financial information’s needed to make sound business decisions. Managerial accounting information includes budgeting, product costing, performance reports, variance analysis and financial ratios.

Following we look at three managerial duties that rely on information received from managerial accounting:

(1) Product Costing: Product costing is the process of accurately determine the cost of a single product, by analyzing all the expenses that accrued from the beginning (raw material) to the end (sale). In traditional costing method indirect costs are applied to products, based on an overhead rate that is predetermined. The traditional costing system is easier and much simpler but fails to add the cost of non-manufacturing goods that are associated with the production of that item.

(2) Activity Based Costing: Activity Based Costing is a new method in costing. It’s much more complicated that the traditional costing system. ABC gives a much more accurate product cost. Under activity based accounting associated with production of an item is determined and priced. This priced activity is than assigned to every product that requires the prices activity for production. Managerial accounting provides managers with the financial information needed to determine the cost of a manufactured product.

(3) Incremental Analysis: Incremental Analysis is a decision making tool. It is used for the analysis of financial information needed to make an informed decision. In incremental analysis two different alternatives are weighed out in terms of cost/profit and the impact of the outcome of this analysis will have on a particular decision.

It basically points our related cost and revenue of each alternative and the impact this alternative will have on future income. After using incremental analysis and choosing one alternative over the other. The cost change that occurs due to choosing the alternative is called incremental cost. Managerial accounting provides us with the numbers needed to compare two different alternatives, pick the right one and analyze the difference in cost.

Budgeting: It helps managers plan and control costs and revenues. Budgeting is a tool for managers to determine how much money needs to be spent in order to generate a certain level of income. Budgeting in simple terms can be called forecasting; in budgeting we prepare a very detailed statement of financial results that are likely to happen in a time period to come. Companies use budget to plan for a future period based on financial statements. Managerial accounting provides managers with the financial statement for budgeting.

Q4. Discuss the basic components of the marketing process using the product or service of your choice as an example?

Marketing strategy can be described as an activity to position a product, attract customers while promoting the interest of stakeholders in a business. Marketing makes it possible to communicate the value of a product or service to consumers.

Following the basic components of marketing process is explained briefly using artificial jewelry as a product.

(1) Product Strategy: Methodologies, tools and technology used by a business to differentiate and distinguish its product from its competitors, is called product strategy. In terms of artificial jewelry my strategy would be to describe my product in full detail including where it was made, who it was designed by and what metals were used in its formation. I would also set my product apart by choosing appealing packaging and I would back the quality of my product by giving guarantees. And above all I would provide exemplary product designs and excellent customer service.

(2) Pricing Strategy: Pricing Strategy is very important in marketing because it generates a turnover for the company and it’s also important because it affects other components of marketing as well. In terms of artificial jewelry first I would do a thorough research on competition prices, than I would calculate my final cost and select a pricing objective. I would compare my sale price with that of my competitors, and make sure that my price is lower than the competitors and value of my product is higher than the competition. Initially, I would keep my profitability low and will try to build clientele base by providing unbeatable prices.

(3) Distribution Strategy: Distribution plays a very important role in marketing strategy. It involves how well the final product is delivered to the consumer. The product must be delivered to the end user in the right quantity, at the correct date and time. In terms of artificial jewelry most of my sales will be distributed at shows and festivals organized by different entities and a major part of my sales is also going to be web based. I will contact different shipping companies to find out the best courier in terms of price and value. And ship my jewelry through the best medium, at minimum amount of tie.

(4) Promotion Strategy: Promotion Strategy is also vital part of marketing. A promotion strategy includes all the ways used by companies to provide information about their product in such a way that it would ultimately increase the company’s sale. In terms of artificial jewelry I would offer some sort of coupon and advertise my discount. Offer free shipping (when possible), maintain customer relations and send out promotional information to existing clients.

Q.5 Discuss the role of social responsibility and technology in the marketing function.

Social Responsibility in Marketing: Being socially responsible for an organization means that it cares and shows concerns about the people and environment in which they conduct business. Marketing can be described as promotion, selling and distribution of a product.

Social responsibilities in marketing would first of all include truth telling about their product , all the information about the product should be correct and up to date. Companies should be concerned about their environment and take steps to make a cleaner. Companies should also show support for social causes in marketing. Company should market their product in a way that it doesn’t offend any group of people.

Technology in Marketing: The technological boom in the past years had definitely revolutionized marketing. The internet has created numerous marketing opportunities for businesses. Now days there are numerous marketing firms that work exclusively on the internet. At first radio changed marketing, than TV and now it’s the age of hand held devices and internet.

Marketers now days know that constant technological advances require evolution in the marketing process. With technological advances it’s much simpler and quicker to get customer feedback. It is much simpler to deliver the product to the customer and to do market research and maintain your brand reputation. Technology had had a great impact on marketing.

Free Pros and Cons of Partnership as a Form of Ownership Essay Sample

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  • Date: 18 February 2017

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