Group 7

Rutendo Mutsai R225639H

Margaret Mutiracha R2215587G
Snodia Matsvayi R2119266J
Ashley Tafadzwa Dandure R221445B
Marshall Chikambure R2213687Q
Patience Chikwanha R222678W
Fungai Chaparadza R222931Q
Anna Kaseke R2216714R
Programme: Logistics and Supply Chain Management Level: 2:1

Lecturer: Mr Mabenge Module: ENT 131

Question: 8a) You have been asked to give a presentation on 4 types of getting into business
available to an entrepreneur. Explain each one of them giving pros and cons.

b) Give a detailed presentation on each of the following ownership types clearly explaining
what it is about and giving advantages and disadvantages

i)Sole trader ii)Partnership iii)private Ltd Company

One can go into business through various forms that is a new start up, franchise, buying an
already existing business and inheriting a business. These are explained in detail below.

Start up

This involves creating a new business from scratch, but this does not mean that the idea is
necessarily new. Funding sources include family and friends, venture capitalists and
loans.start ups comes with very high risk as failure is very possible but they can also be very
unique places to work with great benefits, a focus on innovation and great opportunities to
learn. Entrepreneurs prefer to start a business from scratch because it is their own creation
and they can be proud of it.

Pros

The owner has full control of all aspects of the business, including location the standards of
operation, the owner determines all that without anyone telling them what to do and what not
to do.

Enables the owner to design and create a unique business climate and image, creating abrand
that they like and how they want their business torepresent

The entrepreneur may draw from previous job experience , skills and passion to help them
establish the business for example a former manager at Food Lover Greendale opened his
own start up called Fresh Co now he is using those skills he got from his time when he was a
manager to apply in his business and the business has actually been making lots of profits.

No predetermined rules to follow since the owner runs it by themselves, therefore it is much
less restrictive as compared to a franchise as u are answerable to the owners of the brand.

There is also unlimited potential for growth and profitability.

Cons

All details of starting the business are the responsibility of the owner for example coming up
with the business plan, licensing ,product sourcing and every other thing so the burden will
fall on one person unlike other business where there is shared responsibility.
Lack of credit worthiness maybe a barrier to financing, banks do not usually finance start-
ups as they are still starting because their profitability is not certain unlike already existing
businesses.

It also takes a lot of time to be established and be known also people might not be willing to
leave well-known brands for a start-up so it is difficult to make customers and start realising
profits

They are more costly and risky in terms of market research,capital and many other things and
it is not guaranteed that customers will come.

2) Franchise

It is a business that uses the name, logo, product and trading systems of an existing successful
business. The company offering the right is the franchiser and the company buying the right
is the franchisee. Examples of franchisee activities include fast foods that is KFC, Steers fuel
services like Zuva, total and many others.

Pros

There are fewer decisions to make than with an independent business, prices store layout and
range of products will have been decided by the franchiser.

Supplies are obtained from established and quality checked suppliers so you get quality
goods and also save time in sourcing for suppliers because they are already there.

National advertising is paid for by the franchiser, there is no need to advertise as it is a well-
known brand and the advertising was already done it is like the products sells on their own
saving the franchisee on these cost.training is also done by the franchiser as they would want
a uniform brand.

There is also absence of competition as the franchiser agrees not to open another branch in
the local areas hence more profits.

Fewer chances of the business failing as it is an established brand

Cons

There is share of profits or sales revenue that has to be paid to the franchiser each year unlike
when you are the real owner you enjoy all the profits on your own.
The franchisee has to adhere or follow certain policies of the franchiser for example working
hours, methods of production, hygiene standards and many other things.

The right of a franchisee contract can be withdrawn if standards are not met. Also the initial
franchise licence fee can be expensive.

3) Buying an existing business

This is an outright purchase of a business that is already there.

Pros

Business processes are already in place so time is saved.

The customers are already established so one does ot need to start looking for customers.
Also employees who are skills are there and suppliers are there you do not have to source for
new ones.

The established business might have a good location and can capitalise on that thereby
getting huge profits

Cons

It is difficult to find successful business for sale that is appropriate for an entrepreneurs
needs. The business may have reached it maturity stage already and starting to decline hence
you might not make profits from such a business

Performing due diligence can be time consuming and costly. That is investigating a business
to determine its value.

Existing employees may resist change or they may be just unsuitable for the new owner.

4) Inheriting a business

This is when ones gains ownership if maybe retirement or death of the founder mainly people
who are related

Pros

Decreased cost as family members can be willing to contribute financially to keep the
business afloat
Flexibility as members can take tasks outside of their formal remit when needed.

Long term outlook as family members think ahead in term of decades to come.

Cons

There is lack of proper succession planning in small entrepreneurial ventures

There might be conflict between family member which might even lead to total closure of the
business and some of the relatives might even misuse the business funds hence its closure.

Death or retirement often leads to closure of business.

Some future generations might not be interested in keeping that kind of business hence it will
be closed.
b) A sole trader is a business owned by one person. The owner may employ others but
remains small. It has unlimited liability meaning the owners personal possessions and
property can be taken to pay off the debts of the business should it fail. The sources of capital
for a sole trader are own savings, loans from banks, borrowing from friends and family,
profits. It is commonly established in retailing. Shoe repairs, salons and many others.

Advantages

Long hours which in turn bring more profits in the business. They operate till late and by this
time most well-known and bigger businesses will have closed thereby gaining more
customers at that time

They enjoy their profits alone, there is no profit sharing since they are the sole owner.

Quick decision making as one person makes the decisions and no consultations which takes
time.

It is very easy to set up as it requires a small amount of capital

There is personal contact with customers and ability to respond quickly to their needs and
demand

Flexible in the time and patterns of work as they have freedom to chose their holiday, hours
of work, prices to be charged and whom to employ if they cannot manage the work load.

Disadvantages

There is lack of continuity if the owner dies

Unlimited liability

There is lack of capital or expansion for it is not easy to be financed by bank loans as it is nt
credit worthy

Lack of skills as the owner is the jack of all trades

They also face intense competition from bigger firms

Limited scope for economies of scale

ii)Partnership
It is formed with individuals between 2-20 people. Their aim is to make profits. The
agreement to work together does not affect or separate legal unit that is partners cannot be
separated from the business.

Advantages

There is sharing of ideas when making decisions hence they come up with the best idea after
discussion.

Partners may specialise in different areas of business management for example finance,
logistics marking and many more.

Partners inject capital into the business so it is easy to raise capital

Both parties are motivated to work hard as they would benefit from the profits made.

Disadvantages

There is unlimited liability meaning partners can loose personal property if debts are not paid

Profits are shared among partners as compared to a sole trader.

Decision making takes longer as partners debate on issues before deciding.

Lack of continuity if a key member dies’

iii) Private limited company

It is owned by 20-50 shareholders. Name of the company must be registered by the registrar
of companies and it must end with the word private limited. Shares cannot be sold on the
open market to the public and existing shareholders can only sell their shares with the
agreement of the other shareholders. There is limited liability.

Advantages

There is continuity in the event that a member dies.

Original owner is still able to retain control

They can raise capital by selling of shares to family, friends and employees

Economies of scale that is bulk buying and lower prices

The company can employ qualified workers nd be in the position to pay them.

Disadvantages

A lot of legal formalities involved in establishing the business

A copy of audited accounts must be sent to the registrar of companies and this is very
expensive

Capital cannot be raised by selling shares to the general public.

References

Anderson,A,A(2005)The Community builders approach to theory of change:A practical

guide to theory development. Washington DC. The Aspen Institute.

Baumol, W.J, (2004) Entrepreneurial Enterprises Large Established Firms and other
Components of the Free Market growth Machine. Small Business Economics: New York

BBC(2018) Private Limited Company (Ltd) The options for start up and small businesses

Crunch (2020) Advantages an Disadvantages of Private limited companies.