ENTERPRENEURSHIPCompany TrendsCompany trends involvethe statistical analysis of historical data over a period of time. If the datashows increase, decrease, or constant figures, then there exists a trend.Different businesses of different sizes predict their future performance usingsuch data.There are differentaspects of a company’s trend. They include:1.
FinancingThere are various sources of finance in the businessmarket. A company may raise funds through i. Retained earnings- any given company, theamount of earnings retained within the business has a direct impact on theamount of dividends. Profit re-invested as retained earnings is profit thatcould have been paid as a dividend.
ii. Bank borrowing-Borrowings from banks are an important source offinance to companies. Short term lending may be in the form of 1. An overdraft which a company should keep within a limitset by the bank. Interest is charged (at a variable rate) on the amount bywhich the company is overdrawn from day to day2. Ashort-term loan, for up to five years3. Medium-termloans are loans for a period of from three to ten years.
The rate of interestcharged on medium-term bank lending to large companies will be a set margin,with the size of the margin depending on the credit standing and riskiness ofthe borrower. A loan may have a fixed rate of interest or a variable interestrate. iii. Capital markets-capital markets are markets for buying and selling equity and debt tools. Thiscan be done so by a company selling its shares to the general public or toanother company.
This is another source of finance trend a company can use. 2. Structured FormalitiesMaking the right choicefor your business will generally depend upon the type of business, how you wantthe business to be run, how many owners the business will have, and the financialsituation of the business.
A business can be: a partnership, sole proprietorship,or corporation – depending on your preferences and the type of your business. Businessstructures vary but there are some criteria that one can use to find which oneworks best.These criteria are:· The differenttypes of liabilities that come with each business structure· The expenses andprocedures associated with establishing and continuing to run the variousbusiness structures· Income taxpayment· Investment needs Varied LiabilityDifferent types of businesses come with variedliabilities. For instance, limitedliability companies allow business owners a type of “limitedliability,” where anyone seeking claims against the business will have avery hard time placing personal liability to the owner. Unlike, if you were toorganize your business as a partnership or a sole proprietorship, you could bepersonally responsible for anything the business did wrong. In a partnership, everypartner can be held personally liable for any claims against the business.
Basically every partner has some percentage of liability therefore liability isshared.Expenses andProceduresSole proprietorships and partnerships do not have alot of paper work as compared to limited companies and corporations. They arequite difficult and expensive too to establish and maintain. In order to establish acorporation or limited liability company, you must file “Articles ofIncorporation” with your secretary of state and pay fees associated withthe incorporation. In addition, when deciding to form a corporation or LLC, theowners of the business must decide which officers to elect to run the company.The officers typically must include at least a president, vice president andsecretary. LLCs and corporations must keep specific and detailed records of anyimportant business decisions, and follow many other formalities that areassociated with these business structures.
Income TaxPaymentThere is a tax benefitto forming your business as a corporation. The owners of a corporation do notpay taxes on any profits that the corporation keeps, and the corporation paystaxes at a lower rate than do some individuals. This means that a corporationand its owner may pay less in the form of taxes than if the owner had organizedhis business as a sole proprietorship, or any of the other business structures.
A corporation is aseparate tax entity, it must pay taxes on any profits that remain within thecompany during a tax year, and also on any profits that it pays out in the formof dividends to shareholders. Investment NeedsStructuring a businessas a corporation allows a business to sell shares of ownership in the businessthrough stock offerings. This is different than the other three businessstructures, which do not allow the selling of part of the business through thesale of stocks. Because of this investment scheme, it may allow owners of acorporation to attract investors and retain employees more easily by offeringstock.If you desire thelimited personal liability that comes from a corporation, you could insteadform your business as a LLC. An LLC provides many of the advantages of acorporation while remaining more flexible.3.
Cultural DynamismThe surrounding community culture in which anentrepreneur sets up a business will determine the business operations. Thebusiness should not go against the cultural practices of the community. Forexample one should not open a pork butchery in an Islamic community. 4. Disruptive innovation This is a business strategy in which new market iscreated and value which disrupts the existing market.
Disruptive innovation describesa process by which a product or service takes root initially in simpleapplications at the bottom of a market and then relentlessly moves up market,eventually displacing established competitors. Companies pursue suchinnovations which helps them succeed in the market.By charging the highest prices to their mostdemanding and sophisticated customers at the top of the market, companies willachieve the greatest profitability. Below are some characteristics of adisruptive business at initial stagesCharacteristicsof disruptive businesses1. Lowergross margins2. Smallertarget markets 3. Simplerproducts and services Eventually the company will end upproducing products or services that are actually too sophisticated, tooexpensive, and too complicated for many customers in their market.
References 1. Haines Watts https://www.hwca.com/app/uploads/2015/02/Sources_of_Finance.
pdf2. Ronstadt, R.C.
(1984). Entrepreneurship, Dover, MA: LordPublishing Co., pg. 283.
Dr. Anrug Pahuja, Rinku Sanjeev(March, 2015) Introduction toEntrepreneurship, https://www.researchgate.net/publication/301659818_Introduction_to_Entrepreneurship