THE BUSINESS STRUCTURES

When you decide to open a new small business, you will be faced with both fixed costs (FC) and variable costs (VC). Examples of FC are the costs for starting the business, such as building, insurance and rent, while the VC are, amongst others, labour costs (additional workers) and raw material costs. In relation to costing, there are several types of business structures, which you need to be familiar with when choosing your business, such as sole trader, partnership, limited company etc. You need to know these structures in terms of the following costs and benefits as follows: • Economies of scale and economies scope (what are the benefits and costs of individual structures, etc). • Legal liability (who is/are responsible if you go bankrupt or have legal disputes with clients etc). • Investors (what type of structures are favoured by the investors). You arc required to critically discuss the following tasks. (Hint: these ore conceptual questions. Calculation is not required. Higher marks will be given for rigorous answers with complete Harvard referencing). 1) Identify several types of business structures and critically discuss the advantages and disadvantages of each. (30 marks) 2) When you open a new small business, you will be faced with both fixed and variable costs. Discuss which types of small businesses are profitable between the following two types of businesses below (a or b) and why (critical explanation). (10 marks) a) The small business with relatively higher fixed costs in the beginning but carries relatively lower variable costs in the later stages. An example of this small business is opening an online mobile hairdressing service offering a haircutting service through the Internet. The initial (fixed) cost is relatively high (designing an aesthetic website and buying complete equipment and a car to provide the service), while variable costs are relatively low since you are the only worker In the company. b) The small business that has relatively lower fixed costs in the beginning but has relatively higher variable costs In the later stages. For example, renting a small curry kiosk in a shooing centre (food retail shooing malls). While the fixed costs are relatively low, the business has higher variable costs due to paying for several waitresses, delivery staff and cooking staff, etc.