Informational Presentation: Small Business Owners

History

The finance role operates in a variety of different forms of businesses. Organizations comprise into three different types of entities. The three primary interests are the sole proprietorship, the partnership, and the corporation. The sole proprietorship form of organization embodies a single individual ownership and offers the advantages of minimalism of decision-making, low organizational and operating costs. Most small businesses with less than ten employees are sole proprietorships. The major drawback of the sole proprietorship is that there is unlimited liability to the owner (Block-Hirt, 2004). In dissolution of the entity's debts, the owner loses not only the capital investment of the business, but possible may lose personal assets. The profits or losses of a sole proprietorship are taxable as though they belong to the individual owner (Block-Hirt, 2004). Therefore, if a sole proprietorship makes $25,000, the owner/proprietor will claim all profits on an individual tax return. Approximately 75 percent of the 21 million business firms in this country are operating as sole proprietorships, and these produce approximately six percent of the total revenue and 27 percent of the total profits of the U.S. economy (Block-Hirt, 2004).

Financial Statements

Financial statements provide information about the financial position, performance and changes in financial position of the organization that is useful to a wide range of users in making trade and industry decisions. Financial statements also show the results of the accountability of management for the assets delegated to it. Those consumers who wish to evaluate the accountability of management do so in order that they may make economic decisions; these assessments may include, for example, whether to hold or sell their investment in the venture or whether to reappoint or replace the management.

Financial statements are useful to different users in different ways:

(a) Investors. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments. They need information to help them determine whether they should buy, hold or sell. Shareholders are also interested in information, which enables them to assess the ability of the enterprise to pay dividends.

(b) Employees. Employees and their representative groups are interested in information about the stability and profitability of their employers. They are also interested in information that enables them to assess the ability of the enterprise to provide compensation, retirement benefits and employment opportunities.

(c) Lenders. Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due.

(d) Suppliers and other trade creditors. Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are likely to be interested in an endeavor over a shorter period than lenders unless they are dependent upon the continuation of the organization as a major customer.

(e) Customers. Customers have an interest in information about the continuance of an operation, especially when they have a long-term involvement with, or are dependent on, the organization.

(f) Governments and their agencies. Governments and their agencies are interested in the allocation of resources and, therefore, the activities of entities. They also require information in order to regulate the activities of organization, determine taxation policies and as the basis for national income and similar statistics.

(g)Public. Organizations affect members of the public in a variety of ways. For example, organizations may make a significant contribution to the local economy in many ways including the number of people they employ and their sponsorship of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the affluence of the organization and the range of its activities.

The Importance and Purpose of Financial Statements and Accounting

Financial information is the heart of business management. Success of a business relies heavily on finance and accounting. It is almost impossible to operate a business effectively without being able to read, comprehend and analyze accounting reports and financial statements. Accounting reports and financial statements are as revealing of the health of a business as pulse rate and blood pressure reports