BUSI 435 Week 4 Discussion Board Forum 2 Replies Example

Discussion Board Forum 2 Replies: Forms of Ownership and Ways to Enter Business

BUSI 435 Small Business Entrepreneurship, Discussion Board Forum 2 Replies

Thread by [Student Name]

The two classmates and their threads are composites; the textbook and the research cited are real, and the structure follows Liberty's public course guide for BUSI 435.

Reply to Marcus

Marcus, your plan to buy the hardware store from its retiring owner makes a lot of sense, and you are right that an existing business brings customers, suppliers, trained staff and a track record that a startup lacks. Scarborough (2016) lists those advantages. He also warns that a buyer inherits the business's weaknesses, from outdated inventory to a declining location, and he lays out a due diligence process: examining financial statements and tax returns, the condition of assets, leases and contracts, and the reasons the owner is selling.

That last step deserves more attention in your plan. You assumed the owner is selling only because of retirement, and that may be true. But research suggests sellers' motives vary. Headd (2003), examining closures of young employer firms, found many owners rated their firms successful when they shut them, evidence that owners exit for reasons other than poor results; by the same logic, a sale may reflect retirement, a declining market or both. A retiring owner and a struggling business can describe the same store, so the buyer has to check which story the numbers tell.

I would suggest asking for five years of financial statements and tax returns, comparing sales trends with the big-box store that opened nearby two years ago, and talking with several longtime customers and suppliers. If sales have held steady, your plan looks strong. If they have slipped since the big-box store opened, you would want a lower price or a plan to differentiate. You might also ask the owner to stay on for a transition period, which many buyers negotiate to keep customers and suppliers loyal through the change. Have you been able to see the store's financial records yet?

Reply to Alyssa

Alyssa, your thread argued that a sole proprietorship is the right form for your catering startup because it is inexpensive and simple to set up, and I agree that simplicity matters when you are starting small. Scarborough (2016) notes those advantages: low cost, few formalities and full control. But he also stresses the major drawback, unlimited personal liability. A catering business serves food to the public, and if a guest becomes ill or an employee is injured at an event, a claim beyond your insurance could reach your personal savings and home.

There is also a financing reason to consider a limited liability company. Cassar (2004) studied how startups finance themselves and found that the way a startup is organized, including whether it is incorporated, was associated with its use of debt, especially bank financing. A lender may view a properly formed company with separate accounts as more established than a sole proprietorship, which could matter when you need a loan for a commercial kitchen or a delivery van.

An LLC in most states costs a modest filing fee and an annual report, keeps the simplicity of pass-through taxation and separates business liabilities from personal ones, though owners can still be liable for their own negligence. Combined with liability insurance and a separate business bank account, it would protect you without much added complexity. Whatever form you choose, keep business and personal finances completely separate, since mixing them can weaken the liability protection an LLC provides. Would the cost and paperwork of an LLC change your decision?

References

Cassar, G. (2004). The financing of business start-ups. Journal of Business Venturing, 19(2), 261-283. https://doi.org/10.1016/S0883-9026(03)00029-6

Headd, B. (2003). Redefining business success: Distinguishing between closure and failure. Small Business Economics, 21(1), 51-61. https://doi.org/10.1023/A:1024433630958

Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management (8th ed.). Pearson.