How Managerial Accounting Can Help Managers

Assignment 2: Creating, Financing, and Marketing a Business Shamika Ward Professor Roderick D. Thomas Introduction to Business December 2, 2012 Identify the pros and cons of the partnership as a form of ownership. Partnership is one of most common forms of business. There are many advantages to business partnership as well as a few disadvantages. One advantage is that a partnership is easy to establish. This can be established through verbal agreement or through a contact. Another advantage is the ability to pool financial resources.

The more capital a company has the faster they are able to grow their business. Partnerships lessen the burden on the individual running the business. Since more than one party is in charge responsibilities can be divided amongst each person. By dividing the task they can use their skills to the best advantage. The pass-through tax treatment is one of the most beneficial advantages of forming a partnership. With the pass-through there is no taxation to the business itself; all income, deductions, and credits, “pass through” to the individual partners and are reported on their individual tax returns.

While the advantages of a partnership seem like the perfect way to start a business there are disadvantages. In a partnership you are not only responsible for the errors and misjudgments that you make but also for your partner’s. Both parties are equally responsible for the debt and obligations of the business. Like any other relationships, partnerships also have disagreements. Disagreements amongst partners can create bad turmoil and prevent the cooperation needed to keep the business focus. Disagreements can also lead to one of the partners wishing to withdraw from the partnership.

This can cause insecurity about how long a business will stay operational. Lastly, a partner that extracts from a partnership is still held accountable for any debts or obligations the company had at the time of withdrawal. Discuss funding options for small businesses. The top task for any small business is trying to determine how to successfully fund their business. The most common used source is personal resources. This not only your own money but often is asking friends and family members, and credit cards.

When borrowing from friends and family it is important that you disclose that it would be a financial risk they are taking by giving you the money and if your business doesn’t succeed they might not get the money back. While using credit cards might seem like a great option they are also a highly risky financing option. While credit cards provide fast and flexible money they can also cause a huge amount of debt. Interest rates and financing fees can add up fast if the money isn’t paid back quickly to credit card companies.

While many people have an assumption that getting a loan from a bank is a fairly easy process they are often discover they were incorrect. Commercial loans are harder to come by due to banks and other lenders being tentative to fund a company that doesn’t have a reputation. Only 20% percent of small business owners launch with commercial loans due to a share of paper work required to fill out the loan and an extensive waiting period. If considering loans, a great source for small business would be the U. S.

Small Business Administration also known as SBA. While the SBA doesn’t provide free money to start-up businesses they do somewhat guarantee loans from local commercial lenders. The SBA reduces the risk for the lender or bank, which makes the banks further willing to grant loans to small business owners. Angel investors are another source of funding. Angels are wealthy people that invest in promising start-up companies in order to make money for themselves. Angels are considered one of the oldest capitals for a start-up.

Very few companies receive capital from angels but for the right small business the funds from an angel can seal the gap between the money they have gotten from friends and family and the venture capital that a small business is trying to attract. When looking to expand on a larger scale some companies turn to venture capital firms. Venture capital firms fund companies in exchange for of ownership in the company. Only a small fraction of new business receives any venture capital money. Determine and discuss how managerial accounting can help managers with product costing, incremental analysis, and budgeting.