Business structure and control
Organisational characteristics include the way that a business is structured, how a business is controlled and also the liability they hold for if they were to go into debt. There are; sole traders, partnerships, limited companies, board of directors, charities and co-operatives to take into consideration when looking at organisational characteristics. The structure and control of sole traders is the most simplistic as they have very few regulations that they need to adhere to.
The sole trader is liable for all debts as they are solely on their own within their business however they are in complete control over their business and they receive all the profits after tax. It is in most cases difficult for sole traders to raise capital (raise money to invest in further business opportunities). The structure and control of partnerships is mostly shared between two people, if not more, and they share the liability of any debt which they may fall into however the partners can limit their liability of the debt by setting up a limited liability partnership so that their liability is capped.
Generally, the partners share the control and the profits which their business may make. There is also no requirements for partnerships to be registered at Companies House which is the agency of the DTI (Department of Trade and Industry) and is responsible for registering companies within the UK. The structure and control of limited companies is a lot stricter than other business types as there are more regulations which govern the way that they are ran.
Limited companies have the possibility of raising capital, limiting risks and issuing shares however their accounts must be filed at Companies House. The control over limited companies is in the board of directors’ and shareholders’ hands and all management staffs’ duties is to ensure that they are responsible to the board of directors and the shareholders throughout every decision which they make during their career.
The board of directors has one member which is the appointed chairman and the board itself is a group of people whom oversee every running of a particular organisation. The group is nominated by the shareholders of that particular organisation.Public companies often have executive directors which are generally full time employees of a company and whom have management responsibilities and also non-executive directors which is someone who is chosen to attend a certain amount of meetings and contribute towards the making of decisions. They are genuinely chosen based upon their experience and their skills and they are paid an annual fee rather than a monthly salary.
Charities generally have trustees running and operating them. The trustees have the responsibility of overseeing all strategies and the direction of where the charity is going to go in terms of growing and expanding. The structure and control of co-operatives is that they’re representatively controlled by their members however they are also liable to all debt. Co-operatives main aim is to generally support certain communities and campaign for a fairer world.
Business organisation
The vertical and horizontal integration is what affects a business’s organisation due to the financial function, the marketing function and human resources of that particular business may have to cut costs at certain periods of time. A particular trend which happens within Travel and Tourism is the takeover of certain businesses. Takeovers happen so that the competition can be reduced and so that the business taking over can grow and expand.
There are quite a few businesses within travel and tourism which have a policy of acquisition which means basically buying out the other companies similar to it. Shareholders play an important role when it comes to takeovers as they are responsible for the decision of allowing or denying their business to be taken over. There are two different takeovers – friendly or hostile. A friendly bid means that the management of the company wants the company to be taken over and a hostile bid means that they do not.
Documentation for business set up
As discussed in the Business Structure and Control section, limited companies need to complete numerous documents and submit them to Companies House so that they are able to set up their business venture. The certificate of incorporation is the documentation of approval of whether an application made by a business owner for a company title at the Companies House has been successful.
The application must be submitted with every single company detail and if the application is successful then the certificate represents the original business is now registered as a limited company. The memorandum of association is the documentation which has the company’s name, location, the basic nature of what the business operates for and also the amount of share capital and how it is divided. Share capital means the money which is made from selling shares within a business – this is often divided between the shareholders. All shareholders must sign the memorandum and state how much shares each shareholder will have.
Any money which is paid for shares is to be kept within the company and this doesn’t have to be repaid however the dividends which is from the profits the company makes is what is paid back to the shareholders. In some cases of businesses there is the opportunity for some employees to buy into the company by buying shares or even the owners giving the employees shares. The articles of association is the documentation which states how a company will be ran, what rights and control the shareholders hold and what rights and control the company directors hold. It is an extremely important document and is often found within company’s annual reports and financial statements.
Distribution of profits
The directors of a company are in control of what happens to the profits of an organisation even though in most cases the profits are distributed amongst all shareholders. The board of directors must decide on how much is paid to the shareholders and whether or not they wish to keep some of the profits so that there is funds for further projects or new business opportunities. Any payments to shareholders are called dividends and depending on whether a company is doing well or not will be the base of the decision on if the shareholders are paid annually, every 6 months or not at all.
The retained profits or surplus is the money which is kept from the shareholders out of the profits so that there is funding for reinvesting in the business i.e. improving it or paying off debts. If the company is doing well then the likelihood of there being a surplus is high and then the board of directors can decide on whether the shareholders are paid or not as they may decide on keeping all of the profits so that they can reinvest.
Sources of finance
It is also impossible for a company to make a profit in the first few months of setting up therefore the owners need to ensure that they have enough set-up capital so that they can run the business in order to make a profit. Most companies, especially within the travel and tourism industry and regardless of their overall size, have to raise money at certain points of their existence due to financing their growth, financing their new business ventures and financing their takeover opportunities.
However, the nature of the business and the ownership of it is what the available sources of finance is depended on. In most cases of business funding, banks is the number one source for financing as they are able to offer secure loans for a certain length of time and with a properly structured repayment schedule however the amount which needs to be repaid will depend on how much the business owners want to lend and also the interest rate varies from different banks and the different loans which will be available to them. There is a lot of effort which must go into getting a business loan i.e. a business plan may be requested by the bank and the bank may also request a guarantor i.e. a family member who would be able to repay the loan if the business was to go bankrupt.
Instead of a loan, there is also the overdraft option which means that an individual can spend up to their overdraft amount which they’ve agreed to with the bank and they are then able to borrow up to that amount however there are huge charges which can be put on by the bank if they were to exceed that limit and can sometimes be a lot more expensive than if they were to borrow a loan. There isn’t as much time and effort needed to get an overdraft as there is for a loan.
Instead of the bank option, there is also family and friends which businesses can be funded for by. This is often the case for small businesses as there may be room in the industry for that small business to become a big family enterprise. Friends tend to invest in these particular businesses as they see the opportunity to gain profits without having to do any major work.
There is also the shareholders method of raising funds which means that shares are issues within a company. Once an individual has bought shares and is a part of the owners of the business then they have the rights to vote for new shareholders. The dividends are the payments made to shareholders out of the profits which the company makes and this is known as a private equity finance.
A private equity finance is funds which is raised by shareholders and ordinary shares is the expected outcome.Public companies are required to have no less than £50,000 of share capital as this is a base for undertaking new business ventures or simply expanding their business. Regardless, all companies can issue new shares to raise funds even though shares are owned by employees of companies and raising the finance of their own company is an incentive for them to make it successful as if they didn’t, then they risk losing out on a salary as well as dividends on top of it. Grants are normally given to businesses by governments or the EU funds.
They are simply one-off payments which don’t need to be repaid in most cases and there is no interest put on top of it. There are many sources of grants and within the travel and tourism industry, the Regional Tourist Board helps and advises businesses for which source they should opt for. However, applying for a grant is a very hard process as there is a very strict criteria and a grant will not necessarily cover the whole cost of a particular business venture or new project which the applicant wants funds for. Public funding is also an option for funding as the EU has 4 fund organisations in place so that businesses have the opportunity to be set up.
There is the European Regional Development Fund, the European Social Fund, the European Agricultural Guidance and Guarantee Fund and also the Financial Instrument for Fisheries Guidance. The European Regional Development Fund was set up for the regions of the European Union which are less prosperous than other areas. The European Social Fund is the public funding organisation which is the most useful within the travel and tourism industry as they are able to provide development through training and also provide support for businesses.
There is also the option of applying for a grant from the National Lottery as there is 16 existing distributing bodies which are all independent and are responsible for accepting and granting lottery grants.
Supplying products and services
Certain products and services may be granted or supplied to a business so that they are able to make a profit – or they are supplied at a cost due to the instability of the business making a profit. The products and services are often supplied so that the business can meet a certain demand within the market. The supplies may be given to government agencies, individual customers or other businesses. Within the travel and tourism industry, all organisations are based upon providing products and services to customers and therefore this is what their profits are based upon.
Financial accountability
No matter what size an organisation is, they must produce finance records such as; an incoming cash record, outgoing cash record, tax return record, formal accounts etc. Sole traders have to at least record incoming and outgoing cash and tax return but they do not have to publicly announce their annual accounts however private and public limited companies must do so as it is a section under the Companies Act to complete an annual return which is the recording of key company information that needs to be filed at Companies House. This recording is to be made publicly available.
The larger organisations, especially within travel and tourism, include their annual accounts within their annual reports as it makes it easier for them in terms of paperwork and filing documentation. It also meets their audiences’ demands of wanting to keep up with the activities within that particular business as well as viewing the figures of their accounts.
The shareholders of the larger organisations each receive a copy of their annual report and if the organisation exists within the UK then they must have their final accounts audited whom isn’t a part of the company. The audit consists of that particular person checking all accounts and the accounting system of the company and the overall audit check confirms whether the affairs of the company are true and fair.
Inland Revenue
Sole traders must complete a tax return which is self-assessed and the tax which they pay must be based on the overall earnings including profits. The overall income can have expenses taken out of it as this is what has been needed to ensure that the business is up and running. Throughout the year, if the sole trader keeps the accounting system well organised and managed then the tax return will be easy for them to complete. This is the same within every company however corporation tax is paid by companies which aren’t sole traders and their tax returns must be filed with the Inland Revenue.
Customs
The HM Revenue and Customs is the department within the UK which collects the Value Added Tax on all goods and services which are sold. It is every businesses responsibility to complete a VAT return form if they are a VAT registered business. The VAT return forms generally need to be completed for each and every tax period which is normally every 3 months. For a company to be acknowledged as a VAT registered business, they need to be earning a turnover of at least £68,000 and this is when they must charge VAT on their goods and services and carry out recordings of every VAT which is paid on purchases made from that particular business.
The VAT charged to the customers and the VAT which is paid by the business to the suppliers of the goods and services is the information which is required on the VAT return forms. If the record states that the business has paid more VAT than they’ve received then it is possible for them to claim the difference back however if the record states that they’ve received more VAT than they had paid to the suppliers then this must be paid to the HM Revenue and Customs.
Contribution to global and UK economy
Where a company or business is located, they have to contribute towards the economy. Companies which exist within the UK have to contribute towards the economic livelihood of the nation if they are successful and this increases the gross domestic product of the UK. If an economy faces recession, then the GDP contracts. If a GDP is contracted then this means that taxes are raised higher, unemployment risks are high and all spending is cut short.
Businesses and organisations within the travel and tourism industry have their contribution towards to the GDP measured by how much they receive by tourists and how much revenue is generated by them purchasing goods and services provided by the businesses. The amount of tourists which arrive and spend in an economy is measured internationally and it shows how much is contributed towards the global economy by tourism itself.
