Legal Status and Source of Financing
Legal Statuses of Businesses
There exist various types of business structures that have different liability and tax implications for shareholders and owners. Within the UK, one may decide to venture into sole proprietorship, partnership business, limited company, and limited liability partnership. Depending on the strategies applied, simplicity, and the availability of the resources, a hotel business within the UK may take either of the four types of business structure.
The Strengths and Weaknesses of Sources of Finance for a Business
After identifying the type of legal business structure, some of the suitable sources of capital for the hotel business are Equity financing, debt financing, and leasing. Equity and debt financing are the two major sources of finance for the hotel business. Government grants are meant for certain aspects of the hotel business. Being that the hotel investment is properly defined, the business is thus in a position to receive equity financing. During this agreement, partners will have to consider the portion of the business investment that will be allocated to the financing entities.
Strengths of Equity Financing
Equity financing acts as an alternative source of funding for debts. This will be helpful to the hotel business in case it does not qualify for loan funds from institutions such as banks. The funding in equity scan, therefore, is obtained from venture capitalists, angel investors, or platforms that offer to crowdfund. This type of funding is, therefore, less risky to the business as compared to relying on debts. In addition, through equity financing, the management of the hotel business is in a position to access various capital sources. This method applies best to angel investors and venture capitalists as they are personally driven to make a contribution to the success of a business and would consider joining the operations of the business. The investors there could consider getting involved in the business to offer managerial knowledge and as a form of business contact.
Weaknesses
Equity financing leads to dilution of operational and ownership control, which means that the hotel partners give and dilute a portion of their authority in the company. In the future success of the company, shareholders have to be given a portion of the gains in the form of dividends. In addition, the start-up hotel will experience a lack of tax shields when under equity financing since the financing institutions do not offer shields against taxes. Taxing interest payments adds costs to the amount of equity financing, which in the long-term, when added to the high interests that investors usually take, becomes more costly as compared to debt options.
Strengths of Debt Financing
Firstly, debt financing will serve as a catalyst to focus on the hotel business with the need for its success to be able to repay the loan within the stipulated time limit. Additionally, debt financing entails tax deductions, which reduces the business’s net obligation as the amount payable in interest is tax deductible (Hofstrand, 2022). The type of financing also involves long-term and low-rate loans. Because of this, they are helpful as compared to the high equity interests. Lastly, as a small business, debt financing will be able to save the start-up hotel a great amount of capital through the reduction in the cost of capital that boosts cash flow.
Weakness of the Debt Financing
The lender must be paid regardless of the business outcomes, whether the business makes losses or has failed. The terms and conditions are to be considered strictly, and when the time comes, the asset that served as security could be auctioned to settle the debt. Additionally, loans impact the credit rating, and when defaulted by the business management, that may lead to the denial of loans by other money lending institutions.
Strengths of Leasing
Due to a lack of initial investment in the hotel business, leasing as a source of finance is considered for a start-up. The business will therefore be able to get financing at 100 percent without the issuance of an immediate down payment. Additionally, leasing serves as an easy and suitable source of finance. Leased item costs less as compared to other forms of business financing. The leasing of assets is also free from terms and conditions that are restrictive. Some of the restrictive terms like dividend payments, debt-to-equity conversion, and board representations are evaded making lease finance preferable compared to institutional finance.
Weakness of Leasing
There are risks involved in the deprived utilization of the assets; this may occur when there is a deterioration in the financial position of the lessor. The hotel management is not in a position to renovate the leased property as they do not own the property. If, in any case, the hotel, as the lessee, terminates prior to the agreed period of time, the hotel will be charged penalties for such termination.
Three Sectors Within the UK Economy in Which a Business Can Operate
Difference Between the Sectors
In the UK, a business can operate within three sectors that include primary, secondary, and tertiary. The three sectors form a chain within an economy that leads to the availability of the finished products and services to various consumers. At the beginning of the chain is the primary sector that is concerned with the extraction of natural resources or raw materials from the land. Within the UK, any business that functions by production of extracts or growing materials from the land is categorized under primary sector business. Some examples of such businesses include the production of crude oil, mining, farming, and fishing. As a developed nation, due to several technological advancements, most workers move from farming sectors to other levels of production. Because of that, in the UK, approximately 3 percent of the labor force is working in agricultural production. Manufacturing and servicing levels of the productions are responsible for the high labor force.
The secondary sector in the UK deals in the processing of the extracted raw materials from the primary sector. The process entails the use of machinery or manual labor that ensure systematic production carried out synergistically with the division of labor. Some examples of businesses that fall within the secondary sectors include building companies, food production, car manufacturing, refining of oil, light manufacturing production of energy, and heavy manufacturing.
There has been a change in the past 50 years in the UK’s primary and secondary sectors. In accordance with the Clark-Fisher Model, the current employment structure of the UK is different from 50 years ago, when it could be termed fairly high importance, where the percentage of the employed was at 38 percent (Kołodziejczak, 2020.). With the experience of deindustrialization since the 1960s, there has been a decline in the initial percentage. By 2010, the secondary sector had 18 percent of the nation’s population employed, while in the primary sector, the percentage of the employed was 80 (Kołodziejczak, 2020). The reason behind the existing employment difference in the two sectors is globalization. The reduced employment in agriculture, for example, has been due to mechanization and an increase in efficiency by larger farms. Additionally, a decade after 2000, there was a reduction in the rate of employment in the mining and quarrying sector due to the exhaustion of mineral deposits, cheap and easier importation from other nations, and more mechanization.
Tertiary sectors entail various forms of service providers that are done to different consumers. Examples of tertiary services within the UK include banking services, hairdressing, and operating cinemas. Individuals in this sector earn a varying amount of money as compared to other sectors because of the different types of jobs they engage. Business and financial services within the sector are the largest areas of expansion in the tertiary sectors within the UK. In the period between 1981 to 2011, healthcare services had the largest growth rate of a 90 percent increase (Dutton et al., 2018). As a result, the sector contributes immensely to the gross domestic product of the UK, accounting for approximately 80 percent. An example of a particular service that keeps the economy of the UK going is tourism, according to O’Neill (2022), wherein 2017, approximately 214 billion British pounds, and since then, the forecast has been upwards.
HR Policies and Their Importance to the Modern Workplace
HR policies refer to the written source of guidance based on how a wide range of issues is to be handled within a given business organization. Some of the effective HR issues within the UK are equal opportunity, fair disciplinary hearings, and health and safety policies.
Equal Opportunities
Workplace equality is recognized as vital since it guarantees that all workers, irrespective of gender, race, or any other aspect, have equal access to the same opportunities. Particular groups may experience disadvantages if this form of equality is not achieved. Offering equal opportunities in the workplace has been shown to promote diversity in the workplace. Diversity has been identified to increase creativity and productivity. This is because of the reduction in prejudice and the creation of a work environment that is friendly (CIPD 2022). There are some activities that employees tend to engage in with the existence of diversity in the workplace; they understand each other in a proper way, foster relationships that are healthy, show respect for each other’s perspectives and are able to solve differences amongst themselves.
With equal opportunities, the right developmental opportunities for various employees result. Because employees, most of the time, are usually eager to learn and acquire more skills, employers should provide equal opportunities to enable their growth. Additionally, equal opportunity will also enable them to learn new innovative ways, improve their performance by relearning techniques, and they are also able to major in novel developments.
Provision of a vast pool of talents that are able to facilitate the advancement of business in the current competitive environment. With the provision of equal opportunities, employers are able to hire individuals who fit the requirements and standards. Employers are able to avoid bias during recruitment, and therefore, everyone, despite racial or economic background, can be hired based on expertise and skills.
Equality and diversity make it easier for most companies to get funding. In compliance with the Equalities Act 2010, most financial institutions are always at bay and will be willing to provide such firms that embrace diversity with financial aid (Equal Opportunities Policy, 2022). An increasing number of financial institutions have realized that companies who do not consider the Equality Act are at risk of any litigation, and when that occurs, their repayment will be held up. Therefore, the adoption of the right and legal requirements earns a company chance for consideration. With that benefit, most companies are able to develop appropriately as they could outdo their non-compliance competitors through expansion and initiation of several projects with the borrowed funds.
Health and Safety Policy
A Health and Safety Policy is promoted by the Health and Safety at Work Act which is meant to ensure that the welfare of the employees is good at all times, and it also ensures that there are established control measures to help in case of hazardous accidents. Protection of employees leads to a reduction in the rate of absences to ensure that the workplace is more productive and efficient. In a workplace where the safety and health of workers are a top priority, there is an increased level of productivity. Commitment to corporate social responsibility and sustainability which entails the protection of the health of workers at the workplace, is one of the significant factors that draw partnerships and investors into the business. To increase the rate of sales of a business’s product, employees must be treated better, as customers would only want to buy products that are produced ethically. Maintaining workforce health is a great contribution to competitive advantage due to the creation of a brand and reputation.
Fair Disciplinary Hearings in Accordance with the Employment Rights Act 1996
A fair disciplinary hearing enables employees to be aware of the appropriate steps involved in case of a grievance. When a hearing is done as per the Acas Code of Practice and grievance procedures, it will lead to evasion of the claim for unfair dismissal (Pepple & Adeleye, 2021). Through fair disciplinary actions, the business is able to gain popularity through its good reputation, and this can lead to increased consideration by both customers and new investors. Other businesses are able to learn and copy, and this could lead to the promotion of ethical business practices. Additionally, employees are able to act responsibly in each and every step that they take in the production process hence increasing commitment and accuracy in business. Additionally, a fair disciplinary hearing leads to reduced spending by the company, and costs that would have been incurred on compensations for the individuals who have been offended by the company.
Reference List
CIPD (2022) HR policies. An overview of the purpose and benefits of HR policies and how to implement and communicate them effectively throughout an organization. Web.
Dutton, D.J. et al. (2018) ‘Effect of provincial spending on social services and health care on health outcomes in Canada: an observational longitudinal study.’ Canadian Medical Association Journal, 190(3), pp. E66-E71. Web.
Equal Opportunities Policy (2022) ‘Human resources.’ The University of Cambridge. Web.
Hofstrand, Don. (2022) ‘Types and sources of financing for start-up businesses.’ Jowa State University Extension and Outreach AG Decision Maker. Web.
Kołodziejczak, W. (2020) ‘Employment and gross value added in agriculture versus other sectors of the European Union economy.’ Sustainability, 12(14), p.5518. Web.
O’Neill, Aaron (2022) ‘United Kingdom: distribution of gross domestic product (GDP) across economic sectors from 2010 to 2020.’ Statista. Web.
Pepple, D. and Adeleye, N. (2021) ‘Managing disciplinary and grievance cost.’ In Financial and managerial aspects in human resource management: a practical guide. Emerald Publishing Limited. Web.