Small business


Small businesses are privately owned corporations, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to apply for government support and qualify for preferential tax policy varies depending on the country and industry. Small businesses range from fifteen employees under the Australian Fair Work Act 2009, fifty employees according to the definition used by the European Union, and fewer than five hundred employees to qualify for many U.S. Small Business Administration programs. While small businesses can also be classified according to other methods, such as annual revenues, shipments, sales, assets, or by annual gross or net revenue or net profits, the number of employees is one of the most widely used measures.
Small businesses in many countries include service or retail operations such as convenience stores, small grocery stores, bakeries or delicatessens, hairdressers or tradespeople, restaurants, guest houses, photographers, very small-scale manufacturing, and Internet-related businesses such as web design and computer programming. Some professionals operate as small businesses, such as lawyers, accountants, dentists, and medical doctors. Small businesses vary a great deal in terms of size, revenues, and regulatory authorization, both within a country and from country to country. Some small businesses, such as a home accounting business, may only require a business license. On the other hand, other small businesses, such as day cares, retirement homes, and restaurants serving liquor are more heavily regulated and may require inspection and certification from various government authorities.

Characteristics

Researchers and analysts of small or owner-managed businesses generally behave as if nominal organizational forms, and the consequent legal and accounting boundaries of owner-managed firms are consistently meaningful. However, owner-managers often do not delineate their behavior to accord with the implied separation between their personal and business interests. Lenders also often contract around organizational boundaries by seeking personal guarantees or accepting privately held assets as collateral. Because of this behavior, researchers and analysts may wish to be cautious in the way they assess the organizational types and implied boundaries in contexts relating to owner-managed firms. These include analyses that use traditional accounting disclosures, and studies that view the firm as defined by some formal organizational structure.

Concepts of small business, self-employment, entrepreneurship, and startup

The concepts of small business, self-employment, entrepreneurship, and startup overlap to certain degree but also carry important distinctions.
These four concepts often conflated with each other.
Below are the key differences of these concepts in summary:
Many small businesses are sole proprietor operations consisting solely of the owner, but small businesses can also have a small number of additional employees. Some small businesses that offer an existing product, process or service, do not have growth as their primary objective. However, in contrast, a business that is created with the intention of becoming a big firm is known as a startup. Startups aim for growth and often offer an innovative product, process or service. The entrepreneurs of startups typically aim to scale up the company by adding employees, seeking international sales, and so on, a process which is often but not always financed by venture capital and angel investments. Successful entrepreneurs have the ability to lead a business in a positive direction by proper planning, to adapt to changing environments and understand their own strengths and weakness. Spectacular success stories stem from startups that expanded in growth. Examples would be Microsoft, Genentech, and Federal Express which all embody the sense of new venture creation on small business.
Self-employment provides works primarily for the founders. Entrepreneurship refers all new businesses, including self-employment and businesses that never intend to grow big or become registered, but startups refer to new businesses that intend to grow beyond the founders, to have employees, and grow large.

Size definitions

The legal definition of "small business" varies by country and by industry. In addition to number of employees, methods used to classify small companies include annual sales, value of assets and net profit, alone or as a combination of factors.
Small businesses are usually not dominant in their field of operation.
The table below serves as a useful guide to business size nomenclature.
Business size definitions
AUSUSCANEU
Minute/Micro1-21-61-4<10
Small<15<2501-99<50
Medium<200<500100-499<250
Large<500<1000>500<1000
Enterprise>500>1000N/A>1000

In 2016 a study that examined the demographic of small business owners was published. The study showed that the median American small business owners were above the age of 50. The ages were distributed as: 51% over 50 years old, 33% between the ages 35–49, and 16% being under the age of 35. As for sex: 55% were owned by males, 36% by females, and 9% being equal ownership of both males and females. As for race: 72% were white/Caucasian, 13.5% were Latinos, 6.3% were African American, 6.2% were Asian, and 2% as other. As for educational background: 39% had obtained a bachelor's degree or higher, 33% had some college background, and 28% received at least a high school diploma.
The United States census data for the years 2014 and 2015 shows the women's ownership share of small businesses by firm size. The data explains percentages owned by women along with the number of employees including the owner. Generally, the smaller the business, the more likely to be owned by a woman. The data shows that about 22% of small businesses with 100-500 employees were owned by women, a percentage that rises the smaller the business. 41% of businesses with just 2-4 employees were run by women, and in businesses with just one person, that person was a woman 51% of the time.

Franchise businesses

is a way for small business owners to benefit from the economies of scale of the big corporation. McDonald's and Subway are examples of a franchise. The small business owner can leverage a strong brand name and purchasing power of the larger company while keeping their own investment affordable. However, some franchisees conclude that they suffer the "worst of both worlds" feeling they are too restricted by corporate mandates and lack true independence. It is an assumption that small business are just franchisees, but the truth is many franchisers are also small businesses, Although considered to be a successful way of doing business, literature has proved that there is a high failure rate in franchising as well, especially in UK, where research indicates that out of 1658 franchising companies operating in 1984, only 601 remained in 1998, a mere 36%.

Retailers' cooperative

A retailers' cooperative is a type of cooperative which employs economies of scale on behalf of its retailer members. Retailers' cooperatives use their purchasing power to acquire discounts from manufacturers and often share marketing expenses. They are often recognized as "local groups" because they own their own stores within the community. It is common for locally owned grocery stores, hardware stores, and pharmacies to participate in retailers' cooperatives. Ace Hardware, True Value, and NAPA are examples of a retailers' cooperative. Retail cooperatives also allow consumers to supply their own earnings and gain bargaining power outside of the business sector. Retail cooperatives mainly reside within small communities where local businesses are often shut down.

Advantages

Many small businesses can be started at a low cost and on a part-time basis, while a person continues a regular job with an employer or provides care for family members in the home. In developing countries, many small businesses are sole-proprietor operations such as selling products at a market stall or preparing hot food to sell on the street, that provide a small income. In the 2000s, a small business is also well suited to Internet marketing; because, it can easily serve specialized niches, something that would have been more difficult prior to the Internet revolution which began in the late 1990s. Internet marketing gives small businesses the ability to market with smaller budgets. Adapting to change is crucial in business and particularly small business; not being tied to the bureaucratic inertia associated with large corporations, small businesses can respond to changing marketplace demand more quickly. Small business proprietors tend to be in closer personal contact with their customers and clients than large corporations, as small business owners see their customers in person each week.
One study showed that small, local businesses are better for a local economy than the introduction of new chain stores. By opening up new national level chain stores, the profits of locally owned businesses greatly decrease and many businesses end up failing and having to close. This creates an exponential effect. When one store closes, people lose their jobs, other businesses lose business from the failed business, and so on. In many cases, large firms displace just as many jobs as they create.
Independence is another advantage of owning a small business. A small business owner does not have to report to a supervisor or manager. In addition, many people desire to make their own decisions, take their own risks, and reap the rewards of their efforts. Small business owners possess the flexibility and freedom to making their own decisions within the constraints imposed by economic and other environmental factors. However, entrepreneurs have to work for very long hours and understand that ultimately their customers are their bosses.
Several organizations in the United States also provide help for the small business sector, such as the Internal Revenue Service's Small Business and Self-Employed One-Stop Resource.
Small businesses adjust quicker to the changing conditions; however, they are closed to the absorption of new knowledge and employing new labor from outside.

Challenges

Small businesses often face a variety of problems, some of which are related to their size. A frequent cause of bankruptcy is under capitalization. This is often a result of poor planning rather than economic conditions. It is a common "rule of thumb" that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his or her anticipated expenses. For example, if the prospective owner thinks that he or she will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he or she should have not less than $250,000 available. Start-up expenses are often grossly underestimated adding to the burden of the business. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he or she end up in bankruptcy court, under the theory of under capitalization.
In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin. To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners under price their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem.
In the United States, some of the largest concerns of small business owners are insurance costs, rising energy costs, taxes, and tax compliance. In the United Kingdom and Australia, small business owners tend to be more concerned with perceived excessive governmental red tape.
Contracting fraud has been an ongoing problem for small businesses in the United States. Small businesses are legally obligated to receive a fair portion of the total value of all the government's prime contracts as mandated by the Small Business Act of 1953. Since 2002, a series of federal investigations have found fraud, abuse, loopholes, and a lack of oversight in federal small business contracting, which has led to the diversion of billions of dollars in small business contracts to large corporations.
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The :wikt:mythic |mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly. Some of this misunderstanding arises from the failure to distinguish between small business managers as entrepreneurs or capitalists. While nearly all owner-managers of small firms are obliged to assume the role of capitalist, only a minority will act as entrepreneur. The line between an owner-manager and an entrepreneur can be defined by whether or not their business is growth oriented. In general, small business owners are primarily focused on surviving rather than growing; therefore, not experiencing the five stages of the corporate life cycle like an entrepreneur would.
Another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success. Business networking and social media has been used as a major tool by small businesses in the UK, but most of them just use a "scatter-gun" approach in a desperate attempt to exploit the market which is not that successful. Over half of small firms lack a business plan, a tool that is considered one of the most important factors for a venture's success. Business planning is associated with improved growth prospects. Funders and investors usually require a business plan. A plan also serves as a strategic planning document for owners and CEOs, which can be used as a "bible" for decision-making
An international trade survey indicated that the British share of businesses which are exporting rose from 32% in 2012 to 39% in 2013. Although this may seem positive, in reality the growth is slow, as small business owners shy away from exporting due to actual and perceived barriers.
Learning the basics of a foreign language could be the solution to open doors to new trade markets, it is a reality that not all foreign business partners speak English. China is stated to grow by 7.6% in 2013 and still sadly 95% of business owners who want to export to China have no desire and no knowledge to learn their local language.

Bankruptcy

When small business fails, the owner may file for bankruptcy. In most cases, this can be handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business and valuable corporate assets are likely to be repossessed by secured creditors, there is little advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions for small business assets so they can continue to operate during and after personal bankruptcy. However, corporate assets are normally not exempt; hence, it may be more difficult to continue operating an incorporated business if the owner files bankruptcy. Researchers have examined small business failures in some depth, with attempts to model the predictability of failure.

Social responsibility

Small businesses can encounter several problems related to engaging in corporate social responsibility, due to characteristics inherent in their size. Owners of small businesses often participate heavily in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate socially responsible efforts, such as supporting local charities or not-for-profit activities. Additionally, a small business owner's expertise often falls outside the realm of socially responsible practices, which can contribute to a lack of participation. Small businesses also face a form of peer pressure from larger forces in their respective industries, making it difficult to oppose and work against industry expectations. Furthermore, small businesses undergo stress from shareholder expectations. Because small businesses have more personal relationships with their patrons and local shareholders, they must also be prepared to withstand closer scrutiny if they want to share in the benefits of committing to socially responsible practices or not.

Job quality

While small businesses employ over half the workforce in the US and have been established as a main driving force behind job creation, the quality of the jobs these businesses create has been called into question. Small businesses generally employ individuals from the Secondary labor market. As a result, in the U.S., wages are 49% higher for employees of large firms. Additionally, many small businesses struggle or are unable to provide employees with benefits they would be given at larger firms. Research from the U.S. Small Business Administration indicates that employees of large firms are 17% more likely to receive benefits including salary, paid leave, paid vacation, bonuses, insurance, and retirement plans. Both lower wages and fewer benefits combine to create a job turnover rate among U.S. small businesses that is three times higher than large firms. Employees of small businesses also must adapt to the higher failure rate of small firms, which means that they are more likely to lose their job due to the firm going under. In the U.S. 69% of small businesses last at least two years, but this percentage drops to 51% for firms reaching five years in operation. The U.S. Small Business Administration counts companies with as much as $35.5 million in sales and 1,500 employees as "small businesses", depending on the industry. Outside government, companies with less than $7 million in sales and fewer than five hundred employees are widely considered small businesses.

Cyber crime

Cyber crime, in the business world can be broken down into 4 main categories. They include loss of reputation and consumer confidence, cost of fixing the issue, loss of capital and assets, and legal difficulties that can come from these problems. Loss of reputation and consumer confidence can be impacted greatly after one attack. Many small businesses will struggle to gain confidence and trust in their customers after being known for having problems prior. Cost of fixing the cyber attack would require experts outside of their field to further the investigation and find the problem. Being down for a business means losing money at the same time. This could halt the online operations and mean the business could potentially be down for a long period of time. Loss of capital and assets ties well in with the cost of fixing the issue. During a cyber attack, a business may lose their funds for that business. Worst-case scenario, a business may actually lose all their working capital and funds. The legal difficulties involved with cyber crime can become pricy and hurt the business itself for not having standard security measures and standards. Security not only for the business but more importantly the customer should be number one priority when dealing with security protocol.
The monetary dollar damage caused by cyber crime in 2016 equalled out to be over 1.33 billion dollars in the United States alone. In 2016, California alone had over 255 million dollars reported to the IC3. The average company this year in the United States amounted to 17.36 million dollars in cyber crime attacks. Certain cyber attacks can vary on how long it takes to solve a problem. It can take upwards to 69 days for an average everyday attack on a business. The types of attacks include viruses and malware issues. Employee activities within the workspace can also render a cyber attack. Employees using mobile devices or remote work access off the job makes it easier for a cyber attack to occur.

Marketing

Although small businesses have close relationships with their existing customers, finding new customers and reaching new markets is a major challenge for small business owners. Small businesses typically find themselves strapped for time to do marketing, as they have to run the day-to-day aspects of the business. To create a continual stream of new business and find new clients and customers, they must work on marketing their business continuously. Low sales is one of the major reasons of small business failure. Common marketing techniques for small business include business networking, "word of mouth" promotion by existing customers, customer referrals, Yellow pages directories, television, radio, and outdoor ads, print ads, and Internet marketing. TV ads can be quite expensive, so they are normally intended to create awareness of a product or service. Another means by which small businesses can advertise is through the use of "deal of the day" websites such as Groupon and Living Social. These Internet deals encourage customers to patronize small businesses.
Many small business owners find internet marketing more affordable. Google AdWords and Yahoo! Search Marketing are two popular options of getting small business products or services in front of motivated web searchers. Social media has also become an affordable route of marketing for small business. It is a fraction of the cost of traditional marketing and small businesses are able to do it themselves or find small social marketing agencies that they can hire out for a small fee. Statistically, social media marketing has a higher lead-to-close rate than traditional media. Successful online small business marketers are also adept at utilizing the most relevant keywords in their website content. Advertising on niche websites that are frequented by potential customers can also be effective, but with the long tail of the Internet, it can be time intensive to advertise on enough websites to garner an effective reach.
Creating a business website has become increasingly affordable with many do-it-yourself programs now available for beginners. A website can provide significant marketing exposure for small businesses when marketed through the Internet and other channels. Some popular services are WordPress, Joomla Squarespace, Wix and EXAI. Social media has proven to be very useful in gaining additional exposure for many small businesses. Many small business owners use Facebook and Twitter as a way to reach out to their loyal customers to give them news about specials of the day or special coupons, generate repeat business and reach out to new potential clients. The relational nature of social media, along with its immediacy and twenty-four-hour presence lend intimacy to the relationships small businesses can have with their customers, while making it more efficient for them to communicate with greater numbers. Facebook ads are also a very cost-effective way for small businesses owners to reach a targeted audience with a very specific message. In addition to the social networking sites, blogs have become a highly effective way for small businesses to position themselves as experts on issues that are important to their customers. This can be done with a proprietary blog and/or by using a back-link strategy wherein the marketer comments on other blogs and leaves a link to the small business' own website. Posting to a blog about the company's business or service area regularly can increase web traffic to a company website.
Marketing plan
In the US, small businesses account for more than half the non-farm, private GDP and around half the private sector employment. Regarding small business, the top job provider is those with fewer than ten employees, and those with ten or more but fewer than twenty employees comes in as the second, and those with twenty or more but fewer than one hundred employees comes in as the third. The most recent data shows firms with fewer than twenty employees account for slightly more than 18% of the employment.
According to "The Family Business Review," "There are approximately seventeen million sole-proprietorship in the US. It can be argued that a sole-proprietorship is a type of family business" and "there are twenty-two million small businesses in the US and approximately 14,000 big businesses." Also, it has been found that small businesses created the newest jobs in communities, "In 1979, David Birch published the first empirical evidence that small firms created the most new jobs", and Edmiston claimed that "perhaps the greatest generator of interest in entrepreneurship and small business is the widely held belief that small businesses in the United States create most new jobs. The evidence suggests that small businesses indeed create a substantial majority of net new jobs in an average year." The U.S. Small Business Administration has found small businesses have created two-thirds of net new private sector jobs in the US since 2007. Local businesses provide competition to each other and also challenge corporate giants. Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than ten employees, and 99.7 percent had fewer than five hundred employees.

Business networks and advocacy groups

Small businesses often join or come together to form organizations to advocate for their causes or to achieve economies of scale that larger businesses benefit from, such as the opportunity to buy cheaper health insurance in bulk. These organizations include local or regional groups such as Chambers of Commerce and independent business alliances, as well as national or international industry-specific organizations. Such groups often serve a dual purpose, as business networks to provide marketing and connect members to potential sales leads and suppliers, and also as advocacy groups, bringing together many small businesses to provide a stronger voice in regional or national politics. In the case of independent business alliances, promoting the value of locally owned, independent business through public education campaigns is integral to their work.
The largest regional small business group in the United States is the Council of Smaller Enterprises, located in Greater Cleveland.
United Kingdom trade and Investment gives out research in different markets around the world, also research in program planning and promotional activities to exporters. The BEXA role is to connect new exporters to expert services, it can provide details about regional export contacts, who could be made informally to discuss issues. Trade associations and all major banks could often provide links to international groups in foreign markets, some could also help set up joint venture, trade fairs etc.
A number of youth organizations, including 4-H, Junior Achievement, and Scouting have special interactive programs and training to help young people run their own small business under adult supervision.