Small Business
A small business may be defined as a business with
a small number of employees. The legal definition of "small"
often varies by country and industry, but is generally under 100 employees.
These businesses are normally privately owned corporations, partnerships,
or sole proprietorships.
Small businesses are common in many countries, depending on the economic
system in operation. Typical examples include: small shops, hairdressers,
solicitors, lawyers, accountants, restaurants, guest houses, photographers.
Problems Faced by Small Businesses
Small businesses often face a variety of problems
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 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 anticipated expenses. For example if the
prospective owner, thinks that he will generate $100,000 in revenues in
the first year with $150,000 in start-up expenses, then he should have
no less than $250,000 available. Failure to provide this level of funding
for the company could leave the owner liable for all of the company's
debt should he end up in bankruptcy court, under the theory of undercapitalization.
In addition to insuring that the business has enough capital, the small
business owner must also be mindful of gross margin (sales minus variable
costs). To break even, the business must be able to reach a level of sales
where the gross margin exceeds fixed costs. When they first start out,
many small business owners underprice their products to a point where
even at their maximum capacity, it would impossible to break even. The
good news is that cost controls or a price increase can often resolve
this problem.
In the United States, some of the largest concerns of small business owners
are insurance costs (such as liability and health), rising energy costs
and taxes. In the United Kingdom and Australia, small business owners
tend to be more concerned with excessive governmental red tape.
Personnel
A good accountant is a requirement. A retired person can usually be located for part-time work. There is a wide gulf between an accountant and a bookkeeper. An accountant can do everything from initial entry right through tax returns and financial statements.
Sources of Funding
There are several sources available for start-up capital. The owner can finance it himself through his savings or an equity loan on his home or other assets. The owner could use financing via a stock issue (although there would be legal problems if it were offered to the general public). A partnership could be formed or perhaps a venture capitalist would provide funds if the business venture plans were sound enough. Relatives could also loan money but the owner should realize that if anyone else participates in the venture some elements of control will be lost. Financing a business with credit card debt is usually a poor choice, the interest rate on credit cards is often several times the rate that would be paid on a line of credit or bank loan. Many owners seek a bank loan in the name of their business, however banks will usually insist on a personal guarantee by the business owner. In the United States, the Small Business Administration (SBA) runs several loan programs that may help a small business secure loans. In these programs, the SBA guarantees a portion of the loan to the issuing bank and thus relieves the bank of some of the risk of extending the loan to a small business.
- Accounting - Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes.
- Advertise - Generally speaking, advertising is the paid promotion of goods, services, companies and ideas by an identified sponsor. Marketers see advertising as part of an overall promotional strategy.
- Banking - The essential function of a bank is to provide services related to the storing of value and the extending of credit.
- Capitalism - Capitalism generally refers to a combination of economic practices that became institutionalized in Europe between the 16th and 19th centuries.
- Economics - Economics is the social science studying production and consumption through measureable variables.
- Electronic Commerce - Electronic commerce or e-commerce consists of the buying, selling, marketing, and servicing of products or services over computer networks.
- Entrepreneurship - Many "high-profile" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business.
- Finance - Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time.
- Insurance - Insurance is the business of providing protection against financial aspects of risk, such as those to property, life, health and legal liability.
- Investment - Investment is a term with several closely related meanings in finance and economics.
- Real Estate - Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings.
- Small Businesses - A small business may be defined as a business with a small number of employees. The legal definition of "small" often varies by country and industry, but is generally under 100 employees.
