Small business
Encyclopedia
A small business is a business
that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnership
s, or sole proprietorship
s. The legal definition of "small" varies by country and by industry, ranging from fewer than 15 employees under the Australian Fair Work Act 2009
, 50 employees in the European Union,http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf and fewer than 500 employees to qualify for many U.S. Small Business Administration
programs. Small businesses can also be classified according to other methods such as sales, assets, or net profits.
Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience store
s, other small shops (such as a bakery
or delicatessen
), hairdressers, tradesmen
, lawyer
s, accountant
s, restaurant
s, guest houses
, photographers, small-scale manufacturing
, and online business, such as web design and programming, etc.
the Small Business Administration
establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most nonmanufacturing businesses. The definition can vary by circumstance – for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the healthcare reform bill Patient Protection and Affordable Care Act
.
In the European Union
, a small business generally has under 50 employees. However, in Australia
, a small business is defined by the Fair Work Act 2009
as one with fewer than 15 employees. By comparison, a medium sized business or mid-sized business has under 500 employees in the US, 250 in the European Union and fewer than 200 in Australia.
In addition to number of employees, other methods used to classify small companies include annual sales
(turnover), value of assets and net profit
(balance sheet), alone or in a mixed definition. These criteria are followed by the European Union, for instance (headcount, turnover
and balance sheet totals). 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
• Most cells reflect size not defined in relevant legislation
• Some definitions are mulit-parameter, e.g., by industry, revenue, market share
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. Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic
inertia, it is typically easier to respond to the marketplace quickly. Small business proprietors tend to be intimate with their customers and clients which results in greater accountability and maturity.
Independence is another advantage of owning a small business. One survey of small business owners showed that 38% of those who left their jobs at other companies said their main reason for leaving was that they wanted to be their own bosses. Freedom to operate independently is a reward for small business owners. In addition, many people desire to make their own decisions, take their own risks, and reap the rewards of their efforts. Small business owners have the satisfaction of making their own decisions within the constraints imposed by economic and other environmental factors. However, entrepreneurs have to work 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.
is undercapitalization
. 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 ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales
minus variable cost
s). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed cost
s. When they first start out, many small business owners underprice 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 (such as liability
and health
), rising energy
costs, tax
es and tax compliance. In the United Kingdom
and Australia
, small business owners tend to be more concerned with excessive governmental red tape
.
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth
. The 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.
Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.
A lack of diversity can decrease the revenues in a community. When towns are interesting, they attract people from out of town. More personality and individuality can lead to more tourists, which, in turn leads to money placed directly into the community [Santa Fe Independent Business Report
Common marketing techniques for small business include networking, word of mouth
, customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards), print, email marketing, and internet. Electronic media like TV can be quite expensive and is 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 new visitors to 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. Successful online small business marketers are also adept at utilizing the most relevant keywords in their site content. Advertising on niche
sites can also be effective, but with the long tail
of the internet, it can be time intensive to advertise on enough sites to garner an effective reach
.
Creating a business Web site has become increasingly affordable with many do-it-yourself programs now available for beginners. A Web site can provide significant marketing exposure for small businesses when marketed through the Internet and other channels. Some popular services are WordPress
, Joomla and Squarespace
.
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 and generate repeat business. The relational nature of social media, along with its immediacy and 24-hour presence lend intimacy to the relationship 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 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 backlink
strategy wherein the marketer comments on other blogs and leaves a link to the small business' own Web site.
A solid public relations
strategy that utilizes speaking engagements, press releases, feature stories, events and sponsorships can also be a very cost-effective way to build a loyal following for a small business.
is a way for small business owners to benefit from the economies of scale of the big corporation (franchiser). McDonald's restaurants, TrueValue hardware stores, and NAPA Auto Parts stores 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. However, in some chains, such as the aforementioned TrueValue and NAPA, franchises may have their own name alongside the franchise's name.
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.
and the International Charter now offer Small Business Certification
, which certifies the quality of the services and goods produced and can encourage new and larger customers. These services may require a few hours of work, but a certification may reassure potential customers.
According to “The Family Business Review,” “There are approximately 17 million sole-proprietorships in the US. It can be argued that a sole-proprietorship (an unincorporated business owned by a single person) is a type of family business” and “there are 22 million small businesses (less than 500 employees) in the US and approximately 14,000 big businesses.” Also, it has been found that small businesses created the most new jobs in communities, “In 1979, David Birch published the first empirical evidence that small firms (fewer than 100 employees) 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.” 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 10 employees, and 99.7 percent had fewer than 500 employees.
:
Some small businesses are further financed through credit card
debt—usually a poor choice, given that 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. The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan.
Canadian small businesses can take advantage of federally funded programs and services. See Federal financing for small businesses in Canada (grants and loans)
.
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, 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
.
Small Business Development Centers (SBDCs), operating in each state, provide free and confidential counseling and low-cost training to small businesses.
The largest regional small business group in the United States
is the Council of Smaller Enterprises
, located in Greater Cleveland
.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
s, or sole proprietorship
Sole proprietorship
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits and has unlimited responsibility for...
s. The legal definition of "small" varies by country and by industry, ranging from fewer than 15 employees under the Australian Fair Work Act 2009
Fair Work Australia
Fair Work Australia is the Australian industrial relations institution created by the Federal ALP Government's Fair Work Act 2009.. It commenced operation on 1 July 2009.-Functions:...
, 50 employees in the European Union,http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf and fewer than 500 employees to qualify for many U.S. Small Business Administration
Small Business Administration
The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses...
programs. Small businesses can also be classified according to other methods such as sales, assets, or net profits.
Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience store
Convenience store
A convenience store, corner store, corner shop, commonly called a bodega in Spanish-speaking areas of the United States, is a small store or shop in a built up area that stocks a range of everyday items such as groceries, toiletries, alcoholic and soft drinks, and may also offer money order and...
s, other small shops (such as a bakery
Bakery
A bakery is an establishment which produces and sells flour-based food baked in an oven such as bread, cakes, pastries and pies. Some retail bakeries are also cafés, serving coffee and tea to customers who wish to consume the baked goods on the premises.-See also:*Baker*Cake...
or delicatessen
Delicatessen
Delicatessen is a term meaning "delicacies" or "fine foods". The word entered English via German,with the old German spelling , plural of Delikatesse "delicacy", ultimately from Latin delicatus....
), hairdressers, tradesmen
Tradesman
This article is about the skilled manual worker meaning of the term; for other uses see Tradesperson .A tradesman is a skilled manual worker in a particular trade or craft. Economically and socially, a tradesman's status is considered between a laborer and a professional, with a high degree of both...
, lawyer
Lawyer
A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person who is practicing law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain the stability of political...
s, accountant
Accountant
An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...
s, restaurant
Restaurant
A restaurant is an establishment which prepares and serves food and drink to customers in return for money. Meals are generally served and eaten on premises, but many restaurants also offer take-out and food delivery services...
s, guest houses
Motel
A motor hotel, or motel for short, is a hotel designed for motorists, and usually has a parking area for motor vehicles...
, photographers, small-scale manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
, and online business, such as web design and programming, etc.
Size definitions
The legal definition of "small" varies by country and by industry. In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
the Small Business Administration
Small Business Administration
The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses...
establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most nonmanufacturing businesses. The definition can vary by circumstance – for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the healthcare reform bill Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...
.
In the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, a small business generally has under 50 employees. However, in Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, a small business is defined by the Fair Work Act 2009
Fair Work Australia
Fair Work Australia is the Australian industrial relations institution created by the Federal ALP Government's Fair Work Act 2009.. It commenced operation on 1 July 2009.-Functions:...
as one with fewer than 15 employees. By comparison, a medium sized business or mid-sized business has under 500 employees in the US, 250 in the European Union and fewer than 200 in Australia.
In addition to number of employees, other methods used to classify small companies include annual sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
(turnover), value of assets and net profit
Net profit
Net profit or net revenue is a measure of the profitability of a venture after accounting for all costs. In a survey of nearly 200 senior marketing managers, 91 percent responded that they found the "net profit" metric very useful...
(balance sheet), alone or in a mixed definition. These criteria are followed by the European Union, for instance (headcount, turnover
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
and balance sheet totals). 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
| AUS | US | EU | |
|---|---|---|---|
| Minute/Micro | 1-2 | 1-6 | <10 |
| Small | <15 | <250 | <50 |
| Medium | <200 | <500 | <250 |
| Large | <500 | <1000 | <1000 |
| Enterprise | >500 | >1000 | >1000 |
• Most cells reflect size not defined in relevant legislation
• Some definitions are mulit-parameter, e.g., by industry, revenue, market share
Advantages of small business
A small business can be started at a very low cost and on a part-time basis. Small business is also well suited to internetInternet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
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. Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...
inertia, it is typically easier to respond to the marketplace quickly. Small business proprietors tend to be intimate with their customers and clients which results in greater accountability and maturity.
Independence is another advantage of owning a small business. One survey of small business owners showed that 38% of those who left their jobs at other companies said their main reason for leaving was that they wanted to be their own bosses. Freedom to operate independently is a reward for small business owners. In addition, many people desire to make their own decisions, take their own risks, and reap the rewards of their efforts. Small business owners have the satisfaction of making their own decisions within the constraints imposed by economic and other environmental factors. However, entrepreneurs have to work 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.
Problems faced by small businesses
Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcyBankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
is undercapitalization
Undercapitalization
Under-capitalization refers to any situation where a business cannot acquire the funds they need. An under-capitalized business may be one that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy, may be one that is over-exposed to risk, or may be one...
. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
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
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
, under the theory of undercapitalization
Undercapitalization
Under-capitalization refers to any situation where a business cannot acquire the funds they need. An under-capitalized business may be one that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy, may be one that is over-exposed to risk, or may be one...
.
In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
minus variable cost
Variable cost
Variable costs are expenses that change in proportion to the activity of a business. Variable cost is the sum of marginal costs over all units produced. It can also be considered normal costs. Fixed costs and variable costs make up the two components of total cost. Direct Costs, however,...
s). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed cost
Fixed cost
In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs...
s. When they first start out, many small business owners underprice 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
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, some of the largest concerns of small business owners are insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
costs (such as liability
Legal liability
Legal liability is the legal bound obligation to pay debts.* In law a person is said to be legally liable when they are financially and legally responsible for something. Legal liability concerns both civil law and criminal law. See Strict liability. Under English law, with the passing of the Theft...
and health
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
), rising energy
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
costs, tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es and tax compliance. In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, small business owners tend to be more concerned with excessive governmental red tape
Red tape
Red tape is excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making...
.
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth
E-Myth
'E-Myth' in the business vernacular refers to the Entrepreneurial Myth, and means that most businesses fail because the founders are technicians that were inspired to start a business without a true entrepreneur's outlook....
. The 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.
Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.
Benefits of Supporting Local Business
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. Superstores displace just as many jobs as they create. Not only that but it also increases the costs of taxes. Instead of increasing a community’s revenue, big businesses actually shift money away from the community. Independent businesses depend on the many resources that a community can supply. They hire architects, contractors, hardware stores, interior designers, local advertisement agencies, accountants, business attorneys, and insurance companies. Local businesses also are more likely to supply locally-produced products than chains, ultimately benefiting their community Large corporations on the other hand eliminate the need for local goods and services. [MilchenA lack of diversity can decrease the revenues in a community. When towns are interesting, they attract people from out of town. More personality and individuality can lead to more tourists, which, in turn leads to money placed directly into the community [Santa Fe Independent Business Report
Marketing the small business
Finding new customers is the major challenge for Small business owners. Small businesses typically find themselves strapped for time but in order to create a continual stream of new business, they must work on marketing their business every day.Common marketing techniques for small business include networking, word of mouth
Word of mouth
Word of mouth, or viva voce, is the passing of information from person to person by oral communication. Storytelling is the oldest form of word-of-mouth communication where one person tells others of something, whether a real event or something made up. Oral tradition is cultural material and...
, customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards), print, email marketing, and internet. Electronic media like TV can be quite expensive and is 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 new visitors to small businesses.
Many small business owners find internet marketing more affordable. Google AdWords and Yahoo! Search Marketing
Yahoo! Search Marketing
Yahoo! Search Marketing is a keyword-based "Pay per click" or "Sponsored search" Internet advertising service provided by Yahoo!.Yahoo began offering this service after acquiring Overture Services, Inc....
are two popular options of getting small business products or services in front of motivated Web searchers. Successful online small business marketers are also adept at utilizing the most relevant keywords in their site content. Advertising on niche
Niche market
A niche market is the subset of the market on which a specific product is focusing; therefore the market niche defines the specific product features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics that is intended to impact...
sites can also be effective, but with the long tail
Long tail
Long tail may refer to:*The Long Tail, a consumer demographic in business*Power law's long tail, a statistics term describing certain kinds of distribution*Long-tail boat, a type of watercraft native to Southeast Asia...
of the internet, it can be time intensive to advertise on enough sites to garner an effective reach
Reach (advertising)
In the application of statistics to advertising and media analysis, reach refers to the total number of different people or households exposed, at least once, to a medium during a given period of time. Reach should not be confused with the number of people who will actually be exposed to and...
.
Creating a business Web site has become increasingly affordable with many do-it-yourself programs now available for beginners. A Web site can provide significant marketing exposure for small businesses when marketed through the Internet and other channels. Some popular services are WordPress
WordPress
WordPress is a free and open source blogging tool and publishing platform powered by PHP and MySQL. It is often customized into a content management system . It has many features including a plug-in architecture and a template system. WordPress is used by over 14.7% of Alexa Internet's "top 1...
, Joomla and Squarespace
Squarespace
Squarespace is a web publishing company that sells a software publishing platform and file server service to individuals and businesses, providing them the tools and assistance to create and maintain well-designed websites...
.
Social media has proven to be very useful in gaining additional exposure for many small businesses. Many small business owners use Facebook
Facebook
Facebook is a social networking service and website launched in February 2004, operated and privately owned by Facebook, Inc. , Facebook has more than 800 million active users. Users must register before using the site, after which they may create a personal profile, add other users as...
and Twitter
Twitter
Twitter is an online social networking and microblogging service that enables its users to send and read text-based posts of up to 140 characters, informally known as "tweets".Twitter was created in March 2006 by Jack Dorsey and launched that July...
as a way to reach out to their loyal customers to give them news about specials of the day or special coupons and generate repeat business. The relational nature of social media, along with its immediacy and 24-hour presence lend intimacy to the relationship small businesses can have with their customers, while making it more efficient for them to communicate with greater numbers. Facebook
Facebook
Facebook is a social networking service and website launched in February 2004, operated and privately owned by Facebook, Inc. , Facebook has more than 800 million active users. Users must register before using the site, after which they may create a personal profile, add other users as...
ads are also a very cost-effective way for small businesses 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
Blog
A blog is a type of website or part of a website supposed to be updated with new content from time to time. Blogs are usually maintained by an individual with regular entries of commentary, descriptions of events, or other material such as graphics or video. Entries are commonly displayed in...
and/or by using a backlink
Backlink
Backlinks, also known as incoming links, inbound links, inlinks, and inward links, are incoming links to a website or web page...
strategy wherein the marketer comments on other blogs and leaves a link to the small business' own Web site.
A solid public relations
Public relations
Public relations is the actions of a corporation, store, government, individual, etc., in promoting goodwill between itself and the public, the community, employees, customers, etc....
strategy that utilizes speaking engagements, press releases, feature stories, events and sponsorships can also be a very cost-effective way to build a loyal following for a small business.
Franchise businesses
FranchisingFranchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
is a way for small business owners to benefit from the economies of scale of the big corporation (franchiser). McDonald's restaurants, TrueValue hardware stores, and NAPA Auto Parts stores 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. However, in some chains, such as the aforementioned TrueValue and NAPA, franchises may have their own name alongside the franchise's name.
Small business bankruptcy
When small business fails, the owner may file bankruptcy. In most cases this can be handled through a personal bankruptcyPersonal bankruptcy
Personal bankruptcy is a procedure which, in certain jurisdictions, allows an individual to declare bankruptcy. In other jurisdictions, bankruptcies are reserved for corporations.-Canada:...
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.
Certification and trust
Building trust with new customers can be a difficult task for a new and establishing business. Some organizations like the Better Business BureauBetter Business Bureau
The Better Business Bureau , founded in 1912, is a corporation consisting of several private business franchises of local BBB organizations based in the United States and Canada, which work through their parent corporation, the Council of Better Business Bureaus .The Better Business Bureau, through...
and the International Charter now offer Small Business Certification
Professional certification
Professional certification, trade certification, or professional designation, often called simply certification or qualification, is a designation earned by a person to assure qualification to perform a job or task...
, which certifies the quality of the services and goods produced and can encourage new and larger customers. These services may require a few hours of work, but a certification may reassure potential customers.
Contribution to the economy
In the US, small business (less than 500 employees) accounts for around half the GDP and more than half the employment. Regarding small business, the top job provider is those with fewer than 10 employees, and those with 10 or more but fewer than 20 employees comes in as the second, and those with 20 or more but fewer than 100 employees comes in as the third (interpolation of data from the following references). The most recent data shows firms with less than 20 employees account for slightly more than 18% of the employment.According to “The Family Business Review,” “There are approximately 17 million sole-proprietorships in the US. It can be argued that a sole-proprietorship (an unincorporated business owned by a single person) is a type of family business” and “there are 22 million small businesses (less than 500 employees) in the US and approximately 14,000 big businesses.” Also, it has been found that small businesses created the most new jobs in communities, “In 1979, David Birch published the first empirical evidence that small firms (fewer than 100 employees) 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.” 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 10 employees, and 99.7 percent had fewer than 500 employees.
Sources of funding
Small businesses use several sources available for start-up capitalFinancial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
:
- Self-financing by the owner through cash, equityOwnership equityIn accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
loanLoanA loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
on his or her home, and or other assets. - Loans from friends or relatives
- Grants from private foundations
- Personal savings
- Private stockStockThe capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
issue - Forming partnerships
- Angel investorAngel investorAn angel investor or angel is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity...
s - Banks
- SME financeSME financeSME finance is the funding of small and medium sized enterprises, and represents a major function of the general business finance market – in which capital for different types of firms are supplied, acquired, and costed or priced...
, including Collateral based lending and Venture capitalVenture capitalVenture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
, given sufficiently sound business venture plans
Some small businesses are further financed through credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
debt—usually a poor choice, given that the interest rate on credit cards is often several times the rate that would be paid on a line of credit or bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
. 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
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the Small Business Administration
Small Business Administration
The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses...
(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. The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan.
Canadian small businesses can take advantage of federally funded programs and services. See Federal financing for small businesses in Canada (grants and loans)
Federal financing for small businesses in Canada (grants and loans)
Federal financing for small businesses in Canada is facilitated via a number of programs and agencies. Financing is available in the form of grants , loans, loan guarantees, income support and subsidized hiring and/or training programs...
.
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 scaleEconomies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
that larger businesses benefit from, such as the opportunity to buy cheaper health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
in bulk. These organizations include local or regional groups such as Chambers of Commerce, 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
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
.
Small Business Development Centers (SBDCs), operating in each state, provide free and confidential counseling and low-cost training to small businesses.
The largest regional small business group in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
is the Council of Smaller Enterprises
Council of Smaller Enterprises
The Council of Smaller Enterprises, known as COSE, is a division of the Greater Cleveland Partnership and an organization that coordinates the activities of and provides resources and advocacy for small businesses in the Greater Cleveland area...
, located in Greater Cleveland
Greater Cleveland
Greater Cleveland is a nickname for the metropolitan area surrounding Cleveland, Ohio and is part of what used to be the Connecticut Western Reserve.Northeast Ohio refers to a similar but substantially larger area as described below...
.
See also
- American Independent Business AllianceAmerican Independent Business AllianceThe American Independent Business Alliance is a non-profit organization that represents the interests of local independent businesses, helps communities develop strong local economies through nurturing local entrepreneurs, and promotes citizen engagement in local economic development...
- Big BusinessBig BusinessBig business is a term used to describe large corporations, in either an individual or collective sense. The term first came into use in a symbolic sense subsequent to the American Civil War, particularly after 1880, in connection with the combination movement that began in American business at...
- Business Alliance for Local Living EconomiesBusiness Alliance for Local Living EconomiesThe Business Alliance for Local Living Economies is a growing North American alliance of nearly 60 fully autonomous local business networks with their own names, missions, and initiatives, representing about 20,000 US and Canadian entrepreneurs. All networks share a commitment to Living Economy...
- DistributismDistributismDistributism is a third-way economic philosophy formulated by such Catholic thinkers as G. K...
- Distributism strongly emphasizes the importance of small business - Federation of Small BusinessesFederation of Small BusinessesThe Federation of Small Businesses was formed in 1974 and is the UK's leading business organisation representing small and medium sized businesses.- About the FSB :...
- Independent telephone companyIndependent telephone companyAn Independent telephone company in the United States was a telephone company providing local service that was not part of the Bell System group of companies, "Ma Bell", before the 1984 Bell System divestiture or breakup of the Bell system...
- Localism (politics)Localism (politics)Localism describes a range of political philosophies which prioritize the local. Generally, localism supports local production and consumption of goods, local control of government, and promotion of local history, local culture and local identity...
versus Transnational corporations - Market capitalizationMarket capitalizationMarket capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
- National Federation of Independent BusinessNational Federation of Independent BusinessThe National Federation of Independent Business is a lobbying organization with its headquarters in Nashville, Tennessee and offices in Washington, D.C. USA, and in all 50 state capitals...
- Small Business AdministrationSmall Business AdministrationThe Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses...
- Small Business Innovation ResearchSmall Business Innovation ResearchThe Small Business Innovation Research program is a United States Government program, coordinated by the Small Business Administration, in which 2.5% of the total extramural research budgets of all federal agencies with extramural research budgets in excess of $100 million are reserved for...
(SBIR) - Small business softwareSmall business softwareSmall business software has been for many years any software that a small business owner could appropriate to get jobs done. Over the past few years, however, the most pressing issue for small businesses has been finding a single integrated solution that can manage their office...
- Small Business Technology Transfer (STTR)
- Small-scale Project ManagementSmall-scale project managementSmall-scale project management is the specific type of project management of small-scale projects. These projects are characterised by factors such as short duration; low person hours; small team; size of the budget and the balance between the time committed to delivering the project itself and the...
- Small start unitsSmall start unitsThe word Small Start Unit emerged as a business term to address small entities that are going to launch an innovative and specific business model in the market place. This not only on a larger geographical scale, but also with a vantage in technology they offer...
- Small is ProfitableSmall is ProfitableSmall is Profitable: The Hidden Economic Benefits of Making Electrical Resources the Right Size is a 2002 book by energy analyst Amory Lovins and others. The book describes 207 ways in which the size of "electrical resources"—devices that make, save, or store electricity—affects their economic value...
- S corporationS CorporationAn S corporation, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code....
External links
- Business.gov - U.S. Small Business Administration small business resources
- http://www.amiba.net/ - AMIBA|American Independent Business Alliance