Small business

Small Businesses - geograph.org.uk - 682645

Centro de Sao Paulo

Genova-Portici di Sottoripa

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StateLibQld 1 119152 Small businesses in Biloela, 1949

Small business refers to a privately owned corporation, partnership, or sole proprietorship that has fewer employees and less annual revenue than a corporation or regular-sized business. The definition of "small"—in terms of being able to apply for government support and qualify for preferential tax policy—varies by 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. 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 stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online businesses, among others. The small business sector is recognized for its role in innovation and as the primary source of job creation in many economies.

Characteristics

Small businesses often face a variety of problems, some related to their size. A frequent cause of bankruptcy is undercapitalization. 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 instance, 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 undercapitalization.

Advantages

Small businesses are often situated to be agile and adaptable to changing market conditions. This is due to the fact that small businesses are often very customer-oriented and understand the needs of the community. Many small businesses also possess the ability to respond and adapt quickly to changing economic climates because they are often very close to their customers and, therefore, understand their needs better than larger companies. The close relationship with customers allows small businesses to tailor their services and products to the preferences of their specific market.

Challenges

One of the most significant challenges facing small businesses is access to capital. Financing remains a critical issue for many small business owners. Traditional banks are often reluctant to lend to small businesses due to perceived risks. Small businesses frequently seek alternative sources of financing, such as peer-to-peer lending, crowdfunding, or grants from private foundations or government agencies.

Another challenge is the intense competition they face from larger businesses. Large companies can often offer lower prices due to economies of scale, a wider range of products, and stronger brand recognition. Small businesses must find ways to differentiate themselves through customer service, product innovation, or unique marketing strategies.

Regulation

Small businesses are subject to various laws and regulations that vary by country, state, and industry. Compliance with these laws can be more burdensome for small businesses than for larger companies. For example, in the United States, small businesses must adhere to the Americans with Disabilities Act, the Fair Labor Standards Act, and numerous other laws that regulate employment, environmental standards, and taxation.

Economic Impact

Small businesses play a crucial role in the economy. They are a primary source of new jobs and serve as the backbone for developing industries. They also stimulate economic growth by bringing innovative products and services to the market and by fostering competition, which can lead to lower prices and more choices for consumers.