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 in the United States while under 50 employees in the European Union (In comparison, the American definition of mid-sized business by the number of employees is generally under 500 while 250 is for that of European Union). These businesses are normally privately owned corporations, partnerships, or sole proprietorships.

However, other methods are also used to classify small companies, such us annual sales (turnover), assets value or 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 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, solicitors, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing etc. Small businesses are usually independent.

The smallest businesses, often located in private homes, are called microbusinesses (term used by international organizations such as the World Bank and the International Finance Corporation) or SoHos. The term "mom and pop business" is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners. When judged by the number of employees, the American and the European definitions are the same: under 10 employees.


ADVANTAGES AND DISADVANTAGES OF SMALL BUSINESS

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 internet marketing because it can be very manageable to serve a niche, 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 resulting in greater accountability and responsiveness.

Several organizations also provide help for the small business, like Internal Revenue Service in 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 bankruptcy 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 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 be 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.

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.


FRANCHISE BUSINESSES

Franchising is a way for small business owners to benefit from the economies of scale of the big corporation (franchisor). McDonald's restaurants are an example 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.


SMALL BUSINESS BANKRUPTCY

When small business fails, the owner may file 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.


SOURCES OF FUNDING

Small businesses use several sources available for start-up capital:

• Self-financing by the owner through Cash, equity loan on his or her home, and or other assets.
• Loans from friends or relatives
• Private stock issue
• Forming partnerships
• Angel Investors
• SME finance, including Collateral based lending and Venture capital, given sufficiently sound business venture plans

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).


DEVELOPING A BUSINESS IDEA AND GETTING STARTED

Programs and services to help you start, grow and succeed - SBA

The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. Website: www.sba.gov


Small Business Planner
Careful planning is fundamental to success. The Small Business Planner includes information and resources that will help you at any stage of the business lifecycle. Website: SBA - Small Business Planner


Business.gov
Official Business Link to the U.S. Government
This site is managed by U.S. Small Business Administration. Business.gov helps businesses save time and money spent on regulatory compliance by providing quick and easy access to business laws, government regulations, forms and agency contacts. Website: business.usa.gov


How does business factoring work?
A non-promotional resource that helps people understand how business factoring works. A somewhat confusing form of financing. Website: www.factoring.net


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 Bureau 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. However, the most effective way to earn trust is through customer referrals. Website: www.bbb.org


IRS: STARTING A BUSINESS - FEDERAL TAXES

Most businesses start out small. As a new business owner you need to know your federal tax responsibilities. This page provides links to basic federal tax information for people who are starting a business. It also provides information to assist in making basic business decisions. The list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.

What New Business Owners Need to Know About Federal Taxes

• Is it a Business or a Hobby?
• Selecting a Business Structure
• Employer Identification Number (EIN)
• Business Taxes
• Recordkeeping
• When Do I Start My Tax Year?
• Selecting an Accounting Method
• Checklist for Starting a Business
• Establishing a Retirement Plan
• Small Business Forms & Publications

Small Business - References and Related Topics

• Small Business Resources
  Links to additional resources available from other federal and state agencies.
• Online Learning and Educational Products
  The Small Business/Self-Employed online classroom has a series of self-directed workshops on a variety of topics for small business owners.
• Publication 4591
  Small Business Federal Tax Responsibilities

Small Business - Self-Employed

• Farmers
• Industries/Professions
• International Taxpayers

Small Business - Self-Employed Topics

• A-Z Index for Business
• Small Business Events
• Small Business Products
• Online Classroom
• Partners & Stakeholders
• e-News for Small Business
• Self-Employed Individuals
• State Links

EXTERNAL LINKS

American Independent Business Alliance
The American Independent Business Alliance (AMIBA) is a non-profit organization that represents the interests of local independent businesses. It helps communities launch, sustain and network Independent Business Alliances (IBA). These local alliances work to strengthen and sustain community-based businesses while strengthening local economies and preventing chains from driving out locals.
Website: American Independent Business Alliance AMIBA


Federation of Small Businesses
The Federation of Small Businesses (FSB) was formed in 1974 and is the largest UK organisation representing small and medium businesses. With over 210,000 members, the FSB acts as a powerful lobbying group representing the interests of the self-employed and owners of small companies at both local and national government levels. The organisation is both non-profit making and non-party political. The Federation also offers its members a comprehensive package of member benefits, including access to a 24 hour legal helpline and preferential banking arrangements.
Website: Federation of Small Businesses (FSB) - Britain's Largest Business Support Organisation


National Federation of Independent Business
The National Federation of Independent Business (NFIB) is a lobbying organization with offices in Washington, D.C. USA, and in all 50 state capitals. NFIB claims a membership base in excess of 600,000. NFIB's lobbying efforts are focused on the impact of current and proposed legislation on small and independent businesses, and professional practices at all levels of government, but primarily at the federal and state levels.
Website: NFIB | Small Business Association | Small Business Owners


Small Business Administration
The Small Business Administration (SBA) is a United States government agency that provides support to small businesses. According to the agency, the mission of the Small Business Administration (SBA) is "to maintain and strengthen the Nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses and by helping businesses and families recover from economic and other disasters." The agency is also responsible for providing loans to homeowners and renters that have been victims of presidentially declared disasters. Presidential declarations automatically make disaster assistance available to victims if they meet qualifications. The Department of Agriculture and state governors also have the authority to request declarations on areas affected by disasters in their jurisdictions. Over 80% of the loans processed by the agency are for home owners and renters.
Website: http://www.sba.gov


American Small Business League
The ASBL is a non-partisan group committed to addressing issues which cost small businesses $60 billion per year in federal contracts. The ASBL brings together small business owners, chambers of commerce and municipalities to form a focused voice to create positive change. Additionally, the ASBL is the only national organization fighting for the removal of large and international firms from federal small business contracting.
Website: American Small Business League


Business Around The Globe.com (Business Plan)
A business plan is an entrepreneur’s battle plan. A proper plan addresses all the important aspects of a business – including growth, survival, and the pitfalls. Your business plan should address survival, growth, profit and risk management planning; you need to turn your risks into opportunities to maximize your profits! Glancing at the medium and small business failures (graveyard), we can only reach one conclusion: It is really dangerous out there WITHOUT A PLAN!
Website: Business Around The Globe.com

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More Info...

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Business Consulting Options, LLC DBA Business Loan Option, 7257 Northwest 4th Boulevard, Suite #270, Gainesville, Florida 32607