Small and Medium Enterprises in the USA - Case Study Example

Small and Medium Enterprises in the USA Executive Summary: A SME, also known as a small and medium enterprise is a business that functions on a small scale. The role of a small and medium enterprise is extremely pivotal for the economy of any country, and hence their rise has been extremely swift. In order to define a business as a SME, there are certain limitations that are set. It is a business whose head count, or turn over falls below certain specified limits. The profits made by a SME are quite low, but due to the large number of SMEs in the market, the overall contribution of a small scale business to the over all GDP is quite significant. In this report, a research shall be undertaken on the various issues that are faced by a SME, and how they manage to over come these issues. The aim of any business is to prosper and grow in size, and the aims that are usually kept in mind for a SME shall also be discussed in this report. A critical analysis of how a SME functions and their distinctive factors have been entailed in order to give the reader a proper understanding of all the functions of a small and medium enterprise. The purpose of this report is to give the reader an insight in a small or medium enterprise, and what are their technicalities and functionality level. Firstly, an introduction has been given, which then follows in to the detailed elaboration of a small and medium enterprise and their complete functionality and business abilities. All the issues that are faced by a SME are discussed in detail as well. Introduction: A SME, or a small and medium enterprise whose head count fall below a certain level. For a small enterprise, the number of employees need to be less than fifty, whereas if the number of employees are less than 250, then the business is classified as a medium enterprise (European Commission , 2003) A SME is usually run by a sole trader, and all profits go to him. The business is not entailed in any large business policies, and the limited profits that are made by a small business usually prohibit it to expand in size. The number of SMEs in any small country would usually surpass that of the large numbers, but their limited profit potential often causes a hindrance for a SME to grow in size and/ or expand. Chapter-SME. i) Introduction: In this chapter, all the problems and issues that are associated with a small scale business have been discussed, including their aims and objectives and how these businesses function on such a small scale. Their main sources of finance, as well as profit capabilities have been discussed, as well as the ways by which these businesses tend to make money. A small scale business is extremely important to the economy of a country, and this is because of the total accumulated profits of all such businesses that add up to form a significant part of the GDP and the GNP of a country (Small Business Start up Guide, 2010). Therefore, due to the significance of a small scale business, the government has introduced several laws by which they ensure that small scale businesses remain protected and are not harmed by businesses working on a larger level (Rosewood, 1995) ii) Research Issues: A SME functions on a very small level, and the employees that are usually working in a SME are quite illiterate or do not have the desired level of qualification that is needed. Commonly, a small scale business can be functional in several ways. For instance, a small handicraft business would be regarded as a SME. This is because i) the number of profits generated by a business are quite low and not consistent and ii) the number of employees that are working in a SME are lower than 50, which is the actual limitation set by the European Commission. A ‘medium’ sized business is one which functions on a slightly larger scale as compared to a small business, and as described by the EU Commission, the number of employees in a medium scale business is more than 50 but less than 250. There are several issues that arose while this research was undertaken. Due to the lack of records that are unavailable, most of the research had to be undertaken on a purely qualitative level and very little quantitative data was found with which a proper extract and idea could be generated about a small business. Furthermore, the types of businesses that are functioning on a small scale level are quite diverse. For instance, an online business is a small scale business, because the profits generated online are usually not as high as compared to a large scale business, and the numbers of employees in such a business are usually quite low. On the other hand, an agricultural business is also a small scale business, because the number of employees that are hired for agricultural purposes is not that high, and therefore their illiteracy causes a huge hindrance in proper communication (Goodman, 2003). Another research issue that arose was the fact that a small business keeps very little records of their past dealings because of the lack of space or storage data. Therefore, most of the claims made by small businesses could not be verified and only after extensive research could it be found whether the word of a small scale business entrepreneur was true or not. This caused a problem because all data that had to be included in the research needed to be verified and validated, and it took a lot of effort and intellect in order to come up with the right results. iii) Implications on the Small Scale Business Sector: There are many implications that are imposed on a small scale business sector, as discussed below. Like in any type of business, the main aim of a SME is also to grow and further their reach and enlarge their customer base. However, due to the limited profits that are generated by a SME, it often becomes a problem for them to utilize these profits in a proper manner, because most of it is used up for the input of the business. However, the government laws are quite relentless, and small businesses are forced to pay taxes and impositions to the government in order to keep themselves above the surface (McQueen, 1998). Another big problem that is faced by a small scale business is the lack of funds that are available to them. Because of their small sizes and unreliability, most of the banks and firms refrain from offering loans and benefits to owners of small scale businesses. It is perceived by the banks that in case of a bankruptcy, the business would not be able to repay the loan and hence the bank would be looking at a potential loss. Therefore, all investments that are made in a small scale business are that of the sole trader, and individual investments. However, usually these are not enough because if a business wishes to further its interests and extend its market share, than a substantial investment is required (Yung, 1999). Another big issue that is faced by a small and medium enterprise is the finding and retaining of qualified workers for their business. Because SMEs don’t really pay well, most of the employees that are ambitious and gifted do not remain in these businesses for a very long time and often use them as a stepping stone to propel their care. However, their departure results in a great loss for the SME because they lose a very important employee of their business, which often limits the profit capabilities (Andersen, 2000) Another significant implication of a small scale business is the lack of funds that are used in an initial investment. When starting a business, it is a basic rule that the sole trader, or the entrepreneur should at least have a sum of money which would be equal to the projected revenue as well as the expenses that are anticipated. For instance, if the business is expected to generate a maximum profit of $100,000 on an initial investment of $150,000, then the entrepreneur should at least have a sum of money no less than $250,000. However, poor economic planning often beats them and they are not capable of investing such a large sum of money, which results in undercapitalization and leads to bankruptcy (Longenecker, Moore, Petty, Palich, 2008.). Poor marketing and management also results in a very poor outcome for a small scale business. iv) Conclusions: At the end of this chapter, it can be said that the number of implications faced by a small scale business are usually enough to limit their working potential and not let them excel. However, most of the businesses are now functioning online, but even due to their legality or the number of taxations that are imposed; these businesses often have to compromise on their success in order to keep functioning properly. Conclusion: At the end of this research, it can be concluded that there are a lot of problems that are faced by a small scale business, and most of these limiting factors often prohibit the business from even reaching its break even point at times. The profits are low, which results in the fact that the business can not grow in size and hire more employees, and even if it manages to gain one or two good employees, retaining them and keeping them happy and motivated towards their work is often a problem. Bibliography Arthur Andersen, AA, 2000. Survey of Small and Mid-Sized Businesses: Trends for 2000. Business and More, European Commission , EC, 2003. Recommendation 2003/361/EC SME Definition. European Commission Recommendation, [Online]. -, -. Available at: http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm [Accessed 11 June 2010]. FR, Frederick Rosewood, 1995. Solution Tango . 1st ed. USA: Marshall Cavendish Publishing. Gov, 2010. Small Business Start up Guide. 1st ed. USA: Great Neck Publishing Joe Yung, JY, 1999. Business Issues. 1st ed. Japan: Yoshi Publishing Longenecker, Moore, Petty, Palich. , JL, CM, JW, LP, 2008. Small business management : launching and growing entrepreneurial ventures. 14th ed. USA: Cengage Learning. Steven Goodman, SG, 2003. Business in Agriculture. 1st ed. UK: Bloomsbury Williams McQueen, WM, 1998. Small Scale Business Tax Strategies. 1st ed. USA: All star publications. Read More