Differences between Small and Large Businesses - Essay Example

Compare between small and large businesses Small Business According to John English (2006) these are organizations with fewer than 20 employees, or less than 100 employees if they are manufacturing entities. These businesses are mainly financed, operated and controlled by their owners. According to the Australian bureau of statistics, there are approximately 1.3 million small businesses in Australia, twice as large as 20 years ago. Over 1 million small businesses are micro businesses that have no employees at all. These organizations handle their customer questions immediately and provide better service than their large competitors. These businesses can be divided into services, retailing, manufacturing, and wholesaling. Advantages of running a Small business You are your own boss You have the chance to make more money You have opportunity to develop own ideas, products and services It is possible to achieve economic security for yourself and your family Disadvantages It is possible to fail and lose all the investments Working odd and odd hours meaning there is no social time to spend with your friend and family The income derived from the business may be uncertain as a result of unforeseen factors There are bosses such as customers, suppliers, government agencies, and the bankers. Large businesses These organizations boast of hundreds or even thousands of employees. They have complex hierarchical structure, and their operations involve various activities which may range from manufacturing, to service, or even a combination of both. Characteristics of small business owners These small businesses are run by individuals with different characters, even though there are characteristics that are more frequent. Some of the characteristics that have been found to be frequent with small business operators include: Drive and energy Long term commitment Goal setter Moderate risk taker Uses feedback Tolerates uncertainty Innovative Recognizes opportunities Competitiveness Resourcefulness Task oriented Self confidence Persistent Sense of time Ability to deal with failure Initiative Uses outside resources Assertiveness Ambition Independence Determination optimism Enteurpreneurship This may be defined as the act of undertaking innovations, finance, and business acumen in an effort to transform he innovation into economic goods. The most common form of entrepreneurship is starting up a new business Define Entrepreneurship and small business There are quite a number of differences between entrepreneurship and small business. Entrepreneurial ventures differ from small businesses in a number of ways including: Amount of wealth developed: Entrepreneurship ventures creates substantial amount of wealth mostly in excess of several million of dollars of profits. Swiftness in Wealth creation: Small businesses may generate millions of dollars over a lifetime but entrepreneurial wealth creation is rapid in the sense that it may generate huge profits within short period of time like 5 years. Risk: Entrepreneurial ventures have a very high risk reward compared to small businesses with low risks and little returns. Innovation: Entrepreneurship involves substantial amount of innovation that provides to the venture substantial competitive advantage that in th long run can be translated into real wealth while small businesses can survive without much innovations. Differences between small and large businesses Large businesses These are organizations with a more complex management hierarchy. These organizations may comprise of the board of management, president, vice president, and CEO. They are large service industries, or manufacturing entities and mostly their operations are widely dispersed either nationally, regionally, or globally. Large businesses pay corporate withholding tax to the government annually, they employ very many people in hundreds or thousands and these same companies are entitled to pay their employees world class salaries in addition to other fringe benefits such as medical cover, car loan, and even mortgages. These same companies have turnover that may range from tens of million of dollars to billion of dollars. Typical examples of such companies include Qantas airlines. Small businesses Small businessess on the other hand does not have a complex management structure. These companies just have managers who might be the owner and the rest of the employees work under him/her. Their operations are mostly restricted in certain regions, such as a town, and they do not pay annual withholding tax to the government, instead they pay license fees from local authorities. Employees working in small businesses do not have much privilege and they are typically paid daily wages or lower pay compared to larger companies. The employee’s working for these organizations are also not entitled to fringe benefits such as car loans probably because the business cannot sustain such a venture economically. Business Structure Sole trader These are entities owned by individuals. This kind of business has no division between business assets or personal assets which may include shares of assets jointly owned with another person such as house, motor vehicles, or other movable and non-moveable assets. Sole traders are normally taxed as individual and they pay their income tax at personal tax rates. Advantages They are easy to set and operate Owner retains complete control of their assets and makes ultimate business decision Easy to change the legal structure when the business grows Disadvantages Unlimited liability which means personal assets are at risk incase of liquidation Owners are liable for all taxes on income earned. Partnership This is a business that involves two or more people. The size of this type of venture is typically between 2-20 partners. However, this is not limited because according to corporation’s regulations, this number may differ. For instance, the number can be, 50- Actuaries, medical practitioners, share brokers, and trademark attorneys 100- Architects 400 – Legal practitioners 1,000 accountants Advantages Easy to set up Less paper work compared to trust and partnerships Tax planning advantages such as income splitting Broader management base compared to sole trader which means wider pool of expertise Disadvantages Because partners have joint authority as owners, it is possible for a partner to contract third party without the other partner’s knowledge and the other partners will be bound to the deal. Lack of business continuity Friction among partners Incase a partner absconds with debt or dies the other partners will inherit the liabilities Incase a partner wants to join or leave, all the company assets will have to be re-valued which is costly and time consuming Trusts These are legal relationships between one person and the other. A trustee is mandated to follow legal obligations and duties which include: Acting in good faith Avoiding conflicts of interest Making full disclosure to the beneficiaries Not making secret profits or gains Maintaining proper accounts Acting in the best interest of beneficiaries IN order to establish a trust there should be a trust deed which outlines the purpose of the trust, assets involved, rights and obligations of trustee and beneficiary. This works by the trustee holding and dealing with the property in certain manner for the benefit of beneficiaries, and he/she also deals with assets and distributes income in a certain manner for the benefit of beneficiaries. Advantages Flexibility of asset and income distribution Asset protection Easier transfer of assets Reduced liability Ability to pass wealth from one generation to another Disadvantages Expensive to set up because legal fees are involved Complicated as a result of the legal structure Difficult to wind down Involves a lot of paperwork Inflexible because powers are restricted to trust deed and the law Company These are large organizations that employ hundreds or thousands of people. These entities can be involved in manufacturing, or they can be service industries. These entities have several advantages compared to other business types, these involve, shareholders assets cannot be liquidated incase the organization makes a loss. These organizations are also, they are very difficult to start, and may involve significant amount of resources in their capital. Management of small business These businesses are generally managed by their owners whom typically have entire control on their operations. The owner of these entities makes most decisions, and they direct their employees on the daily operations because such entities mostly involve fewer than 20 employees which makes it easy to manage. Small business owners tend to spend significant amount of time in their business hence they tend to micromanage each and every aspect of their business. For instance in a doughnut making business, the business owner will direct the recipe, the flavoring, and packaging. Lastly he/she will decide the price of the products that will be sold. References John W. English, 2006, How to organize and operate a small business in Australia. 10th Edition Allen & Unwin. Read More