Principles of Business - Assignment Example

Principles of Business Characteristics of a small business Small businesses vary in characteristics depending on the industry and country of incorporation. However, all small businesses must be independently owned and operated with greater consideration reflected by the number of employees. Unlike a subsidiary which is owned by the mother company, privately owned sole proprietorships, corporations and partnerships are considered small businesses. Secondly, the number of employees should range from less than 500 for US businesses, less than 50 for European Union businesses, and less than 15 for Australian businesses.

But with ninety percent of world’s operating businesses employing less than 50 employees, an average measure for small companies would stand at 50. Thirdly, turnover (annual sales) as a measure of business size necessitates that the industry under which the business falls into must be taken into consideration as substantial difference exists between revenues from different industries. For instance a million dollars generated by a consulting firm ought to be treated differently from a similar amount reported by a car dealer.

As such, difference exists depending on the source of the revenue; such that earnings from selling service (e.g. sale of knowledge) business cannot be similar to that of trading in goods. Therefore, with diverse majority of small businesses earning income from trade or manufacturing industries, the annual revenue’s upper limit of ten million dollars represents the average limit of 50-employees firm size adopted for all small businesses. Contributions of small businesses to the economy According to Longenecker et al. (2008), small businesses in the American economy have continued to propagate innovation evidenced by the seventy five percent of total new jobs that were created during the 1990 to 1995 compared to the 1980s.

Although the aggregate government revenue earned from small businesses is immaterial compared to other businesses, the number of businesses, and thus number of jobs created was twice as many as jobs in other sectors. In addition to creating job opportunities, the small business sector has provided a point of entry for new groups interested in business. For instance, the number of women in business rose with female-owned businesses increasing by 89 percent between 1987 and 1997 from 4.3 million to 8.1 million. Similarly, increase in the women-owned sole proprietorships rose by 35 percent in 2000.

Part-time workers and the old have also benefited from the employment opportunities by the small firms. Unlike large corporations that serve diverse customers, small businesses are personally in contact with the customers and are better placed in aptly responding to the changes in economic conditions. For example, firms focused on computer-related ventures in “Silicon Valley” California are associated with technical innovation. Corporations that have become leaders in the computer industry are known to have innovated from “tinkerers” using manually-assembled hand machines in garages.

Examples of such innovators now enjoying huge market share include package and parcel delivery service Federal Express; computer networking company American Online; and computer software company Microsoft (Longenecker et al., 2008). Starting own business The decision to start a business depends on such factors as the area of specialization, availability and sources of funds, the legal and regulatory requirements, among other factors. However, as an individual intending to start a business, limitations such as amount of capital would mean a small business such as a sole proprietorship would be suitable.

Unlike other forms of business, a sole proprietorship despite being able to be run on a part-time basis, can also be started with a low initial cost. Unlike the big corporations that are tied to the bureaucratic inertia, a small business is adapted for internet marketing due to its ability to respond to the marketplace and closely attend to its specialized niches. This ability to adapt to change, though had been a daunting task prior to the internet revolution in early 1990s, is useful in for proprietors whose clients and customers expect accountability and maturity (Longenecker et al., 2008). Small businesses also allow for independence which is not possible in other forms of businesses.

For example, a study showed that four out of ten individuals that left their jobs quoted the reason for departure was being their own bosses. This independence in choosing the kind of business to operate becomes a reward for such business owners. Additionally, because different business persons have different risk perspectives, a small business provides the conducive environment for individual decision-making, risks orientation, and benefit/pay for their efforts. Considering the economic and environmental constraints that impact decisions, owners of small businesses are satisfied with the freedom of operation/interference.

Reference Longenecker, Justin G.; Carlos W. Moore, J. William Petty, Leslie E. Palich (2008). Small business management : launching and growing entrepreneurial ventures. 14th Ed. New Zealand: Cengage Learning.