Small Business Management - Coursework Example

Small Business Management Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 15th February, 2011. Introduction Businesses exist in many forms, but the most common form of business is retail business which is commonly referred to as small businesses. The developments of businesses usually start with small enterprises which are major drivers of the global economy. In the world of business, most of these businesses are referred to as SMEs (Small and Medium Enterprises), due to the many challenges these businesses face they tend to remain small in size (Bridge, 2003). Definition of Small Businesses Small businesses have very many defining factors that differentiate them from other types of businesses. The impact of small businesses in the global economy is very significant, that is why many governments are making efforts to support work done by these small businesses. The most defining characteristic of small businesses is sole ownerships; according to the institute for study of Labour around 80% of small businesses are owned by a single individual who solely operates the business with little or no help (Scarcelia 1999). Small businesses provide self employment to many people worldwide especially to families since nearly all small businesses are family owned (Longenecker, 2006). According to statistics, approximately 70% of small businesses engage in one line of business, for instance it may be a family owned grocery, restaurant or law firm. Definition of a small business is a challenge, but according to United Nations Industrial Development Organisation (UNIDO) a small business is one in which it employs between 1-49 people. Other nations and organisations define small businesses according to revenue turnover, size and taxation laws (Puryear, 2008). Studies conducted by international organisations on small business owners reveal a lot as is concerned on inheritance and family ties. Most small businesses owned by family members show that people with parents or family members who are self employed tend to later in life own small businesses. Strong intergenerational links exist in the emergence of many small businesses (Moore 2006). According to statistics around 15% of small business owners inherited their business from family. Most small business owners started business due to influence from family, it is estimated that there is a likelihood that two to three times of people who had parents in self employment through business are likely to own a business in the future (Fairlie, 2005). The linkage between parents and their children in establishment of businesses is very strong; this could be attributed to experience gained by the family in managing such businesses or entrepreneurial skills gained by certain individual in the small business (Lyles, 2001). Type and Scope of Small Businesses Small businesses are found within many sectors of the economy and range from professional, skilled or non-skilled industries. The services offered by small business range from highly sophisticated industries such as energy consultancy work to simple businesses such as groceries. According to research and statistics, many small start-up businesses never make it beyond the first and the more educated the business owner is the higher the rate of success of the business (Weinrauch, 1992). In a study conducted in the United States, many small business owners who had a college degree and above had twice the chances of doing well compared to business owners with no or little formal education (Lyles, 2001). The advantage of small businesses over big businesses is that they provide personalised services to their customers due to closer interaction with the customer. Small business owners are distinct from big businesses in that in their business operations they are able to interact with the customer easily and thus most small businesses end up providing niche services (Abdullah, 2010). For instance, Nagin Pattni is small jewellery dealer based in Jaipur in India, his business deals with smelling gold and gemstone jewellery. His business is unique in that it offers customer centric services compared to big businesses such as Tiffany’s or De Beer. Small businesses have a characteristic of being highly competitive; the competitive nature of small businesses is due to need to satisfy a certain customer need (Robb, 2008). There are many forms of businesses, most small businesses engage in all forms of activities that need little or no experience and expertise to operate these businesses. However in the recent late some educated experts or individuals have opened up small businesses which offer service such as consultancy and expert services (Neeley, 1992). Capital, Growth and operations of Small businesses Small businesses are among the easiest forms of business to start, however the challenges that these businesses face are numerous. The biggest challenge that most small business owners face include the lack of capital, taxation and lack of expertise necessary in growing the business (Watson, 1996). According to UNIDO, a lot of small business owners surveyed in a research undertaken by the organisation comprehend to the fact that they face the problem of raising enough funds to start and operate their businesses (Gates, 2007). Many banks and financial institutions lack faith in supporting business ideas by small business owners. In middle economies such as Asia and Africa, many businesses complain of problems related to financing and lack of enough governmental support (Brunetto, 2007). In more developed nations, many small business owners face the challenge of taxation, new businesses have small operating volumes and therefore high taxes affect their operations and some businesses don’t operate beyond their first year (Kennedy, 2005). In some global regions, small businesses face challenges which include bureaucracy, for instance African countries lack proper policies in enabling small businesses to establish and grow their operations. For example in a Kenya, small business owners like Mrs. Kamau a chemist owner, have to contend with applying for many business licenses which is an obstacle in opening a business. Growth of small businesses has been tremendous with many small businesses opening operations especially in developing nations like Brazil, India and China (Brunetto, 2007). However small business owners are easily threatened by economic situations and in case of bad economic outlook, most small businesses end up in closure. During the financial crisis that hit the globe in 2010, most small businesses failed to withstand the effects of the credit crunch. An example of businesses that were hit included restaurants in regions like Las Vegas; even tough big businesses were hit, most of them were able to withstand this situation (Stephenson, 2011). In the operation of their businesses, small business owners usually lack enough expertise to enable them to grow into big operations and they usually use unorthodox methods in operating their business (Neeley, 2009). Small business owners usually lack business expertise and their inadequacy in hiring experts to deal with issues like filing tax returns or providing financial advice (Asiado, 2010). According to IZA, most small businesses have not embraced the use of information technologies in their operations leading to failure of their businesses. Successes and Failures of Small Business Owners In the operation of a business, many challenges are encountered by business owners and small business owners are not spared. Some of these challenges include availability of capital, taxation, bureaucracy and competition. Many business owners earn considerably more than employed individuals and statistics have found that small businesses support around 50% of the globe’s population (Frey, 2008). Due to this success, small business owners have a higher purchasing power compared to other people therefore they can spend more on goods and services an in turn uplifting the economy. The fact that small businesses support the economies of many countries through tax payments and employment is a successful feat by small businesses (Thompson, 1991). For instance in Russia, statistics show that 40% of governmental taxes are collected from small business owners. Small businesses can offer the much needed success in life; small businesses could be the hope for the globe in the future as revenues, taxes and employment creation could be harnessed from these businesses (Landström, 2009). Small owners enjoy a lot success albeit with a few failures here and there, tough challenges faced by small business owners have led to some of their businesses collapsing. Many small businesses fail due to lack of transition mechanisms, many small business owners don’t have enough contingency mechanisms to continue their businesses once they retire from the business (Warner, 2002). Another failure of small businesses is their inadequate use of information technologies in their operations and therefore they fail to grow and exploit opportunities provided in technological fields (Callahan, 1995). Failures in the sector of small businesses stem from varied reasons; some of the failures experienced by small business owners are the lack of innovation and thus most small end up offering similar services creating high competition which leads to slow margins in sales and profitability (Chawla, 2007). Conclusion Small businesses owners through their businesses play an important role in the world today; the emergence of small businesses worldwide is a positive trend that needs to be supported (Brue, 2006). The growing population in the globe will need essential services such as jobs, goods or services and most governments will be overwhelmed to provide for these. Therefore the private sector through businesses could fill this gap and small business owners will play a vital role in doing this job. References Abdullah, M. and Bakar, H., 2000. Small and Medium Enterprises in Asian Pacific Countries: Roles and issues. Kuala Lumpur: Nova Publishers. Asiado, T., 2010. Characteristics of Successful Business Owners, [online] Available at: [Accessed 17 February 2011]. Bridge, S., O'Neill, K. and Cromie S., 2003. Understanding enterprise, entrepreneurship, and small business. London: Palgrave Macmillan. Brue, G., 2006. Six sigma for small business. Santa Cruz, CA: Entrepreneur Press. Brunetto, Y. and Farr-Wharton, R., 2007. The Moderating Role of Trust in SME Owner/managers' Decision-Making about Collaboration. Journal of Small Business Management, 45(1), pp. 41-43. Callahan, T. and Cassar, M., 1995. Small Business Owners' Assessments of Their Abilities to Perform and Interpret Formal Market Studies. Journal of Small Business Management, 33(1), pp. 15-19. Chawla, S., Hazeldine, M., Jackson, R. and Lawrence, R., 2007. Small Business Critical Success Factors and the Legal Form of the Firm. Journal of Business and Entrepreneurship, 19(1), pp. 21-26. Fairlie, R. and Robb, A., 2005. Families, human capital, and small business: evidence form the characteristics of business owners’ survey. New York: Bureau of the Census. Frey, R., 2008. Successful proposal strategies for small businesses: Using knowledge management to win government, private sector, and international contacts. Washington: Artech House. Gates, S. and Leuschner, K., 2007. In the name of entrepreneurship?: The logic and effects of special regulatory treatment for small business. Stanford: Rand Corporation. Kennedy, J., 2005. The small business owner's manual: everything you need to know to start up and run your business. Los Angles, CA: Career Press. Landström, H., 2009. Pioneers in Entrepreneurship and Small Business Research. Stockholm: Springer. Longenecker, J., Moore, C., Palich, L. and Petty, W., 2006. Small business management: an entrepreneurial emphasis. Kansas City: Cengage Learning. Lyles, M., Baird, I., Orris, B. and Kuratko, D., 2001. Formalized Planning in Small Business: Increasing Strategic Choices. Journal of Small Business Management, 31(1), pp. 18-21. Moore, C., Longenecker, J., Palich, L. and Petty, W., 2006. Small business management: an entrepreneurial emphasis. Austin, TX: Cengage Learning. Neeley, L., 1992. Small Business, Capital Investment, and Tax Reform. Journal of Small Business Management, 30(1), pp. 32-34. Pride, W., Hughes, R. and Kapoor, J., 2009. Business. Chicago, IL: Cengage Learning. Robb, A. and Fairlie, R., 2008. Race and entrepreneurial success: Black-, Asian-, and white-owned businesses in the United States. Boston, MA: MIT Press. Puryear, A., Rogoff, E., Lee, M. and Grossman, E., 2008. Sampling Minority Business Owners and Their Families: The Understudied Entrepreneurial Experience. Journal of Small Business Management, 46(1), p. 28. Scarcelia, J., 1999. Characteristics of small business owner-managers. Atlanta, GA: Ball State University. Stephenson, J., 2011. 25 Common Characteristics of Successful Entrepreneurs, [online] Available at: < http://www.entrepreneur.com/homebasedbiz/article200730.html> [Accessed 17 February 2010]. Thompson, J. and Smith, H., 1991. Social Responsibility and Small Business: Suggestions for Research. Journal of Small Business Management, 29(1), pp. 12-15. Warner, M., 2002. International encyclopedia of business and management. San Francisco, CA: Thomson Learning. Watson, J. and Everett, J., 1996. Do Small Businesses Have High Failure Rates? Evidence from Australian Retailers. Journal of Small Business Management, 34(1), pp. 21-24. Weinrauch, D., and Natarajan, R., 1992. A Quest for Quality in Small Business: Challenges, Prescriptions, and Research Opportunities. Journal of Business and Entrepreneurship, 4(1), p. 17. Read More