THE ENTREPRENEURIAL MIND Midterms Business Opportunities in Small Business Small Business is Beautiful • Business is an organized effort of individuals for the production of goods and services in order to make profit. To organize a business, the entrepreneur must combine four resources: human, financial, material and informational. •There are two kinds of small business. The very small business where the owner is the principal worker and he employs one or more assistants is called micro business. The other one is the bigger small business where the owner mainly directs the work of the employees. •These are the common characteristics of small business: 1. 2. 3. It is privately owned. It has few or no layers of management. Generally, it has insufficient resources to dominate its field of business. Small Business is Beautiful • The determination of what constitutes a Micro, Small and Medium Enterprise (MSME) is based on its total assets. This is provided in Republic Act No. 6977, as amended (also known as the “Magna Carta for Micro, Small and Medium Enterprises (MSMEs)“, previously called the “Magna Carta for Small Enterprises”. Small Business is Beautiful The term MSME refers to any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets must have value falling under the following categories: MICRO : not more than P3,000,000 SMALL : P3,000,001 – P15,000,000 MEDIUM : P15,000,001 – P100,000,000 Features of a Small Business A small business is low in capital but high in labor intensity Most small businesses do not have sufficient financial resources so they cannot purchase big machines or modern equipment. What is only possible for them to do is to use labor instead of machine in their business operations. There are usually in retailing and service industries. A small business is efficient in specialized skill or service It can well produce goods or services that are designed to the particular needs of an individual or a few clients. A small business succeeds in small, isolated or overlooked markets In rural communities where markets are small due to the few residents, a small business is viable. E.g. Sari-Sari Stores, Tailoring Shops, etc. Features of a Small Business A small business often operates in unstable markets With little capital, they are not afraid to experiment or test the market. They can easily respond to changing economic conditions. If these are not favorable, they can quickly get out. A small business is closer to the market place Not a few small businesses conduct their operations right inside the market place. Being closer to the buyers, compared with corporations, they get first-hand information about consumer tastes and preferences. Such advantage enables the small business to respond quickly to the needs of the consumers. Generally, the owner of small business are also the managers Most of our small enterprises in the country are like these. The owner-manager employs his wife and children. If the business grows, the owner hires more employees, usually relatives and town mates. Features of a Small Business Capital comes from the owner or small group In our country, a small business is usually financed by the family through its own savings and/or loans. If ever the business is funded by a small group, it comes from relatives and close friends. The area of operation is small This means the business is community-based. The owner and the employees live in the community where the enterprise is located. The size of the enterprise is small in relation to the industry For example, the shoe industry is a large one. But there are many stores of shoes. Clearly, one shoe store cannot dominate the market for shoes. In the case of big businesses, there are only few enterprises like the bear industry, OPEC, car manufacturers, etc. Differences between Big and Small Enterprises 1. Small businesses as a group change through a cycle of births and deaths. In the case of big enterprises, change is through expansion or contraction. 2. Small business risk or reward estimate is done by the individual owner who either gets profits or loss, while in large corporations, the risk or reward calculation is done by employee-managers. 3. Small business has little or no economic power. On the other hand, big business has tremendous influence on the economy, including the political sector. Advantages of the Small Business Personalized relationships with customers and employees Retailers and shop owners deal with their customers on personalized services. The small business owners are involved in social, cultural and political affairs in the community. Such personalized services or relationships with customers are a big economic advantage which big corporations do not have. Flexibility in management The owners being the boss or manager, he can easily introduce changes in his product or services, experiment on price strategies, or change store hours to fit market conditions. Furthermore, small business owners are quick to learn changes in the needs and interests of their customers, and also the activities of their competitors. Government incentives The national government has been promoting the organization of small enterprises. It extends both financial and technical assistance, particularly production and marketing to small entrepreneurs. Such programs of the government are relevant to the nature of our economy. Advantages of the Small Business Simple record keeping Small enterprises require dew and simple sets of records. They may consist only of a cash receipt journal which records all sales, and a cash disbursement journal which records all expenses or payments. Independence Small business owners are the masters of their own destinies. They are not employees. They make their own decisions. They do not apply for vacation or sick leaves. They do not worry about being late, absent or laid off. To many individuals, this is the kind of life they enjoy. Disadvantages of the Small Business Difficulty of raising capital Without financial assistance from the government, a small business has limited ability to obtain funds from others. Initially, it is the owner who provides capital for his business. If additional funds are needed, these can be obtained from relatives, friends or banks. Risk of failure A small business does not have enough financial resources to survive bad economic conditions. Its inability to absorb losses and unforeseen events forces the owner to go out of business. Limited management skills Owners of small businesses generally lack of management skills. They have no formal education or training in management and marketing. Lack of opportunities for employees Most of the employees of a small business are sales staff. Only very few of them become supervisors. In the Philippines, small enterprises are familyowned. Those who are holding managerial and supervisory positions belong to the family or relatives in most cases. Why Small Businesses Fail • Lack of experience • Lack of money • Wrong location • Mismanagement of inventory • Poor credit practices • Poorly planned expansion • Unsound or too little analysis in choosing the business
