Small business . • What is small business? • Every countries use various quantitative measures to define small business. • In Tanzania a small business is the one that is independently owned, operated, and financed, has less than 50 employees; does not engage any new innovation or practices; and has relatively little impact on its industry. • Simply, a small business is the one that does not dominate its industry • Defining a Small Business Owner • A small business owner is an individual who establishes and manages a business for the principal purpose of furthering personal goals. • The business must be the primary source of income and will consume the majority of one’s time and resources. • The owner perceives the business as an extension of his/her personality, bound with family needs and desires. Statistical definition of SMEs varies by country and is usually based on the number of employees, and value of sales and/or value of assets. Irrespective of the level of development of an economy, a significant proportion of micro and, sometimes, small enterprises are found in the informal sector or the shadow economy. In Tanzania a small business is defined in terms of total number of employees, total investment (assets and capital), and sales turnover; it has been classified as follows: 1.1 Classifications of Small businesses in Tanzania Category Employees Capital investment (Tshs) Micro enterprises 1-4 Up to 5 million Small enterprises 5-49 Above 5 mil.- 200mil. Medium enterprises 50-99 Above 200 mil.- 800 mil. Large enterprises 100+ Above 800 mil. Nature of SMEs in Tanzania. • Almost 43 per cent of the SMEs were owned by women, 48 per cent by men; 8.6 per cent by families (husband and wife), and 0.5 per cent by multiple owners. • it is estimated that there are approximately 2.7 million enterprises in the country, out of which about 60% are located in the urban areas. • Most (66%) of the micro and small enterprises have an annual turnover of less than US $2,000. employments records show700,000 entrants in labour market. Over two-thirds of the SMEs operated their enterprises from home (43 per cent) or from the roadside (20.9 per cent). Only 31 per cent operated in a market, commercial or industrial centre. • • • • • Why people engaged in small business The Need for Independence A major reason why people want to go into small business is that they want to be independent. They want to be in charge of affairs. They want to be the boss. They want to take business risks and also be responsible for them. Job Security In the private and public sectors of the economy, we hear such words as right-sizing, down-sizing, retrenchment, re-organisation. No matter how the words are used, they all point in the same direction – staff strength reduction. Because of the way and manner most down-sizings are carried out, it has generated fears in the minds of many employees in both the private and public sectors of the economy The feeling of job insecurity has led a lot of employees into thinking of setting up their own businesses so as to gain job security. • Family Employment and Community Service • There exist a lot of reasons why people set up small businesses. One of the such reasons is the need to create employment for members of one’s family and also to employ other members of the community. • A major reason why many people go to business school today is that they want to acquire the tools to be able to take up business challenges in their environment. It is important for you to recognize that business requires a lot of courage and challenges. The Role of the SME Sub-sector for Tanzania's Economy • The SME sub-sector's contribution to the national and socio• • • • economic development can be seen as follows:It generates income and employment. Is a major supplier of goods and services to the people. It contributes about 50% of industrial products' GDP. It is a main creator of new products, new services, and new entrepreneurs • • • • • The Characteristics of a Small Scale Business. Community-Based A primary trait of small businesses often used as a promotional benefit is their participation in local communities. Small companies often reside in a single city, state or local region and become a familiar presence in that area. Because they are based in a local community, employee local citizens and pay taxes in local markets, small companies often attract a number of loyal customers who prefer to support local companies versus large chains. Revenue and Profitability Small-scale business revenue is generally lower than companies that operate on a larger scale. The Small Business Administration classifies small businesses as companies that bring in less than a specific amount of revenue, depending on the business type. The maximum revenue allowance for the small business designation is set at $21.5 million per year for service businesses this is a case of USA in Tanzania is below tsh 1 million per year. Lower revenue does not necessarily translate into lower profitability. Established small-scale businesses often own their facilities and equipment outright, which, in addition to other factors, helps to keep costs lower than more leveraged businesses. • Small Structure • The organizational structure of a small business is generally simpler than that of a larger corporation. In the smallest sense, a small business could simply be an owner-operator or an owner-manager-employee setup. Other small businesses are a bit larger with a few hundred employees working together in a building or area. A small organizational structure can improve communication among employees at each level or in different stores in a chain. • Employees • Small-scale businesses employ smaller teams of employees than companies that operate on larger scales. The smallest businesses are run entirely by single individuals or small teams. A larger small-scale business can often get away with employing fewer than one hundred employees, depending on the business type. • Market Area • Small-scale businesses serve a much smaller area than corporations or larger private businesses. The smallest-scale businesses serve single communities, such as a convenience store in a rural township. The very definition of small-scale prevents these companies from serving areas much larger than a local area, since growing beyond that would increase the scale of a small business's operations and push it into a new classification. • Ownership and Taxes • Most owned by individual .These businesses generally do not file their own taxes; instead, company owners report business income and expenses on their personal tax returns. • Locations • A small-scale business, by definition, can be found only in a limited area. These companies are not likely to have sales outlets in multiple states or countries, for example. A large number of small-scale businesses operate from a single office, retail store or service outlet. It is even possible to run a small business directly out of your home, without any company facilities. • Limited Budget • A key constraint for small-scale businesses relative to larger companies is typically a more limited budget. With revenue ranging from a few thousand dollars to a few million, small companies must normally minimize fixed and variable costs of doing business and operate with extreme efficiency. Marketing budgets are limited so affordable media such as local radio and newspapers are commonly used to present advertising messages to customers. • Limited Suppliers • Small businesses also don't often have the massive network of suppliers common to large companies. The benefit in this is the ability to build trust and mutual goals with a few key suppliers. The drawback is limited bargaining power since your suppliers aren't competing as much to gain your business. Small businesses also face challenges in providing customers with enough variety and assortment at reasonable prices to attract them away from larger companies. Ways of starting a small business. There are many ways in which you may start a business 1. One starting from scratch • Start with an idea If you’re thinking of starting up a business, you’ll first need to come up with a realistic idea that you can turn into a product or service. • Register your idea You might have already come up with an idea for a business you think there’s a market for, or invented something you think people will want to buy. Find out how to register your idea to make sure nobody copies it without your permission. 2. Buy ongoing business Starting from scratch isn't the only way to get started. Buying an existing business can help you hit the ground running. Here's what you need to know to find a great deal. Buying a company that's already established may be quicker and easier than starting from scratch. However, you will need to put time and effort into finding the business that's right for you. Also, the costs involved in buying an existing business can be substantial and should not be underestimated. Decision on the business to buy Any business you buy needs to fit your own skills, lifestyle and aspirations. Before you start looking, think about what you can bring to a business and what you'd like to get back. List what is important to you. Look at your motivations and what you ultimately want to achieve. • It is useful to consider: • Your abilities - can you achieve what you want to achieve? • Your capital - how much money do you have to invest? • Your expectations in terms of earning - what level of profit do you need to be looking for to accommodate your needs? • Your commitment - are you prepared for all the hard work and money that you will need to put into the business to get it to succeed? • Your strengths - what kind of business opportunity will give you the chance to put your skills and experience to good use? • The business sector you're interested in - learn as much as you can about your chosen industry so you can compare different businesses. It's important to take the time to talk to people already in similar businesses. The internet and your local library will also be good sources of information • Location - don't restrict your search to your local area. Some businesses can be easily relocated Advantages of buying ongoing business • There may be established customers, a reliable income and a reputation to capitalise and build on. There will be a useful network of contacts. • Existing employees should have experience you can draw on • Many of the problems will have been discovered and solved already Disadvantages of buying ongoing business • You may need to honor or renegotiate any outstanding contracts the previous owner leaves • You also need to consider why the current owner is selling up. Think about how this might impact the business and your taking it over • Current staff may not be happy with a new boss, or the business might have been run badly and staff morale may be low 3. Starting a business through franchising. • What is franchising? • Franchising is a business model in which many different owners share a single brand name. • A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues. • The parent company also provides the franchisee with support, including advertising and training, as part of the franchising agreement. • Black’s Law Dictionary 7th edition 1999 defines Franchise as, “the sole right granted by the owner of a trademark or trade name to engage in business or to sell a good or service in certain area.” OR Is the process of selling the company products in another area by using company name. • Franchisor • The owner of the rights or license of the business who grants the right or license to the Franchisee to operate the business. • Franchisee • An Individual or company granted with the Franchisor’s IP to run a Franchise. TYPES OF FRANCHISING 1. Product distribution franchise; 2. Business format franchise; and 3. Management franchise 1. Product distribution franchise • • • • The franchisee merely sells the franchisor’s products. The franchisee is provided with an authority to use IP of the franchisor to distribute the products However, this type of franchise will also include some form of integration of the business activities For example 2. Business format franchise • • The franchisee not only distributes the franchisor’s products and services under the franchisor’s trade mark, but also implements the franchisor’s format and procedure of conducting the business. For example, Other examples include the subways .3. Management franchise. • A form of service agreement in which the franchisor provides the management expertise, format and/or procedure for conducting the business. • For example • OTHER REASONS FOR ENGAGE IN SMALL BUSINESS • -> Easy to handle. -> Less capital investment. -> fewer employees. -> Less statutory or government policy work. -> No secretary. -> No accountant. -> An individual. -> No partners so no concerned with him or her. -> Enjoying profit by himself only and not to share with a partner. -> Less warehousing. -> Low or fewer liabilities (loans). -> Easy dealings. -> No threats at all.
