CHAPTER TWO (2) INTRODUCING SMALL BUSINESS

Definition of Small Business: A small business is one which possesses at least two of the following four characteristics: A small business is one which possesses at least two of the following four characteristics: -Managers are the owners -capital supplier & the owner is an individual or a small group -Workers &the owners are local, market may not be so - relatively smaller compared with the biggest unit in the industry ( sales, employee etc.)

Types of Small Business:  Retail sales: a retail firm is small if it has annual receipts of $2 million or less. A retail business is one that buys goods from suppliers and sells them to customers. Typical kinds of retail firms are food stored, clothing stores, drugstores.  Manufacturing firms: A manufacturing firms is classed as small if it has 250 employees or less manufactures take raw materials and change into finished goods for sale.

 Services: Service firms with annual receipts of $2 million or less are classes as small. A service firms provides services for customers, and types of services firms including hotels, barber and beauty shops, all types of repair shops, plumbers, and electricians.

 Wholesaling: Wholesalers with annual receipts of $9.5 million or less are classed as small. Wholesalers buy and resell merchandise sell in significant amounts to retailer or final consumers.  Research & Development: Firms engaged in developing newer methods, techniques of production, sales and software system can serve others who are in need of those.

 Consulting: Consultancy services with regard to efficient management, project appraisal, raising sources of finance, methods of reducing risk, technical and engineering services etc. are provided through these type of firms.

A comparison of Three Forms of Business Organization 1.Ease of formation 2. Legal requirements 3. Ability to borrow-funds 4.How taxes are paid 5. Degree of financial risk 6. Number of owners 7. Continuity of business

Characteristics of Small Business: 1.Managed by the owner: a)Decisions are taken at one point b) Little or no delegation of authority c) Verbal communication d) Independently run/ managed e) All risks borne by the owner f)No separate entity.

2.Family workers and or fewer hired workers 3. Mostly owner financed and or limited borrowed funds with no access to the share market 4. No scope for specialist service 5.Little emphasis on long term planning 6. Close labor- owner/ management relations. 7. No or limited use of innovative production/ marketing 8.Business is housed in small establishments 9. Rational cost control possible

10. Maximum possible safety of business secret 11.Local market or limited non-local market 12. Size of investment is relatively smaller 13. Volume of sales relatively smaller 14. Unable to adopt modern technology 15. Mostly handicraft with no use of electricity 16. Requirement of minimum legal formalities.

Stages of Small Business Development Any business big, medium or small generally go through four key stages one after the other. The names of the stages are often, found to be different by different authors. The race start from the conception stage going through other two stages to reach the stage of dissolution. According to one author the stages are:

1.The pre-business stages, in which an idea is thought about and is developed. 2. The business stages, in which the idea is launched into a successful business endeavor. 3. The growth stage, in which the entrepreneurial spirit emerges and the business shoots forward through expansion, new production, acquisition or merger.

4. The termination stage, in which the owner’s manager’s business is sold is liquidated, is acquired by others, r is given to friends or relatives. Vesper Karl H in his paper that appeared in the Harvard Business Review in 1979 identified the following 4 stages in some other title as : Vesper Karl H in his paper that appeared in the Harvard Business Review in 1979 identified the following 4 stages in some other title as :

1.Pre-start-up: Plan and develop contacts Look for resources & opportunities Form & nature of organization to be decided. 2. Start-up: Location to be selected Location to be selected Time of Phasing Analysis of risks &rewards Time of Phasing Analysis of risks &rewards

3.Early growth: Feedback from marketplace ‘Feel’ for realities of the market & the operational problems. Feedback from marketplace ‘Feel’ for realities of the market & the operational problems. 4. Later growth: Building a operational Team Find better market---dealership, franchise, etc. Look for external funds & outside family workforce.

Role of Small Business  Large industry wastage/by- products can be put to use  Desired industrial spread & decentralization is facilitated  Business/ industry diversification is made easier  Innovations for new products/ services are made  Development of new technologies with regard to methods, inputs, & skills are silently undertaken.

 Ensures wide competition & thereby provides reasonable price advantage to consumers  Help in foreign currency earnings through personalized push exports  Help in correcting some of the problems created by unplanned urbanization  Large number of small investors can become owner of such businesses  Easy supply of needed goods/ services is facilitated.