Question

Describe the characteristics of small business.

- Name the most common causes of small business failure. How does the quality of management relate to each of these causes? (chapter 1)

- Large businesses depend on small businesses.

- Describe the techniques that a business with which you are familiar has used to prevent its failure

- Predict the future of small business. In what industries will it be most involved? What trends do you foresee? Will the failure rate go up or down? Will the importance of small business increase or decrease by the year 2020?

200 words

Answer 1

Small business is not destined or planned to become big. Some businesses are planned for a small section of the community and generating enough income to take care of the owners.

The small business have distinct characteristics which set up apart from a large business. These are as follows:

1. Lower revenue and less profitability: the small business administration classifies the small business based on the revenue. The profitability can be higher or lower. The maximum revenue allowance for small business in service sector is $ 25 million per annum.
2. A small team of employees: Small business has smaller teams. The larger of the small business employee up to 100 employees. Some small employees have a team of one or two employees.
3. Service a small market: The small business service small regions. Like a retail store servicing local community. An artifacts store serving the local visitors .
4. Sole proprietorship or a partnership: The small business is organized as sole proprietorships and partnerships to minimize hassles of business registration etc.
5. Present only in one region: The business will be located in one region without any branches or outlets.

Reasons for the failure of small business are as follows:

1. Choosing a business which is not profitable and can easily be impacted by small losses or economic downturns
2. Having inadequate cash reserves is another reason when a small business is unable to sustain in case of the economic downturn as they do not have the power to sustain beyond six months without making profits or covering expenses.
3. Inadequate market knowledge. The business will fail due lack of knowledge of customers requirement and preferences. The business is unable to match the customers expectation hence the sales are less and costs are high.
4. Incorrect pricing, if the product is too expensive it will be out-marketed. Small retail stand-alone stores often face stiff completion from large multinationals who will put them out of business because they have a large business and greater economies of scale.
5. Failure to react to changing technology, the small business doesn’t have the leeway to immediately change the business setup and adapt to changing technology.
6. Overdependence or a single customer, a small business might be serving one or two companies who if face a down turn will stop buying and will immediately impact the small business.
7. Rapid growth, the company takes on business and gives credit term to all customers. The business will slowly be able to service the clients and manage business growth.

Leadership and management is a major reason for the failure of a small business as follows:

1. Overconfidence and belief you can do everything yourself: A proprietor or partners normally try to do everything themselves and do not consult experts or hire a team to save costs. Over a period of time, they cannot keep pace with the changing business requirements and will be phased out of business because of the narrow view of the business.
2. Recruiting misfits: Small business will pay lower compensations and will compromise on quality of employees to manage the costs. The lack of employees skill set will cause more harm than good to the organization as he will be unable to perform his role properly.
3. The founder's inability to adapt to a growing organization and his attitude towards his business results in the business shutting down or failing.
4. The leader does not have the vision or the attitude to handle a large business and is not ready to add on new efficient team members to take charge of areas in which he is lacking.

To conclude an entrepreneur or business man will not automatically grow and he is not objective t the business needs hence much small business fail.

Large business depends on small business in many cases as follows:

1. Ancillary units: The small business is making components or ancillaries for the large business.
2. Outsourcing: The large business has outsourced services like training, information systems upkeep, customer acre, travel bookings etc to a third party, which is a small business. The large business wants to focus on core activities hence outsources these activities.
3. Many small subsidiaries are also created by large business as an independent profit center to improve efficiencies in business management and create a team, which will focus totally on the business.
4. Many large business might be venture capitalist in small business with great ideas or innovative products. They might be holding stake in small business. The large business support many small business and help them grow and are also shareholders in the business.
5. Small nonprofit business is also set up by large business to support local community causes like providing donations, sponsoring events and also helping the elderly in the region. The large business will identify a cause they will support and set up a nonprofit small business to manage the cause.

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