Small Businesses: The Greatest Venture for the Economy
Starting a small business can always be a risky choice.What happens if the business fails? Of course, not all businesses are going to be a success.About seven out of ten new small businesses last at least two years after opening, and half of small businesses survive for five years or more.According to the Census data of the year 2000, 69 percent of new businesses survived the two year mark after their opening date, and 51 percent of these businesses survived five or more years ("Frequently Asked Questions").With those survival rates, I would say that it is worth the risk to open a small business if one desires to do so.
Small business is defined as a privately owned and operated business with a small number of employees and a relatively low volume of sales.These small businesses are usually one of three types: privately owned corporations, partnerships, or sole proprietorships.To be considered a “small” business in America the company has to have less than 500 employees (Wikipedia Contributors).Small businesses play an important role in the U.S. economy due to the fact that approximately 99.9 percent of 29.6 million businesses are considered “small”.
According to the Office of Advocacy, in the year of 2005, small businesses represented 99.7 percent of all the nation’s employer businesses.All these businesses combined employed a total of 57.4 million Americans that year.Small businesses are so successful because they innovate and create new jobs at a faster rate than their large business competitors.They are a vital part of every community across America due to the fact that they are both nimble and creative ("Small Business Drives The U.S. Economy").
Robert Longley, author of “Top Ten Reasons to Love U.S. Small Business” has declared some of the best statements about small businesses.
10.) “Small businesses make up more than 99.7% of all employers”
9.) “Small businesses create more than 50 percent of the nonfarm private gross domestic product (GDP)”
6.)“Small businesses employ about 50 percent of all private sector workers”
4.) “Small businesses make up 97 percent of exporters and produce 29 percent of all export value”
2.) “Four years after start-up, half of all small businesses with employees remain open”
1.) “The latest figures show that small businesses create 75 percent of the net new jobs in our economy”
Sole proprietorships are businesses started by a single person and are considered a single entity for all tax and liability reasons.Meaning that there is no clear definition from where income is made.The business and the owner are one in the same; therefore, the owner, as well as the business, is liable for all lawsuits or debts.This means that if any lawsuits and/or debts exceed the value of the company the owner is personally reliable.Sole proprietorships are the simplest form of a business.Owners can establish a sole proprietorship instantly, easily, and at a low cost.To start the business the sole proprietor must register his or her name and secure any local licenses. Once these two steps are complete he/she is ready for business. Many businesses start out as a sole proprietorship and gradually increase to more complex business forms ("The Basics of Sole Proprietorships").
A partnership is a business with two or more owners that have not filed papers with the state to become a corporation or a limited liability company (LLC).There are two basic types of partnerships, general partnerships and limited partnerships (NOLO).In a general partnership, each partner within the business has equal say in the company.Each of the partners also holds equal responsibility in all areas including unlimited liability and debts.In a limited partnership (LP) there is usually only one general partner, though sometimes there can be more.The other partners within the business are considered “limited partners.”In an LP the general partner alone has full management responsibility and runs the day-to-day operations of the business.He/she not only has most of the power, but also has the largest part in the liability of the business.Everything falls on the general partner’s shoulders.The limited partner does not participate in the businesses’ daily operations and has little or no say in management.Limited partners are the silent partner of the business.He or she is usually involved in nothing more than making the initial capital investment for the company.In exchange for this investment, he/she receives a share of the company’s profits ("General vs. Limited Partnerships").
A limited liability company is not a corporation even though it shares some of the same characteristics.An LLC provides lawsuit protection for its members has greater tax savings and protects personal assets ("LLC Definition").This form of organization allows limited liability for an unlimited number of shareholders or “members.”
Funding is also crucial when wanting to open a business.There are four main types of funding: grants, loans, personal saving, and stock shares.Grants are the best type of funding one can receive.If a business receives a grant they do not have to pay that money back.It is “free” money for the business.Loans are often taken out when wanting to start and run a small business to help with the cost.This is a good option if the owner needs extra money to start their business.However, loans have to be paid back so if the business fails the owner will be in debt and have to find a way to pay back those loans.Personal savings is also a means of funding for a business.Often times, the future owners personal savings will not be enough alone to open their desired business.Therefore, they have to look at other means of funding as well, in order to obtain enough money to start their business.The last type of major funding would be stock shares.When a company wishes to put shares of their business out for the public to purchase the owner can go to the Securities and Exchange Commission (SEC) and get permission to sell the amount of shares they want and put them in the stock market.This gives people in the community a chance to purchase a share or “vote” in the company. Anyone who buys the shares is investing their personal money in the business in order for a piece of ownership. However, only the initial sale of the stock goes to the company.If a person chooses to resell their share it goes onto a secondary market and the company receives no benefits.
After receiving the needed funding one has to get the required licenses and permits before they can open their desired business.The main license one will need to obtain is a business license.This license grants the owner the right to operate a business in a designated area.A fire department permit might be needed to run a business as well.However, some areas don’t require the owner to get a permit before they open their business but instead schedule periodic inspections to make sure the business is meeting the fire safety regulations.In many states, certain occupations must have licenses or occupational permits.To get these one will have to pass state examinations before they can obtain these permits and begin conducting their business.These are a few of the most common licenses and permits needed for business.However, other licenses and permits may be needed depending on the type of business and where it is located ("Business Licenses and Permits").
A crucial part of a business’s level of success is the environment the business contains.In order to have a good environment for a business, the owner must be able to build lasting relationships with the customers, other small businesses and companies, and any external partners the business may have.In the business world, there are two main types of environments: microenvironments and macroenvironments.Microenvironments are at a much smaller scale.This environment consists of the actors close to the company that affect the businesses ability to serve its customers.These actors within this environment include the business itself, suppliers, customers, competitors, and the public.Macroenvironment is a much greater scale.This includes the societal forces that affect the company such as, demographic, economic, natural, technological, political, and cultural (Armstrong and Kotler).
In microenvironment suppliers, customers, competitors and the public all play a significant role.Suppliers have to have great communication within the company.They have to be able to get the supplies to the business on time every shipment.But, more importantly, they have to be there for the business in an emergency situation, whatever that situation may be.Customers are a crucial part of a businesses’ environment.If a business has loyal customers it will have a steadily increased profit. As strange as this may sound, competitors play a huge role in the success of the business environment as well.Businesses offering the same services or products are always going to try to be better than their rivals.This competition helps the economy significantly.Each business will try to offer their customers the “better” deal and this will continue as long as the companies are in competition.If there is no competition for a company they can get away with whatever they wish to because they are the only ones that provide that good or service.No competition results in higher prices and lower quality of the goods or services.That is why competition is so important for a businesses’ environment and for the overall good of the economy.And of course the public supporters are always needed for a business to have a good environment surrounding them.Without the support of the community a business would never be successful and contain a good, healthy environment.
Macroenvironments tend to have a different environment than microenvironments.In a macroenvironment the area and location is the most important parts of the businesses’ demographic.The area one chooses to open their business in has to have a good environment to begin with.Then once the business is up and running it will only add to the environment and make the area that much better.One also has to take the economic livelihood of the area into consideration.The environment has to be stable and be able to bring in money for the business or it will never survive and become successful.A business environment must also be ready for any and all disasters: including both natural and manmade.The technology of the microenvironment has improved tremendously and has made business easier. Computers make recordkeeping and inventory much easier for the business owner to manage, as well as making sales easier and more efficient.However, with all technology there is the possibility of a system crash.The owner of the business must have a steady back up plan in case of a technological emergency.There are also cultural aspects of macroenvironments.A business must know which culture they are trying to appeal to.It may be more than one culture that they are working to appeal.Yet, they have to be careful as to not offend the cultures they are not trying to relate and appeal to at the same time.
Not only is the environment of a business crucial, so is the location and appearance of the facility.If the business is not easily accessible then it isn’t going to be as successful as an easily accessible business of a similar form.When looking to start a business the potential owner must keep location in mind.If he/she opens their business in an incompatible area there is a greater possibility that the business will fail then if he/she opens it in an area where it will thrive.Appearance is also an aspect of the survival of a business.If the place appears to be run down and dingy most people will shy away from it.If the business looks open and welcoming then it will get more customers and in return more profit.Picking a name for the business is another factor to consider from every viewpoint.The name should be classy and draw attention.A bad name could turn potential customers away before they even give the business a chance.Opening a small business is a very involved process and one must consider every aspect of how to make it survive.
In order for any business to survive they must interact with other businesses as well as the community.Owning a small business would put one in a retail position.Of course, when running a small business the owner is going to have to be able to interact with the customers, or the consumers, with a polite and personable persona.Yet, the consumers are not the only people a retailer, or owner, must deal with.Owners also have to deal with producers and wholesalers while running their business.Producers are the ones who produce the goods and give all that was produced to different wholesalers.Wholesalers are the go betweens between the producers and the retailers.All four of these levels of interaction are vital to the survival of a business.Without one of these four people the business, if able to survive, would not be able to run as smoothly.If an owner is not able to get along and communicate with people outside their business he or she is not going to be very successful (Armstrong and Kotler).
Not only does a business have to have great communication with people outside of the company, they also have to have great intercompany communication.Every department within the business has to be able to communicate frequently and easily.If there is miscommunication, or no communication at all, between the different departments the business could be in a world of hurt.For example, if a business receives its goods and products but the receiving department does not let the sales department know that the goods and products are in, then the sales department cannot sell the new shipment of products.Not only does this miscommunication disrupt the sales department but it also affects the accounting department.If the accounting department doesn’t know that the shipment of the good and products was received then they will not know to pay for them and everything will shift and become unbalanced.
At times, small businesses also lend a helping hand to each other.They may want to branch out slightly and sell their products or services at other places as well as their own in order to get a little more recognition for the business. Not only does it get the one business more recognition, but it also brings in potential new customers for the other business as well.Even though each business mostly has their own needs in mind, they both benefit.
Advertisement is much needed when running a business.If nobody knows that the business exists, or what it has to offer then that business will not have much service, if any.If the business doesn’t get service then it won’t survive.A business can either target the whole public or it can target a specific group.However, target marketing is the most beneficial way of advertising for a small business.The business will receive better support and more loyal customers if they are able to appeal to the type of people their business is looking to draw in, not the entire general public.Not only is target marketing more beneficial to a company, it is also less expensive for the business. Advertising is also a way to compete with any competitors of the business.A business owner wants to make his or her business well known and attract all the possible consumers.Local ads are a great way to advertise a small business and what goods or services they have to offer.Not only do these local ads get the name of the business out there and draw in potential customers, but it also helps out the local newspaper or local advertisement agency.In turn both of these businesses will help the local economy as a whole.
Every small business needs to know about marketing.Marketing is the process by which a business or company creates value for customers and build strong, lasting customer relationships in order to capture value from the customers in return.It is important to understand the marketplace and a customer’s needs wants and demands when running a small business.Customer’s needs are the states of felt deprivation.This includes the basic physical needs of a human, such as food, clothing, warmth and safety as well as social needs and individual needs.Human needs take the form of wants in culture and individual personality.However, these wants then turn back into needs when backed by power (Armstrong and Kotler).
Market offerings are what fulfill the customer’s needs, wants and demands.Market offering is defined as some combination of products, services, information, or experiences offered to satisfy a need or a want.No matter how good a business’ market offerings are, if they suffer from marketing myopia, they are not going to be as successful as a whole.Marketing myopia is the mistake of a business paying more attention to the specific products a company offers than to the benefits and experiences produced by these products.Business owners need to be sure to have a balance in their focus of what their products are and what they have to offer in the long run (Armstrong and Kotler).
Since marketing is such an important role of small businesses it is necessary for one to know what “market” means.A market is the set of all actual and potential buyers of a product or service.Marketing is all about creating and maintaining loyal relationships with the customers of the business.In order to build these vital relationships with the actual and potential customers an owner often times looks to marketing management.Marketing management is the art and science of choosing target markets and building profitable relationships with that chosen market. With every business run the owner has a marketing concept.A marketing concept is the marketing management philosophy of the business owner that holds that achieving organizational goals and depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than their leading competitors do.
When running a business, the owner must be careful to set the right level of expectations for their small business.If the owner sets their expectation too low, sure they will satisfy the customers they do have, but they won’t be attracting any new customers.On the other hand, if the owner sets the expectations for the business too high customers will be disappointed with what they receive and they will move their business to the competitors.Customer value and satisfaction are key to maintain while running a small business (Armstrong and Kotler).
The prospect of a small business has changed over the years.However, small businesses still play a vital role in the economy.The internet has helped small businesses tremendously over the years.Now businesses can not only do business in their local area, they can now do business with consumers across the world.If small businesses didn’t employ as many Americans as they do the economy would be hurting so much more than it is already.Opening and running a small business is a very involved process that takes a lot of work.But clearly it is worth the work and will pay off due to the number of small businesses in the United States.In the economy as it is, jobs are limited enough.Just imagine if the 57.4 million Americans employed by small business across the United States didn’t have those jobs.Where would America stand without all the participating small businesses that bring in steady profits to help the U.S. economy?America would definitely not be the same country we know it to be now.Small businesses are such an important part of the American economy today and they will continue to be vital to America’s survival as a country.
Works Cited
Armstrong, Gary, and Philip Kotler. Marketing An Introduction. 8th. Upper Saddle River, New Jersey: Pearson Education Inc. 2007. Print.
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