Some Advantages And Disadvantages Of Small Business Enterprises
Definition of a small business
Definition of a small business
It is a business set up on a small scale, typically as a sole proprietorship or on a partnership basis. Examples include convenience stores, barbers, restaurants, small scale manufacturers etc. These are typically driven by 1-2 people whose idea leads to the set up of such a business. Different countries have their own definition of the maximum size of a small business for being eligible for government and tax related support. This ranges from a limit of 15 people in Australia to 500 people in the U.S.
Advantages
Given their size and flexibility, small business enterprises have a natural advantage in setup and operations. These enterprises also provide a valuable service to the economy, not only because they are the germ from which the larger organization develops, but also because they provide certain services a larger organization would not find it cost efficient to offer. Some of the operational advantages have been listed below.
1 Flexibility in operations
Small business enterprises are typically driven by a few individuals who are the key decision makers. This makes them much more flexible and adaptable in day-to-day operations. The speed at which these enterprises can react to any change (e.g. change in consumer preference, competitive product etc.) is also faster, which makes them more competitive.
2 Innovation
Since there is no hierarchy of organization and control in small business enterprises, new product and ideas can be developed and rolled out quickly. Even if the new idea belongs to an employee and not the owner, the approachability of the owner ensures that the employee is heard and the idea implemented if good.
3 Low cost structure
These enterprises are typically not set up in fancy locations with plush offices; many are run out of the home with family members as the helpers or employees. This reduces the overhead cost in running the business. Furthermore, small business enterprises also get support from the Government, NGOs and banks in the form of grants, donations and tax support. This further mitigates the cost involved in setting up and operating them.
4 Ability to focus on niche markets
Small business enterprises do not need to generate huge amount of sales to break even on their cost. This enables them to focus on a niche product or market e.g. a small scale jewellery store run out of the home can focus on a particular type of jewellery and clientele and still be profitable, as compared to a jewellery store chain that has to pay higher rental cost and thus cater to a wider segment.
Problems
The main advantage of the small business, i.e. its size, is also the reason that makes it difficult to run it at times. Some of the main problems encountered in operating such a business are listed below.
1 Inadequate time for looking after all needs
Since there are only a few key people / decision makers in a small business enterprise, they have to look after all the needs of the business i.e. production, sale, marketing etc. This can lead to a lot of pressure on their time, making them unable to focus on any one area. This can be problematic when the small business is going through a rough patch e.g. a business owner facing competition from a larger enterprise might not be able to devote as much time to marketing and sales as is required to counter this competition.
2 Low budget and cost controls
A small business enterprise has limited resources at its disposal, making it imperative to divide these resources among the various needs in an efficient manner. Furthermore, given the limited budget and inability to raise further money on a large scale, they have to maintain strict cost control and prevent any over-runs. These over-runs can lead to shut down as affordability becomes an issue at times.
3 Lack of specialists
A small business cannot afford to hire specialists to counter a specific problem the same way a large enterprise can. This can become a problem, especially when dealing with large enterprises having a battery of experts at their disposal to look into any situation.
The challenge faced by any small business is to manage growth in a manner that the limitations of size do not affect the quality of the product or service. As can be seen, the advantages of such an enterprise may become its biggest issues if not managed properly.
The article provides information on the advantages and disadvantages of starting and operating a
small business.
by: Kurt Ross
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