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volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships. The legal definition of "small" varies by country and by industry, ranging from fewer than 15 employees under the Australian Fair Work Act 2009, 50 employees in the European Union,[2] and fewer than 500 employees to qualify for many U.S. Small Business Administration programs.[1] Small businesses can also be classified according to other methods such as sales, assets, or net profits. Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online business, such as web design and programming, etc.
Size definitions
The legal definition of "small" varies by country and by industry. In the United States the Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most nonmanufacturing businesses.[1] The definition can vary by circumstance for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the healthcare reform bill In the European Union, a small business generally has under 50 employees. However, in Australia, a small business is defined by the Fair Work Act 2009 as one with fewer than 15 employees. By comparison, a medium sized business or mid-sized business has under 500 employees in the US, 250 in the European Union and fewer than 200 in Australia. In addition to number of employees, other methods used to classify small companies include annual sales (turnover), value of assets and net profit (balance sheet), alone or in a mixed definition. These criteria are followed by the European Union, for instance (headcount, turnover and balance sheet totals). Small businesses are usually not dominant in their field of operation.
small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem. In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs and taxes. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.[5] Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly. Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success. Being a successful business person, one has to go through mistakes and problems and try to learn from them. Business people know and realize that a mistake is only really a mistake if you don't learn from it, which will make you prone to doing it again. Otherwise when you learn from it, it makes you a better business person. You will never forget what you learned from a mistake and how it made you a better person. [6]
Franchise businesses
Franchising is a way for small business owners to benefit from the economies of scale of the big corporation (franchiser). McDonald's restaurants, TrueValue hardware stores, and NAPA Auto Parts stores are examples of a franchise. The small business owner can leverage a strong brand name and purchasing power of the larger company while keeping their own investment affordable. However, some franchisees conclude that they suffer the "worst of both worlds" feeling they are too restricted by corporate mandates and lack true independence. However, in some chains, such as the aforementioned TrueValue and NAPA, franchises may have their own name alongside the franchise's name.
Sources of funding
Small businesses use several sources available for start-up capital:[10] Self-financing by the owner through cash, equity loan on his or her home, and or other assets. Loans from friends or relatives Grants from private foundations Personal Savings Private stock issue Forming partnerships Angel Investors Banks SME finance, including Collateral based lending and Venture capital, given sufficiently sound business venture plans
Some small businesses are further financed through credit card debt - usually a poor choice, given that the interest rate on credit cards is often several times the rate that would be paid on a line of credit or bank loan. Many owners seek a bank loan in the name of their business, however banks will usually insist on a personal guarantee by the business owner. In the United States, the Small Business Administration (SBA) runs several loan programs that may help a small business secure loans. In these programs, the SBA guarantees a portion of the loan to the issuing bank and thus relieves the bank of some of the risk of extending the loan to a small business. The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan. Canadian small businesses can take advantage of federally fund ed programs and services. See Federal financing for small businesses in Canada (grants and loans).
Commerce, as well as national or international industry-specific organizations. Such groups often serve a dual purpose, as business networks to provide marketing and connect members to pot ential sales leads and suppliers, and also as advocacy groups, bringing together many small businesses to provide a stronger voice in regional or national politics. Small Business Development Centers (SBDCs), operating in each state, provide free and confidential counseling and low-cost training to small businesses. The largest regional small business group in the United States is the Council of Smaller Enterprises, located in Greater Cleveland.[11] There are numerous arguments in favour of the small-scale industries which justify the rationale of smallscale industry development. The Industrial Policy Resolution 1956 has put forward four arguments in favour of small-scale industries which emphasise the very rationale of small-scale industry in the Indian economy. The arguments are: 1. Employment argument 2. Equality argument 3. Decentralisation argument 4. Latent Resource argument. 1. Employment Argument: Small-scale industries have a great potential to create immediate large-scale employment opportunities which is essential for solving widespread unemployment problems of underdeveloped nations. Smallscale industries are labour intensive i.e. they use more of labour per unit of output than investment. As India is a capital scarce and labour abundant country and the major problem of the economy refers to unemployment, it could have been addressed by small-scale units which sometimes even provide 15 to 20 times greater employment than corresponding large industries with any given investment. Because of this huge employment potential small industry are preferred over large ones. 2. Equality Argument: Another argument supporting the rationale of small-scale units refers to equality argument for even distribution of income and wealth. Small-scale units, because of its ownership pattern which is widespread and labour intensive in character provide millions of employment to the unemployed more particularly the rural poor who are in search of employment to eke-out their livelihood. 3. Decentralisation Argument: Decentralisation argument also supports the rational of small-scale units because it aims at regional dispersal of industries in the country. Decentralisation of industries help tap local resources like raw materials, idle savings local talents etc. and make provision for self-employment and capital formation. This helps in increase in income of the people which ultimately improves the standard of living of the people. 4. Latent Resource Argument: The latent resource argument for tapping hoarded and unutilized wealth strongly supports the case for small industries. Small enterprises provide an environment in which the latent talents of entrepreneurs find self-expression. Besides the above, small industries are also supporting large-scale industries overcoming territorial mobility, reducing pressure on land relieving congestion in urban areas, and sustaining green revolution by developing agrobased industries in the country.