6.2 Small Business Basics

Small Business Ownership ◊We know the greatest % of businesses in the U.S. is made up of small businesses ◊Half of all private sector employees work at small businesses ◊Nearly 70% of all US businesses have no staff other than the owner

Description of a Small Business ◊A small business is an independent business with fewer than 500 employees ◊The owner is usually the manager ◊The business operates in only 1 or very few locations ◊It typically serves a small market ◊It is not dominant in its field ◊Many are run on a part-time basis from the owner’s home

Small Business Employment ◊Small businesses are responsible for between 60-80% of all new jobs ◊Most offer services rather than goods ◊Most are professional and technical ◊A majority of all construction companies operate as small businesses

Ownership Diversity ◊Women own > ¼ of all small businesses ◊> 18% of small businesses have African-Amer., Asian-Amer., or Hispanic-Amer. ownership ◊Nearly 25% of all small business owners are under 35 (most are over 35) ◊Almost all have a h.s. diploma (60% college) ◊½ of all small businesses are home based ($5000 less to start)

Small Business Advantages ◊Offer more unique and specialized products and services ◊More likely to be located close to consumers ◊Aid the local economy and their workers ◊More efficient than most large companies

Meeting Customer Needs ◊Small businesses often serve customers where the need is too specialized or small for a large business to make a profit ◊Small businesses compete by paying attention to their customers ◊Small businesses typically have closer relationships with their customers

Providing Unique Services ◊Small businesses are well suited to provide unique services for customers ◊They must spend time determining needs and discussing alternatives ◊Meet customers’ unique needs ◊Most consumers identify small businesses as being most concerned about them as a customer

Common Small Business Problems ◊Small businesses have a much higher failure rate than larger businesses ◊Inability to pay expenses is the cause of most small business failure ◊Owners of small businesses often quit and close their company because they do not believe they are doing well enough, or else they get tired of the long hours and hard work

Reasons for Failure ◊Not keeping adequate records ◊Not having enough start-up money ◊Lack of management experience ◊Lack of experience with the type of business ◊Not controlling operating expenses ◊Poor location for the business ◊Failure to manage credit offered to customers

Small Business Assistance ◊Small businesses sometimes need help to overcome the causes of failure ◊Colleges often have faculty members who provide advice for entrepreneurs ◊The Small Business Administration (SBA) is a government agency that helps small business owners develop business plans and obtain financing