pros & cons of small business


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Advantages of small business

A small business can be started at a very low cost and on a part-time basis. Small business is also well suited to local marketing because it can be very manageable to serve a niche.


Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic inertia, it is typically easier to respond to the marketplace quickly.


Small business proprietors tend to be intimate with their customers and clients resulting in greater accountability and responsiveness because the small business owner values each and every customer.


Independence, one survey of small business owners showed that 38% of those who left their jobs at other companies said their main reason for leaving was they wanted to be their own boss.


Freedom to operate independently is a reward for small business owners. Many people desire to make their own decisions, risks and being able to succeed and reap the rewards.


However, independence does not come lightly. Small business owners are required to work very long hours and understand that the customer is, ultimately, the boss.


They do though have the satisfaction of making their own decisions within the constraints imposed by economic and other environmental factors.  Several organizations also provide help for the small business, like Internal Revenue Service in Small business and Self-Employed One-Stop Resource.


Problems faced by small business

Small business often faces a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the small business operator should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses.


For example, if the prospective small business owner thinks that he will generate R100,000 in revenues in the first year with R150,000 in start-up expenses, then he should have no less than R250,000 available to begin with before starting a new small business.


In addition to ensuring that the small business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs).


To break even, the small business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners under price 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. Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythical assumption is that an expert in a given technical field will also be expert at running that kind of small business.


Additional small business management skills are needed to keep a small business running smoothly.


Marketing the small business

Common marketing techniques for small business include networking, word of mouth, customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards), print, email marketing, and internet. Electronic media like TV can be quite expensive and is normally unaffordable for the small business budget. 


Mom and pop small businesses

In South Africa small business operations that are family-owned and family-operated may be termed Mom and Pop businesses. People who speak of mom and pop businesses often refer to the unique perspective offered by patronizing a family business.


Some encourage the unknown experience of entering a mom and pop establishment over patronizing franchise businesses, which typically offer comparable stores and similar consumer experiences, regardless of location.


For example, mom and pop businesses are often highlighted in travel guides, because patronizing a family-owned and operated small business allows a traveller to more fully experience and understand the people of another culture.


Small business ventures have sustained hundreds of thousands of South Africans particularly in the informal market sector. 


Small business bankruptcy

When small business fails, the owner may file bankruptcy. In most cases this can be handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business and valuable corporate assets are likely to be repossessed by secured creditors there is little advantage to going to the expense of a corporate bankruptcy.


Many states offer exemptions for small business assets so they can continue to operate during and after personal bankruptcy. However, corporate assets are normally not exempt; hence it may be more difficult to continue operating an incorporated small business if the owner files bankruptcy.


Certification and trust in a small business

Building trust with new customers can be a difficult task for a new and establishing small business. Small business Certification by either industry watch groups or commerce groups, which certifies the quality of the services and goods produced by a small business enterprise, can encourage new and larger customers.


These services may require a few hours of work, but a certification may reassure potential customers. However, the most effective way to earn trust is through customer referrals and testimonials. Small business development is based on excellent service and value.


The contribution of small business to the economy

Small businesses are the major job providers in most economies. The top job provider is those with less than 10 employees, Small business can develop into larger businesses and many famous South African businesses started as small business ventures and grew over many years of dedicated learning and implementation.

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