Lesson 3: SMALL BUSINESS ENTERPRISE

After studying this lesson, you should be able to:

 Describe small business;

 Differentiate the kinds of business according to size;
 Differentiate the classification of business;
 Explain the importance of small business in the economy;
 Explain the advantages of small business;
 Evaluate the problems confronted by small businesses.

The Small Business

Small business is the backbone of the local economy in the Philippines.

Considering poverty condition, economic crisis, Global competitiveness, small and
medium enterprises in the Philippines is known to have strong socio-economic
mechanism. The ability of these enterprises to help in generating revenue helps alleviate
the difficult condition of most Filipinos.

Privately owned entries operated by small number of individuals refer to small

businesses. The proprietorship of the business can be owned by a private individual,
partnership, or a corporation whose size assets corresponds the set amounts. The
operation of the business is not dominant since a small business does not control a large
sale of its market.

In the Philippines, convenience stores type (sari-sari stores) is very common.

Offering variety of goods that can be bought in unit, these small businesses are present
in almost every street in the neighborhood. These sari-sari stores play its valuable part
in the economy since store owners can get their income from the business. Also, sari-
sari stores also contribute in the country’s GDP as it holds a subsequent portion of the
retail Philippine market.

Republic Act No. 6977, “The Magana Carta for Small Enterprises” defined small
and medium enterprises as any business activity or enterprise engaged in industry, agri-
business and/or service. Whether single proprietorship, cooperative, partnership or
corporation whose total asset, inclusive of those arising from loans but exclusive of the
land on which the particular business entity’s office, plant and equipment are situated.

Kinds of Business According to Size

 The size of the business doesn’t determine the success of an entrepreneur in
engaging the business. For small business owner, managing the business is challenging
since it takes time and effort to run the venture. Small business owners are responsible
in managing and creating business relationship for their operations.

Through the years, small businesses evolved into large entities. Although the
required number of people and financial capital in small business is relatively low, the
chance of becoming large enterprise in the future is possible as long as the entrepreneur
would be able to manage his re resources properly and efficiently.

The figure in the next page illustrates the kinds of businesses according to size.

Kinds of Business
According to Size

Private
Public Enterprise
Enterprises

Small-scale Medium-scale Large-scale

Micro Business Cottage business
Business Business Business

Figure 1. Kinds of Business According to Size

The table below shows the kinds of business according to size of employees and
its value:

Kind of Business Description Number of Asset Value

Employees

Micro enterprises Generally home- 1-3 Less than P50,000

based;

Very limited funding

 Cottage industries These are like the 5-9 P50,001
micro-enterprises
with more to
production; P500,000

Increase funding

Small-scale The production and 10-99 P500,001

industries operation process
are more to
systematic. P5,000,000

Medium-scale The processes are 100-199 P5,000,001

industries more sophisticated
and the industry to
generates higher P20,000,000
income.

Large-scale Business volume is More than 250

industries large

Basically, enterprises with total assets of five million pesos (P5,000,000) and below
are considered small enterprise.

Classification of Small Businesses

Small businesses are classified into five types: manufacturing, service,

wholesaling, retailing and general construction firm.

1. Manufacturing

Small manufacturing business is engaged in the conversion of raw materials

into products needed by the society. Some examples are bakeries, assembly
shops and Taho manufacturers.

2. Service
 Service businesses offer service that provides solutions or actions to
another business firm or to direct customers. They may be classified into the
following:

a. Business services – provide service to other business. Examples are

accounting firms, janitorial service firms, collections agencies, and the
like;

b. Personal services – provides service to the person. Examples are

tutoring services, massage parlors, voice lessons, among others;

c. Repair services – provides services to owners of various machinery and

appliances. Examples are auto repair shops, watch repair shops,
plumbing and other;

d. Entertainment and recreation – includes movie house, resorts, billiard

pool centers, and the like;

e. Hotels and Motels; and

f. Education services – include Montessori schools for children, high
school, correspondence schools, among others.

3. Wholesaling

Wholesaling refers to the activities of persons or organization that sells large

volume or quantity of products to their customers. Wholesalers get their products
from manufacturers and sell them to the retailers or other businesses. Examples
of wholesaling business are textile wholesaling, grains wholesaling, etc.

4. Retailing

Retailing covers all activities involved in the sale of goods/service to the final
consumer. Examples are drugstores, appliance store, convenience stores, etc.

5. Constructions

Construction firms are engaged in the building of infrastructures for private

individuals, firms or government. Some firms would offer subcontracting jobs for
bigger contractors.
Operating Small Business

Small businesses are important sectors in our society. Although these provide
benefits to the owners, they also face challenges operating the business and competing
with large firms.

To attain success in operating small businesses, the owner must consider these
two keys:

1. Understanding the needs of the customers

2. Emphasize the strengths of the company and the products being offered.

Importance of Small Business in the Economy

Small businesses may not generate income as much as large entities but they
serve as critical component and major contributor in the local economy of the country.

These are the importance of small businesses in the economy:

1. They provide economic opportunities for people who wanted to engaged in
businesses;
2. They present employment opportunities to the labor force;
3. They provide products and services to customers that oftentimes not feasible with
large businesses;
4. They provide services to the suppliers and other businesses;
5. They help in the distribution of products/services for large entities;
6. They are supporter of government.

Benefits of Operating a Small Business

Operating Small business is not an easy task, but it provides a lot of opportunities
to entrepreneurs and the economy.

1. Small business develops personal relationships with customers, employees and

suppliers. The interaction of the entrepreneur with them builds a strong
relationships and loyalty to the enterprise;

2. Small business is more flexible to problems and challenges. It accumulates less

revenue and employs few employees, thus making the business owners adopt to
the economic problems;
 3. Small business is positioned to introduce and develop new concepts. Having
complete independence in making decisions, business owners can easily present
their innovated products or service without considering the approval from anyone
else;

4. Small business has low overhead cost. Since the operation of the business is
relatively small and the volumes of product/service to the customers are low, the
overhead cost of the enterprise is not as much large business. Most owners in the
Philippines would have their business operations at home to cut down expenses.

5. Small business caters to limited or niche markets. Business owners can easily
reach customers within their community. This allows them to provide the needs of
their customers. Examples are bakeries, sari-sari stores, water refiling stations or
repairs and other services.

Challenges in Operating Small Business

Small business provides benefits and opportunities however there are challenges
in running the venture.

1. Small business has the inability to compete with large companies on buying power.
Large companies can negotiate with their suppliers because of the large volume
of products they can purchase allowing them to resell the product in a lower price
compared to small businesses;

2. Small business has limited budget. As much as the business owner would want
to provide benefits and training to his employees, it cannot be done because of the
limited capital of the enterprise;

3. Small business has less exposure. Although small business is present and known
in a certain local community, most of the time the exposure ends there. Making
use of media is difficult for business owners considering the cost in advertising
business;

4. Small business provides uncertainty and demand to the business owner.

Operating small business does not provide assurance in the income of the owner.
Spending long hours at work does not mean getting more money unlike
employment that offer fixed salaries. Since he personally operates his business,
 he takes full responsibility in managing and operating the venture. Tasks like
paperwork, producing the products, handling customers or any problems
encountered during the operations are handled by the owner.
Name: ____________________________________ Score:____________
Grade & Section:___________________________ Date: _____________

ACTIVITY 3

A. Name business establishments based on the classification. Write the name of

firm and its product/service on the space provided.

Classification of Name of Business Product/Service

Small Business Establishment

Manufacturing

Service

Wholesaling

Retailing

Construction

B. Matching type. Match the description in Column A with its terms in Column B.
Write your answer in the bank.

Column A Column B

_____ 1. The backbone of the local A. Cottage industries

economy in the Philippines B. Divisoria Mall
C. Mall
_____ 2. The most common small D. Manufacturing
business in the Philippines E. Micro-enterprise
F. Movie Houses
_____ 3. Generally home-based with G. Retailing
1-3employees H. Sari-sari stores
I. Service
_____ 4. Conversion of raw materials J. Small Business
into products K. Small-scale Business
L. Wholesaling
_____ 5. Activities of organization that
sells large volume products to
consumers

_____ 6. Activities involved in the sale

of goods to final consumers

_____ 7. The production and

operation process are more
systematic

_____ 8. Provides solutions or

actions to another business

_____ 9. An example of service

_____ 10. An example of wholesaling