ST.

ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind

MODULE DESCRIPTOR
This unit explains the Nature of Small Business. It includes Types of Small
Business, Characteristics of Small Business, Economic Importance of Small Business,
and Advantages and Disadvantages of Operating a small business.

NOMINAL DURATION
September 6-8 (3 hours)

LEARNING OUTCOMES
At the end of this module, you MUST be able to:
1. discuss the definition of small business;
2. cite and explain the different types of small business; and
3. explain the advantages and disadvantages of operating a small business.

LEARNING EXPERIENCES

Learning Activities Special Instructions

1. Read Information Sheet about Nature
of Small Business.
2. Answer Self- Check and compare your
answers with the Answer Keys.
3. Perform Task Sheet by following the
given instruction.
4. Perform Job Sheet by following the
given instruction.
In the learning outcome, you must
discuss the definition of small business,
cite and explain the different types of
small business and explain the
advantages and disadvantage of
operating a small business. To be able to
this you should understand the following:
1. Types of Small Business
2. Characteristics of Small Business
3. Economic Importance of Small
Business
4. Advantages and Disadvantages of
Operating a small business.

Go through the information sheets and

answer the self- check to ensure that
knowledge context of concept of Nature
of Small Business is acquired.
5. Evaluate your own output using the After doing all these activities, you are
performance criteria. ready to proceed to the next module.
 ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind

INFORMATION SHEETS 3.1-1

Business size is one factor that does not prevent one from engaging in
entrepreneurship. Since only a small number of people have capital large enough to start
a large enterprise, the bigger number of people with minimal resources are forced to
operate on a small scale basis, if they decide on becoming entrepreneurs.

People and their No. of persons Possible Engagement

Financial Capacity in Entrepreneurship

Those with large few few

amount of capital

Those with large large few

amount of capital
Figure 3. Financial Capacity and Size of Business

Since most new venture will be small business, it is expected that majority of the
efforts of those involved in the propagation of entrepreneurship will focus on small
business management.
The premise is that if small business is managed properly, their chances of
becoming large enterprises are increased. Since it is well-known that large enterprises
bring certain benefits to the economy, small business management is an activity worth
pursuing.

What is a small business?

It may be defined by using any of the two approaches the market shares or total
assets. Under the market share approach, small business may be defined as one which
is independently owned means ownership is by a private individual, a partnership, or a
corporation. A small business may be defined under the total assets approach as one
having total assets that fall within a certain bracket. For example, the Magna Carta for
small Enterprise (RA 6977) indicates that the firm must have total assets valued at above
₱1.5 million to ₱15 million to be considered small business. With the assets value bracket
assigned to small business. It is inevitable that all enterprises having total assets valued
at ₱1.5 million and below will be classified as micro enterprises. From the point of view of
business management, the market share approach in defining small business is more
appropriate. This is so because that target market share approach in defining small
business is more appropriate. This is so because the target market share is an objective
more basic than other objectives.
 ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind

Kinds of Business According to

Size

Public Enterprises Private Enterprises

Micro Cottage Small Medium Large

Business Business Business Business Business

Figure 4. Kinds of Business According to Size

Types of Small Business

Small business may be classified into five types: manufacturing, services,

wholesaling, retailing, and general construction firms.
A manufacturing business is one involved in the conversion of raw materials into
products needed by society. Examples of small business engaged in manufacturing are
bakeries, bagoong manufacturers, restaurants and others.

Service Business are those that provide service in one way or another. They may
be further classified into the following.
1. Business services- provide service to other business. Examples are accounting
firms, janitorial service firms, security service firms, collection agencies and the like.
2. Personal services- provide service to the person. Examples are tutoring service,
massage parlors, voice lesson, among others;
3. Repair services- provide repair services to owners of various machinery and
appliances. Examples are auto repair shops, watch repair shops, plumbing services and
others.
4. Entertainment and recreation- include movie houses, resorts, billiard pool
centers, and the like;
5. Hotel and motels; and
6. Education services- include Montessori Schools for children, high school,
correspondence schools among others

Wholesaling
It refers to the activities of person or establishments which sell to retailers and
other merchants, and or to industrial, institutional, commercial users, but who do not sell
 ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind

in large amounts to final consumers. Examples are soft drinks wholesalers in local areas,
dealers of supplies and office equipment and the like.
Retailing
It covers all activities involved in the sale of goods and/ or services to the final
consumers. The bulk of retailing activities are performed by small businesses. Examples
are retail drugstores, fast food shops, appliance stores and others.

General Construction Firms

They are engaged in the construction of buildings whether for private individuals
or firms, or for the government. Many of them performed subcontracting jobs for the bigger
contractors such as installing electrical facilities and sewerage.

Characteristics of Operating a Small Business

Small businesses have their own distinctive characteristics. They are the
following:

1. Independent management- The owner is also the manager.

2. Small Capital Requirement- Small business require only small capital and this can be
supplied by a single or a few individuals.
3. Mostly local operation- Small business usually operates in a certain locality although
there are cases when the market is not confined to a local area.

Economic Importance of Small Business

Small business plays an important role in the development of our economy. They
assume the following functions.

1. Providers of economic opportunities for entrepreneurs- people who do not feel

comfortable as employees have the option of engaging in small business operation.
2. Providers of products and services- is oftentimes not feasible with big and medium
business operation. These limited opportunities are naturally fitted for small business.
3. Suppliers of products and services to other businesses- Some businesses require raw
materials, semi-finished parts, finished components, or even labor, which they cannot
economically produce. The small businesses perform this task to them.
4. Distributors of products and services of other business- Some manufacturers do not
have the ability to distribute their products and services. Many small businesses assume
this role for them.
5. Supporters of government- Small business support the government with the taxes they
pay, as well as performing other functions.
6. Providers of employment- A large proportion of the labor force are employed by small
business.

Advantages of Operating a Small Business

 ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind

An individual has various options to improve his economic lot. They are the
following:
1. be an employee;
2. be a professional;
3. be a small business operator(SBO).

An employee enjoys a fixed working schedule like 8:00 AM- 5:00 PM. The pay he
receives, however is limited and dependent on a large extent on industry norms and the
financial capability of the company.
A professional may generate higher income through the effective practice of his
profession. A physician, for example, may set his clinic in a specific area and proceeds
to treat patients for a fee. His income, however is limited by the number of patients he
attends to everyday as he cannot delegate his skills to others.
The first two options, however, can only be considered depending on certain
conditions. Finding a job is not an easy task. Entering a certain profession is also not an
easy task you must undergo long years of study and must pass an entrance requirement
like passing the board examination.
The last option is small business operation they keep long working hours and
absorbs whatever damages that happen as a result of his faulty decision making.
However, he has the opportunity to gain control over his own destiny, opportunity to reach
his full potential, opportunity to reap unlimited profits and opportunity to make contribution
to the society and receive recognition for his efforts.

Disadvantages of Operating a Small Business

Although certain advantages accrue to the small business operator, there are
certain disadvantages that must considered. These are the following:

1. uncertainty of income- it does not provide the assurance of an income, unlike getting
employment which offers fixed monthly salaries.
2. risk of losing your entire capital investment- Complete independence in making
decisions exposes the small business operator to the consequences of errors of
judgement which in some cases could wipe out his investment.
3. lower quality of life until the business gets established- as the small business operator
assembles the needed resources, starts actual production, and makes moves to attract
customers, income and profit are held in if they will ever be realized at all.
4. complete responsibility- The owner-operator will take the responsibility for whatever
happens to the business. He cannot pass the blame to anybody else.
5. having to serve undesirable customers- Even if the small business operator has
freedom in his actions, he is not completely free. He cannot choose his customers Even
if he dislikes a particular customer, he cannot just send him away or even ignore him.
6. paperwork and other chores- The small business operator is forced to do this tasks
himself.
 ST. ANTHONY COLLEGE
Module for Entrepreneurial
CALAPAN CITY, INC. Mind

7. long hours and demanding work condition- It is a well -known fact that a small
business must maintain long working hours to keep the business going.

Factor Small Business Operation Employment

1. Income uncertain certain
2. Capital investment risk of losing none required
3. Quality of life lower until business gets consistent at a
established certain level
Responsibility complete/ all-encompassing restricted to one’s job
a) gain control over his present absent
own destiny
b) reach his full potential present absent
c) reap unlimited profits present absent
d) make a contribution to present absent
society and receive
recognition for his efforts
Table 2. Employment and Small Business Operation Compared