Principles of Business

Form 4
Business Sizes
The concept of ‘small’ varies from organisation to organisation and is relative to the type of
business, therefore it is impossible to give a precise definition.
Characteristics of Small Businesses
Small firms generally display the following characteristics:
- Small capital – usually less than $250 000 - $300 000.
- Small sales turnover.
- 1 – 20 employees – This may be fewer depending on the industry.
- Simple technology – usually manual labour.
- Occupying small land space.

Categories of Business Size

Problems facing small businesses

1. A lack of clear government plans for development of small businesses (exception:
Trinidad and Tobago and Barbados)
2. A difficulty in accessing finance, because banks see small enterprises as constituting
high-risk loans
Micro enterprises are the most numerous and larg
e enterprises the least numerous of the business sizes in a country. As a result, a number of
agencies have been developed to foster the growth of small businesses in the Caribbean.
These include the National Entrepreneurship Development Company (NEDCO) in Trinidad and
Tobago, Jamaica Business Development Corporation (JBDC), the Small Business Association of
Jamaica (SBAJ) and the Institute of Private Enterprise Development in Guyana.
The Role and Functions of Small Businesses
1. To provide personal services, e.g., providing haircuts in keeping with the customer’s
preferred style and level of income.
2. To respond to customer’s request quickly, e.g., I traducing new lines of products and
services once capital is available.
3. Catering for niche markets: a niche market is a small segment of a larger market. Demand
may be small and specialized in a niche market, therefore it may not be profitable enough
for a large firm.
4. To act as a middleman and source of information, e.g. small firms provide information to
large firms relating to the sale of products.
5. To collectively form the backbone of the economy since these firms:
i. Provide employment for many persons
ii. May eventually become medium and large businesses.

6. To help in the redistribution of income e.g. locally owned businesses reinvest profits into
the business or use it to improve the standard of living of the owners.
7. Enhance the skills of the population: employees are multi-skilled and, therefore, the
labour forces of these firms are more flexible.
8. To increase the national income and economic growth because small firms increase
output.
Advantages and Disadvantages of Small Firms
Small businesses benefit an economy and help nation building in a number of ways. They
are:
Advantages Disadvantages
Generate employment and income by providing The business lacks expertise in
opportunities to earn an income especially in rural certain areas and as a result may have to hire a
areas. Setting up small businesses is also a way to limited number of employees who have some of this
escape poverty. E.g. fruit selling, hairdressing, knowledge or access advice and help from outside
catering. consultants.
Increase competition for large firms: small firms Owners find it difficult to source finance due to their
compete with large firms and some eventually grow limited assets to put up as collateral for loans. They
to become large firms. They also supply local also have to pay higher interest rates in order to
markets and provide products and services that secure finance.
larger companies do not.
Introduce new products and ideas for example new Limited ability to service customers due to limited
product ideas and event planning and management. resources. Small firms have limited production
They are also good with personal service and capacity that precludes them from competing against
attention to detail. larger companies.
No access to research and development facilities this
- is essential in the areas of IT and pharmaceuticals. It
also impacts on the development of new products
 and ideas.
- Less well known due to smaller advertising budgets.