CHAPTER 2

The Nature of Small Business

People and their financial Number of persons Possible engagement
capacity in entreprenuership

Those with large few few

amounts of capital

Those with small large large

amounts of caoital

Figure 4. Financial Capacity and Size of Business

What is Small Business

Maybe defined by using any of the two

approaches: market share or total assets.
Small business -maybe define as one which
is independently owned and operated and
which is ot dominant in its field of operation.
. When the totla sales of a busienss firm is
less than 1% of the total demand for its
products, t he f irm maybe consideres small
business
What is Small Business

independently owned -means ownership is

by the private individual, a partnership or a
corporation.
not dominant- indicates that the small
business does not control a sizable share of
its market.
• A small business maybe defined under the
total assets approach as one having a
total assets that fall within a certain
bracket .
• A magna carta for small enterprise (RA
6977) indicates that the firm must have
total asset valued at above P1.5 milion to
P15 million pesos to be considered a small
business.
What is Small Business

• enterprises having total assets valued at

P1.5 million and below will be classified as
“microenterprise”.
What is Small Business
Kinds of Business Accdg to Size

Public Enterprise Private Enterprise

ex.LBP

Micro Cottage Small Meduim Large

Business Business Business Business Business

Fig.5. Kinds of Business Accdg. to Size

Types of Small Business

5 types of small business

1. manufacturing
2. service
3. wholesaling
4. retailing
5. general construction firms
Types of Small Business

Small Manufacturing Business- is one

involve in the conversion of raw materials
into products needed by the society.
Ex. bakeries,tricycle sidecar assembly shop,
restaurants and others.
Types of Small Business

Small Service Business-those who provide

business in one way or another.
1. Business services- those who provide
business to other business.
ex. acctg firm, janitorial service firms,
security service, collection agencies, etc.
Types of Small Business

2. Personal Services- those that provide

service to the person. ex. tutoring services,
massage parlors, voice lesson, etc.
3. Repair Services- those that provide repair
services to owners of the various machinery
and appliances. ex. auto repair shops, watch
repair shop, plumbing services and others.
Types of Small Business

4. Entertainment and recreation- include

movie houses, resorts, billiard pool centers
and the like.
5. Hotels and motels
6. Education services- include Montessori
schools for children, high school
correspondence school, etc.
Types of Small Business

3. Wholesailing- refers to the activities of

persons or establishment which sell to the
retailers and other merchants, and/or
industrial, institutional, and commercial
users, but who do not sell in large amounts
to final consumers. Ex. soft drinks
wholesalers in local areas, dealers of office
supplies and equipment, grains wholesaler,
etc.
Types of Small Business

Retailing- covers all activities involved in the

sale of goods and/or services to the final
consumers. The bulf of retailing activities are
performed by small businesses. ex. retail
drugstore, fast food shopes, appliance store
and others.
General construction firms -are those
engaged in the construction of buildings
whether for private individuals or firms, or for
government.
Characteristics of Small Business

1. Independent Management- the owner is

also a manager.
2. Small capital requirement- small business
requires 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 confine to a local area.
Economic Importance of Small Business

1. Providers of ecoomic opportunites for

entreprenuers- people who do not feel
comfortable as employees have the option
of engaging in a small business operation.
2. Providers of products and service to
consumers- the production of many products
and services is oftentimes not feasible with
big and meduim business operation. These
limited opportunities are naturally fitted for
small business.
Economic Importance of Small
Business
3. Supplier of products and services to other
businesses- some businesses requires new
materials, semi-finished parts, finished
components, or even labor, which they
cannot economically produce. The small
businessesperform this task for them.
4. Distributors of product and services of other
businesses- Some manufacturers do not have the
ability to distribute their product and services.
Many small businesses assume thkis rule for them.
Economic Importance of Small
Business
3. Suppliers of rpoducts and services to
other businesses -some businesses require
raw material, semi finished parts, finished
components, or even labor, which they
cannot economically produce.
4. Distributors of products and services of
other business -some manufacturers do not
have ability to distribute their products and
service.
Economic Importance of Small Business
5. Supporters of Governement- small
businesses support the governement with
the taxes pay, as well as performing other
function.
5. Providers of employment- a large
proportion of the labor force are employed
by small business.
Advantages of operating a small business

there are varius option to improve economic

lot.
1. be an employee
2. be a professional
3. be a small business operator (SBO)
Fig.6. Small Business and the Importance of
Economy

Small Business

Provider of
Economic opportunities for entrepreneurs

Provider of
Products and Services to consumers

Provider of
Funds to the government in the form of texes

Provider of Employment to the lablr forces

Supplier of Products and services to other businesses

Products and services produced by large frms

Distributor of
Advantages of operating a small business

The Opportunity to Gain Control over HIs

own Destiny

The prospective small business owner can

choose from several business opportunity
that he will like to take advantage of. If after
a few years he think is not worth operating
anymore, then he can dissolved it and open
a new one. This option is not made available
to plain employees and professionals.
The opportunity to Reach Full Potential
The employee will do his work based
on prescribed targets which mayonly require
less than his full potential. This is not so
which the small business operator. His
freedom to act is limited only by his potential
and he can revise or amends his targets
within short notice.
The Opportunity to Reap Unlimited Profits
If the small business succeeds, all
profits big and small, acrue to the owner.If
he is not satisfied, he may exert more efforts
to increase his profits.This opportunity is not
afforded to plain employee.
The opportunity to Make a Business Contribution
to Society and Recieve Recognition of his Efforts.
Entrepreneurs who make innovative products
available to the public are recognized properly by
society. Some of them like henry Ford, became
billionnaires. Other like Walter Disney, merited
listings in books of eminent personalities.
Assignment :

Research on local entrepreneurs.

example:
Oscar M. Lopez -Social Responsibility
Disdavnatages of Operating a Small Business
1. uncertainty income
2. risk of losing your entire capital investment
3. lower quality of life until business gets
established
4. complete responsibility
5. having to serve undesirable customers
6. paperwork and other chores; and
7. long hours and demanding wrk condition.
Factor Small Business Employment
Operation
1. Income uncertain certain
2. Capital investment risk losing none required
3. Quality of Life lower until business gets consistent at a certain
established level

Responsibility complete /all restricted to one’s job

encompassing absent
a) gain control over his present
own destiny
b) reach his full potential present absent
c) reap unlimited profits present absent
d) make a contribution to present limited
society and recieve
recognition for his efforts
Assignment:

Prepare a small business report of small

business in terms of business failures and
their causes.