CHAPTER 2

THE NATURE OF SMALL BUSINESS

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.
 WHAT IS A SMALL BUSINESS
MARKET SHARE
• Small business may be defined as one which is
independently owned and operated and which is
not dominant in its field of operation.
• The term “independently owned” means
ownership is by private individual, a partnership, or
a corporation.
• The term “not dominant” indicates that a small
business does not control a sizable share of its
market.
• When the total sales of a business firm is less than
one percent of the total demand for its products,
the firm may be considered small business.
TOTAL ASSET
• Small business may be defined as one
having the total assets that fall within a
certain bracket .
• For example, the Magna Carta for Small
Enterprises (RA. 6977) indicates that
the firm must have total assets valued
at above P 3 million to P 15 million to
be considered small business.
 Kinds of Business
According to Size

Public Enterprises Private Enterprises

Ex: Land Bank of the Ex: Globe Telecom
Philippines

Micro Small Medium Large

Business Business Business Business
TYPES OF SMALL BUSINESS
Small Business may be classified into five types:
1.Manufacturing
2.Service
3.Wholesaling
4.Retailing
5.General construction firms.
MANUFACTURING

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,
sidecar assembly shops, bagoong manufacturers,
restaurants and others.
SERVICE
Service Business are those that provide service in one way or another. They may be
further classified into the following:
1. Business Services – provide services to other business. Examples are accounting
firms, janitorial firms, security service firms.
2. Personal Service – provide service to the person. Examples are tutoring services,
massage parlors, voice lesson.
3. Repair Service – provide repair services to the owners of various machinery and
appliances. Examples are auto repair shops, watch repair shops, plumbing services.
4. Entertainment and Recreation – includes movie houses, resorts, billiards pool
centers.
5. Hotels and Motels; and
6. Education Services – include Montessori schools for children and high school.
WHOLESALING
Wholesaling refers to the activities of persons or
establishments which sell to retailers and other merchants,
and/ or to industrial, institutional, and commercial users, but
who do not sell in large amounts to final consumers. Examples
are soft drinks wholesaler in local areas, dealers of supplies
and office equipment's and grains wholesaler. A big number of
these wholesaler businesses are owned by small business
operators.
RETAILING
Retailing 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 and
appliances store.
GENERAL CONSTRUCTION FIRMS

General Construction Firms are those engaged in the

construction of buildings whether for private individuals
or firms, or the government. Many of them perform
subcontracting jobs for the bigger contractors such as
installing electrical facilities.
CHARACTERISTIC OF SMALL BUSINESS
Small business have their own distinctive characteristic. They
are the following :
1. Independent Management – the owner is also the manager
2. Small capital requirement – small business requires only small
capital and this can be supplied by a single or few individuals.
3. Mostly local operations- Small business usually operates in a
certain locality although there are cases when the market is not
confines to a local area.
ECONOMIC IMPORTANCE OF SMALL
BUSINESS
Small Business play an important role in the development of our economy. They
assume the following functions:
1. Providers of economic opportunities for entrepreneurship – People who do not
feel comfortable as employees have the option of engaging in small business
operation.
2. Providers of products and services to consumers – The production of many
products and services is oftentimes not feasible with big and medium business
operation. These limited opportunities are naturally fitted for small businesses.
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 for them.
ECONOMIC IMPORTANCE OF SMALL
BUSINESS
4. Distributors of products and services produced by large firms – 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 businesses support the government
with taxes they pay, as well as performing other functions
6. Providers of employment – A large proportion of the labor force are
employed by small businesses.
ADVANTAGES OF OPERATING A SMALL
BUSINESS
An individual has various option to improve his economic lot. They are the
following :
1. Be an employee – An employee enjoys a fixed working schedule like 8:00 A.M. to
5:00 P.M. The pay he receives, however, is limited and dependent to a large
extent on industry norms and the financial capability of the company. In some
firms, the employee's pay depends on the whims of the owner.
2. Be a professional – a professional may generate higher income through the
effective practice of his profession. A physician for example, may set his clinic in
a certain area and proceed to treat patients for a fee. His income, however, is
limited by the number of patients he attends to every day as he cannot
delegates his skills to others. In addition, although he is useful to the community,
his desire to provide employment to more people is severely limited by the
nature of his work. At most, he can employ four persons as assistant.
ADVANTAGES OF OPERATING A SMALL
BUSINESS
3. Be a small business operator (SBO) – The last option is small business operation.
Although entrance requirements are not as difficult as the first two options, it does not
mean this option is easier to put into practice. A small business operator keeps long
working hours and absorbs whatever damages that happen as a result of his faulty
decision-making. However, he is afforded the following benefits:
a. opportunity to gain control over his own destiny,
b. opportunity to reach his full potential,
c. opportunity to reap unlimited profits, and
d. opportunity to make a contribution to 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 be considered. These are the following:
1. uncertainty of income,
2. risk of losing your entire capital investment ;
3. lower quality of life until the business gets established;
4. complete responsibility;
5. having to serve undesirable customers;
6. paperwork and other chores; and
7. long hours and demanding work condition