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From the article of how to start a small business, we can formulate a question of how a small business is started and identify the steps that are followed in starting a new business until it becomes effective and operating and it expands to become a large business. The reason why I decided to research on the process followed to start a small business is because there has been a sudden shift from large firms or businesses to small firms in the economy. This paper therefore tries to explain the characteristics or features of a small business and the way it is started until it becomes a big business or a large firm.
Small business has different definitions in different countries. It can however be generally defined as a business which is owned privately and which has a small number of operations, employees and even production output. Berman postulates that the United States industries defines small as having employees who are less than five hundred while other industries define small as having employees less than fifty or even fifteen. (Berman, 1997 P. 76)Entrepreneurship on the other hand is the combination of factors of production to come up with finished products.
Small business has certain distinct features which add to its popularity in the industry. The features of small business apply to almost all of them with very limited exception and therefore they are documented facts. The first feature of small business is that it is small in size. It has very few employees and the operations are also few. The other feature of small business is that it is unincorporated. Unincorporated business is that which has no legal separation from its owners.
Berman states that a small scale supermarket is a good example of a small business because it has few employees and operations and the owners are involved in its daily operations and in its running. (Berman, 1997 P. 84)Small business is also known to generate capital easily because the capital needed in not much since it has few operations. As much as they can generate capital with eases and quickly, it is however a proven fact that small businesses are financially constrained and therefore they always tend to get capital from any source possible either internally or externally.
How a small business is started
An entrepreneur is a person who combines factors of production to produce meaningful products which are either finished goods or which are used in further production. From the article, the following steps are followed when starting a business. The first step is developing business ideas. For an entrepreneur to start a business, he will have to create a business idea. Many people always lack good business ideas and this always leads to business failure. The process of developing a business idea is simply to decide on which business to start for example you can decide to use an already existing idea or develop a new and unique idea.
The second step is to draw up a business plan. This shows the evaluation criteria of the business. It is also a way of getting funding because investors and creditors will want to see your business plan. The plan will also help in the development of the business. The plan should have the marketing strategies. The third step is to finance the business. When you have a plan, you can now fund the business by looking for capital either from personal sources or from borrowing. The fourth step is getting started. This is the point where you have the plan and the capital ready and you just need to start operating the business.
Hatten states that at this point the entrepreneur should take legal issues into consideration like the issues of registering the business or getting a license. (Hatten, 2008. P.237) The fifth and final step is opening the door. This is the final step where you start running the business. The entrepreneur can expand the business by forming partnerships or increasing the production of the business and its operations so that it attains the status of a company. The entrepreneur can also look for donors and investors to fund and invest in the small business and hence expanding it due to increase in capital
A practical example of a large company that was started as a small firm by an entrepreneur is the McDonalds. The McDonalds has become one of the biggest restaurants all over the world and it was just started as a burger joint. It was started by individual entrepreneurs as a hot dog stand and they saw an opportunity in the market due to an increase in demand for hot dogs while the supply was low. The owner expanded the business due to a continued increase in demand of its hot dogs and other foods as well like chicken. www.money-howstuffworks.com
Small businesses are very numerous in the economy and their increase in growth has led to improvement in economy because they tend to overcome negative factors in the economy like inflation and they are very flexible which makes decision making easy and relevant. An entrepreneur can start a small business and expand it to a large business by increasing its operations and expanding its production.
Berman, D.P. (1997) Small Business and Entrepreneurship.Canada: Prentice Hall. Pp. 198.
Bridge, S., O’Neill, K& Cromie, S. (2003) Understanding enterprise, entrepreneurship, and small business. Michigan: Palgrave Macmillan. Pp. 544.
Hatten, S. T. (2008) Small business management: entrepreneurship and beyond. Chicago: Cengage Learning. Pp. 585.
Kumar, A.S. (2008) Small Business and Entrepreneurship.Chicago: k.International pvt ltd. Pp. 400.