A small business is a privately owned and operated business. A small business usually has a small number of employees. These are either services or retail operations like grocery stores, medical stores, tradespeople, bakeries, and small manufacturing units. Before understanding the nature and meaning of small business, it is important to know how size is defined, with reference to small industries and small business establishments. Several parameters can be used to measure the size of business units. These include the number of persons employed in business, capital invested in the business, the volume of output, or value of the output of business and power consumed for business activities.
Small businesses are independently owned organizations that require less capital and less workforce and less or no machinery. These businesses are ideally suited to operate on a small scale to serve a local community and to provide profits to the company owners. However, there is no parameter that is without limitations. Depending on the need the measures can vary. One more important point to note is that a definition exists only for small and tiny units but not for large and medium units. Medium and large-sized enterprises are not defined. Anything that does not fall under the definition of small can be large or medium.
Nature of Small Business
The nature of small businesses can be classified as follows:
- Shoestring Budget – A sole proprietor or a small group of people operate small businesses. These businesses often run on ‘shoestring budget’ meaning that small businesses function on a very tight budget.
- Labour intensive – Small businesses are mostly labor-intensive. The primary nature of small businesses is more involvement in physical work rather than intellectual work.
- Community-based – Small businesses are started with the motive of satisfying the needs and demands of a local area or community. These businesses demographically target a few areas of concentration and are hence community-based.
- Indigenous technology – Due to small businesses being community-focused and labor-oriented they often thrive upon native methods of operations.
Characteristics of Small Business Enterprises:
Some of the salient characteristics of small business enterprises are stated below:
(i) Limited Investment: In a small business enterprise, capital is supplied by an individual or a small group of individuals.
(ii) Personal Character/Owner-Management: Managers as such have a maximum motivation to work; as they themselves happen to be the owners also, at the same time.
(iii) Labour-Intensive: The machinery and equipment used are not very sophisticated and are operated manually.
(iv) Unorganized Labour: Small business enterprises employ less number of workers as compared with big business enterprises. Workers of these units do not form labor unions and remain unprotected.
(v) Local Area of Operations: The area of operations of small units is generally local as they have less capital and less marketing facilities at their disposal.