What is a small business?

What constitutes a "small" business is not always easy to define and can vary greatly between countries. In Australia it is defined as less than 15 employees, less than 50 employees in the European Union and less than 500 employees in the wholesale sector according to the U.S. Small Business Administration but 500 to 1500 employees in the manufacturing sector. In all cases, to be considered small the business must be privately owned and for profit.

Small businesses are more common than we might think. They often take the form of convenience stores, bakeries, delis, hairdressers, tradesmen, lawyers, accountants (and bookkeepers :) ), restaurants, B&Bs, photographers and online businesses. Small businesses are often confused with and in some cases may overlap in definition with "entrepreneurships". (Stay tuned for an upcoming article defining entrepreneurship.)

Canadian small business stats

Industry Canada, using data from Statistics Canada, divides businesses into the following categories:

1 to 4 employees: micro-enterprise

5 to 100 employees: small business

101 to 499 employees: medium business

500 plus employees: large business

Of the 1,138,761 registered employer businesses in Canada 98% are categorized as small businesses comprising of 48.3% of Canada's total work force. Those are some huge stats and should not be ignored!!

Advantages of small businesses

While there are many advantages to owning a small business one of the biggest is the ease of Internet marketing. These days anyone can post their business to Facebook, start a blog, or build a website to substantially increase their exposure with little capital expenditure. Not only can anyone post on the Internet but anyone can also access it. The possibilities have become limitless with a little time and effort on the part of the small businesses owner.

A second big advantage to owning a small business is the ability to make quick decisions without jumping through bureaucratic hoops. Without the sometimes restrictive approval/disapproval of a board of directors or shareholders the owner enjoys the freedom to operate independently. Studies show many people leave their jobs because of a desire to be their own boss. As the owner of a small business they can do just that.

The last contributing advantage to owning a small business is the ability to foster an intimate customer relationship. Owning a small business can often give an owner the flexibility to get to know their customers on a personal level, not only building customer loyalty, but also increasing job satisfaction.

 

Problems small businesses face

Their are many factors business owners must take into account in order to develop a lucrative business. A frequent cause of bankruptcy in small businesses is under-capitalization, which is typically not caused by poor economic conditions but rather poor planning on the part of the owners. A standard rule of thumb is that a business owner should have twice what they project in revenue their first year plus any forecasted expenses for the year. For example: if an owner forecasts $100,000 in revenue and $50,000 in expenses they should have $250,000 in capital raised before commencing business. Failure to raise proper amounts of initial capital could put the owner's personal liability at stake.

 

When planning, owners must also take a close look at their contribution margin (sales less variable costs). Many startup companies, without realizing it, do not have a high enough contribution margin to support their fixed costs and consequently cannot stay operational for long.

 

One last large problem faced by today's small business owners and entrepreneurs is something called the "entrepreneurial myth" or the E-Myth. This is the idea that an expert in a given field also possesses the necessary knowledge and skills to run a profitable business in that field. This is not always the case, and in more cases than not that expert is either insightful enough to see the need for a marketing and/or organizational (accounting, bookkeeping, lawyer) team or they will fail.

 

Hopefully these statistics, definitions, advantages, and problems have given you some insight into the world of small business. Keep constant vigilance and follow your passions.

Taya de Baat

Owner

Taylynn bookkeeping

Taylynnbooks@shaw.ca

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