CHAPTER THREE

Small Business
What is Small Business?
• Small business is a business which employs
less than 50 employees, is owned by one or
few individuals.
 Types of Small Business
a. Retail industry: Drug stores, clothing stores, auto accessories
dealers, appliance dealers, book stores, music stores etc.
b. Service industry: accounting firms, advertising agencies,
managerial consultants, barber and beauty shops, dry cleaners,
travel agencies etc.
c. Finance insurance and real estate industries: insurance
agencies, real estate brokerage firms, pawn brokers, small banks,
loan companies etc.
d. Transportation and other public utilities: Taxi cab companies,
community news paper publishers, local radio and television
stations etc
e. Manufacturing industries: Bakeries, sawmills, toy factories, job
printing shops, shoe factories, ice cream plants, furniture
manufacturing plants etc.
 Characteristic of Small Scale Industries
1. Closely held: the unit is generally a one-man show.
2. Personal character: there is close personal contract/supervision
of all activities, say purchase, production labor, and sale of products.
3. Limited scale operations: a small scale industry unit has a lesser
gestation period.
♠ A small scale unit has a limited share of a given market.
♠ The size of the firm in the industry is small.
4. Indigenous resources: small-scale industries can be easily located
anywhere subject to availability of raw materials, labor, finance, etc.
♠ small scale units use local resources. Therefore, they have
decentralized or dispersed location.
 Character…..
5. Labor intensive: they are generally more labor
oriented with comparatively smaller capital investment
than the large units.

6. Local area of operation: the operations of a small

scale unit are generally localized.

7. Simple organization: a small business unit has few

or no layers of management.
Important of Small Businesses to the Economy

A. Provide Job Opportunities

B. Introduce Innovations

C. Aid Big Businesses

D. Produce Goods and Services

 Advantages of Small Scale Business

• Small businesses require less time, energy and

financial resources to establish.

• Helps the entrepreneur to develop his/her skill in

running organizations.

• It provides the entrepreneur with greater autonomy

and independence.

• Removing regional imbalance: E.g. pollution.

Avoiding the Failures of Small Business
• Know your business in depth
• Develop a solid business plan
• Manage financial resources
• Understand financial statements
• Learn to manage people effectively
• Keep in tune with yourself
 3.1 Financial Statements

• Is a written report which quantitatively describes the

financial health of a company.

• It reflects how well did the business do in terms of total

expenses and sales.

• Helps to compare current performance with

performance in previous years.

 Assets
1. Fixed assets:
• are items that the business acquired for long-term use.
E.g. Fixed assets include: land, buildings, machinery, etc…
Note: Depreciation will be applied except for land.
 How is depreciation calculated?
• Quite simply, the price of the newly bought machine, car
or whatever it may be is divided by the expected lifespan
of the machine.
• For example, a new delivery pick-up is purchased for
12,000 Birr and its calculated lifespan is five years.
• Its annual depreciation = 12,000 Birr / 5 = 2,400
Birr/year.
2. Intangible assets:

• Lack physical existence

E.g. Patents, franchises or licenses,

computer software, trademarks or trade

names,…).
3.2 Risk and crisis
Management
Risk…
• A risk is a potential problem – it might

happen and it might not.

• possibility of meeting danger or suffering harm.

• Risk can never be avoided, but it can be reduced

 Risk Categorization
I. Project risks
 They threaten the project plan
 If they become real, it is likely that the project
schedule will slip and that costs will increase.
II. Technical risks
 They threaten the quality and timeliness of the
product to be produced.
 If they become real, implementation may become
difficult or impossible.
 Risk Categorization
 Sub-categories of Business risks
• Market risk – building an excellent product or system that no one
really wants
• Strategic risk – building a product that no longer fits into the
overall business strategy for the company
• Sales risk – building a product that the sales force doesn't
understand how to sell
• Management risk – losing the support of senior management due
to a change in focus or a change in people
• Budget risk – losing budgetary or personnel commitment
 Seven Principles of Risk Management
• Maintain a global perspective

 View risks within the context of a system and the business problem
that is intended to solve
• Take a forward-looking view

 Think about risks that may arise in the future; establish contingency
plans
• Encourage open communication

 Encourage all stakeholders and users to point out risks at any time

• Integrate risk management

 Integrate the consideration of risk into the planning process

 cont…
• Emphasize a continuous process of risk management

Modify identified risks as more becomes known and

add new risks as better insight is achieved
• Develop a shared product vision

A shared vision by all stakeholders facilitates better risk

identification and assessment
• Encourage teamwork when managing risk

Pool the skills and experience of all stakeholders when

conducting risk management activities
The Risk Management process:
Establish
Establish the
the context
context
ing anndd rreevviieew

ltattiioon
w

n
Identify
Identify the
the risks

conssuulta
risks
Analyses
Analyses the
the risks
risks

on && con
Moonniittoorring a

Evaluate
Evaluate the
the risks
risks

nicaattiion
Treat
Treat the
the risks
risks

muunic
M

mm
CCoom
 Crisis

• Anything that has the potential to significantly impact

an organization.
• A major, unpredictable event that has negative results
that damage an organization.
• A low-probability, high-impact event that threatens the
viability of the organization and is characterized by
ambiguity of cause, effect, and means of resolution, as
well as by a belief that decisions must be made swiftly.
Types of Crisis:
 Natural disasters (flood,
earthquake)
 Severe weather
 Fire or explosion
 Hazardous material spills
 Bus crashes
 Management misconduct
(e.g. harassment,
corruption
 Criminal activity
 Health emergency (AIDS, etc.)
 Technical disasters (e.g. faulty
equipment)
 Staff suicide/deaths
 Outbreaks of disease or
infections
 Organizational misdeeds
 Workplace violence
 Shootings & bomb threats
 Acts of deception (e.g. fraud,
false invoicing)
Impact of Crisis and Trauma on workplace
 Decrease in productivity
 Increase in absenteeism
 Increase in sick leave
 Increase in health claims
 Increase in disability claims
 Increase in conflict (personal and
professional)
 Liability issues
 Managing Crises
• Crisis management refers to the
management of operations before, during
and after the events of a crisis.

“If you fail to plan,

you plan to fail.”
Poor Crisis Management
Phases of Crises Management
1. Prevention 2. Preparedness
Identify and minimise Plan, train, test

4. Recovery 3. Response
Information, contain, control
Continue Business
communicate

Thank You For Your Attention!