Small Business

• Business- is defined as an organized effort of

individuals to produce and sell goods or
services in order to satisfy the need of the
society. And the primary objective of business
is to acquire profit.
Small Business
The magna Carta of Small Enterprises (R.A. 6977) defines
small and medium enterprise as any business activity or
enterprise engaged in industry, agribusiness and services,
whether single proprietorship, cooperative, partnership or
corporation whose total assets inclusive of those arising from
loans but exclusive of the land on which the particular
business is situated must have value falling under the
following categories:
Micro : less than P50,000
Cottage: P50,001- P500,000
Small: P500,001- P5,000,000
Medium: 5,000,001 – P20,000,000
However, small business has common
characteristics:
– It is privately owned
– It has few or no layers of management
– Generally, it has insufficient funds to
dominate its field of business.
Features of Small Business
1. A small business is low in capital but high in labor intensity.
Most small businesses do not have sufficient financial
resources. So they cannot purchase big machines or modern
equipments.

2. A small business is efficient in specialized skills or service. It

can well produce goods or services that are designed to the
particular needs of an individual or few clients.

3. A small business succeeds in small, isolated or overlooked

markets. In rural communities where markets are small due
to the few residents, a small business is viable.
Features of Small Business
4. A small business often operates in unstable markets. Big
corporations are careful in their investments. To be sure or safe
their business ventures, they conduct market or feasibility
studies to determine viability, such feasibility studies do not
apply in most small businesses. With little capital they are not
afraid to experiment or test the market.

5. A small business is closer to the community or the market place.

Not a few small businesses conduct their operations right inside
the community. Being closer to costumers or clients, compared
with corporations, they get first hand information about client’s
preferences.
Features of Small Business
6. Generally the owners of small business are also the
manager. Most of our small enterprises in the Philippines
are like these. The owner-manager employs his/her spouse
and children.
7. Capital comes from the owner or small group. Here in the
Philippines a small business is usually financed by the
family through their savings or loans.
8. The area of operation is small. This means the business is
community based.
9. The size of the enterprise is small in relation to the industry.
Difference between Big and Small Enterprises:
1. Small businesses as a group change through a cycle
of births and deaths. In case of big enterprises,
change is through expansion and contraction.
2. Small business risk or reward estimate is done by
the individual owner who either gets profit or loss,
while in large corporations the risk and reward
calculation is done by employee-managers.
Difference between Big and Small Enterprises:
3. Small businesses have little or no economic
power. On the other hand, big businesses
have tremendous influence on the economy
including the political sector.
4. Small businesses serve markets which big
businesses do not like to serve.
Advantages of Small Business
1. Personal relationship with customers and employees.
Business owners deal with their customers and
employees in a personalized services and manners.
2. Flexibility in management. The owner being the boss and
the manager can easily introduce changes in his product
or services, experiment on price strategies or change
service hours to fit market conditions.
3. Government incentives. The national government has
been promoting the organization of small enterprises. It
extends both financial and technical assistance,
particularly production and marketing to small
entrepreneurs.
Advantages of Small Business
4. Small record keeping. Small enterprises
require few and simple sets of records.

5. Independence. Small business owners are the

masters of their own destinies. They are not
employees. They make their own decisions.
Disadvantages of Small Business:
1.Difficulty of raising capital. Without financial
assistance from the government, a small business has
limited ability to obtain funds from others. Initially, it
is the owner who provides capital for his business. If
additional funds are needed, these can be obtained
from relatives, friends or banks.
2.Risk of failure. A small business does not have enough
financial resources to survive bad economic
conditions. Its inability to absorb losses and
unforeseen events forces the owner or their families
to go out of business.
Disadvantages of Small Business:

3.Limited managerial skills. Owners of small businesses

lack management skills. They have no formal
education in management and marketing. They just
manage their enterprises through institutions or
practical business skills.
4.Lack of opportunities for employees. In the
Philippines, small business is family owned. Those
holding managerial and supervisory positions belong
to the family or relatives in most cases.
Why does Business Fail?

• Lack of experience
• Lack of money
• Wrong location
• Mismanagement of inventory
• Poor credit practices
• Poorly planned expansion
• Unsound or too little analysis in choosing the business.
Economic Contributions of Small Businesses:
• They introduce innovations. Invention and
innovation are key factors in economic
development. These are responsible in reducing
time, labor and cost of production.

• They create employment. Small businesses are

main providers of jobs. Almost all non-
government employees come from small business.
•
Economic Contributions of Small Businesses:
3. They provide competition. Small businesses, as a group,
challenge big businesses in many ways. This, small businesses
tend to be more efficient and responsive to the needs of the
costumers or clients. In their particular fields and ways, small
businesses have a combined competitive force against bigger
firms.

4. They fill the needs of society and big business. Big

enterprises, because of their large scale and mass production,
are not willing or are not able to satisfy the special needs of
smaller group of consumers, while businesses profitably fit
their products or services to the needs of smaller group of
consumers or the masses.
Assignment:
• Micro business is suitable for our masses. Why?
• What are the common characteristics of small
business?
• Why small business is more effective than big
business in small and isolated areas.
• Explain the 3 causes of small business failure.
• Why are small enterprises important?