Small enterprise is a business or organization with a small number of employees and/or a small amount of revenue. It is usually owned by a single person or a small group of people. Small enterprises often have less capital and resources compared to larger businesses and corporations, but they also tend to be more flexible and innovative.
Small enterprises generally focus on serving a local community or region, offering specialized products or services that meet the needs of the local market. They are often family-run businesses that have been passed down from generation to generation. These businesses tend to be more resilient in times of economic uncertainty, since they are less reliant on external investment and more focused on serving their local customers.
Small enterprises are often seen as a cornerstone of the economy, as they contribute to local job creation and economic growth. They help to diversify the economy and make it more resilient in the face of external shocks. Additionally, small enterprises often provide a boost to local businesses and entrepreneurs, as they are usually more open to innovation and new ideas.
Example of Small enterprise
Small enterprises come in many different shapes and sizes. Some of the most common types of small enterprises include:
- Mom-and-pop stores: These are small businesses that are owned and operated by a single family. Examples include corner stores, local bakeries, and small restaurants.
- Professional services: These are businesses that provide professional services such as accounting, legal advice, marketing, and financial consulting.
- Home-based businesses: These are businesses that are operated out of the owner's home. Examples include online stores, web design services, and virtual assistants.
- Craft businesses: These are businesses that specialize in creating handmade items such as jewelry, clothing, and home decor.
Formula of Small enterprise
The formula of a small enterprise can be defined as the following:
Total Revenue - Total Expenses = Net Profit
This formula is used to calculate the net profit of a small enterprise, which is the amount of money the business has earned after subtracting all expenses from total revenue. This is an important number to track, as it helps to determine the financial health of the business. Additionally, it also provides insight into how well the business is operating, and whether it is making a profit or not.
When to use Small enterprise
Small enterprises are well-suited to a variety of scenarios, such as:
- Serving a local community or region: Small enterprises are typically better-suited to serving a local community or region, as they are able to better understand the needs of the local market.
- Providing specialized products or services: Small enterprises are often better-positioned to provide specialized products or services that meet the needs of their local customers.
- Being resilient in times of economic uncertainty: Small enterprises tend to be less reliant on external investment and more focused on serving their local customers, making them more resilient during times of economic uncertainty.
- Contributing to local job creation and economic growth: Small enterprises often contribute to local job creation and economic growth, making them a cornerstone of the economy.
- Providing a boost to local businesses and entrepreneurs: Small enterprises are often more open to innovation and new ideas, making them well-suited to providing a boost to local businesses and entrepreneurs.
Types of Small enterprise
- Sole Proprietorship: A sole proprietorship is the simplest form of small business. It is owned and operated by a single person and is not formally registered. This type of business has no separate legal identity, and the owner is personally liable for all debts and obligations.
- Partnership: A partnership is a business that is owned and operated by two or more people. All partners have an equal share in the profits and losses of the business, and they are personally liable for all debts and obligations.
- Limited Liability Company: A limited liability company (LLC) is a form of business that provides limited liability protection to its owners. This means that the owners are not personally liable for the debts and obligations of the company.
- Corporation: A corporation is a business that is registered with the government and has an independent legal identity. It may be owned by a single individual or by multiple shareholders, and the owners are not personally liable for the debts and obligations of the company.
Steps of creating small enterprise
- Identifying a Business Idea: The first step in starting a small enterprise is to identify a business idea that meets the needs of the local market. This could include offering a specialized product or service, or providing a solution to a specific problem.
- Business Planning: Once a business idea has been identified, the next step is to create a comprehensive business plan that outlines the goals and objectives of the enterprise. This should include detailed information about the target market, the marketing strategy, the financial projections, and the operational plan.
- Financing: Once the business plan has been completed, the next step is to secure the necessary financing to launch the enterprise. This could include obtaining a loan from a bank or other financial institution, or securing venture capital from private investors.
- Setting up the Business: Once the necessary financing has been secured, the next step is to set up the business. This could include registering the business with the local government, obtaining the necessary licenses and permits, and renting or purchasing a physical space.
Advantages of Small enterprise
The advantages of small enterprises include:
- Flexibility: Small enterprises are often more flexible than larger businesses and corporations, as they are less reliant on external investment and have fewer bureaucratic layers. This allows them to quickly respond to changes in the market and take advantage of new opportunities.
- Innovation: Small enterprises are often more open to new ideas and innovation, since they do not have the same rigid structure as larger businesses. This allows them to stay ahead of the competition and remain competitive.
- Local presence: Small enterprises tend to be more closely tied to their local community than larger businesses, as they are often family-run and have been passed down through generations. This can help to create a sense of loyalty in the local community and can also be a source of economic growth.
Limitations of Small enterprise
Although small enterprises can be beneficial to the local economy, they also have certain limitations. These include:
- Lack of access to capital: Small enterprises often struggle to access the capital they need to expand and grow, as they are less attractive to investors due to their small size.
- Limited resources: Small enterprises often lack the resources, such as technology and infrastructure, that larger businesses have access to.
- Low economies of scale: Small enterprises cannot usually take advantage of the economies of scale that larger businesses can, which can lead to higher costs and lower profits.
- Lack of expertise: Small enterprises often lack the expertise and experience needed to compete in a global market.
- Franchising: Franchising is a business model where an established business allows other parties to use its name, logo and products. Franchises typically involve a contractual agreement between the franchisor and the franchisee, and the franchisor provides support and training to the franchisee. Franchising is a popular approach for small enterprises, as it allows them to access established brand recognition and benefit from the franchisor’s expertise and resources.
- Crowdfunding: Crowdfunding is a relatively new approach to raising capital, where small enterprises can seek investments from a large group of people, usually via the internet. Crowdfunding has become increasingly popular in recent years, and allows small businesses to attract large amounts of capital in a short period of time.
- Business incubators: Business incubators provide support and resources to new and small businesses, helping them to develop their products, services and business plans. Business incubators are usually run by universities or government agencies, and provide entrepreneurs with mentorship, access to capital and other resources.
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- Gollin, D. (2008). Nobody's business but my own: Self-employment and small enterprise in economic development. Journal of Monetary Economics, 55(2), 219-233.