Small businesses, also called small enterprises, are privately owned corporations, sole proprietorships, partnerships or sole partnerships that have less than five employees and/or fewer sales than a typical large corporation or business. These enterprises are engaged in trade or commerce involving themselves with customers outside their immediate geographical area. Some examples of small business enterprises are stores, franchises, software solutions and internet businesses. There are many types of small business enterprises, including manufacturing, transportation, communications, retail, and warehousing. In this article, the term “small business” refers to any business with sales less than a percentage of the gross domestic product of the United States.
Not all small businesses are profitable. Many are failures. A few make enough money to pay personal salaries and other expenses, and invest part of their profits in the company, but most small businesses eventually fail because of bad management, low capital investment, unwise business decisions, high debt or equity ratios, poor management of competition, and so on. Some factors that affect the success or failure of small businesses include the industry they cater to (which determine pricing), access to credit (which can result in the purchase of supplies by the owner), and government regulation of the business industry (which may restrict the options available to owners). All these things can contribute to the profitability or otherwise of small businesses.
Small independent businesses can be categorized into two general types: one that is operated by an individual and another that are operated by a corporation or partnership. An individual-operated business is one in which the owner controls all aspects of the business. Examples of this type are small bakeries and home-based restaurants. A corporation or partnership-type business is one in which a third party controls and oversees most or all aspects of the business.
There are several factors that affect the profitability of small businesses. One of them is access to credit. Larger businesses often have to seek outside funding to finance their ventures. Smaller independent businesses do not have to seek outside funding. This means they have more options when it comes to raising capital.
However, small business owners credit scores also affect their ability to obtain credit. Credit scores are based on several factors including payment history and debt ratio. In some cases, smaller businesses have high debts and high default payments. If they want to apply for credit, they must get a good credit score. Otherwise, they may never get a line of credit or financing from potential customers.
Another factor that has a significant impact on the profitability of a small business is the number of employees. A company with fewer employees has a greater chance of being able to raise the capital needed to keep its doors open and to hire new employees. On the other hand, large companies have several employees and can outsource most of their labor needs, leaving only the physical requirements such as payroll and benefits to be the responsibility of employees themselves. In addition, if a business wants to expand, it may be unable to find workers or it may take a long time to attract new workers to work for the company.
Another thing that many small businesses fail to consider is the cost of maintaining employees. Many employees have benefits packages that include extended health care, paid vacations, group-term life insurance and many employees have paid leaves upon exiting employment. These packages can add up quickly and become a major drag on profits.
Of course, the costs of maintaining fewer employees and the increased likelihood of business failure due to financial problems add up to a negative impact on the profitability of smaller business. For this reason, many small businesses choose to downsize when the need arises. If a business is not doing well enough to make it feasible to pay the payroll required, it probably isn’t a good business.