What is a business? Is it a corporation, partnership, limited liability company (LLC), partnership, or business? What about ownership? A “business” can be one or more of these things, depending on the laws where you live. A “sole proprietorship” is another way of looking at it.
A business is any type of business that make a profit and usually employs less than fifteen people. Usually small businesses are solo owned, partnerships, or companies that have less than twenty employees and/or less yearly revenue than a large corporation. A sole proprietorship is not your typical “brick and mortar” business. It can be an online business, such as a blog, website, Ezine, or newsletter. It can also be a service business, such as contracting out services, buying inventory, supplies, office space, or advertising.
There are three basic characteristics of successful small businesses. First, they must have consistent income coming in above their expenses. Second, they must have reasonable profit margins. And third, they must have frequent, regular, and reliable customer return.
A lot of small businesses do not start out with any of these three qualities. Many small businesses start out with high hopes, spending freely and hoping for the best. They put tons of money into marketing, advertising, and trying to attract customers. They don’t have any money saved for the inevitable expenses that come with having a business.
The income of small businesses can be very inconsistent. They may make a great deal of money one month and very little the next. Even when they do well, they have no consistency because a lot of the money comes from customers they pay right away. If they don’t have a large enough customer base, they won’t be able to charge enough for their products or services to make a profit. If they have a large enough customer base, they can offer a lower price than other competitors.
The United States Small Business Administration recommends the size definition is followed closely. It was developed by the National Small Business Administration and represents the industry’s opinion on size standards for small businesses in the United States. It is not an official regulation, but rather an industry standard benchmark that are used by many government agencies as a guide to assist them in setting size standards for business. If you have a business that meets the definition of a small business in your state or county, you should be fine.
If you have more than one employee, you need to be even smaller. One employee is usually defined as anyone who works under you. If you have more than one employee, consider dividing your business between nine employees and calculate your yearly profits and employee salaries to determine if you need to pay employees. Paying employees in every possible way helps reduce overhead, but paying them at the same rate can also cause some employees to leave your small business, taking money with them and reducing your profits.
Calculating your business’ average annual receipts will help you understand whether or not you are charging too much in overhead and profit. You may be able to lower your overhead and increase your profit, but if you are not meeting size standards, it may be time to reevaluate your small business. Pay attention to your business’ profit and sales growth. If they are decreasing, it may be time to reevaluate your small business and make some changes that may increase your profits.
Are you growing too fast? Some businesses are too small to sustain growth because of the type of products and services that they offer. There are small businesses that are started for the fun of it, such as fly fishing and animal watching. Other businesses are starting to provide real services, such as medical transcription. While these businesses are growing slowly, they may still be very viable. If you are considering these types of businesses, talk to a real small business attorney about the pros and cons.
What is the average annual receipts for your small business? Do you think your business is too small to survive even with the minimal investment? Reaching the 38.5 million dollars in yearly revenue mark is a sign that you have a viable business. If you are one of those businesses that are considered too small, it may be time to reevaluate your business to ensure that you are making enough money to keep it alive and profitable. Many businesses try to get by without reevaluating their size standards, but if you do not make enough money, it is time to reevaluate your business size.
Can you make a profit with your business? One of the main reasons that small businesses fail is that they have an expensive overhead and do not generate enough profit to cover their costs. Do you have an excellent overhead and a profitable product or service? If not, you may want to consider starting a business that offers something that everyone wants, but nobody else does: an affordable product or service that can replace the service that most large companies offer.