Small businesses, also called “start ups”, are privately owned enterprises, partnerships, or single ownership which have fewer employees than a conventional corporation or firm and/or lower annual sales than an average-sized enterprise. Invented in the US during the 18th century, private companies have become an increasingly important force on the global economy. Some of these companies are large international corporations such as General Motors, Wal-Mart, Enron, and WorldCom, while many others are modest local enterprises that provide a service, manufacture, or offer a product unique in its area of operation. Successful small business owners are the key to the economic vitality of the United States and its ability to lead the world in many areas of industry.
Private, for-profit small businesses are distinctively different from government-owned businesses in terms of their characteristics of management and scope. Examples of for-profit businesses include hotels, restaurants, retail stores, franchises, software development, real estate, and online trading. The government does not operate any of these businesses. Most are either state or municipal agencies. Each has its own established processes and formalized procedures for selecting individuals to conduct specific functions, manage resources, and maintain records. All of these businesses, however, have one central concept: individuals responsible for the day-to-day operations of the company that elect or appoint certain persons to manage those responsibilities.
A small business, by comparison, is a smaller endeavor with fewer tasks and duties to perform on behalf of the owners. An individual can be considered a small business if he or she owns less than five percent of a company, owns a single workplace, and employs fewer than fifty people. A small business has a few distinguishing characteristics that set it apart from other types of businesses. Because it is a smaller entity, small businesses tend to be less likely to involve shareholders or partners, have lower turnover and absenteeism rates, and have simpler financial accounting systems.
A few common characteristics of small businesses include the following: They are less visible to the outside market, have limited sales and revenues, require fewer employees than larger corporations, and are usually family enterprises. In addition, small businesses often use informal methods of accounting, such as keeping expenses on hand and utilizing internal funds for growth and expansion. They also tend to exhibit a low-key approach to managing financial matters, relying heavily on self-sufficiency instead of relying on outside sources. Finally, they tend to use innovative or cost-effective approaches to marketing and promotion.
In contrast, there are several distinguishing characteristics of large businesses employing employees. Large businesses have a visible location and consistent workforce. Employees are recruited on a regular basis, they receive full benefits, and they are given regular training. Furthermore, large businesses employ hundreds or thousands of employees who are educated in all aspects of the business and its operations. Additionally, large businesses have established systems and procedures for monitoring performance, often having elaborate reporting and analysis mechanisms in place.
There are also some distinct characteristics of small businesses employing fewer employees. Small businesses have a lower rate of inflow of new staff members, and these staff members are not trained on a regular basis or provided with full benefits. Staffing is based more on an individual’s ability to perform than on skills, qualifications, or ability to obtain a job. Finally, small businesses tend to be smaller, their sales volume less than that of large businesses, and their profit margins lower.
There are several characteristics of small business employment that provide information on the competitive landscape for a company seeking employees. First, small business employers have a lower rate of turnover than larger businesses. This provides information for an employer who is looking to fill a position quickly because of limited staffing needs. Second, small business employers to provide flexibility to their employees regarding hours, working schedules, and working conditions.
The competitive environment in which small businesses operate also provides valuable information to HR managers. Small businesses have a lower rate of turnover because employees can choose from a larger variety of positions. Employees also have more options available when compared to larger businesses. Finally, the small businesses have a smaller need for expensive employee benefits programs, such as health and accident insurance.