Small business owners possess the flexibility and freedom to making their own decisions within the constraints imposed by economic and other environmental factors. Small businesses often face a variety of problems, some of which are related to their size. A frequent cause of bankruptcy is under capitalization. This is often a result of poor planning rather than economic conditions. It is a common "rule of thumb" that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his or her anticipated expenses.
Start-up expenses are often grossly underestimated adding to the burden of the business. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he or she end up in bankruptcy court , under the theory of under capitalization. In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin sales minus variable costs. To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs.
When they first start out, many small business owners under price their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem. In the United States , some of the largest concerns of small business owners are insurance costs such as liability and health , rising energy costs, taxes , and tax compliance.
Contracting fraud has been an ongoing problem for small businesses in the United States. Small businesses are legally obligated to receive a fair portion 23 percent of the total value of all the government's prime contracts as mandated by the Small Business Act of Since , a series of federal investigations have found fraud, abuse, loopholes, and a lack of oversight in federal small business contracting, which has led to the diversion of billions of dollars in small business contracts to large corporations.
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly. Some of this misunderstanding arises from the failure to distinguish between small business managers as entrepreneurs or capitalists.
While nearly all owner-managers of small firms are obliged to assume the role of capitalist, only a minority will act as entrepreneur. In general, small business owners are primarily focused on surviving rather than growing; therefore, not experiencing the five stages of the corporate life cycle birth, growth, maturity, revival, and decline like an entrepreneur would. Another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.
Business networking and social media has been used as a major tool by small businesses in the UK, but most of them just use a "scatter-gun" approach in a desperate attempt to exploit the market which is not that successful. Business planning is associated with improved growth prospects. Funders and investors usually require a business plan. A plan also serves as a strategic planning document for owners and CEOs, which can be used as a "bible" for decision-making .
Although this may seem positive, in reality the growth is slow, as small business owners shy away from exporting due to actual and perceived barriers. Learning the basics of a foreign language could be the solution to open doors to new trade markets, it is a reality that not all foreign business partners speak English. China is stated to grow by 7.
When small business fails, the owner may file for bankruptcy.
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In most cases, this can be handled through a personal bankruptcy filing. Small businesses can encounter several problems related to engaging in corporate social responsibility , due to characteristics inherent in their size.
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Owners of small businesses often participate heavily in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate socially responsible efforts, such as supporting local charities or not-for-profit activities. Small businesses also face a form of peer pressure from larger forces in their respective industries, making it difficult to oppose and work against industry expectations.
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Because small businesses have more personal relationships with their patrons and local shareholders, they must also be prepared to withstand closer scrutiny if they want to share in the benefits of committing to socially responsible practices or not. While small businesses employ over half the workforce in the US  and have been established as a main driving force behind job creation,  the quality of the jobs these businesses create has been called into question.
Small businesses generally employ individuals from the Secondary labour market. As a result, in the U. Research from the U. In the U. Cyber crime, in the business world can be broken down into 4 main categories. They include loss of reputation and consumer confidence, cost of fixing the issue, loss of capital and assets, and legal difficulties that can come from these problems. Loss of reputation and consumer confidence can be impacted greatly after one attack. Many small businesses will struggle to gain confidence and trust in their customers after being known for having problems prior.
Cost of fixing the cyber attack would require experts outside of their field to further the investigation and find the problem.
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Being down for a business means losing money at the same time. This could halt the online operations and mean the business could potentially be down for a long period of time. Loss of capital and assets ties well in with the cost of fixing the issue. During a cyber attack, a business may lose their funds for that business.
Worst-case scenario, a business may actually lose all their working capital and funds. The legal difficulties involved with cyber crime can become pricy and hurt the business itself for not having standard security measures and standards. Security not only for the business but more importantly the customer should be number one priority when dealing with security protocol. The monetary dollar damage caused by cyber crime in equalled out to be over 1. In , California alone had over million dollars reported to the IC3.
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The average company this year in the United States amounted to Certain cyber attacks can vary on how long it takes to solve a problem. It can take upwards to 69 days for an average everyday attack on a business. The types of attacks include viruses and malware issues. Employee activities within the workspace can also render a cyber attack.
Employees using mobile devices or remote work access off the job makes it easier for a cyber attack to occur. Although small businesses have close relationships with their existing customers, finding new customers and reaching new markets is a major challenge for small business owners. Small businesses typically find themselves strapped for time to do marketing, as they have to run the day-to-day aspects of the business.
To create a continual stream of new business and find new clients and customers, they must work on marketing their business continuously. Low sales result of poor marketing is one of the major reasons of small business failure. Common marketing techniques for small business include business networking e.
TV ads can be quite expensive, so they are normally intended to create awareness of a product or service. Another means by which small businesses can advertise is through the use of "deal of the day" websites such as Groupon and Living Social. These Internet deals encourage customers to patronize small businesses. Many small business owners find internet marketing more affordable. Google AdWords and Yahoo!
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Search Marketing are two popular options of getting small business products or services in front of motivated web searchers. Social media has also become an affordable route of marketing for small business. It is a fraction of the cost of traditional marketing and small businesses are able to do it themselves or find small social marketing agencies that they can hire out for a small fee. Statistically, social media marketing has a higher lead-to-close rate than traditional media.
Advertising on niche websites that are frequented by potential customers can also be effective, but with the long tail of the Internet, it can be time intensive to advertise on enough websites to garner an effective reach. Creating a business website has become increasingly affordable with many do-it-yourself programs now available for beginners. A website can provide significant marketing exposure for small businesses when marketed through the Internet and other channels.
Social media has proven to be very useful in gaining additional exposure for many small businesses. Many small business owners use Facebook and Twitter as a way to reach out to their loyal customers to give them news about specials of the day or special coupons, generate repeat business and reach out to new potential clients.
The relational nature of social media, along with its immediacy and twenty-four-hour presence lend intimacy to the relationships small businesses can have with their customers, while making it more efficient for them to communicate with greater numbers. Facebook ads are also a very cost-effective way for small businesses owners to reach a targeted audience with a very specific message.
In addition to the social networking sites, blogs have become a highly effective way for small businesses to position themselves as experts on issues that are important to their customers. Posting to a blog about the company's business or service area regularly can increase web traffic to a company website. In the US, small businesses fewer than five hundred employees account for more than half the non-farm, private GDP and around half the private sector employment.
It can be argued that a sole-proprietorship an unincorporated business owned by a single person is a type of family business" and "there are twenty-two million small businesses fewer than five hundred employees in the US and approximately 14, big businesses. The evidence suggests that small businesses indeed create a substantial majority of net new jobs in an average year. Small Business Administration has found small businesses have created two-thirds of net new private sector jobs in the US since Of the 5,, employer firms in , Small businesses use various sources available for start-up capital :.
Some small businesses are further financed through credit card debt—usually a poor choice, given that the interest rate on credit cards is often several times the rate that would be paid on a line of credit at a bank or a bank loan. Recent research suggests that the use of credit scores in small business lending by community banks is surprisingly widespread.
Moreover, the scores employed tend to be the consumer credit scores of the small business owners rather than the more encompassing small business credit scores that include data on the firms as well as on the owners. In these programs, the SBA guarantees a portion of the loan to the issuing bank, and thus, relieves the bank of some of the risk of extending the loan to a small business.
The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan.
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The 8 a Business Development Program assists in the development of small businesses owned and operated by African Americans , Hispanics, and Asians. See Federal financing for small businesses in Canada grants and loans. On October , Alejandro Cremades and Tanya Prive founded the first equity crowdfunding platform  for small businesses in history as an alternative source of financing. The platform operates under the name of Rock The Post. Small businesses often join or come together to form organizations to advocate for their causes or to achieve economies of scale that larger businesses benefit from, such as the opportunity to buy cheaper health insurance in bulk.
These organizations include local or regional groups such as Chambers of Commerce and independent business alliances , as well as national or international industry-specific organizations.
Related The Small Business Guide, 2010 (U.S.)
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