Small businesses are the core of our nation’s economic base. As the name implies, they are owned by their owners. Often, the owner is an entrepreneur who launches a small business from his own home or garage. Small businesses are privately held corporations, sole proprietors, or partnerships that usually have fewer workers and/or lower sales volume than a typical large corporation or business. Many small businesses are also home-based or work at an office and operate by themselves. Regardless of the type of business a small business is, they are still a type of company and as such are subject to filing with the appropriate state or local agency.
There are many similarities between small businesses and their larger cousins. Small businesses have fewer fixed assets and financing sources. This means that a small business is more susceptible to failure and bankruptcy. Additionally, small businesses must frequently adapt to changes in their market or local economy. Therefore, they are often characterized by short profit periods.
One of the most noticeable characteristics of small businesses is their reliance on informal processes and forms. In contrast, large businesses employ formal business forms such as payroll and government forms. Small businesses also depend heavily on contract negotiations and tend to outsource much of their work to other countries. However, while they do not have the legal skills and resources of larger businesses, small businesses can utilize many of the same strategies to protect themselves and their intellectual property rights.
There are four main differences between real small businesses and small business startups. First, real small businesses are usually home-based. Second, real small businesses have one employee or fewer. (The few real small businesses that employ more than five employees are probably franchises.)
The first key distinction between small businesses and startups is the number of employees. Real small businesses may employ five or fewer employees. Smaller startups might have one employee, if they are new or have recently been created. Most startup small businesses have fewer than nine employees.
The second major difference is the level of quality business management. Real small businesses may have a single owner and one manager, while startups may have several owners and dozens or hundreds of managers. A startup may have no quality management system at all; the company might hire employees (sometimes poorly) who don’t know the product or service, or who don’t have the skills to do quality management. In contrast, large real small businesses have an established system for quality management, and these companies typically hire experienced professionals to run quality control.
The third key difference between large and small businesses is the number of outlets (stores, websites, etc.) in which they sell their products or services. Large businesses have a single location: usually a storefront, and they can have stores in any size town, including cities with very high cost-per-unit ratios. Real small businesses have to fight to get their products and services to the customer, because their locations might be in rural areas, where it would be difficult to get their products to the consumer. And even when they do get their products into the consumer’s hands, they must deal with costs that often offset the value of the product or service.
The fourth key difference between large and small businesses is the ownership structure. A startup has no stake in the company beyond a single employee, and if that employee quits, then the business is wiped out. A sole proprietorship has only one owner, and that person is generally referred to as the “sole proprietor.” A small business has multiple owners, each of whom has some financial investment, but none of whom controls the company financially.