Small Business Term Paper

Pages: 8 (2003 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business

Small business is an essential component to economic progress in nations throughout the world. The purpose if this discussion is to focus on the following perspectives, the theory of small business, the definition of a small business, and the advantages and disadvantages of small businesses. In addition, the discussion will explore the small business plan and the development of such a plan. The discussion will also focus on the advantages and disadvantages of a business plan. Let us begin our discussion with the theory behind small business.

Theory of the small business

Small business has always existed in the American Economy in some form. Early settlers traded goods with Native Americans and settlers conducted business with one another. However, the concept of small business came to the forefront in 1953 with the establishment of the Small Business Act and the formation of the small business administration (Anglund 2000). The small business act and the formation of the SBA came in the post war era and proved beneficial to the American Economy (Anglund 2000). Legislators believed that small business would be "a source of competition, opportunity, freedom, and democracy (Anglund 2000)." Additionally, the theory of small business was rooted in the concept of free competition. Auglund (2000) explains that the essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to the economic well-being but to the security of this Nation. Such security and well- being cannot be realized unless the actual and potential capacity of small business is encouraged and developed. It is the declared policy of the Congress that the Government should aid, counsel, assist and protect insofar as possible the interests of small business concerns in order to preserve free competitive enterprise (Auglund 2000).

Another aspect of small business concerns entrepreneurship. Entrepreneurs are those in a society that have the ability to create and sell a product or service. Entrepreneurs are important because they continue to invent new products and new ideas that contribute to the overall success of the economy.

Indeed small business is essential to the proliferation of a stable economy. Nations that rely upon free enterprise for economic stability support and encourage small business.

These nations understand that without small business their economic outlook is grim.

Definition of a small business

According to the Small business Administration a small business is defined as "one that is independently owned and operated and which is not dominant in its field of operation (What is a Small Business)."

The SBA also reports that the criterion for what constitutes a small business is dependent upon the industry. For instance, in some industries what is considered a small business may be considered a medium business.

Example of the small business (world)

Most large corporations were once small businesses. Corporations that are now large such as Chick Fil -- a and Wal-Mart were once small businesses. The founders of both of these businesses began with just one store. The founders of both of these businesses were entrepreneurs who found products that they could produce and sell. In the case of Sam Walton (Wal-Mart), he found that negotiating the mass purchase of common household items could allow the company to save money and pass the savings on to customers. This idea eventually became the largest retail enterprise in the world.

Small businesses around the world are started in the same way. Many are family owned enterprises that remain small and are passed on from generation to generation. On the contrary, other businesses start small, and then expand to meet the needs of a growing clientele. In either case, small businesses are essential to economic growth and stability.

Advantages and disadvantages of the small business

There are many advantages and disadvantages associated with the development of small business. The main advantage is that small businesses provide employment for many of workers across the globe. In addition, small businesses in a free market create competition, which leads to the buying and purchasing of high quality products at a low price. This process is good for consumers and the stability of the economy.

In addition, small business is advantageous because of the possibility of growth; small business growth contributes to employment. According to an article entitled "Vital Role of Small Business Demands Greater Recognition" small business has been significant in Canada. The article asserts that "Canada's small businesses are the country's most important driver of employment growth. Prospects are said to be excellent, and small business is predicted to grow in significance... Over the last year, small business accounted for an astounding 75% of total employment growth in Canada. In British Columbia, Quebec and Manitoba, virtually all employment growth was due to the hiring activities of small business. Here in Ontario, small business accounted for about a third of new jobs ("Vital Role of Small Business Demands Greater Recognition," 2002)."

Although there many advantages associated with small business, there are also many disadvantages. The main disadvantage is that many small businesses are plagued by mismanaged. Many small businesses fail because of such mismanagement. Another disadvantage is low wages that many small businesses offer their employees. In addition, small businesses are somewhat more difficult for the government to regulate because they operate under a separate set of rules. For this reason, many consumers are often victims of scams that use the disguise of a small business.

According to a book entitled "Small Firms, Large Concerns: The Development of Small Business in Comparative Perspective" there have been many disadvantages attributed to the small business environment. The book explains "Small business has sometimes been criticized for its economic 'vices': rat race competition, the exploitation of employees through low wages, poor working conditions, paternalistic labor relations, and so on (Odaka and Sawai 1999)."

Theory of the small business plan

The theory behind a business plan is to create a document that claely defines the goals of a business. A business plan is usually written in intervals. For instance, the first business plan that is created may be a 3-year or 5-year plan. After these initial years have passed, the business will create a plan for the next 3 or 5 years with new business goals. The theory of the business plan asserts that a business is more likely to succeed if it has a succinct plan in place to clearly define what the business hopes to accomplish.

The creation of a business plan is something that many entrepreneurs have difficulty completing. The SBA emphasizes that the creation of a business plan is essential to having a successful business and secure venture capital.

What is a small business plan?

According to the Small Business Administration "a business plan precisely defines your business, identifies your goals, and serves as your firm's resume (Business Plan Basics)." The SBA also reports that a business plan is essential because it is the first element that a business needs to secure funding, and to get credit form suppliers (Business Plan Basics). A business plan is usually 20 to pages to 40 long and describes the business process of the small company. It also explains the industry in which the business operates.

Elements of a good business plan

There are certain elements that are essential to the development of a solid business plan. According to the SBA, the elements of a good business plan include a cash flow analysis, a current and pro forma balance sheet, and an income statement (Writing the Plan). The SBA explains that the other elements of a business plan include a cover sheet, statement of purpose and table of contents (Writing the Plan).

Moreover the SBA reports that the business plan should be composed of three sections (Writing the Plan). The first section should contain an explanation of the business. This information includes Marketing, Description of business, Operating procedures, Competition, Personnel and Business insurance (Writing the Plan). The second section should contain financial data including, Loan applications, Capital equipment and supply list, Balance sheet, Breakeven analysis and a Pro-forma cash flow (Writing the Plan). The financial data should also include Pro-forma income projections (profit & loss statements) which include a three-year summary, Detail by month, first year, Detail by quarters, second and third years and the assumptions upon which projections were based (Writing the Plan).

The last section should contain supporting documents such as tax returns, copy of relevant licenses and certifications, copies of lease agreements and copies of resumes for principal employees (Writing the Plan). The final section may also include financial graphs and pictures of the products that the company sells.

Advantage and Disadvantage of the business plan

The main advantage of a business plan is that it establishes a road map for the business to accomplish certain goals. In addition, a business plan is also important in… [END OF PREVIEW]

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