Small business

A small business may be defined as a business with a small number of employees. The legal definition of "small" often varies by country and industry, but is generally under 100 employees. These businesses are normally privately owned corporations, partnerships, or sole proprietorships.

Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: small shops, hairdressers, solicitors, lawyers, accountants, restaurants, guest houses, photographers.

Problems faced by small businesses

Small businesses often face a variety of problems 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 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 anticipated expenses. For example if the prospective owner, thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.

In the United States, some of the largest concerns of small business owners insurance costs (such as liability and health), rising energy costs and taxes. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.

Personnel

A good accountant is a requirement. A retired person can usually be located for part-time work. There is a wide gulf between an accountant and a bookkeeper. An accountant can do everything from initial entry right through tax returns and financial statements.

Sources of Funding

There are several sources available for start-up capital. The owner can finance it himself through his savings or an equity loan on his home or other assets. The owner could use financing via a stock issue (although there would be legal problems if it were offered to the general public). A partnership could be formed or perhaps a venture capitalist would provide funds if the business venture plans were sound enough. Relatives could also loan money but the owner should realize that if anyone else participates in the venture some elements of control will be lost.

A business should not be financed with credit cards because the interest rate will cause too much strain on the finances. Many owners seek a bank loan in the name of their business but the bank will insist on the personal guarantee of the business owner. In the United States, the Small Business Administration (SBA) runs a several loan programs that may help a small business secure loans. 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.

External links

• Work at Home Community (http://www.workathomecommunity.com)
• American Small Business Alliance (http://www.asbanet.org/)
• Small Business Forums (http://www.small-business-forum.com/)
• Seeds of Wisdom Small Business Forum (http://www.sowpub.com/cgi-bin/forum/webbbs_config.pl)
• Entrepreneur.com (http://www.entrepreneur.com/)
• ESD Small Business News (http://news.the-esd.com/)
• National Federation of Independent Business (http://www.nfib.com/)

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