A small business could be anything from a one-woman tailoring services to a print shop with close to 100 employees. The legal definition varies, but often in small businesses one or all the entrepreneurs are hands-on, involved in daily duties and contract fulfillment. Administrative burdens in such enterprises are usually low, requiring perhaps a receptionist and part-time accountant, but compliance with insurance and industry requirements such as safety standards for contract construction labor or in gourmet food outfits can be complex and expensive. Small businesses need to be planned carefully to avoid liability and bankruptcy, and foolproof financing is vital. Small business is often a way for people to make a living out of a passion or avocation.
Funding and structure
Sole-proprietorship, partnership, and corporation are some of the forms taken by small business, depending on how many owners there are, and how the business is funded. If for example, an owner wants to raise money from several sources, she could privately issue stock to form a corporation. Venture capital funding would have different consequences for the structure of the company, as would partnerships between professionals bringing in tangible or intangible equity, and bank loans.
Running a small business
Small businesses – or microbusinesses if they are run out of home offices with only a couple of full-time workers – offer people the option to parley a skill or qualification into independent or contract-based living. Hairdressers, specialty chefs, designers, masons, plumbers, accountants, lawyers, seamstresses, writers, just about anyone can set up a small business. Whether to hire new talent at the outset depends on the range of services being offered and the potential demand. Most important is building credibility and a reputation. While initially direct mailers might help, in the long run word-of-mouth, testimonials and industry certification all help build a strong, trustworthy reputation for a small business. In addition to a comprehensive business plan from the outset, small businesses need to employ not merely a bookkeeper, but an accountant, who might only need to work part time, but who can help plan everything from the most beneficial payroll to tax deductions and new funding.
If not planned well, small business can be disastrous. First, overheads and pricing need to be comprehensively calculated to determine gross profit as do commitments to employee benefits, professional indemnity, workers' compensation, and liability insurances. Second, unsecured or high-interest financing, such as credit cards, never helped any small business stay afloat for any length of time. Finally, undercapitalization is a huge concern. Without adequate funds in reserve, people face the prospect of being personally liable for the company's debts, leading to bankruptcy. Common wisdom holds that to be adequately capitalized a business must have access to a sum at least equal to the projected revenue plus planned expenses for the year.