Small business

A small business may be defined as a business with a small number of employees—"small" being defined by the type of business. It is normally a private company, a partnership, or a single-person operation.

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

The first problem that most small business owners encounter is under capitalization.

No business should be started unless the owner has acess to at least a sum of money equal to the projected revenue for the first year of business. If he feels that he will do $100,000 business in the first year then he should have this amount available.

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 there business but the bank will insist on the personal guarantee of the business owner.

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

In the United States, the business owner should be vigilant to not fall behind on required deposits of state and federal taxes. If the owner cannot pay these taxes on time then there is something wrong with his revenue stream. He should consider quitting while ahead and close the business.

copyright 2004