Finding a definition of what is meant by small business can be difficult. Even the small business administration has difficulty agreeing as to what is meant by a small business. Currently, the small business administration considers a small business to be one that has fewer than 250 employees, or wholesalers whose annual sales amount to less than $5 million. For retail establishments, they must have less than $1 million a year (Blackford, 2003). This was the definition that has been used since 1953. However, 30 years later, of the size of businesses grew and the small business administration adjusted their definition to any firm with 500 or fewer employees. However, it also noted that an acceptable number of employees differed by industry group. Retail sales only firms must have 100 or fewer employees to be considered in the small business category (Blackford, 2003).
Prior to 1880, small businesses were the norm in America. By the middle of the 19th big businesses began to emerge and fields where of technology allowed them to gain an economy of scale in production or distribution (Blackford, 2003). The first railroads were installed and soon big businesses became a key part of the economy in many sectors. Blackford notes that the rise of big business did not necessarily mean the decline of small businesses. Throughout this time. The number of small businesses continued to grow in terms of the total number of businesses. This was even true in the manufacturing sector. Small businesses paved the way by developing markets in niches that were ignored by larger industrial firms. Only in agriculture did the small business decrease in importance (Blackford, 2003).
In the 1950s, small businesses declined, both in the number of businesses and in their total revenues. WWII favored big business and mass production techniques. In the 1970s and 1980s small businesses saw a resurgence, particularly noticeable was a resurgence of small businesses in the manufacturing sector. Since that time, small businesses were noted to be more efficient and successful than their larger counterparts. Small businesses became the symbol of self-reliance and independence. This is a reversal of the attitude seen in the 1950s when small businesses were seen as inefficient and backwards (Blackford, 2003).
Now small businesses are an important part of the economy. More than 80% of all businesses now employ less than twenty employees (Martin, 1988). With current communications technologies available, small businesses now have access the same global market that was once only possible for larger firms. The number of small businesses that begin every year is growing faster than the Gross National Product (Martin, 1988). Small businesses have always been an important part of the American landscape, many times more so than big businesses in terms of the amounts and types of products produced and in the number of businesses themselves. They continue to be a major part of the American economy.
Carland & Carland, (1992) found that certain cognitive styles and visionary styles were predictive of whether an entrepreneural endeavor would succeed or fail. They found that the method through which a business was obtained also had an effect on the management styles. Differences were found among those who started the business themselves and those who inherited a business or who took over management of an existing business. These authors found that the small business managers exhibited less risk taking behaviors than entrepreneurs. Small business owners were often more logical and thought out their decision-making approaches, when compares to those used by entrepreneurs and managers of larger firms. However, entrepreneurs are much more innovative and creative in seeking ways to expand their business. Each of these types of business owners has unique personality traits that influence their approach to problem solving.
Smalll Business Challenges
The small business owner has many things to consider. For instance, they must decide whether to do their own taxes or whether to hire someone to do them for them. There are advantages and disadvantages to both of these methods. B & B. Custom Woodworks, Inc. uses Anchor Accounting and Tax for their tax preparation. According to Anchor Accounting, having an accountant you can trust for good advice is a key to ensuring small business success (Flauaus, 2008). This is one of many considerations that the small business owner must balance.
Another challenge that plagues small businesses is the economy. In a survey of small business owners, it was found that they do not expect any major improvement in the economy and the next few months (Wade, 2010). Small business owners are particularly susceptible to changes in the economy either positive or negative. Their smaller revenues and profit margins create instability in times of economic turmoil.
Small businesses face challenges in areas that would not affect larger businesses to the same degree. For instance, many small businesses have difficulties with human resources issues including starting retirement plans. In order to keep and retain valuable employees, companies soon find that it is necessary to begin a retirement plan so that their employees are not attracted away by larger companies that offer such benefits of (Kalb, 2002). Many cases abound where longtime family owned businesses find that they can keep employees and avoid the costs associated with hiring new ones if they offer a benefit package that is comparable to other businesses in their industry. The key problem that many small businesses face is that they often do not have the budget to fund such programs. Avoiding high turnover is a key to success and retirement plan will more than pay for itself in the long run (Kalb, 2002). This is true for any small business and will be a key consideration as B & B. Custom Woodworks, Inc., embarks on the intended expansion project. Experienced employees are the backbone that has built the business to what it is today and it is important to retain these employees as the business continues to expand.
In many ways, the problems of small business are not unlike those of larger corporations. Small businesses are unique due to their size and small budgets. However, they still face the same problems as larger corporation in terms of workforce diversity and corporate creativity (Govendo, 2005). Often the small business profile is that of a single idea from either one or a group of close family members or friends. The business concept was developed for the single purpose by a closed group of individuals. Often, when the company begins to hire other people, divergent thinking begins to be develop. This can create conflict, as the originators of the idea tend to hold on to their concept, regardless of the new and innovative ideas that enter into the work mix.
As Govendo (2005) contends, divergent thinking can be both in advantage and a disadvantage. Divergent thinking is the spark that ignites innovation, which can result in things such as creative marketing strategies, new product lines, or ideas for company growth. However, diverse thinking can also throw the business off course in terms of their vision and strategy. Diversity is positive in that it results in a greater problem solving ability, but it must be contained in such a manner that it does not interfere with the main vision or goals of the company.
Another way in which small businesses are similar to their larger corporate cousins is that people are their most important asset and they must take measures to make certain that they retain the best quality workforce possible. Currently, accounting systems are unable to account for the importance of the human capital. This is leads the adoption of several techniques such as the Human Capital Capability Scorecard (HCCS) (Bassi & McMurrer, 2005). This score card allows for better valuation of human capital among diverse organizations. It examines the relationship between organizational outcomes and the value of human capital. The scorecard can be used by both small and large corporations to better improve their use of human capital. The small businesses often do not have the money needed to invest in human capital. This places them at a disadvantage when it comes to obtaining and retaining the most high quality workforce. Techniques such as the HCCS allow small businesses to make most efficient use of the human capital that they have.
The new Federal health legislation signed of in March of 2010 will have a significant impact on small businesses. Those with over 50 employees will have to offer insurance to their workers beginning in 2014. However, those who do not have 50 employees will not be required to offer the coverage, but they will be charged an annual fee of up to $2,000 per fulltime worker, if any of their employees of choose to take advantage of government subsidized plans (Haskell, 2010). For small companies, this will place a strain on them that can have a significant impact due to their small budgets and their small…