Small business was born more than 40 centuries ago in the eastern part of the Mediterranean. Although small business played a major role in the spread of civilization, its history has never occupied the public consciousness. But now small business is increasingly recognized as the creative force of the economy.
Small business is at the center of the interests of modern society, affecting the lives of the entire population. Few sectors of the economy could function without its endless flow of products and services. And, most importantly, its activities initiate inventive and innovative activities: studies show that basic ideas and inventions are more often received from small than large enterprises. Creativity of small businesses will promote the distribution of new products and services to consumers.
Of the 19 million US enterprises, 99% can be attributed to small, ie. each of them employs less than 500 people. About 600 thousand new businesses are created annually, but half of them cease operations for 18 months. The main reason for the high mortality rate is the ease with which inexperienced people can start a new business.
Contrary to popular belief, small business is thriving in the shadow of big business. One study shows that, as a rule, small industries are more profitable than large processing companies.
The future of small business looks bright. More and more men and women will become involved in small business. And they will be more and more prepared for their work, mainly due to better education and broad support from the community.
Most people would like to do business on their own, but few do. Of those who do. Also, few succeed. However, the opportunity to become a successful entrepreneur is quite real. Chances are conducive to one who strives for difficult goals. Such people are also most likely to be innovative, take reasonable risk, confident, hardworking, able to set goals and are responsible.
Entrepreneurs are emerging in every field of activity, and each ethnic group can boast of their own successful entrepreneurs. In some ethnic groups there is usually a higher percentage of entrepreneurs than in others, mainly because until now, entrepreneurial opportunities have been closed to some groups.
Other social factors also seem to influence entrepreneurial success. Psychologists say that entrepreneurs are more likely to have parents who set high standards of performance for children, promote the development of self-reliance skills, and are not advocates of rigid discipline.
The main reward of the entrepreneur is satisfaction with a job well done, which is reflected in profits. The main danger is an entrepreneurial failure that can destroy the individual and destroy all savings.
Opportunities and trends.
Although small business thrives in almost every adult, in some it holds stronger positions than in others. The requirements of each major group of industries – initial financial investment in staff, materials and equipment determine how stable their small business presence will be. Judging by the number of employees, small business dominates in three of the four main groups of industries: wholesale, retail and services. The position in production is less strong, mainly because of the large funds needed to start a business.
Entrepreneurship development opportunities are available in virtually every industry. In any industry, small businesses are most successful when they are innovators. For example, in manufacturing, small businesses successfully compete in high-tech industries such as chemicals and electronics. The service industry, with its easy-to-start business, attracts many entrepreneurs and is the fastest growing part of the economy.
Life in the next century will be dramatically different from today’s life. The rapid growth of knowledge will constantly cause change, with increasing rates and mainly due to computerization. Aspiring entrepreneurs need to understand industry trends to better prepare for the use of emerging opportunities in high-, medium-, low- and non-technology industries.
Finding a new business.
Future entrepreneurs can start their own business in one of two ways: acquiring an existing business or starting a new business. But before choosing one of the ways, entrepreneurs must answer the question: “What kind of business should I do?”. A reasonable answer will require entrepreneurs to carefully consider both their own capabilities and industry trends.
Buying an existing business involves less risk than starting a new business, as past successes and failures can be assessed in this case. For example, a buyer can look at the balance sheets, calculate inventory, check equipment and take into account entrepreneurial habits.
A prospective buyer can use the net income valuation method or the asset valuation method to determine the price of an existing business. The profit estimation method is more accurate as it is aimed at future profits; the asset valuation method considers only the assets without considering their profitability.
For entrepreneurs, starting from the beginning is more attractive than acquiring a business. They prefer their own products or service, their own employees, suppliers, they want to choose their location, etc.
Many entrepreneurs also act as inventors of products. Prior to setting up businesses, such entrepreneurs must carefully consider patenting their inventions. The patenting process is complex, expensive and time consuming and usually requires the involvement of a patent attorney.
Previously, there were two ways of starting your own business – starting a business from scratch or acquiring an existing one. The third way is to buy a franchise.
The word franchising today has several different meanings depending on the industry. Some even call the franchise industry itself, as if it were a product or service. However, a typical franchise is a contract between a seller and a buyer – an agreement that allows the buyer (franchisee, franchisor, franchisor) to sell the seller’s product or service (franchisor, franchisor).
Franchising plays a significant role in the US economy and may soon become the dominant form of retail. It also occupies a prominent place in the service sector and somewhat less in manufacturing.
Franchising is thriving because it combines the incentive of personal ownership with the managerial and technical skills of big business. For entrepreneurs, franchising offers a short path to growth as they get the job done. For a franchisor, franchising enables rapid expansion. The franchisor is growing, allowing entrepreneurs to finance its growth through franchise sales.
The rapid development of franchising has attracted both dishonest and honest franchisors. Abusers of this system usually promise immediate enrichment with little effort, the freedom to be their own boss, and a small initial investment.
Before acquiring a franchise, entrepreneurs must carry out careful work on choosing a franchise, in the following order:
- Choosing a product or service.
- Finding the right candidates to buy a franchise.
- Analysis of the checklist of questions.
- Get complete information about the activity.
- Hire a lawyer
- Compare franchises and choose the best one.
- Drawing up a business plan.
One of the most important steps in starting a business is to create a business plan for an aspiring entrepreneur. The business plan allows to estimate opportunities, expenses. Difficulties and requirements for those who decided to start their own business, start a business and ensure its functioning.
Essentially, the business plan forces the entrepreneur to build his business on paper first. Creating a business plan is of great importance for the entrepreneur because it forces him to think about what and how to do; for lenders and investors as it helps them decide whether to finance this business.
To draw up a business plan, the entrepreneur must collect information. The plan will be successful or unsuccessful depending on the completeness of the information collected by the enterprise. But first of all the entrepreneur should get the information on which the drawing up of operational plans for his enterprise, relating to production, marketing, organizational structure and legal form. Operational plans, in turn, are the basis for drawing up a financial plan.
Assistance in preparing a business plan can be obtained from accounting firms, banks, the local chamber of commerce, and trade and industry associations.
All new businesses need the services of lawyers, and the startup entrepreneur should not neglect the legal aspects of the business. The entrepreneur should consult with a lawyer a few months before the start of operation of the enterprise, and before making the choice of a lawyer to make credible recommendations. This lawyer must have experience working with new businesses.
Legal assistance to the entrepreneur should be regarded as prevention. The real value of a lawyer is determined by his or her ability to solve problems first of all by preventing them from occurring.
One of the first decisions of the entrepreneur is related to the choice of legal form of organization of the enterprise. Whether he chooses sole ownership, partnership or corporation depends largely on the value of taxation, the ability to prosecute, the likelihood of automatic liquidation with the death of the founder, as well as many financial and management issues.
Location of enterprise.
The entrepreneur often allows his preferences and passions to influence the choice of location. However, you should not give them too much will not to miss the disadvantages of a particular place. Moreover, the entrepreneur must study their markets with close attention to all the details.
Determining the location of an industrial enterprise has two important features when it comes to choosing a location for a service or retailer. First, choosing a region or city is more important than choosing a particular city site. Secondly, the consequences of failing to choose a place for an industrial enterprise are much more difficult to eliminate than for a service or retailer.
Funding for a new business is often difficult for the entrepreneur. This is due to the inability to reasonably assess their needs for cash, as well as the lack of understanding of where it is more appropriate to obtain the necessary funds.
The surest way to assess your cash requirement comes down to a business plan. The central part is the cash estimate, which transforms the entrepreneur’s production plans into concrete amounts. This estimate covers the needs of the entrepreneur before and after the start of operation of the enterprise.
Drawing up a business plan is not yet a guarantee that the entrepreneur will receive the necessary funds. The creditors and investors, however, increase the chances of the entrepreneur. Nowadays, investors and creditors rarely meet the demands of entrepreneurs, if there is no cash estimate in the business plan.
Assessing the need for cash, the entrepreneur must determine what part of it will come from investors (equity), what from creditors (loan capital), and decide on ways to mobilize the necessary capital.
There are many sources of cash. You can use equity to obtain equity.
- venture capital companies;
- small business investment companies;
- large enterprises;
- friends, relatives, and most importantly, the entrepreneur’s own funds.
- You can use:
- commercial banks and other private lenders, including financial and insurance companies, friends and relatives;
In general, entrepreneurs remain alone. They cannot afford to avail themselves of the help of the specialists at the disposal of large corporations, so they should be resourceful and use the help they can get.
In determining their needs for specialists, entrepreneurs should proceed from professional rather than impersonal qualities. To do this, they should start with a business plan, indicating in them what professions are required to complete each step and who owns those professions.
The organizational plan should consist of two parts, one dedicated to internal and the other to external assistance. When defining internal assistance, entrepreneurs must determine who does what, who has what authority, and who is subordinate to whom.
No organizational plan will be complete without an organizational chart. Such a scheme delineates responsibility and authority and links the various posts.
When selecting the right employees, entrepreneurs should consider not only job descriptions, but also the presence or absence of traits such as flexibility and willingness to perform different types of work.
When defining their external support needs, entrepreneurs should accurately describe what types of professional and management services they need. The two sources of management assistance are directors and management consultants.
Accounting allows entrepreneurs to make better decisions by providing them with the information they need to run a business. Among other things, accounting enables entrepreneurs to find out how profitable their business is and how reasonably they have managed to dispose of the funds entrusted to them by investors and creditors.
The accounting system does not need improvement. There is no most advanced accounting system applicable to any business, large or small. The final accounting product is the following financial statements:
- profit and loss statement, which shows how profitable the enterprise is over a certain period;
- a balance sheet indicating the financial well-being of the firm at present;
- cash budget, forecasting outflow or cash inflow at the enterprise;
- In order to disassemble the accounting system for his firm, the entrepreneur must seek the help of an accountant. He must then give the accountant discretion in order for the accountant to make changes in the accounting system as the enterprise grows and to attract new cash, preparing special financial statements for future investors and creditors.
There are limitations to the application of accounting. For example, it cannot estimate the true value of the enterprise; this can only be done on paper. In addition, intangible assets such as group activities, morals, motives, or the health of the head of an entity may not be reflected in accounting. In short, accounting cannot give an accurate and complete picture of a given enterprise. Nevertheless, accounting is still an important and wonderful management tool.
Planning and control.
A successful enterprise usually undergoes four stages of development: birth, recognition, sharp growth and maturity. Entrepreneurs tend to be good at setting up their business and at the stage of recognition, but they do not always manage their businesses well as they grow and mature. One of the reasons for this is to ignore the lessons learned when their businesses were created, namely that planning and control help keep the company on track.
Being an integral part of a single circular process, planning and control play just as important a role in the financial well-being of an enterprise during its operation as it did before its inception. This process begins with setting short and long term goals is the first step for the following reasons:
- the clearer the idea of the entrepreneur about that. the more you have to do, the more chance it will be;
- true progress can only be judged by matching the entrepreneur’s goals;
- The second step is to develop an action plan to achieve the goals. An action plan should be designed in the same way as a business plan, which is a variant of it.
The third step is to regularly assess the progress made over time. Such a process is called control. It gives the entrepreneur confidence that his actions and actions of his subordinates meet the set goals. The key to any control system is the information that enables the entrepreneur to compare the actual activity of his enterprise with the planned. Such information indicates the financial position of the enterprise at present and, more importantly, the direction of its development.
Financial systems (cash budget) and profitability schedules are two important tools that help entrepreneurs plan and control their operations more efficiently. Financial estimates are usually the standard against which to compare the actual activities of an enterprise. Profitability graphs clearly illustrate the impact of sales, prices, and costs on profit.
Analysis of financial statements of investments and loans.
Analyzing financial statements can help entrepreneurs make various planning and control decisions. This analysis should be carried out with the understanding that the main financial activity of any enterprise is to obtain sufficient return on invested capital combined with the maintenance of financial well-being.
The analysis of relative indicators is a method used for the analysis of financial statements. Among the many relative indicators, the most important is the return on invested capital, the debt ratio and the ratio of the current state of the company. These indicators are not important in themselves, but when compared to some standards, an entrepreneur can get valuable information about their business.
Making investment decisions means that an entrepreneur must make choices that can benefit or harm his business. The decisions made by the entrepreneur can lead to a reduction of financial resources for many years, so it is very important to make a reasonable assessment of investment opportunities using criteria of profitability of investment projects, such as:
- payback of funds;
- profit on the initially invested capital;
- profit on the average annual invested capital.
Each of these indicators has its disadvantages and advantages, which the entrepreneur should consider. Making appropriate decisions.
The purpose of marketing is to move goods or services from entrepreneur to consumer. To do this, an entrepreneur can use a wide variety of methods, each of which is closely interrelated with the other:
- marketing research;
- distribution channels;
- personal sale;
- sales promotion;
- to go public.
Marketing research is perhaps the most important of these tools. Before forming its marketing complex, an entrepreneur must first obtain information about his market of interest, which will help him answer the following questions:
- what products or services should you sell?
- where to sell and at what price?
- what are competitors selling, who are they and how strong?
The answers to these questions give the entrepreneur reliable information about what the marketing complex should look like. This complex is a combination of different proportion of distribution channels, prices, advertising, personal sale, sales promotion and publicity in such a way that they provide maximum profit with minimal operating costs.
Purchasing activities and inventories.
The question of how well entrepreneurs purchase and manage inventory can determine whether a business is profitable or unprofitable. Along with finance, marketing and manufacturing, purchasing is one of the most important functions of a manager. On average, more than 50% of every dollar in sales is spent on materials and services.
Entrepreneurs should plan and monitor purchases with the same attention they pay to other areas of the business. Their task should be to purchase goods and services of the right quality, at the right time, from the right supplier and at an affordable price.
As a rule, turnover of inventories is an optimal criterion for the efficiency of the enterprise management of procurement and inventories. The turnover ratio, which is equal to the industry average, indicates that procurement and inventory management is sufficiently favorable.
In most industries, inventories and acquisitions are of equal importance. Without sufficient inventory, the enterprise may lose customers and fail to deliver the services promised. And in order to plan and manage their inventories, entrepreneurs need to strike a balance of conflicting interests such as the obsolescence of goods, reduced investment in inventories and the provision of high quality services.
Entrepreneurs must protect themselves and their businesses from unforeseen developments that may paralyze activity or halt enterprise growth.