Chapter 2

The Nature of Small Business

People and Their Number of Persons Possible Engagement

Financial Capacity in Entrepreneur

Those with
large amounts few few
Of capital

Those with
large amounts large many
Of capital
What is a Small Business?
Small business may be defined by using any of the two
approaches: market share or total asset.
Market share approach, small business may be defined as one which is
independently owned and operated and which is not dominant in its
field of operation. The term “independently owned” means ownership
is by a private individual, a partnership or a corporation. The term “not
dominant” indicates that a small business does not control a sizable
share of its market. When the total sales of a business firm is less than
one percent of the total demand for its products, the firm may be
considered small business.
A small business may be defined under the total assets approach as
one having total assets that fall within a certain bracket.
Kinds of Business
According to Size

Public Enterprises Private Enterprises

Example: Land Bank of the Philippines Example: Globe

Telecom
Micro Cottage Small Medium Large
Business Business Business Business Business
Types of Small Business:
1. Manufacturing
2. Service
3. Wholesaling
4. Retailing
5. General construction firms

Manufacturing
A manufacturing business is one involved in the conversion of raw materials into
products needed by society.
Service
Service business are those that provide service in one way or another.
Wholesaling
Wholesaling refers to the activities or persons or establishments which sell to
retailers and other merchants, and/or to industrial, institutional, and commercial
users, but who do not sell in large amounts to final consumers.
Retailing
retailing covers all activities involved in the sale of goods and/or services to the
final consumers.
General constitution Firms
General constitution firms are those engaged in the construction of buildings
whether for private individuals or firms, or for the government.
Characteristics of small Business
1. Independent management – the owner is also the manager
2. Small capital requirement – small business requires only small capital and its
can be supplied by a single or a few individuals.
3. Mostly local operation – small business usually operated in a certain locality
although there are cases when the market is not confined to a local area.
Economic Importance of Small Business
1. Provides of economic opportunities for entrepreneurs
2. Provides of products and services to consumers
3. Supplies of products and services of other businesses
4. Distributors of products and services of other businesses
5. Supporters of government
6. Providers of employment.
Advantages of Operating a Small Business
1. Be an employee; Small
Business
2. Be a professional; or
3. Be a small business operator (SBO). Provider Economic opportunities
of for entrepreneur
Provider Products and service to
of consumers
Provider Funds to the government
of In the form of taxes
Provider Employment to the
of labor force
Supplier Products and services to
of other business
Distributor Products and services
of produced by large firms
Opportunity to Gain Control Over His Destiny
The prospective small business owner can choose from several business
opportunities that he would like to take advantage of.
Opportunity to Reach Full Potential
The employee will do his work based on prescribed targets which may only require
less than his full potential. This is not so with the small business operator.
Opportunity to Reap Unlimited Profits
If the small business succeeds, all profits, big or small, accrue to the owner. Of he is
not satisfied, he may exert more efforts to increase his profits.
Opportunity to Make a Contribution to Society and Receive Recognition for His
Efforts
Entrepreneur who make innovative products available to the public are recognized
property by society.
 15 Most Admired Entrepreneurs in the Philippines
Name Entrepreneural Area of Recognition
1. Steve Benitez Coffee Shop
2. Walden Chu Food and Entertainment
3. Martin Lorenzo Food Service
4. Bernie H. Liu Clothes Manufacturing
5. Raffy David Call Center Support
6. Jonathan Y. Dee Tuna Canning
7. Boni Comandante, Jr. Fish Transport
8. Alejandra C. Clemente Travel Agency
9. Senen Bacani Agribusiness
10. Doris Magsaysay Ho Shipping
11. Margarita Fores Fine Dining
12. Susana Guerrero Food Service
13. Roberto R. Gandionco Bakery
14. Oscar H. Lopez Social Responsibility
15. Felipe L. Gozon Multi-media Network
Disadvantages of Operating a Small Business
1. Uncertainly of income;
2. Risk of losing your entire capital investment;
3. Lower quality of life until the business gets established;
4. Complete responsibility;
5. Having to serve undesirable customers;
6. Paperwork and other chores; and
7. Long hours and demanding work condition
 Factor Small Business Operation Employment

1. Income Uncertain Certain

2. Capital investment Risk of losing None required
3. Quality of life Lower until business gets Consistent at a certain level
established
Responsibility complete/all encompassing Restricted to one’s job
a. gain control over his own Present Absent
destiny
b. reach his full potential Present Absent
c. reap unlimited profits Present Absent
d. make a contribution to society Present Limited
and receive recognition for his
efforts