What is a Small Business

With business ownership on the rise, the term “small business” has become a modern buzz term. However, what actually is a small business?

A small business is generally defined as an independently owned/operated company that has a limited number of employees and relatively low volume of sales. While the exact definition can vary depending on the industry and government regulations, small businesses typically employ fewer than 500 people according to the U.S. Small Business Administration (SBA). However, most small businesses are much smaller, often having fewer than 100 employees. There are a handful of factors and key aspects that define a small business. Some of those characteristics are,

1. Ownership and Control
   Small businesses are usually privately owned and operated by an individual, a family, or a small group of partners. The owners have direct control over business decisions and daily operations. This tends to allow for prompt decision making and total control over the business.

2. Scale of Operations
   Operations of a small business tend to be local or regional rather than national or international. The scope of production or service delivery is limited. This can translate to only serving certain communities within a specific niche.

3. Capital and Funding
   Small businesses often have limited access to capital funding compared to larger corporations. They may rely on personal funds, small business loans, grants, or funds from family, friends or private investors to cover startup costs and operating expenses.

4. Legal Structure
   Common legal structures for small businesses include sole proprietorships, partnerships, Limited Liability Companies (LLCs), and S Corporations. The chosen structure impacts tax obligations, liability, and management responsibilities.

5. Revenue and Profit Levels
   Small businesses usually generate lower revenues and profits in comparison to large corporations but can be highly profitable within their specific product or service offerings. Financial goals often focus on sustainable growth and community impact instead of rapid expansion.

While small businesses may not have as intricate of an operation as a large corporation, there are still key aspects that apply in running a small business. Some of those aspects are,

• Customer Relationships
  Small businesses often maintain personal relationships with their customers. Personalized service and customer loyalty are crucial factors contributing to overall success for both product and service providers.

• Bookkeeping and Financial Management
  Managing finances accurately is vital. Efficient bookkeeping helps track expenses, revenues, taxes, and cash flow. Outsourcing bookkeeping, such as partnering with a service provider like MikaesBooks, can help small businesses maintain organized financial records without the logistical and financial burden of managing it internally.

• Marketing and Branding
  Marketing strategies for small businesses are frequently localized and focused on building local trust and community engagement. Social media, local advertising, and events play significant roles in advertising for a small business.

• Compliance and Regulations
  Small businesses must comply with local, state, and federal regulations, including licenses, permits, tax filings, and employment laws. Staying compliant avoids fines and operational disruptions.

• Resource Management
  Limited resources require small business owners to be strategic about inventory, labor, cash flow and time management to maximize efficiency while cautiously utilizing resources.

• Adaptability
  A smaller scale allows for overall agility, making it easier to pivot or adapt business strategies in response to market changes.

Understanding what defines a small business and the various elements that contribute to its operation is essential for entrepreneurs and business owners. While small businesses might face challenges like limited funding and narrower market reach, their ability to foster strong customer relationships, adapt quickly, and contribute to local economies makes them a vital part of the business landscape and economy. Effective financial management and outsourcing key tasks like bookkeeping can further strengthen a small business’s foundation for long term success.

If you are in need of financial management services and do not know where to start, click here to schedule a free consultation!

This blog is for educational purposes only. Mikaesbooks is not a tax advisor or legal professional. Seek an Enrolled Agent, EA or a Certified Public Accountant, CPA, or other tax professional for more information.