Small business

A small business may be defined as a business with a small number of employees. The legal definition of "small" often varies by country and industry, but is generally under 100 employees. These businesses are normally privately owned corporations, partnerships, or sole proprietorships.

Problems faced by small businesses

Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions, it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.

Related Topics:
Bankruptcy - Capital - Entrepreneur - Court - Theory of undercapitalization

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In addition to insuring that the business has enough capital, the small business owner must also be mindful of gross margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the gross margin exceeds fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. The good news is that cost controls or a price increase can often resolve this problem.

Related Topics:
Gross margin - Sales - Variable cost - Fixed cost - Cost control

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In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs and taxes. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.

Related Topics:
United States - Insurance - Liability - Health - Energy - Tax - United Kingdom - Australia - Red tape

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