Advantages and Disadvantages of a Small Business

by Haliyma Barrow

A small business is usually privately owned, with limited sales and stock volume and a small work force. It is either a partnership or owned solely by one person. When starting a small business you should consider its strengths and weaknesses.

One of the advantages of a small business is the relatively low startup capital needed. Personal savings, small grants and loans from friends and family are usually enough to start up a small venture. Small business grants are available from the government, banks and microfinance institutions when you provide a feasible business plan. As you acquire the capital, it would be wise to familiarize yourself with the pros and cons of a small scale establishment to help you prepare for future challenges.

A small establishment is easier to manage compared to a large operation. This is because the dealings are usually local and small scale. The owner can keep a hard copy of the transactions or invest in cheap software for record keeping. Keeping track of inventory, cash flow and transactions is easily manageable. However, it is advisable to hire a qualified accountant for a more organized and effective financial record system. The business is also classified as personal income. Therefore, you would not have to file two tax returns as is the case for a corporate firm.

Perhaps the most prominent feature when determining merits and demerits of a small venture is the ownership structure. A small business is owned mostly by one person or several partners. Therefore, decisions can be deliberated and implemented faster. Since it is personal investment, most decisions are made with the best interests of the business at heart, therefore more care is taken. Profits are solely the owner(s) and how they are to be utilized remains entirely at the owner(s’) discretion. The clients also enjoy a more personal customer service as the employees are few and most of the transactions are conducted on a first hand basis.

Another factor to consider when determining the pros and cons of a small business is the exposure level. Small businesses lack prominent exposure and authority. Many clients prefer to conduct their business with large established firms rather than the smaller ones which are considered risky. Thus, competition for market share with the already established firms is greatly skewed in their favor especially if they are highly capitalized. Although marketing and advertisement costs for a small business are usually high, gorilla marketing can be utilized to gain leverage.

Since businesses are there to make profit, evaluating profit and loss is vital when gauging the benefits and limitations of a small firm. When a sole proprietorship encounters losses or defaults on loan repayments, the burden is squarely on the shoulders of the owner. He/she is responsible for all the debts, liabilities, shortcomings and losses encountered. Claims on the debts and loans usually extend to personal belongings like house and furniture in order to cover the debts. On the other hand, when gains are made the sole owner enjoys all the profits.

Considering the above factors, keen attention should be paid to these merits and demerits of a small establishment as they help when deciding the form of business to start.

Author Information: Haliyma Barrow begain her journalism career working as a staff writer for an IUP’s student newspaper in 2004. Haliyma enjoys reporting on small business industries, with focus on business franchising.