Summary
Summary of Chapter 5
- Course
- Business Management 113
- Institution
- Stellenbosch University (SUN)
Summary of Chapter 5
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CHAPTER 5SMALL BUSINESS: A PROFILE
A small business is one which is independently owned and operated for profit and
is not dominant in its field.
ATTRACTIVE SMALL-BUSINESS INDUSTRY CHARACTERISTICS
Low initial capital investment
Some special skill requirements
High growth and profit potential
INDUSTRIES THAT ATTRACT SMALL BUSINESSES
Growing industries are attractive because of their profit potential. However,
knowledgeable entrepreneurs choose areas with which they are familiar, and
these are most often the more established industries. The various kinds of
businesses generally fall into three broad categories of industry:
1. Distribution industry
This category includes retailing, wholesaling, transportation, and
communications – industries concerned with the movement of goods
from producers to consumers. Distribution industries account for
approximately 33% of all small businesses.
2. Service industry
This category accounts for more than 48% of all small businesses.
About 3⁄4 provide nonfinancial services such as medical and dental
care, haircutting, restaurant meals and dry cleaning. About 8% offer
financial services.
3. Production industries
Includes the construction, mining, and manufacturing industries. Only
about 19% of all small businesses are in this group, mainly because
these industries require relatively large initial investments.
, THE PEOPLE IN SMALL BUSINESSES: THE ENTREPRENEURS
CHARACTERISTICS OF ENTREPRENEURS
Entrepreneurial spirit is the desire to create a new business.
OTHER PERSONAL FACTORS
Independent
A desire to determine one’s own destiny
A willingness to find and accept a challenge
Family background
Age
MOTIVATION
He or she simply has “had enough” of working and earning a profit for
someone else.
Losing a job and decide to start the business he or she has always wanted
rather than to seek another job.
Have an idea for a product or new way to sell an existing product.
The opportunity to go into business may arise suddenly, perhaps as a result
of a hobby.
WHY SOME ENTREPRENEURS AND SMALL BUSINESSES FAIL
Capital management and planning are the key ingredients in the survival of a small
business, as well as the most common reasons for failure. Businesses van
experience a number of money-related problems. Entrepreneurs need the money to
open the business and to operate it in its possibly lengthy start-up phase.
Many entrepreneurs lack management skills required to run a business.
THE PROS AND CONS OF SMALL BUSINESS’
PRO CON
S with customers and
Personal relationships Risk of failure S
employees
Ability to adapt to change Limited potential
Simplified record keeping Limited ability to raise capital
Independence
Advantages of sole proprietorships
Keeping all profits
Ease and low cost of going into
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