Small businesses: advantages, disadvantages, prospects

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Currently, there is no such economic market in the country where there would be no small enterprises. This sector, nicknamed the backbone of the economy, plays a certain role, which is important for the development of the national economy. It makes a direct contribution to the formation of the gross domestic product and taxes. Creates new jobs, stimulates competition and export growth, and favors innovation and technology. These are just a few of the small business benefits.

Economic growth

Compared with large companies, the advantages of small enterprises are greater flexibility, more efficient response to changes in the business environment and the market. That is why investments made in this sector bring higher returns. At the same time, the corresponding sector of the national economy offers tangible opportunities for the realization of creative abilities.entrepreneur and his leadership potential. Small businesses are the most common form of organizational business. This concept follows from the fact that the development of this sector ensures the growth and prosperity of the standard of living of the population. Referring to this sector, P. Druher states: “Small business is the main catalyst for economic growth.”

Growth Factors

Thus, these advantages of a small enterprise contribute greatly to the achievement of the fundamental goals of the national economy. In most developed countries, small businesses are growing steadily due to the following factors:

• Increase in the number of unemployed.

• Diversity and differentiation in demand.

• Changes in the organizational structure of large enterprises.

• Reorienting the economy towards service diversity.

• Globalization of the national economy.

• The policy of Western governments in this area of support for small businesses.

All these factors contributed to the growth of the role, importance and advantages of small businesses in the economies of countries, namely:

• Stimulating production and economic growth.

• Contributing to the creation of new jobs.

• Diversify products and services to market.

• Improve product quality and meet customer demand.

• Autorealization of different people, ensuring their economic freedom.

• Improving the welfare of the population.

• Profitable direction of investment fromown sources.

• Quickly adjust the range of services to market demand.

• Entrepreneurship education.

• The formation of a middle class of owners who will ensure stability in society.

Material resources

So, from what has been said, first of all, the small business registry contributes to the improvement of the economic situation and stimulates its growth in a relatively calm manner, without causing inflation. This growth comes as implicit government revenue (through tax). Also, small businesses make a significant contribution to the diversity of products and services, the growth of their quality. And as a result, satisfaction of consumer demand. Having a register of small enterprises, financially they cannot produce homogeneous goods in large quantities, therefore they use free places in the market or create new niche markets. It offers a range of diverse products to meet the requirements of different consumer groups.

Niches and Markets

Today, the world is seeing support for small businesses and a trend away from mass production and large batches in favor of small series or custom production. In the USA, Germany, Italy, France, Japan, approximately 80% of the production volume is represented in quantities from 50 to 300 units. Such orders can only be satisfied by small enterprises, since a large enterprise producing small quantities of goods losesprofit due to high costs. Small businesses have the ability to change structure over time, much faster than large businesses. An important role is played by the support of small businesses in the field of innovation. Although they are greatly influenced by technological development, cooperation with large enterprises and research centers is currently yielding impressive results. Many of the great innovations of the century were developed within small businesses. For example, the production of antibiotics, insulin, contact lenses, fiber optics, a Polaroid computer personal camera, etc. Thus, small enterprises concentrate on all their creative and material potential in the development of one or two innovations. A lot depends on the type of activity of small enterprises in the field of foreign economic relations. They make this innovation process more productive than a larger enterprise.

Employment Centers

For a long time, analysts believed that the form of balance for small businesses is the prerogative of large industries. But this is far from true. With the globalization of economic relations, the creation of a single market, it was found that accounting in small enterprises is beginning to take an increasingly important place. Mainly in Germany, the Netherlands, Italy, Belgium and Japan. Small enterprises make up 35-40% of the total number of exporting firms. In the US, the figure is slightly lower - 30-35% of all exporting companies. An increase in the number of exporting small enterprises leads to the activation of the entire extern altrading system, expanding the range of products offered and speeding up their repair. Employment centers make a special contribution to the reporting sector of small enterprises, especially in countries with developed market economies. So, every year in the US, three out of four new jobs created are in the small business sector. Thus, they provide a livelihood for millions of people, and the state accumulates billions of dollars and euros from taxes into the national budget.

Definitions and standards

The characteristics of a small business play an important role in the economy, representing a source of entrepreneurship, innovation and job creation. To better understand the phenomenon of small enterprises, it is necessary to analyze it theoretically. But no matter what concept is used, it is the criteria that are considered as the basis for identifying small enterprises: the number of employees, the size of assets, the volume of production, achievements in areas of activity, or a combination of these criteria.

Capital and activities

There are several definitions of a small business in the US. The most qualitative definition is the one approved by the Committee for Economic Development Standards. According to it, a business is considered to be an object for which at least two of these conditions are met:

1. The management is independent. Typically, managers are also owners.
2. The capital is held by one person or a small group of people who own the business.
3. Scope is usually local.
4. The business is small compared to some of the largest businesses in the industry.

To estimate the number of small businesses and keep records, in addition to the qualitative definitions mentioned above, the United States uses a quantitative definition.

Staff and employees

In Japan, the attributes and composition of a small business are calculated by the amount of capital, the number of employees and branches.

Often the criterion "number of employees" is typical for countries with economies in transition. In Hungary, for example, companies with up to 100 employees fall into the category of "small enterprises". In Ukraine, economic agents are appointed in the category of small enterprises if the number of employees does not exceed another maximum level of the industry:

• industry and construction - up to 200 people;

• other industries - up to 50 employees;

• scientific services - up to 50 employees;

• unproductive area - up to 25 people;

• retail - up to 15 people.

In Belarus, the criterion for the number of employees is applied similarly, with a slight differentiation on a specific branch:

• industry and transport - up to 100 people;

• agriculture and science - up to 60 people;

• construction and wholesale - up to 50 employees;

• other industries, catering, social services, retail - up to 30 people;

• other industriesnon-manufacturing sector - up to 25 employees.

In addition to the "number of employees" criterion, there are others that allow you to clearly understand the size of enterprises: asset value, authorized capital, production volume, net benefit. In Kazakhstan, the category of small business includes enterprises whose assets do not exceed 3 million US dollars. In Japan, companies with a capital of less than 100 million yen can apply for small business tax breaks.

Staff and capital

In some countries, a set of criteria is also used for this. In Bulgaria, for example, firms with no more than 30 employees and an authorized capital of up to 3 million fall into the category of small enterprises. Other states use a wider list of criteria from which an entrepreneur can choose the most convenient for himself. For example, the following conditions must be considered:

• assets below 1.5 million euros;
• turnover - no more than 3.5 million euros;
• average number of employees and civil servants - up to 250 employees.

Government programs

In Germany, each government program is focused on supporting a rather limited group of small businesses. Accordingly, each program offers its own small business criteria that must be met in order to receive certain benefits. Most countries do not have a single definition of SMEs.

Softwareframes

The criterion most often used in differentiation is the number of employees, according to which the following types of enterprises arise:

• micro-enterprise: 1-9 employees;
• small business: 10-49 employees;
• medium enterprise: 50-499 employees.

In Indonesia, businesses are classified as follows:

• handicraft enterprises: 1-4 employees;
• small businesses: 5-19 employees;
• medium enterprises: 20-99 employees.

In Singapore, a small business is defined as an enterprise that employs 50 people. In addition, we find such a definition in most African countries. In the Philippines, small businesses employ between 5 and 99 people.

The European Union, since its inception in 1956 by the Treaty of Rome, has warned the importance of developing these enterprises. And year after year, the foundation, operation and development of this category of enterprises are gradually becoming more and more professional, with a direct impact on the economic and social plan of countries.

By the middle of the last decade, the following classification of small enterprises was most often used:

• 1-9 employees - micro enterprises;

• 10-99 employees - small businesses;

• 100-500 employees is a medium-sized enterprise.

Impact on the economy

The cash balance limit for small businesses is set differently each year. This is the amount that canstay in a store or other money keeping facility. After the accumulation of the extreme value in the cash register, all money must go to the bank.

The category of small enterprises includes companies that have a net annual turnover of less than 50 million euros. Thus, small businesses are those that achieve a net annual turnover of around 25-40 million and hold total assets up to 10 million. And how are things in different countries?

• In Romania also, small businesses can have a net turnover of up to 50 million.
• In Moldova, the turnover of funds in the small business sector does not exceed 30 million.

So, although various criteria for assessing the small business sector are known in the literature, the decisive role belongs to national legislation, which is based on the characteristics and traditions of the economy and determines the criteria for determining these forms of business.