To simplify the definition of small business, it literally means, a business is of a small size. Hence the name. Meaning that the business operation, providing either a product or service in a pretty small format, with a few employees or staffs and a limited profit, based on how good or bad the business is doing. Small business is usually started by an entrepreneur wanting to kick start their career off and taking a risk in the business realm. They are the daredevils, experimenting, risking, sacrificing and trying their very best to bring new creative and innovative ideas to the market in a tiny form from a small business first.
Small business owners could either become sole proprietors or joint partners with friends.
Types Of Small Businesses
Sole proprietorship means you start off a business by yourself. You as the only owner and the only boss of your entity. This makes you a sole proprietor. The investment in the business is solely yours. Therefore, you make all the decisions yourself, you hire yourself, you delegate and divide tasks and duty yourself, you manage a team yourself (since it’s a small business) and you keep all the income. If your business is a loss then you lose money from your very own pocket. And vice versa, if you make a profit then you keep all the money to yourself.
Small businesses selling products or services, usually the owner would choose to be a sole proprietor. If one has enough to fund the business alone, why would one want to ask money from other people and make them a part of the profit-sharing-investor-type? Because, let’s face it, at the end of the day, people who are starting up their own small business have an optimistic view that the business will make a profit and who wants to share profit. They obviously would rather keep it all for themselves.
A partnership generally means two or more people investing in the operation of the business, as equal owners. Those individuals are people who come together with thoughts or ideas of producing a product or providing a certain service, in the sense that, this is what the market wants. Since it could either be between friends or relatives but basically partnerships encounter the most difficulty. Because, even if you think you know each other, conflicts of agreement or understanding will always arise.
But, there are bright sides to a partnership. You’re not the only investor, so if there’s losses or problems with financing all the partners can bring their share to the table and try to solve it. The profit would be split as well. But the risk of losing plenty is extremely low in comparison to a sole proprietorship. Also, there would be more minds coming together. So, there will always be more opinions, ideas and creative flow in the discussion (hopefully everyone remains humble and listen to one another, in order to avoid disagreements).
Therefore, small business is a get path for sole proprietors or partners, to achieve their targeted goals. Starting off small is the safest and smartest route for entrepreneurs.