Search
  • Geoffrey

Small Businesses

Updated: Mar 7, 2021

Lately small businesses have been mentioned very often by politicians and news outlets, but what exactly are they? Thats what we will discuss today: what are small businesses, how are they managed, and what is their importance.

 

What Are They?

Small businesses are the most basic type of business. They are also the most common kind of business since they are the easiest to establish. They have less employees and locations than larger companies and corporations. Some examples of small businesses include local book stores, family run shops, and small cafes.


How Are They Managed?

Small businesses can be managed by two main ownership structures, sole proprietorships and partnerships.


A sole proprietorship is when one person is the sole owner and operator of the business. In this form of management, the owner is personally responsible for the business' finances. So if the business falls into debt, the owner has to pay the debt with his or her own money, but like all businesses there will always be some form of risk.


Technically an example of a sole proprietorship is Teenconomy, the website you are reading this on. I am the only owner and manager of Teenconomy, at time of writing. I am the only person who writes the articles and manages the site. It would qualify as a business since I provide you with goods/services (articles in this case) and in return you give your time to read them.


A partnership is a form of business management with more than one owner. Unlike sole proprietorships, the business can avoid being personally accountable for the finances of the business by forming a Limited Liability Partnership (LLP) - a kind of partnership that ensures that partners are not personally responsible for business finances. However, there is a downside to partnerships. If your partner leaves the business, you must find a new partner or the business could fail.


Before becoming the most valuable company in the world (as of 2020) with thousands of staff and an international presence, Apple (whose stock I recommended in My First Stock Pick) was originally a small business partnership between Steve Jobs and Steve Wozniak. Another partner, Ronald Wayne, also helped, but he sold his ownership after a few days. Jobs and Wozniak originally had to design, produce, and sell Apple's computers by themselves. They were small at the time, so they didn't hire staff or buy a property as a service location.


What Is Their Importance?

Small businesses are important because they are the main force that drives our economy. At a local scale, small businesses contribute mainly by employing members of the community, bringing entrepreneurship, and improving community infrastructure.


Small businesses help improve their communities by hiring staff in their community since they usually only have a single location. According to the US Small Business Administration (SBA), in 2018 small businesses have created 1.9 million net jobs and employees constitute of 47.5% of the entire US workforce. By creating more local jobs, this allows people to stay within the community, and also allows people working at the small businesses to buy necessities from other small businesses. Now these small businesses have a greater revenue from the greater population, so they can expand and create more jobs, repeating the previous cycle.


Small businesses can also help improve their communities through entrepreneurship. In economics, the 4 factors of production are land, labor, capital, and entrepreneurship. The purpose of entrepreneurship is to bring together the other 3 factors to create a business. If business owners can successfully utilize entrepreneurship, members of the community might be inspired to create their own business which would grow the local economy.


Finally, small businesses can help improve their communities by improving the community infrastructure. This occurs indirectly through taxes. Small businesses have to pay taxes on the money they have made, similarly to how people have to pay an income tax on the money they make from working. These taxes paid would contribute to improve infrastructure in the community, such as schools, roads, parks, gardens, etc.


Small businesses are the main contributor to the American economy. This is true since there are so many of them in the country. Again, according to the SBA, small businesses number at 30.2 million and are 99.9% of all American businesses.


 

In 2020, the COVID-19 pandemic has caused many small businesses to shut down. You can help by buying their products, such as books and baked goods. If you do help them, remember to wear a mask and stay safe. Thank you for reading, please subscribe for more content, and see you in the next post.

38 views0 comments

Recent Posts

See All

Finally, the Olympics have arrived again, but they are slightly different. After a year of waiting, the event, which should have been flooding with millions of spectators, has been forced to ban all v

Financial stocks have always been popular on stock exchanges. With so many out on the market, which one should you choose from? Here are a few finance stocks that I believe has the potential to do wel

As more and more Covid vaccines are distributed and we get closer and closer to the return to normal life, healthcare stocks have been having their own successes as well. However, with so many healthc