THE NATURE OF SMALL BUSINESS

Business size is one factor that does not prevent one from engaging in entrepreneurship. Since only a small number
of people have capital large enough to start a large enterprise, the bigger number of people with minimal resources are
forced to operate on a small-scale basis, if they decide on becoming entrepreneurs.

People and Their Number of Persons Possible Engagement

Financial Cpacity in Entrepreneurship

Those with large

amounts of few few
capital

Those with
small amounts large many
of capital

Figure 4. Financial Capacity and Size of Business

Since most new ventures will be small business, it is expected that majority of the efforts of those involved in the
propagation of entrepreneurship will focus on small business management.
The premise is that if small businesses are managed properly, their chances of becoming large enterprise are
increased. Since it is well-known that large enterprises bring certain benefits to the economy, small business management
is an activity worth pursuing. But if many small businesses will not develop into large businesses, their contribution is still
very significant.
What is a Small Business?
Small business may be defined by using any of the two approaches: Market share or total assets.
Under the market share approach, small business may be defined as one which is independently owned and operated
and which is not dominant in its field of operation. The term “independently owned” means ownership is by a private
individual, a partnership, or a corporation. The term “not dominant” indicates that a small business does not control a sizable
share of its market. When the total sales of a business firm is less than one percent of the total demand for its products, the
firm may be considered small business.
A small business may be defined under the total assets approach as one having total assets that fall within a certain
bracket. For example, the Magna Carta for Small Enterprise (R.A. 6977) indicates that the firm must have total assets valued
at above P 1.5 million to P 15 million to be considered small business. The government prefers this approach because it
simplifies formulation and implementation of policy.
With the assets value bracket assigned to small business, it is inevitable that all enterprise having total assets valued
at P 1.5 million and below will be classified as “microenterprises”.
One of the disadvantages of the total assets approach is that asset values are affected by inflation. After so many
years, inflation alters the nominal value of business assets and what may be previously considered small business may no
longer be classified as such.
 From the point of view of business management, the market share approach in defining small business is more
appropriate. This is so because the target market share is an objective more basic than other objectives.

Kinds of Business
According to Size.

Public Enterprises Private Enterprises

Example: Land Bank Example:

of the Globe
Philippines Telecom

Micro Cottage Small Medium Large

Business Business Business Business Business

Figure 5. Kinds of Business According to size

Types of Small Business

Small business may be classified into five types: (1) manufacturing, (2) service, (3) wholesaling, (4) retailing, and
(5) general construction firms.
Small Manufacturing Business
A manufacturing business is one involved in the conversion of raw materials into products needed by society.
Examples of small business engaged in manufacturing are: bakeries, tricycle sidecar assembly shops, bagoong
manufacturers, restaurants, and others.

Small Service Business

Service businesses are those that provide service in one way or another. They may be further classified into the
following:
1. Business services – those that provide service to other business.
Examples are accounting firms, janitorial service firms, security service firms, collection agencies, and the like.
2. Personal services - those that provide service to the person. Examples are tutoring services, massage parlors,
voice lesson, among others.
3. Repair services – those that provide repair services to owners of various machinery and appliance. Examples
are auto repair shops, watch repair shops, plumbing services, and others.
4. Entertainment and recreation – include movie houses, resorts, billiard pool centers, and the like.
5. Hotel and motels.
6. Education services – include Montessori schools for children, high school, correspondence schools, among
others.
Wholesaling
Wholesaling refers to the activities of persons or establishments which sell to retailers and other merchants, and/or
to industrial, institutional, and commercial users, but who do not sell large amounts to final consumers. Examples are soft
drinks wholesalers in local areas, dealers of supplies and office equipment, grains wholesalers, and the like. A big number
of these wholesale business are owned by small business operators.
Retailers
Retailing covers all activities involved in the sale of goods and/or services to the final consumers. The bulk of
retailing activities are performed by small businesses. Examples are retail drugstores, fast food shops, appliance stores and
others.
General Construction Firms
General construction firms are those engaged in the construction of buildings whether for private individuals or
firms, or for the government. Many of the perform subcontracting jobs for the bigger contractors such as installing electrical
facilities and sewerage.
As a whole, general construction firms employ hundreds of thousands of people and they operate mostly in the
countryside.
Characteristics of Small Business
Small businesses have their own distinctive characteristics. They are the following:
1. Independent management – The owner is also the manager.
2. Small capital requirement – Small business requires only small capital and this can be supplied by a single or a
few individual.
3. Mostly local operation – Small business usually operates in a certain locality although there are cases when the
market is not confined to a local area.

Economic Importance of Small Business

Small business plays an important role in the development of our economy. They assume the following functions:
1. Providers of economic opportunities for entrepreneurs – People who do not feel comfortable as employees have
option of engaging in small business operation.
2. Providers of products and services to consumers – The production of many products and services is oftentimes
not feasible with big and medium business operation. These limited opportunities are naturally fitted for small
businesses.
3. Suppliers of products and services to other businesses – Some businesses require raw materials, semi-finished
parts, finished components, or even labor, which they cannot economically produce. The small businesses perform
this task for them.
4. Distributors of products and services of other businesses – Some manufacturers do not have the ability to
distribute their products and services. Many small businesses assume this role for them.
5. Supporters of government - Small businesses support the government with taxes they pay, as well as performing
other functions.
6. Providers of employment – A large proportion of the labor force are employed by small businesses.
Advantages of Operating a Small Business
An individual has various options to improve his economic lot. They are the following:
1. Be an employee
2. Be a professional; or
3. Be a small business operator (SBO
 An employee enjoys a fixed working schedule like 8:00 A.M. to 5:00 PM. The pay he receives however, is limited
and dependent to a large extent on industry norms and the financial capability of the company. In some firms, the employee’s
pay depends on the whims of the owner.

Small
Business
Provider
Economic
of
opportunities for
entrepreneurs
Provider Products and
of services to
consumers
Provider Funds to the
of government in the
form of taxes

Provider
of Employment to the
labor force

Provider Products and

of services to other
businesses

Provider Products and services

of produced by large
firms

Figure 6. Small Business and Its Importance to the Economy

A professional may generate higher income through the effective practice of his profession. A physician, for
example, may set his clinic in a certain area and proceed to treat patients for a fee. His income, however, is limited by the
number of patients he attends to every day as he cannot delegate his skill to others. In addition, although he is useful to the
community, his desire to provide employment to more people is severely limited by the nature of his work. At most, he can
employ four persons as assistants.
The first two options, however, can only be considered depending on certain conditions. Finding a job is not an
easy task. The rate of rejection for job applicants, especially in the Philippines, is just too high. In reality, there are too many
people who cannot exercise this option.
Entertaining a certain profession is also not an easy task. First, one must undergo long years of study, and second,
one must pass a rigorous entrance requirement like passing the board examination. There are also too many people who
cannot exercise this option.
The last option is small business operation. Although entrance requirements are not as difficult as the first two
options, it does not mean this option is easier to put into practice. A small business operator keeps long working hours and
absorbs whatever damages that happen as a result of his faulty decision-making. However, he is afforded the following
benefits:
1. The opportunity to gain control over his own destiny,
2. The opportunity to reach his full potential,
3. The opportunity to reap unlimited profits, and
4. The opportunity to make a contribution to society and receive recognition for his efforts.
The Opportunity to Gain Control Over His Own Destiny
The prospective small business owner can choose from several business opportunities that he would like to take
advantage of. If, after a few years, he thinks that the business is not worth operating anymore, then he can dissolve it and
open a new one. This option is not made available to plain employees and professionals.
The Opportunity to Reach Full Potential
The employee will do his work based on prescribe targets which may only requires less than his full potential. This
is not so with the small business operator. His freedom to act is limited only by his potential and he can revise or amend his
targets within short notice.
Local counterparts are successful entrepreneurs like those listed by “The Philippine Entrepreneur” magazines as
shown on (Exhibit 1)
Exhibit 1
75 Most Admired Entrepreneurs in the Philippines (partial list)

NAME ENTREPRENEURAL AREA OF RECOGNITION

1. Jon Ramon Aboitiz Quality Management

2. Dr. Amable R. Aguiluz V ICT Education
3. Ferdinand V. Agustin RTW Retailing
4. Jonathan Aldeguer Souvenier Industry Innovation
5. Jaime Aristotle Alip Microfinance
6. Ricardo and Rosemarie Endres Candy Retailing
7. Michelle Asence Perfume Manufacturing
8. Senen Bacani Agribusiness
9. Filemon Barbasa Magazine-Comics Retailer
10. Romel Bautista Leathercraft Manufacturing
11. Steve Benitez Coffee Shop
12. Henry Lim Bon Liong Paper-Based Products Manufacturing
13. Ruth S. Callanta Community Transformation
14. Ben Chan Production and Sales of Fasion Products
15. Oscar P. Chan Kitchen Cabinet Manufacturing
16. Walden Chu Food and Entertainment
17. Roberto S. Claudo Sport-Equipment and Apparel Distribution
18. Alejandra C. Clemente Travel Agency
19. Jose S. Conception Jr. Food Production
20. Ben Colayco Multiplayer Online Entertainment
21. Ricardo Y. Cuna Ice Cream Manufacture and Sales
22. Boni Comandante Jr. Fish Transport
23. Raffy David Call Center Support
24. Jonathan Y. Dee Tuna Canning
25. Erickson and Roxanne Farillas Women’s Wear Manufacturing
26. Margarita Flores Fine Dining
27. Priscilla Florentino Property Development
28. Roberto R. Gandionco Bakery
29. Josie Go Fashion Garment Retailing
30. Andrew L. Gotianum Sr. Real Estate and Banking
31. John Gokongwei Manufacturing and Retailing
32. Lance Gokongwei Commercial Aviation
33. Felipe L. Gozon Multi-media Network
34. Sheree Roxas Chua Gotuaco Women’s Fashion
35. Susana Guerrero Food Service
36. Doris Magsaysay Ho Shipping
 37. Rolando Hortaleza Manufacturing
38. Bernie H. Liu Clothes Manufacturing
39. Oscar M. Lopez Social Responsibility
40. Martin Lorenzo Food Service

Disadvantages of Operating a Small Business

Although certain advantages accrue to the small business operator, there are certain disadvantages that must be
considered. These are the following:
1. Uncertainty of income;
2. Risk of losing your entire capital investment;
3. Lower quality of life until the business gets established;
4. Complete responsibility;
5. Having to serve undesirable customers;
6. Paperwork and other chores; and
7. Long hours and demanding work condition.
Operating a small business does not provide the assurance of an income, unlike getting employment which offers
fixed monthly salaries.
Complete independence in making decision exposes the small business operator to the consequences of errors of
judgement which in some cases could wipe out his investment. The high rate of small business failures proves the point.
As the small business operator assembles the needed resources, starts actual production, and makes moves to attract
customers, income and profit are held in abeyance, i.e., if they will ever be realized at all. Until then, the owner experiences
a lower quality of life.
The owner-operator will take full responsibility foe whatever happens to the business. If the firm is sued for selling
unsafe products, for instance, then he suffers and carries whatever burden or penalty is imposed by authorities, he cannot
pass the blame to anybody else.
Even if the small business operator has freedom in his actions, he is not completely free. He cannot choose his
customers. Even if he dislikes a particular customer, he cannot just send him away or even ignore him. He is bound to give
his customers satisfactory service even if they are rude.
A big company can hire several persons to attend to specific task related to paperwork like bookkeeping or other
unpleasant tasks. The small business operator is forced to do these tasks himself.

It is a well-known fact that a small business must maintain long hours of work to keep the business going. If it
cannot acquire sales volume within a short time frame every day, it must stretch its business hours to accommodate more
customers. The limited volume of production and sales limits the number of activities that can be economically served by
hired personnel. The residual functions, even if they must be done under harsh working conditions, must be borne by the
small business operator. See comparison of employment and small business operation (Figure7).
 Factor Small Business Operation Employment
1. Income Uncertain Certain
2. Capital investment Risk of losing None required
3. Quality of life Lower until business gets Consistent at a certain level
established
Responsibility Complete/all encompassing Restricted to one’s job
a) Gain control over his Present Absent
own destiny.
b) Reach his full potential Present Absent
c) Reap unlimited profits Present Absent
d) Make a contribution to Present limited
societyand receive
recognition for his
efforts

Figure 7. Employment and Small Business Operation Center

The Nature of
Small Business

A hard copy presentation of Group 1 BSCRIM A2-1Am

In The Entrepreneurial Mind

Submitted to:
Prof. Annalyn M. Sajul

Submitted by:
Kent Howard Lipa
Angelo Loredo
John Erick Manangan
Edmund Nolasco
Blessie Rae Pantig

AY 2019-2020