Small & Minority Business Guide
A small business may be defined as a business with a small number of employees. The legal definition of "small" often varies by country and industry, but is generally under 100 employees in the United States while under 50 employees in the European Union (In comparison, the American definition of mid-sized business by the number of employees is generally under 500 while 250 is for that of European Union). These businesses are normally privately owned corporations, partnerships, or sole proprietorships. However, other methods are also used to classify small companies, such us annual sales (turnover), assets value or net profit (balance sheet), alone or in a mixed definition. This criteria is followed by the European Union, for instance (headcount, turnover and balance sheet totals).
Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, solicitors, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing etc. Small businesses are usually independent. The smallest businesses, often located in private homes, are called microbusinesses (term used by international organizations such as the World Bank and the International Finance Corporation) or SoHos. The term "mom and pop business" is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners. When judged by the number of employees, the American and the European definitions are the same: under 10 employees.
U.S. Statistics
According to government statisitcs, in the United States there are 16.4 million non-farm, sole proprietorships, 1.6 million partnerships, and 4.5 million corporations in the United States -- a total of 22.5 million independent enterprises. Ninety-nine percent of all independent enterprises in the country employ fewer than 500 people. These small enterprises account for 52 percent of all U.S. workers. Some 19.6 million Americans work for companies employing fewer than 20 workers, 18.4 million work for firms employing between 20 and 99 workers, and 14.6 million work for firms with 100 to 499 workers. By contrast, 47.7 million Americans work for firms with 500 or more employees. These businesses face greater challenges than their Fortune 500 competitors. These issues range from minimum wage requirements, sourcing capital investments, emminent domain and government re-zoning, retaining key personnel, internet competiton, cash flow, outsourcing overseas, and government regulation and taxes.
E-Myth
E-Myth in the business vernacular refers to the Entrepreneurial Myth, and refers to the fact that most businesses fail because the founders are technicians that were inspired to start a business without knowledge of how successful businesses run. The mythic and often disastrous assumption is that people who are experts regarding technical details of a product or service will also be expert at running that sort of business. Many small business owners eventually realize that just as they had to learn their technical skills, they have to learn business growth and management skills. E-Myth is also used as a verb, i.e., to 'E-Myth your business' means to build internal systems that control processes as they do in a franchise operation, so that results are predictable. A result of systematizing workflow is that owners are freed from most daily operations to spend more time on strategic issues. The methodology was first articulated in the 1986 book 'The E-Myth' by Michael Gerber.
Advantages of Small Business
A small business can be started at a very low cost and on a part-time basis. Small business is also well suited to internet marketing because it can be very manageable to serve a niche, something that would have been more difficult prior to the internet revolution which began in the late 1990s. Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic inertia, it is typically easier to respond to the marketplace quickly. Small business proprietors tend to be intimate with their customers and clients resulting in greater accountability and responsiveness. Several organizations provide help for the smallbusines, like Internal Revenue Service in Small Business and Self-Employed One-Stop Resource and Small Business Administration.
Problems Faced by Small Businesses
Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.
In addition to ensuring that the business has enough capital, the small business owner must also be mindful of gross margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the gross margin exceeds fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. The good news is that cost controls or a price increase can often resolve this problem.
In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs and taxes. Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly.
Marketing the Small Business
Common marketing techniques for small business include networking, word of mouth, customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards), print and internet. Electronic media like TV can be quite expensive and is normally intended to create awareness of a product or service. Many small business owners find internet marketing more affordable. Google AdWords and Yahoo! Search Marketing are two popular options of getting small business products or services in front of motivated Web searchers. Advertising on niche sites can also be effective, but with the long tail of the internet, it can be time intensive to advertise on enough sites to garner an effective reach.
Franchise Businesses
Franchising is a way for small business owners to benefit from the economies of scale of the big corporation (franchisor). McDonald's restaurants are an example of a franchise. The small business owner can leverage a strong brand name and purchasing power of the larger company while keeping their own investment affordable. However, some franchisees conclude that they suffer the "worst of both worlds" feeling they are too restricted by corporate mandates and lack true independence. McDonald's has even been sued by franchisees who feel they have been exploited with unreasonable costs for materials (cups, condiments etc.) they are required to purchase from the parent company.
Mom & Pop Businesses
In North American English small or micro businesses that are family-owned and family-operated may be termed mom and pop businesses. People who speak of mom and pop businesses often refer to the unique perspective offered by patronizing a family business. Some encourage the unknown experience of entering a mom and pop establishment over patronizing franchise businesses, which typically offer comparable stores and similar consumer experiences, regardless of location. For example, mom and pop businesses are often highlighted in travel guides, because patronizing a family-owned and operated business allows a traveler to more fully experience and understand the people of another culture.
Small Business Bankruptcy
When small business fails, the owner may file bankruptcy. In most cases this can be handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business and valuable corporate assets are likely to be repossessed by secured creditors there is little advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions for small business assets so they can continue to operate during and after personal bankruptcy. However, corporate assets are normally not exempt, hence it may be more difficult to continue operating an incorporated business if the owner files bankruptcy.
Certification & Trust
Building trust with new customers can be a difficult task for a new and establishing business. Some organizations like the Better Business Bureau and the International Charter now offer Small Business Certification, which certifies the quality of the services and goods produced and can encourage new and larger customers. These services may require a few hours of work, but a certification may reassure potential customers. However, the most effective way to earn trust is through customer referrals.
Contribution to the Economy
Small Business is the major job provider in most economies. The top job provider is those with less than 10 employees, and those with 10 or more but less than 20 employees comes in as the second, and those with 20 or more but less than 50 employees comes in as the third.
Sources of Funding
Small businesses use several sources available for start-up capital:
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Self-financing by the owner through cash, equity loan on his or her home, and or other assets;
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Loans from friends or relatives;
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Private stock issue;
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Forming partnerships;
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Angel Investors; and/or
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SME finance, including Collateral based lending and Venture capital, given sufficiently sound business venture plans
Some small businesses are further financed through credit card debt - usually a poor choice, given that the interest rate on credit cards is often several times the rate that would be paid on a line of credit or bank loan. Many owners seek a bank loan in the name of their business, however banks will usually insist on a personal guarantee by the business owner. In the United States, the Small Business Administration (SBA) runs several loan programs that may help a small business secure loans. In these programs, the SBA guarantees a portion of the loan to the issuing bank and thus relieves the bank of some of the risk of extending the loan to a small business. The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan.
International Differences
The challenges facing small business owners vary from country to country, based on the overall business climate as well as the regulatory framework of each geographic location. It is extremely important for business owners to understand the legal requirements and obligations in their particular country of operation.
Small Business Administration
The Small Business Administration (SBA) is a United States government agency that provides support to small businesses. According to the agency, the mission of the Small Business Administration (SBA) is "to maintain and strengthen the Nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses and by helping businesses and families recover from economic and other disasters."
The agency is also responsible for providing loans to homeowners and renters that have been victims of presidentially declared disasters. Presidential declarations automatically make disaster assistance available to victims if they meet qualifications. The Department of Agriculture and state governors also have the authority to request declarations on areas affected by disasters in their jurisdictions. Over 80% of the loans processed by the agency are for home owners and renters.
The SBA is an independent agency that operates under the authority of the Small Business Act of 1953. The secretary of commerce delegates small business responsibilities to the SBA. The organization and management of the SBA consists of an administrator and deputy administrator, who are appointed by the president and approved by Congress; field office directors; and administrators for the various program areas. The SBA also has associate administrators for the following offices: Disaster Assistance; Field Operations; Public Communications, Marketing, and Customer Service; Congressional and Legislative Affairs; Equal Employment Opportunity and Civil Rights Compliance; Hearings and Appeals; and Management and Administration.
There are also associate administrators for Investment; Small Business Development Centers; Surety Guarantees; regular Government Contracting; and Minority Enterprise Development. Assistant administrators handle International Trade; Native American Affairs; Veterans Affairs; Women's Business Ownership; and Size Standards, and Technology. There is an associate deputy administrator for Government Contracting and Minority Enterprise Development. These offices are then the backup and resource for over 68 field offices that administer the programs and monitor loans. The Inspector General Office audits and maintains the integrity of the loans and the SBA programs.
Family Business
A family business is a company owned, controlled, and operated by members of one or several families. Many companies that are now publicly held were founded as family businesses. Many family businesses have non-family members as employees, but, particularly in smaller companies, the top positions are often allocated to family members.
Family participation in a business can strengthen the business because family members are very loyal and dedicated to the family enterprise. However managing a family business, and particularly succession planning, can present some unique problems. Often family interests conflict with business interests, for example hiring a family member who is less competent than a non-family member or keeping an underperforming family member in a position when their performance is hurting the company. Psychologists are often consulted to help families successfully manage issues that affect both the family and the business.
An example of the conflict that can arise is demonstrated in a story, about Stew Leonard's Supermarket in Connecticut, about a family business owner whose son's performance was deemed unsatisfactory by his supervisor. The father told the supervisor that he would take care of it. The father asked his son to come to the family home for a talk in the hot tub. When they were settled in the tub the father put on a hat which he said was his 'Boss' hat and told his son that he was fired. He then removed that hat and put on another calling it his 'Father' hat. Then he said: "Son, I'm very sorry to hear that you lost your job. Is there anything I can do for you?"
Minority Business Enterprises
Minority-owned business, those with at least 51 percent minority (African America, Asian American, Hispanic, and Native American)ownership and control account for a significant percent of the businesses in the United States. In 2002, there were 1.2 million African American-owned firms in the U.S., employing nearly 754 thousand persons and generating nearly $89 billion in business revenues. These African American-owned firms accounted for 5.2 percent of all nonfarm businesses in the U.S., 0.7 percent of their employment, and 0.4 percent of their receipts. That same year, there were 1.1 million Asian-owned nonfarm businesses in the U.S., employing over 2.2 million persons and generating more than $326 billion in business revenues. Asian-owned firms accounted for 4.8 percent of all nonfarm businesses in the U.S., 2.0 percent of their employment and 1.4 percent of their receipts. Hispanics owned 1.6 million nonfarm U.S. businesses in 2002, employing 1.5 million persons and generating $222.0 billion in business revenues. These Hispanic-owned firms accounted for 6.8 percent of all nonfarm businesses in the United States, 1.4 percent of their employment and 1.0 percent of their receipts. Native Americans owned nearly 201,400 nonfarm U.S. businesses in 2002, employed about 191,300 persons, and generated $26.9 billion in business revenues. These American Indian- and Alaska Native-owned firms accounted for 0.9 percent of all nonfarm businesses in the United States, almost 0.2 percent of their employment, and more than 0.1 percent of their receipts.
Minority Business Development Agency
The Minority Business Development Agency (MBDA) is an agency in the United States Department of Commerce that promotes growth and competitiveness of the United States' minority-owned businesses. The first and current National Director is Ronald N. Langston. MBDA's stated mission is "to actively promote the growth and competitiveness of minority-owned businesses by providing access to public/private debt and equity financing, market opportunities, and management and business information; coordinating and leveraging public and private resources; and, facilitating strategic alliances." The main feature of the organization and it's site is to provide free consulting services to minority business developers. There are foure detailed guidlines for the following: access to markets, access to capital, management and technical assistance, and education and training.
Women Business Owners
Women-Owned Small Businesses are companies that are at least 51 percent owned by one or more women; or in the case of any publicly owned business, at least 51 percent of its stock is owned by one or more women; and whose management and daily business operations are controlled by one or more women. In 2002, Women owned 6.5 million nonfarm U.S. businesses in 2002, employing 7.1 million persons and generating $939.5 billion in business revenues. These women-owned firms accounted for 28.2 percent of all nonfarm businesses in the United States, 6.4 percent of their employment and 4.2 percent of their receipts. In comparison, in 2002 there were 23 million nonfarm U.S. businesses, employing 110.8 million persons and generating $22.6 trillion in business revenues.
Many organizations have been created to collect information about businesses around the world owned and operated by women. Many other organizations have been created to assist the women that own and operate those businesses. Women business owners have become increasingly more advanced and equipped for their position and their increase in hierarchy in a traditionally male dominated society. While the purpose of many organizations cover a wide variety of areas, they usually have a key element that links them together. In some way they each support the idea and purpose of women business owners.
Some organizations that fit into this criteria are the U.S. Women's Chamber of Commerce, the National Association of Women Business Owners, Women Business Owners, Woman Owned, the Center for Women's Business Research, the Women's Business Development Agency fo the U.K government , the U.S. Small Business Administration's Office of Women's Business Ownership, Facts on Working Women from the U.S. Department of Labor, and the National Women's Business Council.
While women business owners are climbing the ladder of opportunity, the growth in organizations to support them is growing as well. While many have the purpose to help, some have the actual creation to gain. By joining groups and organizations, women business owners hope to increase their income, grow their business, and climb the ladder of success. Learning the purpose of groups before joining them is key to business growth while aligning themselves with groups that claim to assist them in their quest for business success.
Reading the purpose, goals, and accomplishments of groups and organizations is a good way to start researching what groups will help your specific business. Contacting current members and asking for their feedback about the group and how it has helped with their specific business success is another good step. Reading the small print before joining is also very important. Are you signing a monthly or annual contract? Are you able to get out of the contract at will? What are the benefits of membership? If you do have questions that you can not find the answers to, you may contact an attorney that can assist you with your business needs.
The need for information about how to run a business and a family has grown as women business owners have increasingly joined the ranks of business owners around the world. Due to this increase in need many more organizations have joined the previous business related sites to provide information and support.
Service-Disabled Veteran Small Business
The United States Government sets aside contract benefits for companies considered as 'Service-Disabled Veteran Small Business (SDVDB.) The most notable of these contracts is the Veterans Technology Services (VETS) Governmentwide Acquisition Contract (GWAC). VETS-GWAC is the result of Executive Order 13360 that is designed to strengthen federal contracting opportunities for SDVO firms. The current VETS contract is for the period from 2 February 2007 through 1 February 2012 with a five-year option. This program has a ceiling of $5 billion. While this money is set aside by the Office of Federal Procurement it is up to the government agencies to provide the contracts, mainly the United States Department of Defense (DoD.)
Criteria
A business hoping to be considered "Service-Disabled Veteran" must be at least 51% owned by an individual who can be considered by the government as a Service-Disabled Veteran. The terms "veteran" and "service-disabled veteran" are defined in 38 U.S.C 101(2) and (16). The following definitions are as stated in that code. Veteran- The term "veteran" means a person who served in the active military, naval, or air service, and who was discharged or released under conditions other than dishonorable.
Service Disabled- with respect to disability, that such disability was incurred or aggravated in line of duty in the active military, naval, or air service. An injury or disease incurred during military service will be deemed to have been incurred in the line of duty unless the disability was caused by the veteran’s own misconduct or abuse of alcohol or drugs, or was incurred while absent without permission or while confined by military or civilian authorities for serious crimes. Such disability does not require a minimum rating to be considered. A veteran with a 0 to 100% disability rating is eligible to self-represent as a Service-Disabled Veteran for Federal contracting purposes.
Background
For a veteran who suffers service-connected disability, the US Government has deemed it its moral obligation to provide the disabled veteran a range of benefits designed to ease the economic and other losses and disadvantages incurred as a consequence of serving his or her country. These benefits include Government assistance for entering the Federal procurement marketplace. To achieve that objective, agencies shall more effectively implement section 15(g) of the Small Business Act (15 U.S.C. 644(g)), which provides that the President must establish a goal of not less than 3 percent for participation by service-disabled veteran businesses in Federal contracting, and section 36 of that Act (15 U.S.C. 657f), which gives agency contracting officers the authority to reserve certain procurements for service-disabled veteran businesses.
Lack of Compliance
Because the office setting aside these contracts has no ability to award Service-Disabled Veteran Small Business contracts, the request percentage of such contracts is significantly lower than it should be. A number of memos and orders have been issued to correct this trend. President George W. Bush issued Executive Order 13360 on October 20, 2004. The Executive Order was issued to strengthen opportunities in Federal contracting for Service-Disabled Veteran-Owned Small Business Concerns. The Administrator of Office of Federal Procurement Policy (OFPP) issued a memo about VETS GWAC, dated July 10, 2007, for chief acquisition officers and senior procurement executives. The memo strongly calls for agency participation in the use of VETS GWAC as a way of meeting the top priority of increasing opportunities for small businesses owned and controlled by service-disabled veterans.
