Introduction to Small Business Management

AB 21a – Introduction to
Organization and Management
of Small Business

UNIT 1: THE NATURE OF SMALL
BUSINESS
 Concept of Small Business
 Products
 Definition of Business
 3 Basic Characteristics of Business
 3 Goals for Building a Successful Business
 Definition of Small Business
 Types of Small Business Activities
 Advantages of Small Business
 Disadvantages of Small Business

Concept of Business
The term Business denotes
activities related to trade,
commerce, profession, occupation
and industry carried out to make
profit
It is engaged in the production and
marketing of products to make profit
through customer satisfaction.
The primary beneficiaries of a
business are its owners.

Products
 Products are the focus of all
Business activities
A product is anything that
satisfies the needs of
customers.

Types of Products
1. Consumer products
A consumer product is a finished product
available for sale to a customer. There's a
wide range of consumer products, and in
marketing, they're typically divided into
different types.

 Convenience products: These are cheaper products that
are more widely available, such as shampoo or milk.
People usually buy them more frequently with little
research or product comparisons.
 Specialty products: These products are expensive and
exclusive to sellers, such as designer clothes or luxury
cars. Customers who buy specialty products usually have
strong brand loyalty.
 Shopping products: These are expensive products that
customers usually do more research on and compare to
similar products before buying, such as furniture or large
appliances.
 Unsought products: Customers likely don't know about or
think about buying these products under normal
circumstances or until it's necessary, like fire extinguishers,
life insurance and encyclopedias.
Here are the main types of consumer
products:

2. Industrial products
Businesses usually purchase an
industrial product to make other products or
to help them with running their business. An
item that would be a consumer product if a
customer bought it, such as cleaning
supplies, may become an industrial product
if a business buys it.

There are several types of industrial products:
 Capital goods: These are part of production, and they're usually an
installation, such as a building or piece of machinery. They may also
include other large pieces of equipment, like vehicles.
 Raw materials: Businesses use raw materials in the making of other
products, natural resources such as water, farm products like wheat and
manufactured products like iron.
 Component parts: These are raw materials that a business processes.
They likely appear whole in the finished product, like a hard drive in a
computer.
 Major equipment: Businesses use major equipment to make, process or
sell other products. This can include items like computers or tractors.
 Accessory equipment: These products are part of the production process
but are usually less costly than major equipment. They can include office
equipment, such as tools or copiers.
 Operating supplies: Similar to convenience products, these are low-cost
supplies that are purchased frequently. They' re usually part of regular
company operations, like copy paper and office supplies.

3. Service products
Service products are business
offerings that are either a pure service or a
core service. A pure service is a service
without a tangible result, such as education,
while a core service has a tangible result, like
cleaning services. Some product
categorizations place service products under
industry products, but they can be their own
type of product because many are available
to consumers directly.

Definition of Business
• A business represents organized
efforts of enterprises to produce and
market products to make profits
through customer need and
satisfaction

3 Basic characteristics of
Business
Must be the result of individuals
working together in an organized way
Must satisfy a societal need
Must seek to make a profit

3 Goals for Building a
Successful Business
1. Survive- When your business is first starting out, survival
is everything. Profit is a far off dream. The team does
whatever it can just to exist
2. Sustain- At the sustain stage, you must take a step back
and evaluate. Start looking at the bigger picture. Your focus
should expand into thinking and planning for the long-term.
Your business is already up and running, now you just
have to keep it going.
3. Profit- At the top of the business pyramid of success is
profit. Only once you can survive and sustain yourself can
you really focus on profit. At this stage, your business
decisions should support all three facets if you want it to
succeed. You can afford to take more risks than at the
lower levels, but do too much damage to the sustainability
or survivability and you’ll be sure to fail.

Definition of small
business
US Definition : “ A small business
is one that is independently owned
and operated and not dominant in
its field of operation’

Characteristics of
Small Business
o Management is independent
o Closely held ownership
o Local operations
o Small size
- Number of Employee
- Fixed Assets
- Annual sales volume
- Capital investment

Types of Small
Business Activities
Manufacturing- uses raw materials or
components to create finished goods.
Wholesaling- the act of buying a
large number of goods directly from a
manufacturer and then selling them
to retailers.
Retailing- the selling of goods and
services to consumer end users.

Service- an enterprise compose of a
professional or team of experts that
deliver work or aid in completing a task
for the benefit of its customers
- Professional Service-
- Financial Service
- Transport Service
- Repair Service
- Construction Service

ADVANTAGES OF
SMALL BUSINESS
1. INDEPENDENCE: Entreprenuers are
thier own bosses. They make the
decisions. They choose whom to do
business with and what work they will do.
2. FINANCIAL GAIN: Entreprenuership
offers a greater possibility of achieving
significant financial rewards than working
for someone else.

3. CONTROL : It enables one to be involved in
the total operation of the business, from
concept to design to creation, from sales to
business operations to customer response.
4. PRESTIGE: It offers the status of being the
person in charge. Some entreprenuers are
attracted to the idea of being the boss.
5. EQUITY: It gives an individual the
opportunity to build equity, which can be kept,
sold, or passed on to the next generation.
6. Opportunity : Entreprenuership creates an
opportunity for a person to make a contribution.

DISADVANTAGES OF
SMALL BUSINES
1. Time commitment - When someone opens a
small business, it’s likely, at least in the beginning,
that they will have few employees. This time
commitment can place a strain on family and
friends and add to the stress of launching a new
business venture.
2. Risk - Beyond financial risk, entreprenuers need
to consider the risk from product liability, employee
disagreements, and regulatory requirements.
3. Uncertainty- Even though the business may be
succesful at the start, external factors such as
downturns in the economy, new competitors
entering the marketplace, or shifts in customer
demand may stall the business growth.

4. Financial Commitment - Even the smallest
of business ventures requires a certain
amount of capital to start. For many people
starting small businesses, their initial source of
funding is personal savings, investments, or
retirement funds. Committing these types of
funds to a business venture makes them
unavailable for personal or family needs.

Introduction to Small Business Management

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