Text 6. What is a small business?

Americans have long advocated a strong small business sector as the backbone of the private enterprise system. Small business provide much of the competitive zeal that keeps the system effective. Numerous actions have been undertaken to encourage the development and continuity of small firms. Antitrust legislation, for example, was designed to maintain the competitive environment in which small companies thrive. A federal agency, the Small Business Administration, was set up in 1953 to assist smaller firms.

Small business is a vital segment of the U.S. economy; 98 percent of all businesses are considered small by federal government. Approximately 14 million small companies provide 47 percent of the total US production and employ about 48 percent of all private workers. Ninety percent of all new jobs are in small business.

The Small Business Administration says that small business is one that is independently owned and operated. It is not dominant in its field, and meets a variety of size standards. These size standards vary. Some standards apply only for loan programs, others for procurement, and still others for various special programs.

A White House conference on small business added another dimension to the definition by setting up different classes of small business according to the number of people employed: class A firms employ 0—9 people; class В — 10—49; С — 249; and class D, — 250—400 persons.

Probably the most workable concept of small business is the one suggested some years ago by the Committee for Economic Development. To qualify as a small firm under its definition, a business must have at least two of the following characteristics: (1) independent management with the managers often owing the firm, (2) capital contribution from a limited number of individuals — perhaps only one, (3) the firm operates in alocal area, and (4) the firm represents a small part of the overall industry.

In general, a small business has the following characteristics:

• Independently owned

• Independently operated and managed

• Only a minor factor in its industry

• Fewer than 400 employees

• Limited capital sources

Small businesses are found in nearly every industry in the United States. They often compete against some of the nation's largest organizations as well as against a multitude of other small companies. Retailing and service establishments are the most common small businesses. Also new technology companies often start as small organizations.

For the most part farming is still small business. The family farm is a classical example of a small business operation.

Small businesses are not simply smaller versions of large corporations. Their legal organization, market position, staff capability, managerial style and organization, and financial resources generally differ from bigger companies which gives them some unique advantages over large-scale competitors. Innovative behaviour, lower costs. And the filling of isolated market niches are some of the most important of these advantages.

Small firms are often the companies who first offer innovations, new concepts, and new products in the marketplace. Genentech, Federal Express, and Apple Computer are examples of success stories. In fact, it is estimated that the formation of small high-technology firms doubled in recent years.

Small firms can often provide a product or service more cheaply than large firms. They usually have fewer overhead costs — those not directly related to providing the goods and services — than to the large firms. Thus, they may be able to earn profit on a lower price than a large company can offer.

Small businesses have organizations with small staffs and fewer support personnel. The lower overhead costs resulting from fewer permanent staff people can provide a distinct advantage to small businesses.

Big businesses are excluded from some commercial activities because of their size. High overhead costs force them to set minimum targets at which to direct their competitive efforts. This situation allows substantial opportunities for smaller publishers with lower overhead costs.

In addition, certain types of businesses lend themselves better to smaller firms. Many services illustrate this point. Finally, economic and organizational factors may dictate that an industry consists of small firms.

Smaller firms have a variety of disadvantages. These include poor management, inadequate financing, and government regulation.

Hundreds of thousands of small businesses are begun each year. Thirty percent fail within the first year, and half within two years. For every 15 small businesses that open their doors, 10 close for voluntary or financial reasons. A great many of these failures can be attributed to poor management. Most people who start small businesses are ill-prepared as managers.

Inadequate financing is generally listed as a leading cause of small business problems. Many businesses start with inadequate capital and soon experience a shortage of funds. They oftenlack theresources to carry them over rough spots or to expand if they are successful.

Small businesspeople complain bitterly of excessive government regulation and red tape. The Small Business Administration estimates that paperwork cost for small firms is about $50 billion annually.

Most small businesses are not equipped to handle the paperwork necessitated by government regulation. Larger firms with substantial staffs can usually cope with blizzard of required forms and reports, for many small business owners it can be force that drives them to lookfor salaried positions. Many experts within and outside government believe that a major effort must be made to reduce the paperwork load for small business (L. T. Boone, D. L. Kurtz. Contemporary Business. — N. Y.: The Dryden Press, 1997).

Vocabulary list:

zeal — рвение, усердие;

to encourage — поощрять;

numerous — многочисленный;

antitrust legislation — антимонопольное законодательство;

innovation — инновация, нововведение;

overhead costs — накладные расходы;

niche — ниша;

procurement — приобретение, поставка (оборудования);

poor management — плохое управление;

leading cause — ведущая причина;

red tape — бюрократия, бумажная волокита;