Business can be organized on large-scale, medium-scale or small-scale. There is no clear cut definition on small-business. Again, small business is different from small industry.
The term ‘business’ includes both industrial and commercial activities. Thus, industry is a part of business.
Small business includes all the industrial and commercial activities carried on a small-scale. Nature Characteristics of Small Business.
Features of Small Business:
1. Generally, the managers are the owners of the business and the management is independent.
2. Generally, an individual or a small group of persons supply the capital to the business.
3. Workers and owners are in one home community. The area of operation is mainly local, but markets need not be local.
4. The use of indigenous technology.
5. Capital investment is restricted to up to one crore.
6. Generally, for the expansion programs, mainly the earnings of small businesses are invested.
7. In the case of some products, e.g., artistic goods, small business depends on international markets.
Types of Small Business:
1. Small scale industry: Industry undertakings, wherein investment in fixed assets of plant and machinery does not exceed Rupees one crore are categorized as small scale industry.
The investment ceilings for those small scale industries, which are concerned with export promotion and modernization is Rupees five crores.
2. Ancillary industry: If the small scale industry supplies not less than 50% Of its product to another parent industry, it enjoys the status of the Ancillary industry.
These units have assured demand and also associated with parent unit technologically and financially.
The ancillary small scale units can manufacture parts, components, tools, etc. It can also have a business in addition to satisfying the heads of the parent unit.
3. Tiny enterprises:
(a) An industrial unit or business enterprises whose investment in Plant and Machinery is not more than Rs. 25 lakh is known as Tiny enterprises.
(b) Micro business enterprises: Within the tiny and small business sector, micro-enterprises are those whose investment in plant and machinery does not exceed Rupees one lakh.
4. Small scale service and business (Industry related enterprises): A small scale service and business enterprise are one whose investment in fixed assets of plant and machinery excluding land and Building do not exceed Rs. 10 lakh.
5. Women enterprises: The small scale industrial units promoted by women entrepreneurs, having not less than 51 % share capital are supposed to be owned and managed by women.
Such units can avail of special concessions offered by the government like low-interest rates on loans etc.
6. Export-oriented units (EOU’s): The small scale industry exporting more than 50% of the product is known as EOU.
It can avail of the incentives, such as export subsidies and other concessions offered by the government.
Scope of Small Business:
1. Production of basic raw materials: This field includes agriculture, forestry and mining products.
Agriculture and forest products like vegetables, cotton, groundnut grain, fishing, poultry, etc., can be produced by small farmers as a basic large-scale industry.
2. Manufacturing: A large variety of manufacturing activities can be included in the category.
There is scope for establishing small machine shops, icecream plants, bakeries, toy factories, printing press, garment factories, utensil plants, book binding plants, etc.
3. Wholesaling: Wholesaling is one of the important fields of small business is an intermediary between the manufacturer and retailer.
His functions include assembling storing and distributing the products.
4. Retailing: Retailing is the last line in the chain of distribution. Retailing business is very much suitable for small businesses.
The scope for retailing business includes a variety of stores such a book stores, jewelry stores, furniture houses, hardware stores, clothing, music stores, general stores, etc.
5. Service Industries: Under this category, there in enough scope for establishing a wide variety of service enterprise such as :
(a) Business Services, e.g. accounting firms, tax consultants, management consultants, private employment agencies, etc.
(b) Personal Services, e.g. beauty clinic, travel agencies, hairdressing saloons, courier service, etc.
(c) Hotels and restaurants.
(d) Automobile and repair services.
(e) Entertainment and recreation services, e.g. motion picture theaters, sports promoters.
6. Finance and real estate: Small business has the scope in the field of finance and real estate also.
Auto finance houses and loan companies are a few examples. Similarly, firms dealing in real estate are established mainly on small scale businesses.
Problems of Small Business:
Some important problems are stated below:
1. Managerial and Technical skills: Lack of necessary managerial and technical skills to manage the small business is an important problem faced by the small business.
As the small business is owned by one person or a small group of persons, they may not be having specialized knowledge in the different fields of management.
2. Inadequate Finance: Inadequate finance both for short-term and long-term purposes is another major problem of small business.
The government’s financial institutions for financing small business are not adequate. Many times they approach other private agencies and pay a very high rate of interest.
3. Machinery and Equipment: Small business units also face the problem of a lack of proper machinery and equipment.
Because of their poor financial position they are not able to buy new equipment. Consequently, their productivity suffers.
4. Poor Marketing System: Marketing the products of small units is another major problem faced by them. They do not have a network of distribution systems.
They face stiff competition from the products of big units. They do not get the right price because of their weak bargaining power.
5. The regularity of Supply: The quantity, quality, and regularity of supply of raw materials are some other problems of small business.
They do not get raw materials of good quality at cheaper rates. Very often they do not get raw material in time.
Role of Small Business In India:
1. Low Cost of Production: The cost of production in these industries is very low because of low overhead expenses, both establishment and running costs are low.
2. Quick Decisions: The small size of the organization enables the business firm to take quick and timely decisions and to capture new business opportunities at the right time.
3. Simple and Flexible Production Techniques: Simple and flexible production techniques are used by these enterprises which make them very much suitable for customized production, which means designing a product according to the tastes, preferences, and requirements of the customers.
4. Opportunities for Entrepreneurship: These industries provide various opportunities for entrepreneurship.
With little capital investment and almost a few formalities to start a small business, the latent skills and talents of people can be channeled into business ideas that can be converted into reality.
5. Second Largest Employment Provider: After agriculture, these industries are the second largest provider of employment in India.
As compared to large industries they generate more employment opportunities per unit of capital invested. Hence, these industries are a boon for an overpopulated country like India.
6. Large Variety of Products: These industries provide a large variety of products like readymade garments, soaps, and detergents, leather, plastic, processed foods and vegetables, wood and steel furniture, safety matches, etc.
Also, they provide a large variety of electronic and engineering goods like televisions, air conditioners, calculators, drugs and pharmaceuticals, electronic teaching aids, etc.