Unit 3 Characteristics of Small Business

HOW TO GET THE MOST FROM THIS COURSE

Each  study  unit  will  take  at  least  two  hours,  and  it  includes the introduction,  objectives,  main  content,  self-assessment exercises, conclusion,  summary,  tutor-marked  assignment  and references/further reading. Some of these exercises will necessitate contacting some small business  owners  (entrepreneurs)  and organisations  that  assist  these entrepreneurs  with  finance.  This is  to  enable  you  obtain  more information  in  practical  terms. There  are  textbooks  listed  under  the reference  section  for further  reading.  
They  are  meant  to  give  you additional information  when consulted. You are advised to practice the self-assessment exercises and  tutor-marked  assignment  for an  in-depth understanding of the course. The essence of studying the self-assessment exercises and tutor-marked assignment is to achieve the stated learning objectives.

MODULE 1  OVERVIEW OF SMALL BUSINESS

Unit 1   Definition of Basic Concepts: Small Business and Finance
Unit 2   The Nature and Scope of Small Business
Unit 3   Characteristics of Small Business
Unit 4   History of Small Business

UNIT 3  CHARACTERISTICS OF SMALL BUSINESSESCONTENTS

1.0     Introduction
2.0     Objective
3.0     Main Content
3.1  Main Features of Small Businesses
3.1.1  Ownership and Simple Management
3.1.2  Independent Spirit of Entrepreneurs
3.1.3  Subjective Decision-Making
3.1.4  Small Capital Base
3.1.5  Labour Intensive Production Techniques
3.1.6  Ability to Deliver Personalised Services.
4.0     Conclusion
5.0     Summary
6.0     Tutor-Marked Assignment
7.0     References/Further Reading

1.0  INTRODUCTION

In the previous unit, you studied the various forms of small businesses in  Nigeria.  In  this  unit,  we  will  discuss  characteristics  of  small businesses.
Small businesses have some common characteristics which distinguish them  from  large  businesses.  These  characteristics  help  to  make  the identification of small businesses easier.

2.0  OBJECTIVE

At the end of this unit, you should be able to:
  explain the various characteristics of small businesses.

3.0  MAIN CONTENT

3.1 Main Features of Small Businesses
The characteristics of small businesses that will be examined in this unit are-  simple management, independent spirit of entrepreneurs, subjective decision-making,  small  capital  base,  labor  intensive  production techniques,  lower  ratio  of  managerial  and  administrative  personnel, ability to deliver personalized services. Each of these characteristics will be discussed in details. 

3.1.1  Ownership and Simple Management

Small  businesses  are  usually  owned  and  managed  by  few  individuals. 
Thus,  these  businesses  tend  to  revolve  around  the  owners, rather  than being operated as separate corporate entities. 
In  some  cases,  entrepreneurs  can  hardly  separate  their  private funds from company funds. They also depend on their own resources due to little  or  no  external  assistance.  The  success  or failure  of  the  business depends on the ability of the entrepreneur.

3.1.2  Independent Spirit of the Entrepreneur

If  there  is  a  single  characteristic  that  small  businesses  share, it is  the staunch  spirit  of  independence  of  the  entrepreneurs. Most small businesses are set up, mainly, because of the desire to be independent.
Small business owners, willingly, accept risks and live by their ability to provide  what  the  public  wants.  Their  survival depends on  their  own efforts, in terms of self-financing and commercial drive.

3.1.3  Subjective Decision-Making

There is often greater subjectivity in decision-making; and there is also a prevalence  of  informal  employer-employee  relationships.  The entrepreneur  makes  use  of  his  personal  initiatives  and  takes  decisions which are likely to be to his own advantage (Ukeje, 2003:31). 
Small  businesses  enjoy  greater  autonomy  in  decision-making.  The owners of  small businesses exercise full powers in planning and control of their business operations. 
The  government  at  all  levels,  that  is,  federal,  state,  and  local 
government, impose fewer administrative restrictions on them, in view of their flexibility, diverse, and competitive character. 

3.1.4  Small Capital Base

Small  businesses  require  small  capital  base,  in  general,  to  take-off, regardless of the industry and the country where they are based (Otiti, 2007:367).  However,  they  have  difficulty  in  attracting  funds  for 
expansion,  as  a  result  of  which  they  have  to  rely  heavily  on  their personal resources. 
In  order  words,  they  have  limited  access  to  long  and  short  term financing. Entrepreneurs that have access to loans, obtain such loans at a penal  rate  of  interest.  With  the  help  of  micro-finance  institutions  that provide financial services to poor entrepreneurs, they now have access to cheap loans, at an affordable rate of interest.

3.1.5  Labour Intensive Production

Unlike large businesses that generally  require large capital investments in  plants  and  machineries,  small  businesses  require  less  capital investment  in  plants  and  machineries.  Due  to  this  low  capital  base  of small businesses, their production and operation, normally have a high labour content.
Furthermore,  since  the  output  of  most  small  businesses  are  often  nonstandardised  because  they  are  personalised  and  customised  to  suit customers’ taste (for instance, a craftwork or portrait of an individual), they  have  low  technological  requirement  thereby  making  the  labour intensive technique more appropriate.

3.1.6  Ability to Deliver Personalised Services

Customers have testified that small businesses provide personal services, which  large  businesses  cannot  offer.  In  particular,  many  small businesses offer sympathetic, intimate service delivery and also cater for specialized markets whose needs might otherwise be neglected.
Small scale entrepreneurs do not only provide personalised merchandise, their greater flexibility makes them more competitive through selective and careful use of different means of satisfying customers’ needs.

SELF-ASSESSMENT EXERCISE 1

Identify the various characteristics of small businesses.

4.0  CONCLUSION

In  this  unit  you  have  learnt  the  various  characteristics  of  small businesses.  The  various  characteristics  make  their  identification  easier and  also  help  to  distinguish  them  from  large  businesses.  These characteristics include  ownership and simple management, independent spirit  of  the  entrepreneur,  subjective  decision-making,  small  capital base, and labour intensive production, among others.

Next Unit 4   History of Small Business

5.0  SUMMARY

In this unit, you have learnt about the various characteristics of a small business which help to distinguish it from a large business. In the next unit, emphasis will be on the history of small business.

6.0  TUTOR-MARKED ASSIGNMENT

1.  Outline the various characteristics of small businesses. 
2.  Describe  how  these  characteristics  distinguish  small  business from large businesses.

7.0  REFERENCES/FURTHER READING

Otiti,  O.G.  (2007).  Essays  on  Recent  Issues  in  the  Nigerian  Financial 
System. Lagos: CIBN Press Limited.
Stokes,  D.  &  Wilson,  N.  (2006).  Small  Business  Management  and 
Entrepreneurship (5th ed.). China: C&C Offset Printing Co., Ltd. 
Ukeje,  E.U.  (2003).  ‘Employment  Creation  and  Opportunities  through 
Small  and  Medium  Scale  Enterprises:  Country  Experience’. 
Bullion, 27, (4), p31.

Next Unit 4   History of Small Business