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Definition of Small Business

A small business concern as one that is independently owned and operated, is organized for profit, and is not
dominant in its field.
A small business is a business that is privately owned and operated, with a small number of employees and
relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or
sole proprietorships.
According to Bangladesh Industrial Policy 2010, In manufacturing, “small industry will be deemed to
comprise enterprises with either the value (replacement cost) of fixed assets excluding land and building
between Tk. 5 million and Tk. 100 million, or with between 25 and 99 workers.”
For services, “small industry’ will correspond to enterprises with either the value (replacement cost) of fixed
assets excluding land and building between Tk. half a million and Tk. 10 million, or with between 10 and 25
workers.”

CHARACTERISTICS OF SMALL BUSINESS ENTERPRISES

There are many characteristics of small business. Some of which are described in the following paragraph:
1. Unity of Individuals and the Organization
The strength of small business is that individual employees retain their personal identities, yet support
the unity of the organization. Employees understand and commit themselves to corporate objectives.
2. High Individual Motivation
Individuals are highly motivated for further exertion and organizational development. Though pay for
performance is a principal motivator in a small business, comfortable and social life related workplace
plays a role of the social motivator.
3. Owners as Managers
In most of the small businesses, owners are responsible for managing the firm. The employees are hired
on owner’s discretion. Owners are responsible for taking any and all management decisions.
4. Streamlined Communication
With simple and petit structure of the organization, good and effective communication is maintained
with and among employees. This keeps the organization more susceptible to changes in the business
arena.
5. Supportive climate for Organizational Integration
Management including supervisors keeps close relations with subordinates. They offer training,
encouragement and counseling to subordinates for problem solving. Employees are provided with
challenging and enjoyable workplace.
6. Personal Character: A small scale unit is generally owned and organized by a single entrepreneur or
a group of persons. Personal character is an outstanding feature of small business.
7. Independent Management
Management in small business is independent in the sense that owners themselves act as mangers. There
is little divorce between ownership and control. In the words of Kaplan “simplicity of organization that
marks an enterprise as small is reflected into the identity of ownership and Management.” The
management structure is simple not complex, as number of employees is limited. Due to proprietary
ownership and management, success of these enterprises depends upon the initiative, skill and judgment
of the owner.
8. Limited Investment:
A small enterprise requires relatively less capital investment which is [provided by the owner(s) though
own resources and borrowings. Capital investment is comparatively small because it does not employ
highly mechanized means of production.
9. Simple Technology
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Small enterprises are generally labour intensive. The machinery and equipment used are not very
sophisticated and they are generally operated manually. Amount of working capital is generally bigger
then fixed capital indicating their labour intensity. Labour is the primary input.
10. Local Area of Operations
A small scale unit depends largely on local resources and its operations are localized. It operates in a
compact area and there is personal touch between the employer and the employees. However, the
products of small scale in duties are exported all over the world.
11. Being customer oriented
Always focus on the customer experience and if possible then try to get every detail of their experience.
Don’t get them satisfied with your product, get them delighted with your product. This will create a
strong brand for you, high profit margin and ultimately high growth. Plus, you’ll get long term
commitment from them, as they will keep buying the next version of your product, and pretty much
anything else you might throw out there.
12. Being action oriented
The people who changed the world had big dreams. Perhaps a lot more people had the same dream but
there are only a few who succeeded. It is only they who dared to take action and had the dedication to
follow through had succeeded to achieve their success. In the same time the others kept dreaming and
cursed those who actually accomplished their dream. I’m not saying you shouldn’t dream. In fact, if you
can’t dream then you can’t have a business goal. Thus, dreaming is essential but at the same time you
should try hard to achieve it. You need to take the harder route and take prudent action to make your
dream a success story.
13. Expanding your network
Nobody really makes it on their own, no matter how talented one may be. You need to get “noticed” by
someone important before you become a very popular person. This can help you in business too. Great
partnerships with big companies can skyrocket your business’ growth, if only you have something
worthy of that company. Get in the circle of people who can help your business most, and you’ll
experience overnight success.
14. Being money wise
Being money wise, is the secret of business success. They spend too much on stuffs that they think they
need now or 5 years into the future, instead of finding something much more innovative and cost-
effective stuff. You just have to think about effectiveness of a work all the time. This means you should
also buy something that is slightly more expensive if it brings you 10 times the returns. That’s what
being money wise is all about.

ADVANTAGES OF SMALL BUSINESS:

The small business has many advantages over its larger counterparts. It does not have access to huge
resources, numerous employees strong financial backup, or the professional management of the big
businesses, but it does posses some distinct advantages that are only its won. Because of small
percentage of income that goes for overhead and non-revenue-producing activities, there are still some
functions that can be performed more efficiently by small business enterprises than by large ones.

1. Growth
Small business helps entrepreneurs develop as an individual and expand their personal abilities. Their
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growth might have been hampered had they been employed under the guidance of a supervisor in any
other organization. Ambition also motivates entrepreneurs and makes them hang in there.
2. Provides self employment opportunities
Small business helps people provide job for themselves. Sometimes employment opportunities are
limited in big industries. There are losing big firms that are frequently cutting back, closing plants, and
laying off people. This creates unemployed people in society who are otherwise capable of performing
various jobs. The area of small business can provide a much-needed source of new employment. This
shows the important contribution the smaller firms are making to their respective notional economics.
3. Flexibility
Large corporations often lack the flexibility of small business because of the complex organizational
structure, established bureaucracies, and high overhead costs. Decision making in the small business
frequently depends on only one or two persons. The management and the workforce in the small
business may be more adaptable to change than those of the large corporation. They can react more
quickly to changing market conditions or to modify a product for a customer more easily than could a
large business.
4. Better Inter-personnel Relationships
Both managers and staff in the small business are treated as individuals. Managers are given freedom
and decision making and provided with variety of responsibilities. Staffs are encouraged to innovate
there by reducing boredom in the workplace. Lines of communication are direct between owners and
employees.
5. Independence
Small businesses give its owners the liberty or independence to come go as they please. Owners of small
business enterprises have a degree of freedom that are not customary for managers in most big
corporations this freedom encourages self-motivation. Often this freedom of small business owners
means the right to work harder and longer hours than they would if they were employees of big
business. However, the psychological and financial satisfaction arising from enterprise ownership is
powerful rewards for the risks of going into business for oneself.
6. Quick decision
As the owner of the business does all in all in that particular concern, the owner does decision-making
mostly. So the decision is taken relatively quickly because he or she does not have to discuss other
people or superiors to take the decision.
7. Small Businesses Are the Backbone of the Economy
The US Small Business Administration says that small businesses create two of every three new jobs,
produce 39% of the gross national product, and invent more than half the nation's technological
innovation. And this kind of statistic could be repeated in country after country around the world. Just
because you work for or run a small company doesn't mean you are unimportant. Your contribution to
your country's economy is huge.
8. Small Businesses Demonstrate the Essence of Political Freedom
The ability to develop and conduct your own small business is a wonderful expression of your freedom
as a citizen. You may complain about government regulations, but the fact is that small businesses are
less regulated than large firms. This gives small businesses the freedom to focus on what is really
important -- caring for customers.
9. Small Businesses Provide Better Customer Care
I'm sure you've noticed that the larger a company grows, the harder it becomes to provide good customer
service. Just try to find the right person to help you on the phone in a huge corporation -- it'll drive you
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batty. But when you ask for the owner of a small business, chances are you'll be speaking to her or him
within a few minutes. Marketers toss around buzzwords like "Customer Relationship Management
(CRM)," but it's the small business not the mega corporation that really excels at it. Small businesses
know that their livelihood is based on their customers. Small is great for customers.
10. Small Businesses Encourage the Passion Needed to Succeed
Apathy doesn't breed nearly as well in small businesses as it does in big business. Small business owners
and their workers are focused and immensely proud of what they do. Small business owners are
passionate about their businesses. How many employees in bureaucratic organizations can say the same?
11. Small Businesses Owners Are Highly Skilled
In a small business, you have to excel at a lot of things to succeed. Small business owners and their key
employees are masters of dozens of disciplines and perform their intricate balancing act like pros. So
what if they wear more than one hat? Whom should we admire more -- the corporate manager or the
jack-of-all-trades small business owner, whose skill-set is sharpened to a razor's edge, and who survives
and succeeds and serves? My vote is with the latter.
12. Small Businesses Allow Owners the Freedom to Innovate
Small business owners learn to be risk takers and innovators. Corporate employees, on the other hand,
too often interpret their prime directive as keeping their jobs. Risk-taking can get in the way of career-
building. Innovative small businesses are prize targets of larger corporations that often find it more cost-
effective to acquire than to innovate on their own.
13. Small Businesses Can Change Course Rapidly
Large corporations can be adverse to change, while small businesses know that their ability to make
rapid decisions and implement course corrections is their key to success. In the ocean of business, mega-
corporations turn like tankers, while small businesses can zip around them with the agility of a
speedboat.
14. Small Businesses Can Be Quite Profitable
Small business is not a synonym for small earnings. In fact, many small businesses are extremely
profitable. Their advantages of leanness, maneuverability, innovation, and customer focus mold them
into steady enterprises that earn a significant return on investment year after year after year.

DISADVANTAGES OF SMALL BUSINESS:

The small business has their share of disadvantages too. These disadvantages have multiplied in the current
years due to increased management problem in recent years.

1. Inability to cope with growth

Sometimes, the factors that are advantageous to small business turn in to serious disadvantage when it is
time to grow. Growth often requires the owner to give up certain authority. Similarly, growth also
requires specialized management skills, which the owner may lack.
2. Management problem
Effective and efficient management is very important for the smooth running of any kind of business. A
new businessperson often has the knowledge and skill to produce a good but will lack the necessary kills
of planning organizing, staffing, directing and controlling. Yet the small business owner is often forced
to become a generalist in management since he or she can’t afford to employ a specialized person
having necessary managerial skills. Also they do not give the subordinates enough responsibility to
manage.
3. Shortage of working capital
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Shortage of working capital is the most predominant limitation of small business. For this limitation,
they cannot take the advantage of economies of scale. They cannot take the advantage of discounts
given for bulk purchases. This leads to the inability to cope up with their larger competitors in new
facilities, equipment, tools, and methods.
4. Lack of coordination
Another disadvantage is the lack of coordination between production and marketing. That is the failure
to balance and coordinate these to critical functions. It is important for small business to keep judicious
balance among. Having too few products so that the orders of potential customers have to be turned
down. Having too big inventory as to bear too much inventorying and maintenance cost. Diversifying
too fast. The advantage of diversification and the advantages of product specialization should be
balanced.
5. Lack of effective selling techniques
Small businesses usually don’t have the access to specialized person at marketing. So, they lack in
scientific market research, specialty advertising and personal selling. As a result sales are comparatively
lower than the larger enterprises. Location of the head office and the accessibility does affect the sale to
certain degree.
6. Introducing new product or idea
There is always a risk involved in introducing a new idea or product. In case of a radical innovation,
market reaction and consumer acceptability need to be tested. It is therefore, preferable to introduce the
product through a small firm, which ensures less risk factor on investment.
7. Having a Local Market for the Commodity offered
In certain form of business, operation in a larger market is not economically viable. For instance, it will
not be economical for a restaurant to sell its product to a large market. Such scale of operation exceeding
the local demand would cause inefficient use of resources. Therefore, a small firm does better in a small
scale.
8. Lack of Authenticity
One of the major disadvantages of a small business is the lack of authenticity. Most people prefer to do
business with established industries rather than to put their trust in small businesses which have several
risk factors. To make the name for a small business in the big industry is the major obstacle that most
small businesses face. Much marketing effort and references are required to firmly establish and
authenticate a small business.
9. Improper Planning about Marketing and Budget
The disadvantage of a small business is that since it is run on a low budget, it requires tremendous
marketing and the planning and implementation of proper strategies. The improper handling of loans or
investments can often lead to the downfall of a small business very quickly. It is very necessary that all
the planning of a small business is firmly kept in mind when a person opts to start a small business.
10. Unavailability of Loans Granted
A disadvantage of small businesses is the non-payment of loans or grants undertaken by the business
owner, when he is not capable of running a business properly. Beside government loans the majority of
loan providers have debt associated with the financial aid. Such firms readily provide loans to people
regardless of his inconsistency in running a proper small scale business. If the small business crashes it
imposes serious economic consequences on a person who is liable to be sued by the loan providers.

Sources of Small Business Funding/Financing

1. Personal savings
Keep in mind that most lenders won't finance 100 % of your business, so your first source of capital will
probably be a loan from yourself. Few businesses are entirely funded by parties other than the
entrepreneur.
2. Family and friends
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Borrowing from your friends and family is a good way for new businesses to get money. It is not
uncommon for relatives to make low interest or no interest loans to family members. However, you risk
alienating your family if the business falls on hard times and you have trouble repaying the loan. Be sure
that you have a written agreement regarding the amount borrowed, the interest rate and how and when
the loan is to be repaid.
3. Banks
It has been reported that the most important factor in getting a small loan is the credit history of the
borrower. If you don’t have a good credit history, clear up all your credit problems before you go to a
bank for a loan..
There are two basic types of loans you might want to consider
I. Business Loans
Most small business loans are secured with company or personal assets. Lenders will usually ask for
personal guarantees, as well as collateral from anyone who owns more than 20 percent of the
company. The bank's reason for requiring collateral is, in part, to gauge whether you think your
company is worth the risk you are asking them to take.
II. Consumer Loans
Many small businesses are funded through personal loans or other loans based on personal assets.
Consumer loans, home equity loans, second mortgages, mortgage refinancing, and personal loans -
are easier to obtain than business loans if you have a good credit history. Some banks don't mind if
you take a consumer loan and use the funds for business purposes, others will refuse to lend to you if
you tell them you need the money for business purposes.
4. Business Angels / Investors
If you are seeking an outside investor for your business, you will typically seek 'business angels' who
look for interesting projects to invest in. These may be wealthy individuals, or other businesses.
You may also be aware of venture capitalists - typically companies who specialist in investing larger
sums of cash into business ventures. Unlike banks, outside investors will provide funds in return for
share in the business. They may also provide expertise to your business, which can prove as valuable as
a cash injection in some cases.
5. Grants
In certain circumstances and for small businesses in specific industries and niches, sources of funding
may be available from governmental or private sources in the form of grants. Unlike a loan, these funds
are typically not paid back to the source. However, grants come with requirements attached. These
requirements can range from research results, reports or specific products and services. Grants can be
available from a wide array of sources including federal government agencies, state government
agencies, or grants from educational or corporate institutions and private foundations.
6. Private stock issue
7. Forming partnerships
8. SME finance, including Collateral based lending and Venture capital, given sufficiently sound
business venture plans

Importance/Roles of Small Business in Bangladesh

In a developing country like Bangladesh, the role and importance of small-scale industries is very significant
towards poverty eradication, employment generation, rural development and creating regional balance in
promotion and growth of various development activities.
It is estimated that this sector has been contributing about 40% of the gross value of output produced in the
manufacturing sector and the generation of employment by the small-scale sector is more than five times to
that of the large-scale sector.
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This clearly shows the importance of small-scale industries in the economic development of the country. The
small-scale industries have been playing an important role in the growth process of Bangladeshi economy
since independence in spite of stiff competition from the large sector and not very encouraging support from
the government.
The following are some of the important role played by small- scale industries in Bangladesh.
1. Employment generation
The basic problem that is confronting the Bangladesh economy is increasing pressure of population on
the land and the need to create massive employment opportunities. This problem is solved to larger
extent by small-scale industries because small- scale industries are labour intensive in character. They
generate huge number of employment opportunities. Employment generation by this sector has shown a
phenomenal growth. It is a powerful tool of job creation.
2. Mobilization of resources and entrepreneurial skill
Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and
semi-urban areas remain untouched from the clutches of large industries and put them into productive
use by investing in small-scale units. Small entrepreneurs also improve social welfare of a country by
harnessing dormant, previously overlooked talent. Thus, a huge amount of latent resources; are being
mobilized by the small-scale sector for the development of the economy.
3. Equitable distribution of income
Small entrepreneurs stimulate a redistribution of wealth, income and political power within societies in
ways that are economically positive and without being politically disruptive.
Thus small-scale industries ensure equitable distribution of income and wealth in the society of
Bangladesh which is largely characterized by more concentration of income and wealth in the organized
section keeping unorganized sector undeveloped. This is mainly due to the fact that small industries are
widespread as compared to large industries and are having large employment potential.
4. Decentralization of industries
There has been massive concentration of industries a few large cities of different Bangladesh. People
migrate from rural and semi urban areas to these highly developed centre’s in search of employment and
sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding,
pollution, creation of slums, etc. This problem of Bangladeshi economy is better solved by small- scale
industries which utilize local resources and brings about dispersion of industries in the various parts of
the country thus promotes balanced regional development.
5. Provides opportunities for development of technology
Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample
opportunities for the development of technology and technology in return, creates an environment
conducive to the development of small units. The entrepreneurs of small units play a strategic role in
commercializing new inventions and products. It also facilitates the transfer of technology from one to
the other. As a result, the economy reaps the benefit of improved technology.
6. Indigenization
Small-scale industries make better use of indigenous organizational and management capabilities by
drawing on a pool of entrepreneurial talent that is limited in the early stages of economic development.
They provide productive outlets for the enterprising independent people. They also provide a seed bed
for entrepreneurial talent and a testing round for new ventures.
7. Promotes exports
Small-scale industries have registered a phenomenal growth in export over the years. Thus they help in
increasing the country's foreign exchange reserves thereby reduces the pressure on country's balance of
payment.
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8. Supports the growth of large industries
The small-scale industries play an important role in assisting bigger industries and projects so that the
planned activity of development work is timely attended. They support the growth of large industries by
providing, components, accessories and semi finished goods required by them. In fact, small industries
can breathe vitality into the life of large industries.
9. Better industrial relations
Better industrial relations between the employer and employees helps in increasing the efficiency of
employees and reducing the frequency of industrial disputes. The loss of production and man-days are
comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries
due to good employee-employer relationship. Of course, increase in number of units, production,
employment and exports of small- scale industries over the years are considered essential for the
economic growth and development of the country. It is encouraging to mention that the small-scale
enterprises accounts for 35% of the gross value of the output in the manufacturing sector, about 80% of
the total industrial employment and about 40% of total export of the country.
10. Email Marketing: The Importance To Small Business
An offline business should consider email marketing as one of the key foundations for its marketing campaign.
Many business owners are wary of using email to market to prospects due to the SPAM legislations that exist
and the perception that email marketing may leave with prospects. These are, indeed, very valid concerns
however, by approaching email marketing in the correct way, it is possible to increase business and improve
customer retention. This article provides valuable tips on how an offline business can create an email
distribution list to begin with and ensure that the email marketing campaign creates the right perception with the
customers.
11. The Importance of Lead Capture
If you're putting together your website, you've probably come across the term "lead capture page" and wondered
what on earth it's all about. A Lead Capture Page is often called a squeeze page and it performs a vital function.
This page grabs a visitor's attention and provides fast, easily-understood benefits to encourage that person to
subscribe to your email marketing list. Over time your lead capture page will provide a prospect list that you can
use to market your business. This page must be designed to attract and appeal to your Target Audience. This is
not only includes the graphics and layout of the page, it also includes the words and language used... Your Lead
Capture page is critical - if you don't hook the reader within a few seconds, they'll move on and they general
won't come back.
12. Reasons to change
Sometimes small business are also acting as the initiator of changing the society from top to bottom including
rules and regulations regarding business and commerce of that particular country.
13. Sources of Innovation
The initiative of establishing small business acts as the pioneer of a creative person to innovate something new
in the society contributing to the nation.
14. Increasing per-capita income
It creates a massive employment opportunities for the educated and uneducated people and increasing GDP and
ultimately increasing per-capita income of the people.
15. Effective use of natural resources
It ensures effective and efficient utilization of available natural resources applying to the small-scale production
with a minimum cost enhancing maximum production on the local basis.
16. Use of local technical knowledge

17. Base of large business

18. Proper use of capital
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19. Earning foreign currency
20. More personal relations
21. Leadership development
22. Protection to urbanized tendency
23. Increasing living standards
24. Quick supply of goods
25. Reduction of costs
26. Honorable means of livelihood
27. Reducing monopoly effect
28. Training field