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What Is a Small Business?

Small business owners often handle many different aspects of their business.
Depending on the size of the business, it may not accept all forms of business.
People might start a small business as a direct seller for a company.
A small business may grow out of a person's favorite hobby.
Most of the time, the owner of a small business also works there.
Mom and pop stores are a popular type of small business.
A family farm is a common small business in the Midwest.
A sole proprietor is a small business owner who is the only employee in the company.
Independent clothing stores are part of the small business industry.
People who make jewelry may set up a small business selling items.
Antique stores are considered a small business because they usually only have a couple of employees.
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  • Written By: Maggie Worth
  • Edited By: Jenn Walker
  • Last Modified Date: 15 October 2014
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A small business is roughly defined as one with few employees, limited revenues and a constrained market reach. Small businesses can be structured in a number of ways and may operate in nearly any industry. Local governments often applaud small, local business as being good for the community and for the tax base. The corner baker, local insurance agent and specialty gift shop are likely to be a small business in most towns.

There is no specific, quantifiable and universal definition of a small business, but the term may be defined by very specific parameters in some situations, particularly when dealing with governmental, financial or regulatory agencies. Such agencies often extend tax cuts, special financing offers and requirement exemptions to small businesses. A business that wants to take advantage of such offers must prove that it meets the definition of a small business as set forth by the entity in question.

Businesses considered 'small' do often share common characteristics. A small business will usually be privately-held, meaning that company shares are not traded on the open market. Ownership in the company is often held by a single individual, called a sole proprietor. The company may also be structured as a partnership, a corporation or, in locations where such entities are allowed, as a limited-liability company. In small businesses, the principles or company owners are usually related, or at least well-acquainted.

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In most cases, the small business owner works at the business. While she may have additional employees or may only come into the business at specified times, customers will often see her behind the cash register or at client meetings. This can vary, especially once the business becomes financially independent or if the owner has more than one business, but most owners will retain a close personal interest in the operations of the company.

Most small businesses also have limited liquid capital, both in the start-up stage and during subsequent operations. As a result, the ability to buy mass quantities at discounted prices, the ability to access new technologies and the budget for significant marketing efforts may be adversely affected. For these reasons, small businesses generally have few employees and may be unable to provide worker benefits available at larger corporations. Product-oriented businesses will be unlikely to match department store prices. Service-oriented companies, however, are often less expensive than large corporations because of the reduced overhead.

Small businesses may also be called micro-businesses, neighborhood businesses and mom and pop businesses. Many localities have associations and membership groups designed to support and promote area small businesses. These associations may offer business classes and networking opportunities for small business owners and may host events to showcase these businesses to the public. Common industries for small businesses include retail; hospitality; food service; consulting; personal services, such as hair salons or alterations work; and professional services, such as law or tax accountancy.

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