Buying A Business

Tips on identifying a small business.

If you own a business, it’s important to understand how size affects your operations. According to government agencies, different types of small businesses have their procedures to follow. What is considered a small business by the government?

Not every small business eventually grows to the size of a large corporation. Some businesses are ideally suited to operate on a small scale for years, often serving a local community and to generate just enough profit to take care of company owners. Small-scale businesses display a distinct set of identifying characteristics that set them apart from their larger competitors.

Meaning of Small Business

Small businesses are either services or retail operations like grocery stores, medical stores, tradespeople, bakeries and small manufacturing units. Small businesses are independently owned organisations that require less capital and less workforce and less or no machinery. These businesses are ideally suited to operate on a small scale to serve a local community and to provide profits to the company owners.

Business Or Hobby

What is a Small and Mid-size Enterprise (SME)?

Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a number of employees below a certain threshold. Each country has its definition of what constitutes a small and medium-sized enterprise (SME). Certain size criteria must be met and occasionally the industry in which the company operates in is taken into account as well.

Though small in size, small and mid-size enterprises (SMEs) play an important role in the economy. They outnumber large firms considerably, employ vast numbers of people and are generally entrepreneurial, helping to shape innovation.

Characteristics of a Small Scale Business

Lower Revenue and Profitability

Lower revenue does not necessarily translate into lower profitability. Established small-scale businesses often own their facilities and equipment outright, which, in addition to other factors, helps to keep costs lower than more leveraged businesses.

Smaller Teams of Employees

Small-scale businesses employ smaller teams of employees than companies that operate on larger scales. The smallest businesses are run entirely by single individuals or small teams. A larger small-scale business can often get away with employing fewer than one hundred employees, depending on the business type.

Small Market Area

Small-scale businesses serve a much smaller area than corporations or larger private businesses. The smallest-scale businesses serve single communities, such as a convenience store in a rural township. The very definition of small-scale prevents these companies from serving areas much larger than a local area since grown beyond that would increase the scale of a small business’s operations and push it into a new classification.

Sole or Partnership Ownership and Taxes

The corporate form of business organisation is not well-suited to small-scale operations. Instead, small-scale businesses prefer to organise as sole proprietorships, partnerships or limited liability companies. These forms of organisation provide the greatest degree of managerial control for company owners while minimising the hassle and expense of business registration.

These businesses generally do not file their taxes; instead, company owners report business income and expenses on their tax returns.

Limited Area of Fewer Locations

A small-scale business, by definition, can be found only in a limited area. These companies are not likely to have sales outlets in multiple states or countries, for example. A large number of small-scale businesses operate from a single office, retail store or service outlet. It is even possible to run a small business directly out of your home, without any company facilities.

Small Business’s Target Audience

Determining what kind of business you want to open is only the first step in the startup process. It’s equally important to select your business’s target audience or target market. A small company can’t compete with mass-market businesses by being all things to all people. You must identify a specific market that has enough profit potential for you to succeed. Here are some steps to doing so.

Start by thinking about the kind of customers you’d like to do business with. For example, suppose you are planning to start a marketing business. In this case, determine whether you’ll be selling to other businesses or consumers. Within the consumer or business categories, drill down still further. If you are selling to businesses, do you want to sell to companies in a specific industry?

Identifying your own experience and skills will help you home in on your target customers. For instance, if you plan to start a marketing firm and have spent ten years working in retail marketing, you may want to focus on retail businesses as your customers.

Next, assess where and how these target customers currently buy the kind of product or service you’re selling. In our marketing example, you’ll want to research how retail companies handle their marketing, which may entail contacting some companies directly. Your research may show you that large retailers have in-house marketing teams, but small retailers don’t.

The next step in identifying your target market is pinpointing a need. In the example above, the research shows you that small retailers have a need for your services, so it makes sense to focus on them.

Once you have some potential target markets identified, assess each one using market research to answer these questions:

  • How big is this target market? Is it growing or shrinking?
  • What is the average income of this target market? How much do they spend on your type of product or service?
  • Where are these target customers located? If your business relies on a local market, more of your target market must be moving into the area than moving out.
  • Will this target market generate adequate sales volume to meet your business goals?
  • What is the profit potential of this target market?
  • Who else is competing for this target market?
  • How much of this market can I realistically expect to capture?

Once you select your target market, doing market research periodically will show how your market is changing and enable you to stay one step ahead of the competition.

Ways to Identify Good Small Businesses

Online reviews

Online review sites provide a wealth of information about other shoppers’ experiences at various small businesses. While there may be a few unwarranted reviews from disgruntled and unreasonable consumers, reading through all the reviews will give you a good picture of where you want and don’t want to shop.

One of the most widely known online review sites is Yelp, but there are other online reviews like Yahoo and Google, offer shopper reviews.

Your social circle

With the many social media sites you already belong to, you most likely can survey for those trusted sites among friends – as many of them live in your area and use those small businesses already.

These can provide a trustworthy review, generally more accurate than other online reviews from strangers, about a particular small business. Plus, usually people you know will provide additional details if you want more information about what it is a friend likes or doesn’t like about the small business.

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Owner accessibility

Seeing the business owner and being able to interact with them through a one-on-one face time is always a good sign that you are going to buy from a good small business. It shows an active and involved owner who is eager to know their customers or prospects, so they are there working all the time.

Active small business owners learn to recognise and acknowledge their customers by name, which adds further to the likelihood that its good small business. Additionally, if the owner is featured as a thought leader in blogs and articles, online and/or offline, this is also indicative of a business to shop at.

Media coverage of community deeds

Although the media may be fooled at times, more often than not, coverage on a small business is highlighting that they do well. It may even focus on the types of things they do to give back to their community in terms of social responsibility. Combined, these two signs illustrate that a small business has their heart and mind in the right place.

Happy employees

You know you want to shop at a small business when you walk in, call the business, or email them and get a cheerful response.

If employees are happy there and not stressed to the point of breaking; then it means the owner is treating them well and that’s a good sign that you, the customer, will be taken care of too. Plus, the happy employees will further enhance the positive customer experience that the small business owner most likely is trying to create.

Attractive environment

You don’t want to do business with a company that has a dirty, disorganised, and unattractive storefront – and that goes for a brick and mortar store as well as a website. How a business takes care of their physical business tells you a lot about what type of experience you will have in that environment. Look for those businesses that focus on a clean, organised, and attractive presentation.

Effective communication

Call or contact the business with a question and see what type of response you get. The speed and effectiveness of the communication you receive will also be telltale signs of the type of business Look for those that are responsive and friendly as well as have good listening skills.

From gaining information by what others recommend to you – to what you perceive through your interaction with a small business, you will be able to conclude whether it is a small business you want to be associated with and whether it’s worth shopping there. This holds of both regular shopping sprees or the online kind.

Worst-case scenario, you can take the leap and do a test shop to see for yourself. Most likely, your instinct, based on the research, will tell you if your initial findings were correct.

Special Considerations

Small and mid-size enterprises (SMEs) are often considered to be the heartbeat of both emerging and developed economies. 

Government Incentives

Life as a small and mid-size enterprise (SME) isn’t always easy, though. These businesses generally struggle to attract capital to fund their endeavours and often have difficulty paying taxes and meeting regulatory compliance obligations.

Governments recognise the importance of small and mid-size enterprises (SMEs) in the economy. They regularly offer incentives, including favourable tax treatment and better access to loans, to help keep them in business.

They also offer education programs, coaching small and mid-size enterprise (SME) business owners on how to make their businesses grow and survive, as well as special audit programs to target high-risk areas and boost tax compliance.

 

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