this ppt will help in your business

1. CHAPTER TWO
SMALL BUSINESS
2/28/2024 BY :Seyoum T. (MA). 1

2. After the completion of this chapter, students will be
able to:
• Grasp the meaning and definition of small business
• Describe the characteristics of small business
• Rationale With Small Business
• Describe the role of small business in economic
development
• Identify the reasons why many small businesses fail
• Recognize government policy and support towards
small business
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Chapter Objective

3. • A small business is a business that is privately owned
and operated, with a small number of employees and
relatively low volume of sales.
• A business which functions on a small scale
level involves less capital investment, less
number of labor and fewer machines to operate
is known as a small business.
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Concepts and definition of Small
Business

4. • SB are the type of industries that
produces goods and services on a small
scale.
• These industries play an important role in
the economic development of a country.
• The owner invests once on machinery,
industries, and plants, or take is a lease or
hire purchase.

5. • These industries do not invest more than
one crore.
• Few examples of small-scale industries
are paper, pen, bakeries, candles, local
chocolate, etc., industries and are mostly
settled in an urban area as a separate unit.

6. • There are two approaches to define small
business.
1. Size criteria
2. Economic/control criteria.

7. • Some of criteria used to measure size are:
number of employees
volume, and value of sales return, asset size
 total capital investment.
volume/value of production.
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1. Size Criteria

8. • Independent management
• Owner supplied capital
• Mainly local area of operation
• Relatively small size within an industry
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Elements constituting the meaning of
small business

9. • Financing of the business is supplied by one
individual or a small group.
• Except for its marketing function, the firm’s
operations are geographically localized.
• Compared to the biggest firms in the
industry, the business is small.
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Cont…nd

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Cont…

11. • In the case of Ethiopia, there is lack of
uniform definition at the national level to
have a common understanding of the micro
and small enterprises.
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Definition small business in
Ethiopia

12. Using capital as size criteria, Ministry of Trade
and Industry of Ethiopia adopted official
definition of Micro and Small Enterprises as
follows:
Micro enterprises are business enterprises
found in all sectors of the Ethiopian economy
with a paid-up capital (fixed assets) of not
more than Birr 20,000 but excluding high-tech
consultancy firms and other high-tech
establishments.
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Cont…nd

13. • Small Enterprises are business enterprises
with a paid-up capital of not less than Birr
20,000 but not more than Birr 500,000, but
excluding high-tech consultancy firms and
other high-tech establishments.
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Cont…nd

14. • Market share ( Does not influence national prices)
• Independence (the owner has control of the business him
self)
• Personalized Management (The owner actively
participates in all aspects of management)
• Technology ( Small businesses are labor intensive)
• Geographical area of operation( The area of operation of
small firm is often local)
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2. Economic/Control Criteria

15. • Generally, small business is a business that is:
privately owned and operated,
 small number of employees, and
relatively low volume of sales.
privately owned companies
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Cont…nd

16.  Actively managed by its owner - independent
Management
 No or few management layers/levels
 Style of management is highly personalized.
 Relatively small in size within the industry as compared to
the highest unit in its field
 Largely dependent on the internal resources of capital to
finance its growth.
 Capital is supplied by ownership and is held by an
individual or a small group
 Limited resources: a small business is unlikely to have
sufficient resources to dominate the market.
 Independence: the owner has ultimate authority and
effective control
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2.2 Characteristics of Small Business

17. Scope of operations: small enterprises serve a limited
segment of local or regional market
Scale of operation: they occupy a limited share of a
given market.
 Labor: they are low in capital and high in labor, as
they cannot afford capital-intensive machinery.
Specialized skills: The small enterprises normally
have specialized skills for certain specific clients.
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Cont…

18. 1. Service business- like hotels and
transportation services.
2. Retail business- buying products from whole
sellers and reselling the products to final
consumer
3. Wholesale business-buying products from
large manufacturers and reselling the products
to retailers
4. Manufacturing business
5. Agriculture
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2.3 Major Areas of Small Business

19. • What do you think are factors that
contributes to small businesses
failures?
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Class Activity #4

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Overcoming Obstacles

21. • Managerial incompetence or inexperience-
• Neglect-carelessness
• Weak control system-
• Failure to clearly understand your market,
customers and customers' buying habits
• Poor financial control
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2.6. Common Causes for Small
Business Failure

22. • Over investment in fixed asset
• Failure to plan current as well as future
operation
• Failure to adopt proper inventory control system
• Improper Attitude
• Inadequate marketing plan
• Incorrect market identification
• Poor distribution channel
• Poor location
• Weak marketing communication or promotion
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Cont…

23. 2/28/2024 BY :Seyoum T. (MA) 23
Problems in the Ethiopian small
business cont…
Limited and unequal access to institutional
credit markets (Shortage of credit and
finance).
Irregular access to domestic and imported
inputs coupled with higher cost.
Scarcity of capital.
Inadequate infrastructure facilities.
Weak managerial and technical skills.

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Problems in the Ethiopian small
business ( Cont….nd)
Poor production techniques.
 Lack of Information
 Inadequate management and Business skill
 Absence of appropriate strategy
Regulatory problems (licensing, illegal Business etc.)
Lack of working space for production and
marketing.

25. There are three types of business ideas. They are:
A. Old idea – Here an individual copies an
existing business idea from someone.
B. Old Idea with Modification –accepts an old
idea from someone and then modify it in some
way
C. A new Idea –invention of something new for
the first time
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Business Ideas

26. i. Customers
ii. Existing companies
iii. Distribution channels
iv. Research and Development units
iv. Government
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Sources of Business Ideas

27. • Brainstorming:
• The entrepreneur can gather a group of
people to discuss and generate new ideas.
• Customer Proposal: - informal suggestions
• Creative groups: - an other creative groups
• Market Mapping: - It is a formal technique
which involves identifying the dimensions like
price, quality and performance.
• Focus group: - through an open, in-depth
discussion
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Methods for Generating Ideas

28. • Scientific Method: conducting observations
and experiments
• Big Dream Approach: continue until an idea is
developed into a workable form.
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Cont…

29. • An enterprise considered an SME in one country
might well be bigger than many large countries in
another.
• There are nevertheless three parameters that are
generally accepted, either signally or in
combination, in defining the terms in most
countries, these are
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2.9.1 Small Scale Industry & Large
Scale Industry

30. A. Number of workers employed which is the
most widely used criteria
B. The level of capital investments or assets
C. The volume of production and sales return.
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Cont…

31. Equitable distribution of wealth and
decentralization of economic power
Income dispersed more widely and its benefit is
derived by the large segments of the society
 Encourage competitive spirit and generate
the impetus/power to self development
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Advantages of Large Scale Industries

32. • More Employment creation capacity
small scale enterprises are labor intensive
and thus create more employment with a
given level of capital.
require less capital but generate more
employment.
• Removing Regional Imbalance- by inducing
people to set up small firms in rural areas to
avoid migration
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32
Cont…nd

33. • Export Promotion
Small-scale enterprises are opening up fresh
avenues in the export market in our world.
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Cont…n d

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Ancillary Function -supply parts and
accessories to bigger enterprises
How Big Companies Can Support Small
Businesses

35. Independence
Financial Opportunities
Community Service
Job Security
Family Employment
Learning from Challenge
Introducing Innovation
Catering for small or niche markets
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Advantages of going into Small
Business

36. Starting a new business requires the following
steps:
Step 1:- Identification of New Venture
Opportunities
• It may be from
• external resources like:- Newspapers, trade
journals, professional journals etc. or
• internal resources like:-storehouse of knowledge
build up by an individual over the years.
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The Startup Process of a Small
Enterprise

37. STEP 2: Evaluation and selection of New
Venture Opportunities
a. Technical feasibility that is the possibility of
production with the available skill &
technology
b. Commercial viability of the idea based on cost
and profitability.
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Cont…

38. • Lack of objectivity
• Market Myopia:- A shortsighted approach of
concentrating on production rather than on
marketability could lead to avoidable disaster.
• Inadequate Understanding of Technical
Aspects
• Lack of Product Differentiation
• Overlooking Legal Issues
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Pitfalls in Selecting New Venture
Opportunities

39. STEP 3: Technical, Identified Marketing and
Financial Feasibility of the Project
• Technical Feasibility
• It covers
a)The functional design of the product.
b)Adaptability to the new customer demand.
c)Durability
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Cont…

40. d)Reliability of performance.
e)Safety
f) Reasonable utility (i.e. acceptable level of
obsolescence)
g)Standardization (i.e. elimination of
unnecessary variety)
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Con t…

41. STEP 4: Assessment of Personal Requirements
and Organizational
STEP 5: Analysis of Competition
a) direct competition
b) Indirect competition
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Cont…

42. 6. Implementation
7. Controlling and Monitoring
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Cont…