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© Cambridge University Press 2012
Chapter 3Small Business
© Cambridge University Press 2012
Small Business
• Small businesses are owned and managed by the same person and employ fewer than 15 people
• They represent 96% of all private sector businesses
© Cambridge University Press 2012
Small Business
• Small businesses employ almost 5 million people in Australia
• They also contribute strongly to Australia’s level of economic activity and production, exports and tax revenue
© Cambridge University Press 2012
Owning a Small Business
Reasons for owning a business include• the profit motive• a desire for greater independence• the identification of a market opportunity• employment
© Cambridge University Press 2012
Owning a Small Business
Most successful business owners are experts in their field, entrepreneurial, determined, confident, cordial, patient and willing to recognise their own limitations and seek assistance
© Cambridge University Press 2012
There are three main asset groups that can be used as alternative investment options to starting a small business• cash• property • shares
Alternatives to Owning a Small Business
© Cambridge University Press 2012
Alternatives to Owning a Small Business
Investors must take into account the correlation between the level of risk and the rate of return, the term, and the liquidity of any alternative investment
© Cambridge University Press 2012
Planning
• A detailed business plan is essential before operations commence. The more information included in the plan, the greater the business’s chances of success
• A business plan may make it easier to convince a financial institution to provide finance
© Cambridge University Press 2012
Business Operations
• Business can be classified by the nature of their operations as trading, service or manufacturing businesses
• In some cases, businesses will combine one or more types of operation
© Cambridge University Press 2012
Ownership Structures
The choice of ownership structure will have consequences for a whole host of issues, including the owner’s personal accountability for the debts of the business
© Cambridge University Press 2012
• The three principle ownership structures are sole proprietorships, partnerships and companies
• Sole proprietorships and partnerships have unlimited liability; companies have limited liability
Ownership Structures
© Cambridge University Press 2012
Small Business
• A prospective business owner can start a new business, buy an existing business or buy a franchise
• Small businesses can also gain assistance from a variety of sources
© Cambridge University Press 2012
Recipe for a Successful Small Business
Successful small businesses have a high demand for their product or service, a good location, a thorough business plan, sufficient starting capital and a knowledgeable and resilient owner