Whether they’re home-based or have thousands of employees, small business owners play an important role in innovation, job creation, and economic resilience throughout the nation. They also tend to build closer relationships with their customers and clients, while being less tied to bureaucratic inertia that can often characterize large companies. The Small Business Administration defines a small business as an independent company with fewer than 500 employees or less than $5 million in annual revenue (although these size standards vary by industry). It can take any legal form, from a corporation or partnership to a sole proprietorship. Registering as a small business can open the door to federal funding and programs.
Small businesses are also more responsive to market shifts. Being less dependent on the bureaucracy of large corporations, they can adapt faster and better to changing consumer needs. This translates to more personalized service and a greater ability to innovate in products and services.
A key to a small business’s success is having enough cash flow to cover the company’s operating expenses. To determine this, it is necessary to know what the business’s contribution margin is (sales minus variable costs). To understand what competitors are doing and how to gain market share, it is vital for small businesses to do thorough research, including desk research online and with directories as well as field research, such as observing competitors at work or visiting their stores.
Small business owner optimism peaks when they are confident in near-term revenues and a positive outlook for the economy. These factors tend to correlate with an easing of credit conditions for small businesses.