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Small Business

Meaning and Nature of Small Business

Small businesses surround us. They are on every other street and in every corner. Every second thing someone buys comes from a small business. In India where unemployment is a serious issue, small business gains a special position in the industrial structure because of their ability to utilise labour and create employment. Let us learn about meaning, nature and types of small business.

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Meaning of Small Business

(Source: Quora)

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.

Indian government defines small businesses on the basis of the business’s ability to invest in the plant and machinery. According to the definition provided by the government website for business, business.gov.in, a small scale business is a business set up in which the financial commitment towards infrastructure such as building & equipment, whether made as an owner or on rental or purchase basis, does not surpass Rs. 1 crore.

Browse more Topics under Small Business

Types of Small Business

  • Small-scale manufacturing industries.
  • Handlooms and power loom.
  • Khadi
  • Agro-based industries.
  • Tuition Centres.
  • ‎Photography.
  • Breakfast joint
  • Printing.
  • Coir
  • Sericulture

Types of small business(Source: India Today)

Nature of Small Business

The nature of small businesses can be classified as follows:

1. Shoestring Budget

A sole proprietor or a small group of people operate small businesses. These businesses often run on ‘shoestring budget’ meaning that small businesses function on a very tight budget.

2. ‎Labour intensive

Small businesses are mostly labour intensive. Various types of small business largely rely on labour for their functioning. The primary nature of small businesses is more involvement of physical work rather than intellectual work. The lack of machinery makes the employees manage their operations manually.

3. Community-based

Small businesses are started with the motive of satisfying the needs and demands of a local area or community. These businesses demographically target few areas of concentration and are hence community-based.

4. Indigenous technology

Due to small businesses being community focused and labour oriented they often thrive upon native methods of operations. In India, there are many businesses in the rural sector that still use outdated technology. This might give uniqueness to the products but hinders the development of the business.

Small enterprises rather than big corporations are driving the Indian economic recovery. India’s MSME (micro, small and medium enterprises) sector, with 48 million enterprises, contributes 37.5% to the gross domestic product, provides employment to 111.4 million persons and accounts for more than 40% of India’s exports.”
– Livemint, 2016.

Read about Nature of Business Risk here.

Solved Question for You

Q: What are the different parameters we may use to measure the size of the business?

Ans: There are various parameters we can use to determine the size of a business. So when we want to know if it is a small business or a medium size business, we can use the following parameters.

  • Number of employees working in the firm or organisation
  • The amount of capital that is invested in the business
  • The output the business generates. This can be in terms of volume (quantity) or in terms of value (profits)
  • Power consumed by the business for its manufacturing activities can also be a parameter
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