Small Business Owner

Education and Training Varies—see profile

Salary Varies—see profile

Employment Outlook Good

Definition and Nature of the Work

Small business owners manage their own companies. Small businesses include not only retail stores such as gift shops and bookstores but also real estate, advertising, and employment agencies; self-service laundries; manufacturing firms; and franchise operations such as fast food restaurants and gas stations. In addition, many freelancers and consultants in various fields run their own businesses. Although different standards were applied to different industries, in 2006 the U.S. Small Business Administration classified most basic retail and service operations as small if their yearly revenues were below $6.5 million.

The three most common types of small businesses are sole proprietorships, partnerships, and corporations. In a sole proprietorship one person owns the business. A partnership is essentially an agreement involving two or more people who wish to work together in their own business. In a sole proprietorship the company's profits are kept by the owner; in a partnership the profits are divided among the partners. The owners are responsible for the firm's debts.

A corporation has a more formal structure. In a small corporation the owners are usually the officers of the corporation and are paid a salary. The structure of a corporation offers small business owners two advantages. A corporation can sell stock to bring investment capital into the business. Moreover, the officers of a corporation cannot be held personally liable for the firm's debts.

The responsibilities and duties of small business owners depend on the nature of their companies. Most frequently the owners' primary functions involve planning, money management, and marketing. To keep their companies in business, owners must know when they should take financial risks. They need to be aware of the size of the market for the product or service they provide, and they must adapt to changing market conditions by creating new products, improving services, or promoting their company in a new and innovative way. Small business owners must offer their products at competitive prices by keeping costs down and buying services and equipment within their budget.

Business owners who employ technical or other workers must hire, train, and supervise their employees. Some owners run the entire operation themselves. For example, the owner of a shop that sells and repairs bicycles may buy the inventory, make the repairs, sell to customers, and handle the store's accounts. The store owner may also unpack merchandise, build displays, and clean the shop.

Franchise holders buy a license from a parent company that permits them to sell the company's goods or services. The conditions under which franchises are sold vary from one company to the next. Many agreements provide for exclusive sales rights in a stipulated territory and use of the company name and method of operation. Franchise holders are generally required to invest a large sum of money in their operation. They may also be required to buy supplies and equipment from the parent company. In return, franchise holders receive a large share of the profits from their operation.

Education and Training Requirements

Small business owners must be competent managers who possess a thorough knowledge of their field. Interested individuals should have a combination of formal education and practical training suited to the kind of business they want to operate. A person interested in running a store, for instance, needs experience in retailing, along with high school or college courses in bookkeeping, accounting, and business. More technical training or an apprenticeship may be required to work in some fields. To open a machine shop, for example, a person must complete a formal apprenticeship and have many years of experience as a machinist. Prospective small business owners should also be familiar with tax laws and with state and federal laws regulating businesses.

Getting the Job

There are several ways to start a business. Candidates may buy an established enterprise or become a partner or shareholder in one. Small business owners can purchase a franchise or begin completely on their own. To find a partner, prospective business owners should attend networking events in their industry and get to know the business people in their community.

People who want to start a business need money to invest. After the initial starting costs are met, they still need enough money to cover costs until the business begins to pay for itself. Some of that money should come directly from the business owner; additional funding may be borrowed from investors, family members, and lending institutions. Another option is to sell stock in the company to raise money.

Advancement Possibilities and Employment Outlook

Success in a small business depends on knowing what the customer wants and making the product or service easily available at a reasonable cost. Those who succeed may expand their business or branch out into other fields. However, most small businesses remain small, and the owners consider themselves successful if they can support themselves from the profits of the business.

The outlook is always good for those who can find a market for their product and can afford to take financial risks. The continued growth of franchises means that there will be many business opportunities in this area.

Working Conditions

Most people who start their own businesses do so because they place a high value on their independence. They are prepared to work long hours and take certain economic risks rather than work for someone else. Other people start home-based businesses because they want to work from home.

To be successful, small business owners must have an entrepreneurial temperament; that is, they must be willing to take risks in return for the prospect of greater rewards.

Small business owners generally work well over forty hours a week. Some continue to hold salaried jobs with other employers until their business is established. Small business owners may face economic uncertainty at times, but those who succeed gain a great sense of personal satisfaction.

Earnings and Benefits

Theoretically a small business owner with very low expenses could make over $6 million per year in accordance with the U.S. Small Business Administration's 2006 standards. In reality the earnings of small business owners depend solely on the success of the business itself. Some owners do well. Others make no more money than they would working at a salaried job. Many owners lose money and go out of business.

Generally, small businesses must be in operation for several years before they show a clear profit. Small business owners usually must reinvest profits in the company. Over a period of time many owners build up a substantial financial interest in their business. If the company is profitable, the owner may sell it for cash.

Where to Go for More Information

National Federation of Independent Business
53 Century Blvd., Ste. 250
Nashville, TN 37214
(800) 634-2669
http://www.nfibonline.com/

National Retail Federation
325 Seventh St. NW, Ste. 1100
Washington, DC 20004-2608
(800) 673-4692
http://www.nrf.com/

United States Small Business Administration
409 Third St. SW
Washington, DC 20416
(800) 827-5722
http://www.sba.gov/

Small business owners working in proprietorships and partnerships must provide their own health and life insurance and retirement benefits. Corporate officers receive the same benefits given to other company employees.