TYPES OF BUSINESSES

(dot point)

classification of business

(new “big big heading”)

(dash dot point)– size: small to medium enterprises (SMEs), large Businesses come in three different sizes: small, medium and large.

Small to medium enterprises (SMEs) play an especially important role within the Australian economy. As consumers, we rely on a large number of SMEs to satisfy our wants and needs. These businesses also provide employment for about 5.3 million people.

In recent years, the SMEs in Australia have performed better than other sectors of the economy. They have created many new jobs, have become more innovative and are increasingly entering overseas markets.

Classification by size (quantitative measures) Although no universally accepted definition exists for a small, medium or large

business, a number of measurements can be used to determine the size of a business, including:

The number of employees — those who are hired to do work for the business

The number of owners (of the business) — for example, a sole trader is a type of business that has one owner

Market share — the proportion of total market sales the business has compared to competitors

The legal structure — for example, the business is set up as a sole trader, partnership or company

Classification by size (qualitative measures)There are also qualitative descriptions that help us to determine the size of a business. These qualitative measures are based on personal observation about the business. From a qualitative viewpoint, a business may be classified as small or medium sized if:

The owner makes most management decisions, such as who to hire, what to produce and how to advertise a product

The owner provides most of the capital (finance)

The business has little control within the market. Smaller businesses do not usually have a large share of the total market sales and therefore have less control over such things as price.

It is independently owned and operated (for example, the local hamburger shop is run by the owner, who does not answer to a larger organisation such as McDonald’s)

The business is locally based (this does not mean that it doesn’t export, because many SMEs do export. It just means that many SMEs are based in the one location and, unlike a transnational (multinational) corporation or company do not have offices around the world).

Micro businesses Recent research undertaken by the Australian Bureau of Statistics (ABS)

revealed that the majority of small businesses are not those that employ 10 to 20 people, but those that employ fewer than five people (including the owner). These businesses are referred to as micro businesses.

Usually working from home (SOHO — small office home office), this group of businesses represents about 90 per cent of the entire small-business population. As a result of the rapid expansion of these businesses over the past decade, this group is being referred to as the micro sector (as opposed to the small-business sector).

Characteristics of micro businessesThe main characteristics of micro businesses are that:

They represent 82 per cent of all non-manufacturing small businesses

58% are sole traders and partnerships

They employ 31 per cent of all people employed in the private sector

They are dominated by women, young people seeking self-employment and people who were retrenched from their previous employment

Question – 1 SEAL paragraph. 5-6 sentences.

The rate of small business failure is said to be as high as 95%. Explain* why small businesses may have such high rates of failure.

See slide 4, ‘classification by size (qualitative measures)’ to help you with ideas. Think: what problems may these points pose to a business owner?

*Explain: cause and effect/results (use these words in your response!).