5.1 Introduction.
In spite of the general recognition of the role and importance of the small business enterprise sector in a nation’s development, it has not been possible to arrive at a universally acceptable definition of a small enterprise.
Even the terms used to describe this sector are diverse. Small business may be called micro enterprise:
§ Informal sector,
§ Small scale enterprises,
§ Small businesses or
§ Small firms etc.
There are many examples of small business enterprises in our economy.
These include: - farming, retailing, service firms – restaurants, salons, the mushrooming bureaus, many of matatu operations, motor vehicle repair services etc.
5.3 Meaning of a Small Business Enterprise
As mentioned above, it has not been possible to describe the small business enterprise in definite terms.
Various criteria have been used to delineate a small business enterprise. Some of the subjective criteria used to describe this sector are as follows:
§ It is one that is own managed or family owned and controlled.
§ It is one with relatively small market share, that is to say it is not dominant in its area of operation
§ It is one that uses simple technology, that is to say simple method in production.
Other writers and researchers prefer to define small business enterprise in a quantitative manner. They describe a small business as one:
§ With low turnover sales
§ With little capital invested
§ With relatively few employees
§ With relatively short life span
Take note
With these definitions in mind we can make interference and authoritatively say that the proportion of small business in Kenya is much bigger than big business organizations
5.4 Characteristics of Small Business Enterprises
When we study the small business sector, certain generalization can be drawn as follows:-
a. There is Ease of Entry:- This is because they require little capital to invest and run the business
b. They are less regulated and operate in very conceptive markets.
Many of the small business enterprises are close to each other and some engaging in similar activities. Other too complete with big well-established businesses
c. They provide an opportunity for self-employment – The owner of a small scale enterprise is the manager and makes all decisions that influence the operations of the business.
d. The use simple technology – These businesses tend to use locally available raw material coupled with the use of simple methods of production.
e. The sector adapts informal training approach in training their few employees.
These employees acquire their skills through being attached to an expert in the trade, a king of ‘apprenticeship’ training.
f. The sector uses labour intensive production methods. This is because of limited capital.
As such it is not possible for these businesses to invest heavily on machines. Additionally they tend to rely on locally available labour.
g. There is limited capital contribution. As pointed out earlier the small business enterprise owner manager raises all the money to start and run the business.
This capital may not be adequate to expand the business. Further, because of lack of collateral security they may not have access to credit offered by money lending institutions.
h. Many of the small business enterprises operate in a local area:- This occurs because they lack the ability to produce for large markets.
The few items produced or services are consumed in the local geographical area.
Activity 5.1
Highlight some of the small activities carried out by small business enterprise in your area.
5.5 Advantages of Small Business Enterprises
Small business enterprises enjoy a number of advantages. These include;-
a) They can be easily set up and be dissolved
b) The owners are independent and have freedom to act (although the owner must be concerned about his/her customers, employees, suppliers and government regulations) as there is no one else to give approval.
c) The profits of the enterprises do not have to be shared as is the case with partnership or large corporations.
d) There are fewer overhead costs than in larger firms, so they may be able to earn a profit on a lower price than large company.
e) These organizations are usually lean and have small relatively permanent staff who may work for long hours without extra pay.
f) Specialists (e.g. accountants) are hired when required. This reduces expenditure
g) Staff relationships in small business are often better than in large organizations.
h) Simplicity of organizations enables them enjoy casual relationships.
i) Owner-manager(s) can give personal attention to his/her client’ problems.
5.6 Disadvantages of Small Business
Despite the many advantages both economic and social, small business enterprises suffer from some very serious limitations. They are as follows-:
- They have limited amount of capital – The amount of capital that a small scale enterprise can get together is limited.
Money lenders such as commercial banks require collateral security, which in most cases small businesses lack.
These businesses are therefore limited to such funds as they may own or raise from friends and relatives.
As a result, they cannot expand or take advantage of large scale operations.
- There is limited managerial ability – small businesses enterprises in Kenya are characterized by sole proprietorship.
No individual however is capable and be expected to posses full knowledge of all branches of business.
- There is unlimited liability – Small business enterprises liability is unlimited –
It is not only the assets of the business that are liable but also the entire personal fortune for the debts of his business.
This means that the advantage of personal control is counter balanced by personal risk.
Consequently we are saying that the limited capital acts as break on the expenses and development of such businesses.
- There is uncertainty of continuity – Continuity of business of small-scale enterprises is difficult to maintain.
We have seen in many instances that when the proprietor dies or is no longer able to run the business, the business may come to an end; if there is no one else capable enough to take his/her place.
Should the business fall in weak hands the loss is not only to the proprietor but also the community who may lose the opportunity of enjoying the services, and products of such enterprises.
Despite these disadvantages, the small-scale enterprises play a pivotal role in our economy.
5.7 The Role of Small Scale Enterprises to Kenyan Economy
The small scale sector plays a major role in the local economy. This is indicated by the following factors:
a) They Create Employment Opportunities
The small –scale enterprise generally contributes more jobs than large enterprises.
This is because of the fact that it is cheaper to create more jobs in this sector than in the large enterprise sector.
More so there are more small businesses in Kenya than they are large business enterprises.
b) They are a Source of Income and Relieving Poverty.
The small-scale enterprise is generally recognized as being capable of generating income for large sections of the population, particularly the less educated and unskilled.
Hence the sector is regarded as being in the front line in the alleviation of poverty and improving people’s living standards.
c) They Create Balanced Development
The small business enterprises are also known for distribution of job opportunities throughout the community.
Furthermore the sector tends to create jobs for those who might be excluded because of being minority or because of politics, race sex or religion.
d) They Mobilize and Utilize Local Resources
The small business enterprise sector creates an avenue for effective mobilization and productive use of individual or family savings.
It is also likely to make use of locally available raw material, including scrap metals.
Further the enterprise reacts faster to market changes and adapts more easily to less opportunities unlike large enterprises.
e) They Assist in National Output and Growth.
The total volume of goods and services produced by small enterprises, through usually unrecorded is huge.
This is mostly for the local market. In recent times however, the sector has begun to make significant contribution to the export sector as well.
For instance woven baskets are being exported to USA, India, Japan, Britain and South Africa.
f) They Check Rural-Urban Balance
Because of increased job opportunities in the rural areas as a result of continued growth in the small enterprises, it is expected that the sector will check the drift of people from the rural areas to urban areas.
g) They Assist in Accelerating the Industrialization Process.
When a country is developing, there is diversification in occupations, ranging from agrarian to industry.
Promotion of small enterprises fuels this diversification, leading to increased per capital incomes and higher standards of living.
Industry and agriculture therefore become inter-dependent, each strengthening the base of the other and affect the overall economy.
NB.Small business enterprise sector needs to be seen as in essential component of a nation’s social-economic development plans.
This sector cannot be ignored as it supports a nation’s economic growth and development.
5.9. Ownership and Management of Small Enterprise
The manager of a small business is usually the founder and owner.
He/she usually makes most management decisions.
This centralized control could eventually impose a constraint upon the growth of the organization as there is a limit to the ability of an individual as compared to large enterprises.
Among others, the small business owner engages in the following in managing the business.
a) Planning and Control
Planning is essentially a decision making process.
It is deciding in advance the course of action.
In small business enterprises the following can be said about their planning.
Decision making is quicker, the owner makes most of the decisions.
Jobs are not so rigidly defined as in a large organization, hence there is less formality than in large organization. Rules and procedures too are less rigid.
On the other hand, control is a way of measuring whether everything works in conformity with the already laid down plans.
Small business enterprises do this by looking at their production, productivity targets, sales turnover etc.
Planning and control therefore complement each other on the management of small business.
b) Motivation
The individual owner manager may require services of other people as we pointed out earlier since he may not do everything in the business.
These employees need to be motivated. Motivation is intensifying people’s willingness to work harder.
In small business this is achieved in the following ways:
a. By employees identifying themselves with the organization. This creates a sense of belonging.
b. By pay and reward systems which may be more personalized than in large organizations.
c. There may be a wide range of duties for individuals. This would create satisfaction as it gets rid of monotony.
d. Training and development is less formal than in large organization. Skills are required by being attached to an expert in the trade.
Activity 5.2
- explain what is meant by a small business
- List reasons why many people would like to start a small business despite the many odds against success.
- outline the role of the small business enterprises to Kenyan economy
- Interview a businessman/Woman in your locality and try to establish why he/she has not expanded his/her business as she or he would have liked.
