MANAGING A SMALL BUSINESS ENTERPRISE

This unit focuses on managing a small business enterprise. In order to understand how a small
business enterprise can be managed effectively, we shall look at the meaning, role, importance, and
the functions of management. The unit will conclude with a discussion of the tasks and
responsibilities of management.
By the end of this topic, students should be able to:
Define management.
Explain the roles of an entrepreneur in the management of a small enterprise.
Discuss the importance of management in a small business enterprise.
Describe the functions of management in a small business enterprise.
Examine the responsibilities of management in a small business enterprise.
Outline the tasks of management in a small business enterprise.
Sub-topics:
Meaning of management
The role of management
Functions of management
Importance of management
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 Responsibilities of management.
Tasks of management

Meaning of management
Management is the art of getting things done through people and the proper utilisation of resources
like capital, raw materials and time, which enables the enterprise to achieve its goals and objectives.
Management is a problem solving process of effectively achieving organizational objectives through
the efficient use of scarce resources in a changing environment. In a small business enterprise, the
entrepreneur acts as the top manager while the few employees and family members serve as lower
managers.

[2]

Who are the managers?

A managers job is highly crucial to the success of any organization. The more complex the
organization is, the more crucial is the managers role. It is the managers job to achieve the
organizational objectives through the proper utilization of its human and material resources.
However, since the material resources of equipment, capital, facilities, information, etc., can only be
used by humans, the human resources are the most valuable assets of any organization. Accordingly,
a manager must be highly skilled in the art of optimally utilizing the human resources. Some of the
essential skills are:
(1) Technical skills
These involve the knowledge, methods and techniques and the ability to use these techniques in
performing a job effectively.
(2) Human skills
Human skill is the ability to work with other people amicably. It involves patience, trust and genuine
involvement in interpersonal relationships.
(3) Analytical skills
Effective and right decision making is the most important function of management. A successful
manager must possess the analytical skill, involving the ability to logically, objectively, and
scientifically analyse the problems and opportunities and use scientific approaches to arrive at
feasible and optimal solutions.

(4) Conceptual skills

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The conceptual skill is the ability to view the organization as a whole, and as a system comprised of
various parts and sub-systems, integrated into a single unit.
Characteristics of a good manager
Not all managers are successful. Those managers who are successful have certain characteristics
which create a climate for success for themselves and their subordinates. Some of the more
important personality traits of a successful manager are:
(a) Knowledge
To have the knowledge about competitive markets, about technological advancements and about
social changes is very important for taking action.
(b) Decisiveness
Decision making involves more than simply choosing the best alternative. A good manager should
possess conceptual, logical ability, intuitive and courageous judgement and ability to analyse the
problem by breaking it into parts and identifying the nature and effect of each part.
(c) Ability to handle conflict
A good manager is calm, able to listen, is positively responsive to criticism and is able to handle
conflicts and differences in a constructive manner. In order to handle conflicts well, a manager must
be confident, self-assertive, fair and dominant.
(d) Emotional stability
Emotional stability is the major ingredient for effective leadership and an effective manager is
always an effective leader. Emotional instability often leads to wrong and impulsive decisions with
some consequences.
Student Activity

[4]

1. Define management.
2. What are the various skills that an effective manager must possess? Are all these skills
equally important?
3. Are the characteristics of a good manager in-born traits or can these be acquired by
environmental influences?

ROLES OF AN ENTREPRENEUR IN THE MANAGEMENT OF A SMALL BUSINESS

ENTERPRISE
An entrepreneur plays a number of roles in a small enterprise. Among these are:

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(a) Decision making

Decision making is the process of choosing the best alternative from among different alternatives to
maximize the achievement of business goals and objectives. The decision-making role can be seen
in resolving conflicts, resource allocation and in negotiations. The entrepreneur makes decisions
concerning:

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 Identifying markets and business opportunities

Making available the necessary resources, such as capital, labour, raw materials, etc., for the
identified business opportunities
Translating the business idea into a real business that produces goods and services
Searching for new ideas and innovations to meet changing customer needs, tastes and
preferences
Conducting regular meetings with business employees, staff involved in research and
development, etc
Solving conflicts among employees, other business competitors
Allocation of resources such as money, time, equipment, etc
Negotiating business contracts with suppliers, customers, etc
(b) Information processing
Under information processing, an entrepreneur acts as a monitor as well as an information
disseminator.
In his/her role as a monitor, the entrepreneur regularly scans the internal and external
environment which affects the business. He/she collects information on changes in customers
needs, tastes and preferences. This information can be collected from newspapers, magazines,
and other media.
In his/her role as a disseminator of information, an entrepreneur finds possible solutions to the
changes in the internal and external environment and disseminates the changes in company
policies to employees. This information is disseminated through memoranda, telephone calls,
electronic mail, etc.
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(c) Interpersonal relationships

An entrepreneur can maintain good interpersonal relationships by playing a leadership role, network
officer and figure head.
As a leader, an entrepreneur must lead by example. He/she should guide other employees,
treat them with respect and be dedicated to the business. This will motivate the employees to
perform their duties.
As a network officer, an entrepreneur should have contacts outside of the business. This helps
in assessing changes in the business environment, social changes and changes in government
policy.
As a figure head, an entrepreneur receives company visitors; signs legal documents, gives
public speeches, and attends workshops and conferences, etc on behalf of the enterprise.
Within the enterprise, an entrepreneur plays the figure head role by attending employees
functions such as weddings, funerals, etc. This helps to build rapport and shows a good image
to the outside world.

Students' Activity
1. What

are

the

different

roles

that

an

entrepreneur

is

expected

to

play?

2. Describe in detail the manager as a decision maker.

3. How do managers different work roles affect his/her ability to perform as an effective
manager?
Importance of management in a small business enterprise
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Management is important to different stakeholders such as owners of the business or the

shareholders, employees, customers, government and the community.
(a) Shareholders
The shareholders are the owners of the business who invest capital in the business. The main
purpose of investing capital in the business is to generate profits. Management therefore plays an
important role of investing the shareholders resources (capital) into projects that can yield
satisfactory rate of return and produce quality products and services that can meet customers needs.
(b) Employees
The importance of management to employees can be seen in:
Assigning employees the right jobs as per their knowledge, experience, attitudes and interest
Communicating to employees the business policies, procedures and objectives and the
strategies to be used to achieve the objectives
Ensuring that the working conditions of employees are conducive
Provision of social activities and additional benefits to boost the employees morale and
dedication
Involvement of employees to participate in business affairs like how to improve on business
performance, etc
Provision of fringe benefits in addition to salary, medical insurance, sick leave, etc
(c) Consumers
Management tries to ensure that a customer is their business lord and is always right. Management thus
produces quality products and services at fair prices with guaranteed satisfaction to meet the interests/needs
of their customers.

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(d) Government
Management ensures that its business operates within the legal system abiding by all the laws and
regulations of the state. This is important to the government in that;

There is payment of taxes and on time

Environmental laws are respected
Provision of employment by hiring/employing people on merit
(e) Community interests
Management is important to the community in the following ways:
Providing jobs for the people within the community
Raising funds for public activities like hospitals, roads
Provision of products and services needed by the community
(f) Inter-business relations
Management helps to maintain the inter-business relations through fair trade practices like fair
prices, good quality products, and fast mode of delivery and quality services. This is because
businesses are interdependent on each other in terms of products produced by them.
Students' Activity
1.

Discuss

the

importance

of

management

(a) Shareholders
(b) Employees

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to

the

following

stakeholders:

(c) Consumers
(d) Government
(e) Community

FUNCTIONS OF MANAGEMENT IN A SMALL BUSINESS ENTERPRISE

Management carries out a number of functions in a small business enterprise. These functions
include planning, organising, staffing, leading, controlling, communication, motivation, and
budgeting.

(a) Planning
Planning involves the establishment of business goals and objectives, and determining the ways in
which they will be achieved. In planning, an entrepreneur is envisaged to:
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 Set business goals and objectives

Determine different courses of action to achieve the business goals and objectives
Select the best option
Formulate business strategies to translate the chosen option into action
Planning aims at reducing future uncertainty. Planning answers questions like: what should be done?
When will it be done? Where will it be done from? Who will do it? How will it be done?

(b) Organizing
This refers to identifying the activities to be done, categorising them into sections/departments and
assigning the activities to particular people to carry them out. In order to organise efficiently, an
entrepreneur should:
Identify the tasks to be performed and group them into departments, for example, sales and
distribution under the marketing department
Assign tasks/activities to individuals and define their responsibility and authority, for
example, a sales manager can be assigned marketing tasks
Delegate the authority to the chosen employees, for example, heads of departments,
managers, etc
Co-ordinate the activities to ensure that they are done as scheduled
(c) Staffing
This involves the process of recruiting, training, developing, compensating and evaluating
employees. It also involves maintaining employees with incentives like good salaries, housing and
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medical facilities or allowances, etc. This is likely to result in commitment to work on part of the
employees.
(d) Leading
This involves motivating and guiding the employees about business procedures and methods. There
should be open communication such that employees receive information and also give feedback. An
entrepreneur should lead by example and employees should be motivated either verbally or through
other rewards like money, promotion, recognition, etc.

(e) Controlling
Controlling in a small business enterprise is concerned with monitoring purchases and sales, money
received and paid out, stock and other business property. It consists of those activities which are
undertaken to ensure that the activities done are not different from the pre-planned ones. An
entrepreneur should look at the original set goals, and find out whether or not they have been
achieved as planned.
(f) Communication
This is the process of receiving and sending messages. It is the process of passing information from
one individual to another. An entrepreneur should transmit and share messages, ideas, facts and
information with his/her suppliers, employees, customers, etc.
(g) Motivation
This is the process of encouraging employees to do their best towards the desired goals of the
business. Employers should aim at getting their employees to willingly pursue company objectives.
Motivation can be through fair payments/salaries, allowances, promotion, fringe benefits like free
housing, medical care, etc.
(h) Budgeting
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A budget is a quantitative statement, for a defined period of time, which may include planned
revenues, expenses, assets, liabilities and cash flows. It is a financial plan outlining how funds will
be spent in a given period of time and how these funds will be obtained. The process of preparing a
budget is known as budgeting.
Types of budgets
1. Master budgets
This is a comprehensive summary budget, incorporating all the functional and operational budgets,
generally including sales, production, material and labour costs, any overhead costs, profit, etc.
2. Materials and utilities budget
This budget also known as operations budget includes budgeting for raw materials required for
production, spare parts for maintenance, labour time, machine time, energy consumption, etc.
Labour

time

and

machine

time

is

the

output

per

unit

of

time.

3. Control of liquidity
This involves cash flow and is very important in controlling and meeting current financial
obligations. This budget forecasts cash receipts and outlays in a set time basis and is necessary to
control the income and expenses, so that there is no shortage of cash to pay bills, and also no
excessive unused cash which may be unproductive.
4. Revenue and expenses budgets
The revenue budgets should show anticipated sales by product or by geographical area or
department, etc. The expense budgets should cover all necessary and relevant areas such as rent,
utilities, supplies, security, etc.

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5. Capital expenditure budgets

These budgets plan for long term investments and include expenditures for new plant and
equipment, major installations, replacement of existing equipment, building, etc.
6. Sales budget
The sales budget is the direct outcome of sales forecast and is based on the consideration of the
following factors: demand and supply, competition, past sale trends, future prediction of sales,
seasonal changes that affect sales, etc. The sales forecasting is based on such factors as population
trends, consumers purchasing power, disposable income, price trends of the products, inflation rate
and the general business economy, etc.
7. Production budget
The production budget contains manufacturing program for future operations and is based upon the
sales forecasts and sales budgets. It aims at obtaining maximum utilization of manufacturing
methods and facilities.
8. Balance sheet
It is a composite budget and reflects anticipated assets, liabilities and owners equity or net worth at
the end of a given period in the future. It provides a forecast of the anticipated financial status of the
company at a future date.

9. Flexible budget
Flexible or variable budget reflects and combats the changes in expenditure as a result of changes in
volume of production and revenues. These expenditures are primarily variable costs since the fixed
costs are not generally affected by changes in revenues.
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Benefits of budgeting
Budgets are produced in all organizations, whether they are small, large, private or public sector.
They are important and are produced for the following reasons:
To compel planning by having a formal budgeting procedure, managers are forced to
consider business objectives and ways in which those objectives can be achieved
To co-ordinate the activities of the various parts of the business and to ensure that the parts
are working together
To communicate plans to the various responsibility managers within the enterprise
To motivate managers to work towards the business objectives
To control activities the budget provides a yardstick against which the performance of the
business can be compared
To evaluate the performance of the managers
The budgeting process helps management learn from past experience. Management can
critically look at the success or failure of the past budgets and isolate errors and analyze their
causes and establish steps to avoid repetition of the same errors
Budgets help in the just measurement of performance. Due to quantification of budgets, the
measurement is more objective, thus eliminating biases that might be introduced due to
subjective evaluations
The budgeting process induces the management to shift attention to the future operations. It
forces managers to anticipate and forecast the trends and changes in the external environment
Limitations of budgeting

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Some of the problems associated with budgeting are:

Budgets are often too rigid and restrictive and supervisors are given little free hand in
managing their resources. The budgets may either be changed too often or not at all, making it
difficult for employees to meet performance levels
Budgets are used to evaluate the performance and results, but the causes of failures and
successes are not thoroughly investigated
Budgets may be used punitively. The employees may regard budgets simply as rating tools or
as a device for catching their mistakes. This will lower their morale and dilute their sense of
dedication
Budget goals may be conceived as too high. A high production level or sales level may be
resented as un realistic and may create tension and pressures which could very well result in
worker inefficiency and create conflict between workers and the management

Students' Activity
1. (a) List seven functions of management in a small business enterprise.
(b) For any four functions chosen, describe the activities managers must perform to achieve a
desired goal.
(c) List two problems managers might encounter in performing any one of the functions chosen in
part (a).
(d) Describe one way in which any one of the problems chosen in part (c) might be eased or solved.
2. Define budgeting and a budget.
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3. List six types of budgets.

4. Why is budgeting important to an entrepreneur?
5. What are some of the problems associated with budgeting?
Characteristics of small businesses
Size definitions
The legal definition of "small business" varies by country and by industry. In the United States the
Small Business Administration establishes small business size standards on an industry-by-industry
basis, but generally specifies a small business as having fewer than 500 employees for
manufacturing businesses and less than $7 million in annual receipts for most non manufacturing
businesses. The definition can vary by circumstance for example, a small business having fewer
than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax
credit under the health care reform bill Patient Protection and Affordable Care Act.
The European Union generally defines a small business as one that has fewer than 50 employees.
However, in Australia, a small business is defined by the Fair Work Act 2009 as one with fewer than
15 employees. By comparison, a medium sized business or mid-sized business has under 500
employees in the US, and fewer than 200 in Australia.
In addition to number of employees, other methods used to classify small companies include annual
sales (turnover), value of assets and net profit (balance sheet), alone or in a mixed definition. These
criteria are followed by the European Union, for instance (headcount, turnover and balance sheet
totals). Small businesses are usually not dominant in their field of operation.
The table below serves as a useful guide to business size nomenclature.
Business Size definitions

Minute/Micro

AUS

US

EU

1-2

1-6

<10

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Small

<15

<250

<50

Medium

<200

<500

<250

Large

<500

<1000

<1000

Enterprise

>500

>1000

>1000

Most cells reflect size not defined in relevant legislation Some definitions are multi-parameter,
e.g., by industry, revenue, market share
Demographics
According to a survey run in the United States among businesses having <500 employees in late
2010, about 50% of minute/micro-businesses are owned by women.[4]
Franchise businesses
Franchising is a way for small business owners to benefit from the economies of scale of the big
corporation (franchiser). McDonald's and Subway are examples of a franchise. The small business
owner can leverage a strong brand name and purchasing power of the larger company while keeping
their own investment affordable. However, some franchisees conclude that they suffer the "worst of
both worlds" feeling they are too restricted by corporate mandates and lack true independence.
Retailers' cooperative
A retailers' cooperative is a type of cooperative which employs economies of scale on behalf of its
retailer members. Retailers' cooperatives use their purchasing power to acquire discounts from
manufacturers and often share marketing expenses. It is common for locally owned grocery stores,
hardware stores and pharmacies to participate in retailers' cooperatives. Ace Hardware, True Value,
and NAPA are examples of a retailers' cooperative.
Advantages of small business
A small business can be started at a very low cost and on a part-time basis. Small business is also
well suited to internet marketing because it can easily serve specialized niches, something that
would have been more difficult prior to the internet revolution which began in the late 1990s.
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Adapting to change is crucial in business and particularly small business; not being tied to any
bureaucratic inertia, it is typically easier to respond to the marketplace quickly. Small business
proprietors tend to be intimate with their customers and clients which results in greater
accountability and maturity.
Independence is another advantage of owning a small business. One survey of small business
owners showed that 38% of those who left their jobs at other companies said their main reason for
leaving was that they wanted to be their own bosses. [citation needed] Freedom to operate independently is
a reward for small business owners. In addition, many people desire to make their own decisions,
take their own risks, and reap the rewards of their efforts. Small business owners have the
satisfaction of making their own decisions within the constraints imposed by economic and other
environmental factors.[5] However, entrepreneurs have to work for very long hours and understand
that ultimately their customers are their bosses.
Several organizations, in the United States, also provide help for the small business sector, such as
the Internal Revenue Service's Small Business and Self-Employed One-Stop Resource.[6]
Problems faced by small businesses
Small businesses often face a variety of problems related to their size. A frequent cause of
bankruptcy is undercapitalization. This is often a result of poor planning rather than economic
conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money
at least equal to the projected revenue for the first year of business in addition to his anticipated
expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in
the first year with $150,000 in start-up expenses, then he should have not less than $250,000
available. Failure to provide this level of funding for the company could leave the owner liable for
all of the company's debt should he end up in bankruptcy court, under the theory of
undercapitalization.
In addition to ensuring that the business has enough capital, the small business owner must also be
mindful of contribution margin (sales minus variable costs). To break even, the business must be
able to reach a level of sales where the contribution margin equals fixed costs. When they first start
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out, many small business owners underpriced their products to a point where even at their maximum
capacity, it would be impossible to break even. Cost controls or price increases often resolve this
problem.
In the United States, some of the largest concerns of small business owners are insurance costs (such
as liability and health), rising energy costs, taxes and tax compliance.[7] In the United Kingdom and
Australia, small business owners tend to be more concerned with excessive governmental red tape.[8]
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The
mythic assumption is that an expert in a given technical field will also be expert at running that kind
of business. Additional business management skills are needed to keep a business running smoothly.
Still another problem for many small businesses is the capacity of much larger businesses to
influence or sometimes determine their chances for success.
Small business bankruptcy
When small business fails, the owner may file bankruptcy. In most cases this can be handled
through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business
and valuable corporate assets are likely to be repossessed by secured creditors there is little
advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions for small
business assets so they can continue to operate during and after personal bankruptcy. However,
corporate assets are normally not exempt, hence it may be more difficult to continue operating an
incorporated business if the owner files bankruptcy.
Social Responsibility
Small businesses can encounter several problems related to Corporate social responsibility due to
characteristics inherent in their construction. Owners of small businesses often participate heavily in
the day-to-day operations of their companies. This results in a lack of time for the owner to
coordinate socially responsible efforts. Additionally, a small business owner's expertise often falls
outside the realm of socially responsible practices contributing to a lack of participation. Small
businesses also face a form of peer pressure from larger forces in their respective industries making
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it difficult to oppose and work against industry expectations. Furthermore, small businesses undergo
stress from shareholder expectations. Because small businesses have more personal relationships
with their patrons and local shareholders they must also be prepared to withstand closer scrutiny if
they want to share in the benefits of committing to socially responsible practices or not.
Job Quality
While small businesses employ over half the workforce and have been established as a main
driving force behind job creation the quality of the jobs these businesses create has been called into
question. Small businesses generally employ individuals from the Secondary labor market. As a
result, in the U.S. wages are 49% higher for employees of large firms. Additionally, many small
businesses struggle or are unable to provide employees with benefits they would be given at larger
firms. Research from the U.S. Small Business Administration indicates that employees of large
firms are 17% more likely to receive benefits including salary, paid leave, paid holidays, bonuses,
insurance, and retirement plans. Both lower wages and fewer benefits combine to create a job
turnover rate among U.S. small businesses that is 3 times higher than large firms. Employees of
small businesses also must adapt to the higher failure rate of small firms. In the U.S. 69% last at
least 2 years, but this percentage drops to 51% for firms reaching 5 years in operation. he U.S. Small
Business Administration counts companies with as much as $35.5 million in sales and 1,500
employees, depending on the industry. Outside government, companies with less than $7 million in
sales and fewer than 500 employees are widely considered small businesses.
Benefits of Supporting Local Business
By opening up new national level chain stores, the profits of locally owned businesses greatly
decrease and many businesses end up failing and having to close. This creates an exponential effect.
When one store closes, people lose their jobs, other businesses lose business from the failed
business and so on. In many cases large firms displace just as many jobs as they create. [18] Not only
that but it also increases the costs of taxes. Instead of increasing a communitys revenue, big
businesses actually shift money away from the community. Independent businesses depend on the
many resources that a community can supply. They hire architects, contractors, hardware stores,
interior designers, local advertisement agencies, accountants, business attorneys, and insurance
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companies. Local businesses also are more likely to supply locally produced products than chains,
ultimately benefiting their community. Large corporations on the other hand eliminate the need for
local goods and services. >. [Milchen]
A lack of diversity can decrease the revenues in a community. When towns are interesting, they
attract people from out of town. More personality and individuality can lead to more tourists, which,
in turn leads to money placed directly into the community [Santa Fe Independent Business
Report] ). The diversity of businesses is also important to the individuality of consumers.
Oftentimes, independent retailers can adjust the products that they sell in order to fit the needs of
their consumers and the unique tastes of their community. Local businesses are also more likely to
support unique, new, and/or controversial products. Local bookstores can provide controversial
books and can support small authors or local authors. The same idea helps out with local art and
music. Bookstores and music shops are more likely to support local art and music than the
mainstream stuff that large corporations provide.[Mitchell] Business chains decrease a communitys
individuality because they ultimately choose what products reach their customers. This greatly
narrows what products are available and shrinks diversity.

Marketing the small business

Finding new customers is the major challenge for Small business owners. Small businesses typically
find themselves strapped for time but in order to create a continual stream of new business, they
must work on marketing their business every day.
Common marketing techniques for small business include networking, word of mouth, customer
referrals, yellow pages directories, television, radio, outdoor (roadside billboards), print, email
marketing, and internet. Electronic media like TV can be quite expensive and is normally intended
to create awareness of a product or service. Another means by which small businesses can advertise
is through the use of deal of the day websites such as Groupon and Living Social. These Internet
deals encourage new visitors to small businesses.
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Example of keyword analysis based on market competition.

Many small business owners find internet marketing more affordable. Google AdWords and Yahoo!
Search Marketing are two popular options of getting small business products or services in front of
motivated Web searchers. Successful online small business marketers are also adept at utilizing the
most relevant keywords in their site content. Advertising on niche sites can also be effective, but
with the long tail of the internet, it can be time intensive to advertise on enough sites to garner an
effective reach.
Creating a business Web site has become increasingly affordable with many do-it-yourself programs
now available for beginners. A Web site can provide significant marketing exposure for small
businesses when marketed through the Internet and other channels. Some popular services are
WordPress, Joomla and Squarespace.
Social media has proven to be very useful in gaining additional exposure for many small businesses.
Many small business owners use Facebook and Twitter as a way to reach out to their loyal
customers to give them news about specials of the day or special coupons and generate repeat
business. The relational nature of social media, along with its immediacy and 24-hour presence lend
intimacy to the relationship small businesses can have with their customers, while making it more
efficient for them to communicate with greater numbers. Facebook ads are also a very cost-effective
way for small businesses to reach a targeted audience with a very specific message.
In addition to the social networking sites, blogs have become a highly effective way for small
businesses to position themselves as experts on issues that are important to their customers. This can
be done with a proprietary blog and/or by using a backlink strategy wherein the marketer comments
on other blogs and leaves a link to the small business' own Web site.
A solid public relations strategy that utilizes speaking engagements, press releases, feature stories,
events and sponsorships can also be a very cost-effective way to build a loyal following for a small
business.
Designing a Marketing Plan for Small Businesses
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 Market Research To produce a marketing plan for Small businesses, research needs to be
done on similar businesses which should include desk and field research. This gives an
insight in the target groups behavior and shopping patterns. Analyzing the competitors
marketing strategies makes it easier for Small business to gain market share.
Marketing mix Marketing mix is a crucial factor for any business to be successful.
Especially for a Small business, competitors marketing mix can be very helpful. An
appropriate market mix helps boost sales.
Product Life Cycle After launch of the business, crucial points of focus should be
increasing growth phase and delaying maturity phase. Once the business reaches maturity
stage, an extension strategy should be in place. Re-launching is also an option at this stage.
Pricing strategy should be flexible and based on the different stages of the PLC.
Promotion Techniques Its preferable to keep promotion expenses as low as possible.
Word of mouth, Email marketing, Print-ads in local newspapers etc. can be effective.
Channels of Distribution Selecting an effective channel of distribution may reduce the
promotional expenses as well as overall expenses for a Small business.
Contribution to the economy
In the US, small business (less than 500 employees) accounts for more than half the nonfarm,
private GDP and around half the private sector employment. Regarding small business, the top job
provider is those with fewer than 10 employees, and those with 10 or more but fewer than 20
employees comes in as the second, and those with 20 or more but fewer than 100 employees comes
in as the third (interpolation of data from the following references). The most recent data shows
firms with less than 20 employees account for slightly more than 18% of the employment. ]
According to The Family Business Review, There are approximately 17 million soleproprietorships in the US. It can be argued that a sole-proprietorship (an unincorporated business
owned by a single person) is a type of family business and there are 22 million small businesses
(less than 500 employees) in the US and approximately 14,000 big businesses. Also, it has been
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found that small businesses created the most new jobs in communities, In 1979, David Birch
published the first empirical evidence that small firms (fewer than 100 employees) created the most
new jobs and Edmiston claimed that perhaps the greatest generator of interest in entrepreneurship
and small business is the widely held belief that small businesses in the United States create most
new jobs. The evidence suggests that small businesses indeed create a substantial majority of net
new jobs in an average year. Local businesses provide competition to each other and also challenge
corporate giants.
Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and 99.7
percent had fewer than 500 employees.
Sources of funding

Small businesses in Biloela, Central Queensland, Australia, 1949

Small businesses use several sources available for start-up capital:
Self-financing by the owner through cash, equity loan on his or her home, and or other assets.
Loans from friends or relatives
Grants from private foundations
Personal savings
Private stock issue

[26]

 Forming partnerships
Angel investors
Banks
SME finance, including Collateral based lending and Venture capital, given sufficiently sound
business venture plans
Some small businesses are further financed through credit card debtusually a poor choice, given
that the interest rate on credit cards is often several times the rate that would be paid on a line of
credit or bank loan. Recent research suggests that the use of credit scores in small business lending
by community banks is surprisingly widespread. Moreover, the scores employed tend to be the
consumer credit scores of the small business owners rather than the more encompassing small
business credit scores that include data on the firms as well as on the owners. [25] Many owners seek a
bank loan in the name of their business, however banks will usually insist on a personal guarantee
by the business owner. In the United States, the Small Business Administration (SBA) runs several
loan programs that may help a small business secure loans. In these programs, the SBA guarantees a
portion of the loan to the issuing bank and thus relieves the bank of some of the risk of extending
the loan to a small business. The SBA also requires business owners to pledge personal assets and
sign as a personal guarantee for the loan.
The 8(a) Business Development Program assists in the development of small businesses owned and
operated by African Americans, Hispanics, and Asians.
Canadian small businesses can take advantage of federally funded programs and services. See
Federal financing for small businesses in Canada (grants and loans).
On October 2010, Alejandro Cremades and Tanya Prive founded the first crowd funding platform
for small businesses in history as an alternative source of financing. The platform operates under the
name of Rock The Post.

[27]

THE RESPONSIBILITIES OF MANAGEMENT

Management is responsible and answerable to many groups. Sometimes the interests of these groups
conflict with each other. Hence, management must conduct its affairs in a manner so as to be fair
and equitable to all parties who have a vested interest and claim on management. These parties
include the government, shareholders, the community, employees, customers and board of directors.
These responsibilities are discussed in more detail as follows:
(a) Responsibilities to government
Management responsibilities towards government are to maintain the law of the land, not to flout
trading practices, to pay taxes such as (corporation tax and value added tax). Managers must operate
within guidelines established by the National Bureau of Standards.

(b) Responsibilities to shareholders

These responsibilities include calling annual general meeting, inviting shareholders to attend,
declaring the dividend and making profits for the company.
(c) Responsibilities to society and the environment
Management should use environmentally friendly practices and every board of directors should be
fully aware of the disastrous consequences of environmentally damaging actions.
(d) Responsibilities to employees
These responsibilities include the provision of adequate facilities and amenities for workers, such as
a clean working environment, proper toilet, canteen and health facilities, and the provision of
essential work-wear. Managers should also ensure that workers receive pensions and gratuities on
time. Managers responsibilities also include the protection of female employees against sexual
harassment and discrimination.
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(e) Responsibilities to customers

Individuals, wholesalers, retailers, other companies, importers and exporters and even the
government may be customers of a business. To all of these managers have many different
responsibilities. Managers must, for instance, ensure that goods coming off the production line are
of good quality and fit for the purpose for which they are intended.

(f) Responsibilities to the board of directors

Some mangers may be members of the board of directors and may deal with one another directly.
However, managers have certain specific responsibilities towards board members and these may
include:
maintaining a close working relationship with board members
working towards a common goal or objective
working within a framework of harmony and co-operation for the common good of the entire
business
promoting the aspirations of board members in trying to achieve company objectives
making frequent reports to the board of directors
preparing research materials, statistics, data and other important information needed by board
members for use in preparing results for presentation at an annual general meeting
Students' Activity
1. (a) Outline, briefly, five responsibilities of management.

[29]

(b) For any three responsibilities chosen give two activities for each to show how managers
operate.
(c) Explain one problem for any one responsibility chosen in part (a) that might hinder the
performance of managers.
(d) Explain the role of workers in the solution of the problem outlined in part (c).
2. What are the managements responsibilities towards employees? Should the return on
investment

be

the

primary

concern

of

the

shareholders?

3. Are the managements responsibilities towards employees applicable in all situations or in the
democratic style of management system only?
6. Management tasks
A task refers to activities organized in units for particular purposes. In a small enterprise, the
management tasks include production, marketing, personnel and financial management.
(a) Production management
Production management is the process of taking a set of inputs and turning them into outputs. The
inputs are the factors of production while the outputs are the goods and services. Production
management is the process of effectively planning and regulating the operations of that part of an
enterprise which is responsible for the transformation of materials into finished products. Production
management deals with planning and controlling production activities, which include:
acquisition of inputs such as land, capital, raw materials, human resources and information
Transformation of the inputs into output. Output refers to products that have been processed
from raw materials into finished or semi-finished goods.

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(b) Marketing management

Marketing management concentrates on marketing products (outputs) produced by the production
management of the business with an aim of satisfying the customers with a view of making profit.
The aspects of marketing include:
providing the products which customers need
setting prices that customers are willing to pay but are still profitable to the enterprise
getting products within the reach of the customers
informing and persuading customers to buy the goods/services
selling the products to the customers
(c) Personnel management
This is also referred to as human resource management. It is that part of management which deals
with the effective control and use of employees to do all the activities involved in the business.
Human resource is the most significant factor which contributes to the success of a business because
it is people who have to acquire factors of production (inputs), manage them, transform or process
raw materials into finished products, market them and collect and manage the finances. Personnel
management deals with:
manpower planning, which is concerned with assessing the manpower requirements of an
enterprise in terms of both quality and quantity
recruitment, which refers to the process of attracting and identifying suitable workers for a
given job
selection, which is the process an entrepreneur follows to pick out the most suitable candidate
for a particular job
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 placement, induction, training and termination, which involves assigning a worker tasks to be
done in the enterprise, introducing the new employee to the enterprise and laying off a worker
from the job
human resource development, which is concerned with improving the skills of employees
through further training, study tours, etc
determination of employee remunerations and terms of employment and standards of working
conditions
communication, which deals with putting in place formal and informal communication
channels and procedures for the business
Human resource management is important for the proper functioning of an enterprise in the
following ways:
human resource management enables an entrepreneur to get the right type of workers with the
necessary training and skills
Human resource management helps in staff development and training. Employees acquire
needed skills through various training programmes
personnel management improves working conditions and provides a good working
environment which motivates employees to work hard
eliminates wastage or improper utilization of resources since it allows employees to put
together their efforts and properly use the materials and resources to achieve business
objectives
personnel management plays a vital role in attainment of business objectives as it provides
motivation and helps to instil commitment in the employees

[32]

 personnel management helps to promote good relations between employees and management
or between fellow employees
Personnel management promotes good image of the business to the public. The good will
created can enable the business to meet the demands of the community
personnel management aids in evaluating the performance of employees in all departments of
the business

(d) Financial management

Financial management refers to the routine functions, which are performed within the enterprise to
ensure efficient use of funds. Examples of routine functions of financial management include:
supervising daily cash receipts and expenditures
banking of surplus cash balance
settling debts of suppliers of goods/services and funds on time
record-keeping
Students' Activity
1. Examine

the

various

management

tasks

2. Define personnel management.

[33]

in

small

business

enterprise.

2. What

is

the

importance

of

personnel

management?

4. Ask students to visit any business of their choice and find out how the roles, functions and
tasks

of

management

are

being

performed.

5. Ask students to write a report of their findings and include a list of the aspects which they
think are missing and should be done to enable the business to perform better.

References:
Abiraj, B.M.C. 1998. Higher Level Business and Economics for Caribbean Students. Hodder
Headline Group. pp.258-260.
Broadbent, M. and Cullen, J. (eds). 2003. Managing Financial Resources. Third Edition.
Butterworth-Heinemann. pp.116-117.
Chandan, J.S. 2005. Management Theory and Practice. Vikas Publishing House PVT Ltd. pp3-23.
Kabatire, S. and Mutyaba, S.V. 2007. Entrepreneurship Skills. Net soft Publishers. Kampala,
Uganda. P.114-126.
National Curriculum Development Centre (NCDC). 2002. Entrepreneurship for Secondary Schools.
Book 3. National Curriculum Development Centre, Kampala, Uganda. P.1-9.
Tayebwa, K. 2007. Entrepreneurship Education Skills. First Edition. Bagah Printers and Stationers.
Kabale, Uganda. Pp.26-27

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