The Canadian Small Business Survival Guide

How to Start and Operate Your Own Successful Business Revised and Expanded Edition

Benj Gallander

• Publisher: Dundurn Press
• Year: 2002
• ISBN:
  9781554880188
• Topic: Commerce
• Subtopic: Prise de décision

For anyone contemplating starting a small business with potential sales of a few thousand dollars up to the two million level, and for those who currently run their own businesses, this is the most comprehensive, up-to-date guide available.

The Canadian Small Business Survival Guide will not only instruct beginners whose business knowledge is limited, but also provide a wealth of interesting information for experienced entrepreneurs. The author has covered every imaginable facet of running a successful business. The topics include: types of business, financing, government assistance, locations, franchises, and marketing. One section, presented with step-by-step instructions, explains how to prepare necessary financial statements and business plans. The book also includes charts, checklists, exhibits, graphs, and tables that are indispensable for entrepreneurs and for those seeking a business loan.

• 10th Printing - over 25, 000 sold
• Most popular book on small business in Canada
• This edition completely revised and updated - contains new sections on computers and the Internet

PART I

WHAT IS A “SMALL” BUSINESS?

It is fairly easy to walk down the street and identify the various “mom and pop” shops as small businesses. But what is it that small businesses have in common, that separates them from medium and large organizations? By identifying a number of characteristics, not all of which apply to every small business, we can gain insight into this type of venture.

A) Independently Owned and Operated

Almost all small businesses are independently owned and operated, usually by the same person(s). This fact leaves the responsibility and decision-making process to the owner(s). Like most rules, this requires some qualifications, especially when one thinks of franchises. For, as demonstrated later in the book, franchisees are indeed operating their own business, but without the independence that characterizes most small business operators.

B) Not Dominant in the Field

Small businesses do not dominate in their field and, therefore, have an extremely limited share of the overall marketplace. Generally, firms with larger sales volumes, more employees, and greater resources within the industry often force the smaller ventures to find and serve a “market niche” (a specialized area of the marketplace) based on their location and/or their product or service. Larger firms do not find it worthwhile to serve this marketplace.

C) Area of Operations is Local

Small businesses may have markets in diverse locations, but their operations are based in one area. The majority of owners and workers live near this site.

D) Capital and Ownership is Provided by One Person or a Small Group

Usually, the larger the pool of capital available to the new venture, the greater the ultimate business size; therefore, characteristically, small businesses have capital supplied by one person or a small number of parties.

E) Government Parameters

By analyzing certain government directives, small businesses can be quantified. Numerous federal and provincial government programmes base their qualifications for small business on sales levels up to $2,000,000, and profit levels no greater than $200,000. These restrictions apply to the availability of tax benefits, hiring programmes, and many government grants and subsidies. These programmes are discussed later in the book.

F) Employee Categorizations

A particularly useful indicator to the size of a business is its number of employees. A manufacturing firm with fewer than 100 employees is generally considered to be a small business, while other business sectors are limited to 50 workers. Many experts choose this category as one of the most important when considering business size, because the number of employees remains unaffected by inflation.

Because a manufacturing firm usually needs a much larger number of employees, this type of organization with sales of five to ten million dollars is often considered to be small. A service or retail organization, with this level of sales, would be classified as a medium-sized operation.

TYPES OF SMALL BUSINESSES

There are four major types of small businesses: manufacturing, service, wholesale, and retail. Each of these businesses has its own characteristics and risks.

The Manufacturing Business

Manufacturing is the conversion of raw materials into a useful product; there are two types of manufacturing to consider: primary and secondary. Primary is the processing of basic new materials, such as uranium, silver, or petroleum. These can be used in a further process called secondary manufacturing, which is the production of finished goods that can be sold to a wholesaler, retailer, or perhaps directly to the consumer.

Beginning a manufacturing firm requires a tremendous amount of capital; therefore, it is most suitable for a large business with more resources; however, despite the risks, small manufactures do exist. This is because manufacturing can create a tremendous financial return, often above 20 percent. Foreseeably, many small firms end up by the wayside due to their lack of capital and/or knowledge.

It is worthwhile noting that many great innovators began as small manufacturers, using their ingenuity to compete with the larger firms, which have many competitive advantages.

The Service Business

Services sell personal skills rather than products to their clientele. Typical examples of services include: the barber, daycare centres, television repair shops, and consultants. In the past decade, the service sector has led the growth for small businesses. This is largely because services require a limited amount of capital investment; fulfil the desires of individuals who are growing richer with the economy; and can be operated from the home. Recently, there has been a trend to franchise service businesses. This has proven to be extremely successful as individuals license their “recipe” for prosperity.

The Wholesale Business

Wholesalers are in the middle between manufacturers and retailers. Essentially, they buy products from the manufacturers, store them, and then resell to retailers, or more rarely, to the consumer.

As middle people, a substantial portion of the wholesaler’s time is spent working as a diplomat, ensuring that suppliers provide goods on time, and soothing retailers when goods arrive late. It is important that the wholesaler is skilful at this task, as customers tend to be fewer and larger; therefore, each customer represents a substantial portion of the middle person’s business, and poor diplomacy can cause an appreciable decline in sales.

Small businesses do the major portion of the wholesaling business in Canada.

The Retail Business

Retailers buy products from manufacturers, wholesalers, jobbers, or other distributors, and sell them to the consumer. Small business dominates this area; the majority of operators have fewer than five employees.

There are hundreds of kinds of retailers from small grocery stores to variety stores to specialty shops. One of the key success variables for these firms is a convenient location, as customers are often not willing to travel far for their purchase.

The characteristics of the different business types: manufacturing, service, wholesale, and retail do vary, as do the risks associated with each of these sectors. But most of the rules and methods for starting and operating a successful small business apply to all of these types. Variables in rules and methods, as they apply to a sector, will be indicated in the book.

CAN SMALL BUSINESSES COMPETE?

Large business versus small business has become an increasingly important issue as more organizations are growing larger and larger, choosing to take advantage of the factors that give size a competitive edge. Large enterprises do have many advantages over the smaller firm.

One of the major advantages is “economies of scale.” Economies of scale means that the larger the organization, the lower the cost per unit to reach the marketplace. This occurs because the increased size produces increased efficiencies, creating economies for lowering costs. An example is the larger firm that can buy in quantity and, therefore, obtain discounts from suppliers. This is an advantage that will lower “per unit” costs and is unavailable to the small firm. Another example of an economy of scale is the larger firm that can distribute in volume, therefore, their per unit distribution cost will be less than it would be for the smaller enterprise.

Major corporations can also take advantage of advertising economies. Because of their large promotional budgets, a greater selection of media types are available in which to advertise, and often the time or space can be purchased at a reduced cost. This allows the large enterprise to reach its potential consumers at a lower cost per person.

Larger enterprises also have other competitive advantages. They can carry more products or deliver more services than the “little guy.” This fact will appeal to the consumer who wants greater selection or prefers “one-stop” shopping.

Some customers also desire to deal exclusively with larger enterprises, convinced that the quality of the product might be higher, or more confident in the guarantee if the product proves defective.

Also, when the economy is experiencing difficulties, larger firms have the resources to “tough out” the times, while the economic downturn can quickly bankrupt the small business.

Other advantages often sited for large firms include tax advantages, government incentives, and the ability to hire better employees. These reasons though rarely apply, as small businesses have opportunities in these areas.

Though larger businesses do have many advantages, small businesses are thriving across the nation due to their own set of competitive advantages. One major advantage small businesses often experience is greater loyalty from both customers and employees. Many customers enjoy dealing with the small business, primarily because of the service they receive. In addition to this, knowing that the owner is nearby and can quickly remedy a situation is comforting. Employees also prefer dealing with the boss rather than with a faceless corporate head. If the employee has a suggestion or problem, the option to walk right up to the owner and state his case exists. This gives the employee additional input into how his actions might affect the business and work situation.

Another example favourable to the small business is flexibility. When products or services change, or the market undergoes a transformation, the small operation can often respond more quickly than the giant. Instead of having to struggle through the ranks of bureaucratic decision-making, an owner can quickly change tack. Coupled with this is the fact that small firms can usually innovate quickly if there is a market opportunity. Though large organizations will have greater resources to change, the small enterprise can capitalize on the presence of a specific market niche that might develop or need servicing.

Small businesses also have a competitive advantage when fast service in a local market is of the essence. This if often the case with perishable goods, where products must reach the consumer quickly. In this instance, it is usually not beneficial for a larger operation to enter the marketplace.

In industry in recent years, the trend had been towards “bigger is better.” But small businesses maintain competitive advantages that are allowing them to thrive within the marketplace. In the business domain, there is sufficient room for various sized firms, satisfying the diverse needs of the marketplace.

WHY BUSINESSES FAIL

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