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UNIVERSITY OF PANGASINAN-PHINMA
HOSPITALITY MANAGEMENT

CHAPTER 2: THE NATURE OF SMALL BUSINESS
Business size is one factor that does not prevent one from engaging in entrepreneurship
...
Figure 2 is an illustration of this relationship
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The premise is that if small businesses are managed properly, their chances of becoming
large enterprises are increased
...
But if
many small businesses will not develop into large businesses, their contribution is still very
significant
...

Under the market share approach, small business may be defined as one which is
independently owned and operated and which is not dominant in its field of operation
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The term “not dominant” indicates that a small business does not control a
sizable share of its market
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A small business may be defined under the total assets approach as one having total assets
that fall within a certain bracket
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A
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5 million to P15
million to be considered small business
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With the assets value bracket assigned to a small business, it is inevitable that all
enterprises having total assets valued P1
...
”
One of the disadvantages of the total assets approach is that assets values are affected by
inflation
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From the point of view of business management, the market share approach in defining
small business is more appropriate
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Figure 3 illustrates the kinds of business according to size
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MANUFACTURING
A manufacturing business is one involved in the conversion of raw materials into products
needed by society
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SERVICE
Service businesses are those that provide service in one way or another
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Business services – provide service to other business
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Personal services – provide service to the person
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Repair services – provide repair services to owners of various machinery and
appliances
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Entertainment and recreation – includes movie houses, resorts, billiard pool centers,
and the like;
5
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Education services – include Montessori schools for children, high school,
correspondence schools, among others
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Examples are soft drinks wholesalers in local areas,
dealers of supplies and office equipment, grains wholesalers, and the like
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RETAILING
Retailing covers all activities involved in the sale of goods and/or services to the final
consumers
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Examples are
retail drugstores, fast food shops, appliance stores, and others
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Many of them performs subcontracting
jobs for the bigger contractors such as installing electrical facilities and sewerage
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CHARACTERISTICS OF SMALL BUSINESS

Small businesses have their own distinctive characteristics
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Independent management – The owner is also the manager
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Small capital requirement – Small business requires only small capital and this can be
supplied by a single or a few individuals
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Mostly local operation – Small business usually operates in a certain locality although
there are cases when the market is not confined to a local area
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They assume
the following functions (Figure 4):
1
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2
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These
limited opportunities are naturally fitted for small businesses
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Suppliers of products and services to other businesses – Some businesses require raw
materials, semi-finished parts, finished components, or even labor, which they cannot
economically produced
...
Distributors of products and services of other businesses – Some manufacturers do
not have the ability to distribute their products and services
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5
...

6
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ADVANTAGES OF OPERATING A SMALL BUSINESS

An individual has various options to improve his economic lot
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be an employee;
2
...
be a small business operator (SBO)
An employee enjoy a fixed working schedule like 8:00 A
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to 5:00 P
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The pay he
receives, however, is limited and dependent to a large extent on industry norms and the
financial capability of the company
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Small Business
Economic opportunities
Provider of

for entrepreneurs

Products and services to
Provider of

consumers

Funds to the
Provider of
government in the form
of taxes

Provider of

Employment to the
labor force

Products and services to
Supplier of

the other businesses
Products and
services produced

Distributor of

by large firms

FIGURE 4
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A physician, for example, may set his clinic in a certain area and proceed to treat
patients for a fee
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In addition, although he is useful to the
community, his desire to provide employment to more people is severely limited by the
nature of his work
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The first two options, however, can only be considered depending on certain conditions
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The rate of rejection for job applicants, especially in the
Philippines, is just too high
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Entering a certain profession is also not an easy task
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There are also too many people who cannot exercise the option
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Although entrance requirements are not as
different as the first two options, it does not mean this option is easier to put into practice
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However, he is afforded the following benefit:
1
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opportunity to reach his full potential,
3
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opportunity to make a contribution to society and receive recognition for his efforts
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If, after a few years, he thinks that the business is not

worth operating anymore, then he can dissolve it and open a new one
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OPPORTUNITY TO REACH FULL POTENTIAL
The employee will do his work based on prescribed targets which may only require less
than his full potential
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His freedom to act is
limited only by his potential and he can revise or amend his targets within short notice
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If he is not
satisfied, he may exert more efforts to increase his profits
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OPPORTUNITY TO MAKE A CONTRIBUTION TO SOCIETY AND RECEIVE
RECOGNITION FOR HIS EFFORTS
Entrepreneurs who make innovative products available to the public are recognized
properly by society
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Others, like Walter
Disney, merited listings in books of eminent personalities
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DISADVANTAGES OF OPERATING A SMALL BUSINESS
Although certain advantages accrue to the small business operator, there are certain
disadvantages that must be considered
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uncertainty of income;
2
...
lower quality of life until the business gets established;
4
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having to serve undesirable customers;

6
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long hours and demanding work condition
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Complete independence in making decisions exposes the small business operator to the
consequences of errors of judgment which in some cases could wipe out his investment
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As the small business operator assembles the needed resources, starts actual production,
and makes moves to attract customers, income and profit are held in abeyance, i
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, if they
will ever be realized at all
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The owner-operator will take full responsibility for whatever happens to the business
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He cannot pass the blame to anybody else
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He cannot choose his customers
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He is bound to give his customers satisfactory service even if
they are rude
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The small business operator is forced to do these
tasks himself
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If it cannot acquire sales volume within a short time frame every day, it must
stretch its business hours to accommodate more customers
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The residual functions, even if they must be done under harsh working conditions must be

borne by the small business operator
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TABLE 4
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Income
2
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Quality of life

Responsibility
a) gain control
over his own
destiny
b) reach his full
potential
c) reap
unlimited
profits
d) make a
contribution
to society and
receive
recognition
for his efforts

SMALL BUSINESS
OPERATION
uncertain
risk of losing
lower until business gets
established
complete/all encompassing

EMPLOYMENT

present

absent

present

absent

present

absent

present

absent

certain
none required
consistent at a certain level
restricted to one’s job

SUMMARY
Businesses, especially small enterprises, are important segments of our society
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Small business may be classified as manufacturing, service, wholesaling, retailing, and
general construction firms
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Small businesses play an important role in the development of our economy
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