A Small Business is an organization of people or a group of people who are operating for profit. Small businesses are privately held corporations, partnerships, sole proprietorships, or cooperatives that have fewer workers and/or less yearly revenue than a conventional-sized corporation or business. Small businesses have the potential to bring in a high level of profit. In fact, small businesses can be more profitable than large corporations with fewer assets.
There are many differences between a small business and a corporation. First, small businesses usually have only a few employees (which, in some cases, is all employees). Second, unlike corporations, there is no formal management system or centralized board of directors. Each small business is led by the owners themselves, such as by the owner’s wife, husband, or children. Lastly, small businesses are normally less stable than corporations.
The majority of small businesses exist today out of necessity. Some do not have the capital to open a new office and hire employees, so they operate via word of mouth advertisement or by taking on contracts. Additionally, many small businesses have a small overhead, such as just rent, utilities, payroll taxes, and insurance. These businesses do not have the same expenses as larger corporations, such as furniture, building maintenance, IT, and so forth.
As small businesses grow, the owner eventually realizes that the profits are decreasing because he/she is paying too much in employee salaries and benefits and/or is purchasing too many benefits. The owner may choose to shut down the business and/or sell the company to another entrepreneur. However, if the owner decides to remain involved in the company after it has reached this point, the owner must understand that the business will need certain financial guidelines in order to stay viable and/or maintain its status as a small business. Many small businesses have experienced so many different issues because they did not follow the necessary guidelines and relied on their “gut feeling” and other “insider’s opinions”.
When it comes to the fire extinguisher, they consider small businesses to be those that have less than five employees. This definition excludes farms, contractors, and some types of partnerships and companies with more than five employees. Additionally, when it comes to the IRS, they consider real estate owned by the corporation to be small businesses, even if the majority of the corporation is rented space. If you own your home and lease it out to others, this will be considered your business even though you personally only employ two people.
Small businesses are not exempt from taxes, just like large corporations. If the business is considered a pass-through entity, this means that the individual conducting business does not receive any income directly from the corporation but receives income from the business. For example, sole proprietorship passes through the individual who owns it to the person who actually performs the services, until the company is able to accumulate enough money to pay themselves. Every single year this is calculated and deducted from the annual income, so that the owner and proprietor (who are considering the owner) are taxed accordingly.