January 26, 2022

SB-Accounting

Accounting + Finance Blog

Meaning of Small Business and Key Explanations

Meaning of Tax incidence and Key Explanations
2Shares

Businesses can be classified in many ways. Size-base classification is the most common one. Everyday, we hear words like, the business is a small one or a large entity. In reality, what we call small firms are in fact micro businesses. In this article, let examine the meaning of Small Business.

Definition — What is Small Business?

It is a type of business whose physical assets should not be less than 400,000 Naira and not greater than 5 million Naira. Also, the number of employees should be between 11 and 100. This is according to the Nigeria Federal Ministry of Industries. Another way to define it is any sole proprietorship, partnership, companies whose physical assets are between 400,000 and 5 million Naira and employees strength is between 11 to 100 people.

Read: How to use Journal to Open the Books of Accounts for a New Business

Key Explanations

A type of business. It can take various forms. Micro, small, medium or large. It can also be a sole trader, partnership and companies. It might be a bank, a trader, grocery store, restaurant, hotel and many more. No matter it forms, the size is important. As it tells us more about the business.

Physical assets. The value of physical or fixed assets for this type of organization is put at 400,000 Naira as it’s minimum and a maximum of 5 million Naira. By physical assets, it means the entity’s car, building, plants and equipment it uses to trade or produce.

READ ON  Sole proprietorship Meaning and key Explanations

Employees. The accepted minimum number is 11 and 100 persons as the maximum number. This is different from a micro entity whose member is from 1 to 11.

How to form a small business

To form a small business is either simple or a little complex. For a person interested in forming a small firm, he or she can register with the corporate affairs commission (CAC) a business name or as a company. Registering an organization’s name means such entity is a sole proprietorship or partnership. Registering a company implies a limited liability company usually called private equity company.

In either case, you will need to choose a business name that is not used by anybody and it’s not defamatory or illegal. Also, a physical office must be present to successfully open a small firm. Upon registering you may need to have appropriate books of accounts.

READ ON  Meaning of Microenterprise (Microbusiness) and Key Explanations

Read: Smart Small Businesses Keep Financial Records for these Obvious Reasons

Differences between a small business and micro business

Two key differences exist between both entities.

Employees. The number of employees for a micro organization must not exceed ten persons. For small firms, the maximum is 100 staff.

Physical assets. The value of physical assets for the former is at most 400,000 Naira. While the latter is 5 million Naira.

Other differences includes

Size of office. The number of employees is limited to ten for micro business, therefore, it’s working space should be small when compared to small firms.

Branches. Micro businesses cannot have branches. The main reason is that their fixed asset base is small compared to other entities.

Sales Volume. The volume of sales for micro firms cannot be compared to small firms. Definitely, the sales of the former will be less in value than that of the later.

READ ON  Meaning of Assembly industry and Examples

Customer base. Lower sales means smaller customers for the micro entity. But more sales means more customers for the small business.

Conclusion

Small businesses are sole traders, partnerships or companies with assets not more than 5 million and at most 100 staff, according to the Nigeria ministry of industry. Such an entity can be formed as a business name or private equity company. Also, a difference between small firms and micro entities is that of the number of customers. Since small firms make more sales, they should have more customer base.

2Shares