XXX Limited is a micro-scale trading business. The business is mainly operating in the business-to-business sales (B2B), however it is not limited to it. A quarter of its yearly sales is generated by the sale to the end consumers. The business is a micro-enterprise as the owners have not hired any employees and manage all day-to-day business operations on their own. This paper will discuss few advantages and disadvantages of a micro trading business.
Advantages of a Micro Trading Business
1. Independence and control
One of the most attractive advantages of a business is that the entrepreneur is the boss. As the person who owns and runs the business; all decision-making is done by the entrepreneur. This means that the entrepreneur can decide who he wants to build a business relationship with, in the market. He can also decide on the work hours, making them flexible for his ease. The entrepreneur can take calculated risks and enjoy the benefits and profits of hard work (Williams, n.d.).
2. Financial Gain
Working for someone only earns a fixed salary, no matter the hard work or dedication. In the case of a business, the harder you work the higher rewards or profits you make. The business allows you to make more than a fixed amount. For a micro-scale business, making financial predictions is easier. It is easier to manage and chart the expenses and revenues which can also lead to business stability over time (“5 Advantages of being a Small Business,” 2016).
Entrepreneurship offers a wide range of opportunities in growth, learning, adapting, and creating business equity. The business owners are involved in all business operations which allows them to learn more, as compared to when tasks are delegated to employees. The business through its fair dealings in the market is constantly building its value. This value is the equity of a business that can prove profitable at the time of sale of a business.
A small-scale business can also adapt easily to changing markets. Larger businesses have complied finances with long-term investments in fixed assets. A small-scale business has more flexibility to adapt and meet new trends (Burns, 2016).
4. Favorable Tax Policy
Micro and small-scale business enjoy many concessions in taxation. Both micro and small-scale business are considered vital for economic growth and increasing market competition. The corporate sector operates in high capitals and earns huge profits, therefore their tax brackets are also much higher. Micro businesses are usually favored as these aid in the circulation of money in the economy and also increase household incomes (Toder, 2007).
Micro and small-scale business have minimum hassle and stress. The entrepreneur can put his skills and creativity to use to create a stable business. Stable finances can lead to a reduction in stress. With a higher sense of achievement, even small accomplishments can lead to a stress-free work environment (Publisher, 2016). This business has no long term mortgages to pay and is operating as largely as a B2B trading business which means that has less financial stress
Disadvantages of a Micro Trading Business
1. Financial Risk
No business is without financial risk but for micro or small businesses, the financial risks are personal. A micro-business of two partners means that they may have used their life savings to meet the start-up capital requirements. Usually, businesses are considered to take a few years to meet breakeven and generate profits. For a micro-business, this period may be shorter but the risk is higher in case the business does not become stable in the expected time. The business can not rely on stock to generate any extra capital therefore the financial risk is high if business stability is not achieved (Publisher, 2016).
2. Limited Expansion
As the business is operating under limited capital, it can expand beyond its initial business offering. The business cannot expand its fixed assets by buying a new place for business operations. In the existing site of business operation, it can not increase its stock at hand. Therefore, micro and small businesses largely strive for stability over expansion and growth as they are limited by their financial capacity (LaMarco, 2019).
3. Limited Impact
Microbusinesses rely on their immediate communities for support and business and have limited impact beyond these communities. With budget constraints, these businesses can not use heavy advertisement campaigns therefore they remain unrecognized on a national or international level. Many businesses may be popular locally but can not have access to wider markets and customers as they remain largely unknown (“5 Obstacles Small Businesses Must Overcome,” 2018).
4. Market Power
Manufacturing businesses of micro and small scale fail to achieve economies of scale. Whereas trading businesses of the same size do not have much purchasing power. Large corporations have greater purchasing power and negotiate on prices based on bulk volume purchases. The business deals in B2B sales, which are largely credit-based, therefore it is also limited by the cash inflow from sales. It also has limited space to keep its stock in hand (LaMarco, 2019).
With a business that solely relies on the owners’ ability and availability, it may be challenging to balance the time for things other than the business. When the owner is responsible for all business operations they may find it hard to know when to stop or end a day. The business structure may offer flexibility in theory however most of the time such business models require more work and effort until they become stable (Bucciarelli, 2020).
Trading businesses can be highly profitable as they are not involved in manufacturing and have limited capital investment. Microbusiness has much independence and flexibility however it does have challenges in finding stability.
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