Importance of Small Businesses

A small business is one that is independently owned and operated. It exerts little influence in its industry (a small pizza place won’t change how pizza is made or how service is performed) and typically has less than 500 employees. There are 28 million small businesses in the US generating 54% of sales and 55% of jobs in the country. As you can see, small businesses hold a very important role in America’s economy.

Importance of Small Business

Importance of Small Business

Job Creation:

Small firms hire more frequently and fire more frequently than other form of business and organizations. There are many new ventures opening per year, many closing at the same time too. A strong economy encourages individuals to star new business, weak ones does the opposite.

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Revenue Growth Rate

It is a Trend Analysis tool that shows how fast a company is growing (positive growth) or shrinking (negative growth). You compare the current year Revenue account with the previous year. If you need to know only one number of your company, this is the one.  This figure is very helpful for investors too, as the Revenue Growth Rate is going to help them evaluate the business current and potential growth.

Revenue Growth Rate Equation

Revenue Growth Rate is a simple tool that helps investors and owners identifying trends in the company. If Current Year Revenue is smaller than Previous Year Revenue, then the company has shrunk, and the Growth Rate would be negative.  If you are analyzing your company month to month, you have to select the revenue for that specific month and compare it with the previous month. The same thing if your analysis is quarterly.

Practice yourself with this simplified Apple’s Income Statements (In $Billions):

Simplified Apple’s Income Statements

Calculate Apple’s 2015 Revenue Growth Rate:

= (2015 revenue – 2014 revenue)/(2014 revenue)
= ($234B – $183B)/$183B
= 0.28 *100
= 28%

Apple’s 2015 revenue grew 28% from 2014

Calculate Apple’s 2017 Revenue Growth Rate:

= (2017 revenue – 2016 Revenue)/ 2016 Revenue
= ($229B – $216B)/$216B
= 0.06*100
= 6%

Apple’s 2017 revenue grew 6% from 2016

Introduction to Accounting

In this post, I want to talk briefly about accounting, the language of business. Every business person should have basic notions of accounting as it gives you a good insight into how businesses operate. Accounting is the process of measuring and summarizing business activities, interpreting financial information and communicating the results to management and other decision makers. It is an information system that provides reports to users about the economic activities and condition of a business.

Accounting information is used by two different users, internal users (managers and employees) and external users (investors, creditors, customers, government). All accountants identify quantitative information (business transactions), record it in a systematic manner and report that information using financial statements. The information they provide must be trustworthy and useful for decision-making.

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Entrepreneurs, starting a new business

An Entrepreneur is an individual who starts a new business, someone who uses resources to implement innovative ideas for new ventures. They identify a business opportunity and assume the risk of creating and running a company. Accepting this commitment isn’t an easy task, entrepreneurs must be confident that they can manage stress, commitment, and hardships in order to succeed.

There are 3 main characteristics of any entrepreneurial activity:

  • Innovation: They offer a new product, develop a new technology or open a new market.
  • Running a Business: Setting up a business to make a profit, producing goods or services.
  • Risk Taking: the outcome of an entrepreneurial venture is unknown. There is always a certain degree of uncertainty.
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