When you start a new business, it’s natural to wonder if you have any chance of competing against more established ones. Although a small business and a large business may be in the same industry, the significant difference between them will affect all aspects of their financial operations. Although all businesses have similar financial aspects, they are also dissimilar. Some things will be the same, from freelancing all the way up to corporations, but others will markedly different.
Let’s take a look at the differences between a freelance and a corporate business when it comes to money matters.
There are times when your business will have an abundance of work and times when there will be a scarcity, usually over the holiday season. Consequently, it’s important to be prudent about not increasing your overheads when things are going well—for instance, buying new B2B software on a subscription basis to streamline business processes. One solution to balance the drop in income is to get a small business loan. Companies like the Lending Club can provide a small loan of $5,000 to help you manage staying on top of expenses.
Let’s take a look at how a corporation’s financial aspects are determined by legal structure, size, funding, and marketing.
A small company might be a sole proprietorship or it might be a partnership. This means that a single owner or group of owners have total control over the company. On their personal income tax returns, they will pay taxes on their business profits. They are also legally responsible for all their business debts. Medium to large companies, on the other hand, are considered corporate entities separate from their owners. Consequently, owners don’t directly manage the business but are shareholders that appoint executive board members.
You probably believe, based on common sense and experience, that you have some understanding of the difference between the different business sizes. You might, for example, think of a small business as anything from a freelance business that earns 6 figures a to a company that hires about 10 people and earns close to a million or slightly more.
However, there is, in fact, a lot of confusion about business size. A Forbes article on this question of business size points out how much confusion there is about this topic: “Get a load of the U.S. Small Business Administration (SBA). Their standard definition of a small business includes operations with up to $7 million in revenue or 500 employees, depending on the industry. And there are countless exceptions, with revenue thresholds set as high as $35.5 million, and employee counts as high as 1,500! No kidding: Railroads with 1,500 employees are considered small! Food service contractors with $35.5 million in revenues are considered small!”
A new business will raise the funds it needs to start either through personal savings, loans from family and friends, or small business loans. Since medium and large businesses need far more money than can be available from these sources, they raise money from investors, from venture capital firms, and from selling shares of their stock to the general public, or by selling bonds.
How do small and large businesses compete in the same industry? They do it by focusing on a different size of a market. A small business is niche-focused, selling only a specific type of product. In comparison, mid-sized and large businesses sell a wider range of products to a larger segment of consumers.
Additionally, the larger a company grows, the more likely it is to branch out into completely different markets. For example, General Electric started out as a merger between Edison Electric Light Company and Thomson-Houston Electric Company. Today GE does far more than selling products in the electric industry; there is also GE Aviation, GE Capital, GE Digital, GE Energy Connections, GE Healthcare, GE Lighting, GE Power, GE Renewable Energy, and GE Transportation.
In conclusion, although you may be a new business, perhaps a freelance business or a business with a small staff, you still have a good chance of doing very well in your market. Your small size makes it easier to innovate, move quickly, and get your products out to the marketplace.