Small Businesses (Cambridge (CIE) IGCSE Business): Revision Note

Why do some businesses remain small?

• Some entrepreneurs choose for their business to remain small

  • In 2021, 98.9% of businesses in the European Union (EU) were classified as small firms with less than 49 employees

  • Small businesses dominate some industries, such as hair and beauty, home improvement and childcare services

Reasons why small firms exist

• They offer a personalised service and focus on building relationships with customers (excellent customer service)

• They are unable to access financing for expansion

• They provide a product that is in a niche market - small market size but potential for high profits

• By remaining small they are able to respond quickly to changing customer needs/preferences

• Rapid growth can cause diseconomies of scale, which can be avoided by remaining small

• A small business owner's goal is satisficing rather than profit maximisation

• Conditions in the economy make expanding a business risky at the time

• Competition in the market limits opportunities for growth

• Business owners may lack the management skills to grow the business

Evaluating the choice to remain small

• Developments in technology often benefit smaller businesses

• The internet offers low-cost access to market for many firms

  • Social media allows even the smallest business to achieve an online presence and target specific groups of customers

  • Online storefronts such as Amazon Marketplace, Etsy and Ebay provide low-cost distribution options