The Small Firm Sector

Economics of the Firm

A Thesis by: Pryakhina Alexandra, Zinoviev Andrey, Zinoviev Vasily, Seidov Said, Mathias Bruck & Marco Bekavac-Ramsbacher

Authors Contribution

Name	Amount
Zinoviev Andrey	16,6%
Zinoviev Vasily	16,6%
Pryakhina Alexandra	16,6%
Seidov Said	16,6%
Marco Bekavac	16,6%
Mathias Bruck	16,6%

Inhaltsverzeichnis

Authors Contribution 2

Defining the Small Firm Sector 4

Size of a Firm (number of employees) 4

European Definition 4

Russian Definition 5

The Assets and Drawbacks of Small Businesses 6

Advantages 6

Difficulties 7

Social Responsibility 7

Job Quality 8

Small Business Management 8

Ownership and Management 8

Sources of Finance for Small Businesses 9

Franchises 9

Performance of the Small Firm Sector 11

SME in the EU Economy 11

Performance in Russia 12

Bibliography 14

Literature 14

Online References 15

Defining the Small Firm Sector

The Small firm sector cannot be as easily described as other sectors of industries in the economy as it has several key distinguishing features that make it appear to be different. In addition to this, different countries have different attitudes in defining Small Firm Sector in terms of size. The definition consists of analyzing this sector with multiple characteristics: Size of a firm (number of employees), Amount of Revenue and Profitability, Forms of Ownership, Tax Policies and the Location of a firm¹.

Size of a Firm (number of employees)

Small-scale businesses employ smaller teams of employees than companies that operate on larger scales. The smallest businesses are run entirely by single individuals or small teams. A larger small-scale business can often get away with employing fewer than one hundred employees, depending on the business type. The main difficulty in defining a small firm is that the number of developed countries has different definitions of small firms. For example, in the U.S the Small Business Administration states that a small firm is an independent firm where the amount of workers does not exceed 500 workers².

European Definition

The European Union generally defines a small business as one that has fewer than 50 employees. However, in Australia, a small business is defined by the Fair Work Act 2009 as one with fewer than 15 employees. By comparison, a medium sized business or mid-sized business has under 500 employees in the US, and fewer than 200 in Australia.

The following table represents the Business Size Definitions submitted by EU of SMEs: Small and medium-sized enterprises³.

Company  category	Employees	Turnover	or		Balance sheet total
Medium-sized	< 250	≤ € 50 m		≤ € 43 m
Small	< 50	≤ € 10 m		≤ € 10 m
Micro	< 10	≤ € 2 m		≤ € 2 m

Autonomy of a Firm

A SME must be autonomous. It is considered autonomous provided that no more than 25 % of its capital or voting rights belong to one or several other enterprises which themselves do not meet the definition of a SME. There are exceptions to this 25% threshold for public investment corporations, venture capital companies, etc⁴.