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Critically Assess The Case Of Government Support Of Small Business, Both In Terms Of Business Start Up And Development

2982 words - 12 pages

Teaching for entrepreneurial development and small business has played a significant part in governments' policy approach to economic development .It is beyond doubt that there has been a significant growth in self employment and small business development over the past few years .As it can be seen from the quotes, small businesses are becoming more and more important and by now 99.1% of all businesses fulfil the characteristics of a small businessIn this essay, I intend to discuss the reasons why government should, or should not intervene (i.e. support) in small enterprises. In the appendix B I will also outline some of the latest European support programmes for business start-ups and small business development.2Main Part2.1Definition of small enterprisesThe most commonly used definition of small businesses can be found in the Companies Act 1985. It states that small enterprises are companies with a turnover of below 2.8 million pound sterling per annum, a balance sheet total of below 1.4 million pound sterling per annum and the number of employees must not exceed 50. For a company to be regarded as a small enterprise it has to meet two or more of these conditions at the beginning of the financial year .2.2Reasons for government supportGovernments intervene in companies for several reasons. Below I will outline some of the reasons why governments spend large amounts on money every year supporting small businesses.2.2.1Start-up supportThis means governments supporting individuals to set up a company or newly created companies to survive in the market. Support takes place in different ways, such as financial support, managerial and entrepreneurial training.2.2.1.1EmploymentOne of the main reasons why governments support start-ups is, that they are a major employment creator in every economy. When a new business is started, even with a one man company, at least one new job is created.It is not only direct employment being created, but it is also indirect employment. Say a corner shop is opened up, the suppliers will experience a higher demand for their goods, and therefore they might want to employ more people.Like the multiplier effect, (a small increase in government spending will increase the national income by a larger amount), the creation of a new company will trigger a considerable increase in employment - direct and indirect.2.2.1.2CompetitionAnother important reason why governments should support start-ups is that an increase in the number of businesses in the market means an increase in the competition.As more and more suppliers (i.e. companies) enter a certain market, the supply will therefore rise. With the supply now being higher the prices will fall, due to the law of supply (an increase in supply will cause a decrease in price and vice versa) and the consumer will benefit.It is not only the prices which are effected by an increase in competition. Firms in the market might want to rise the quality of the products to be able to sell...

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