Reasons for Businesses to Remain Small (Cambridge (CIE) O Level Business Studies)

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

They are unable to access external finance 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

Small business owner's goal is (satisficing) rather than profit maximisation

• Small firms often provide highly customised or unique goods/services which are sold profitably in small quantities at high prices e.g. pet grooming in the customer's home

• Personal relationships can be developed with loyal customers which helps to generate word-of-mouth advertising

• Smaller firms can respond quickly to changing market conditions such as changes in fashions/trends 

• Small firms are unlikely to benefit from economies of scale as the level of output is lower than that of larger firms

• Access to finance such as bank loans or trade credit is likely to be limited

• Recruiting/retaining high quality staff can be challenging as wage & non-wage benefits are less competitive than those offered by bigger firms

• Small business owners may struggle to take holidays/sick leave as the business relies on their presence to function