A small business may be defined as a business with a small number of employees, or a business which is just starting out, and therefore is a small one. The legal definition of a "small business" often varies by country and industry, but is generally under 100 employees. These businesses are normally privately owned corporations, partnerships, or sole proprietorships. Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: small shops, hairdressers, tradesmen, solicitors, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing etc. The smallest businesses, often located in private homes, are called microbusinesses.
Small businesses often face a variety of problems, which unfortunatley comes from their small size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions, it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses.
For example if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.