Is it possible to be a capitalist? Many people in the US today claim to be capitalists. What is this supposed to mean? I'll explain how it can be defined.
Let's start with the definition of capitalism. By definition, capitalism means a free market where businesses are competitive and consumers have access to goods and services at a reasonable price. If you purchase something from a business that is in competition with your own business – say a shoe store – you have the right to the stores profits in order to purchase the shoes. You can use your money to buy your own shoes. You are not Capitalists because you use your income and resources to buy something rather than something else. You are actually using your income and resources to create wealth.
The concept of a small business is slightly different. A small business is one that has less than one thousand employees. It may only be for-profit and has no reinvestment finance. So the value of ownership is purely momentary, or as Peter Drucker says “Shareholders value a company only when it is doing well enough to generate an income that will cover the costs of ownership.”
Some small businesses do reinvestment. They use their profits to grow their operation. Other small businesses use the retained earnings from one or two operations to finance expansion. Sometimes they use both methods. Still others choose to reinvest part of their retained earnings, or some other part.
So what is the answer to the original question – are small business owners capitalists? It depends. For some, their retained earnings are their primary source of wealth. For others, it is stock shares or property.
Still others would say that small businesses are small because they operate at a scale where economies of scale create larger profits. In this case, the economies of scale are not entrepreneurial, but financial. A financial statement would show a lower debt-to-equity ratio and a higher gross profit. The differences between these businesses might be due to differences in scale, but not entrepreneurial ability.
There is no simple answer to this question. There are a number of factors involved, and each business presents different advantages and disadvantages. No business is necessarily the “best” or the “sole” business to own. A small business may have less capital and equipment than a larger business, but it can also have greater control over its own destiny by being privately held. And a larger business may have more intellectual property, and a greater marketing position, so it may have more ability to reinvest earnings.
For many entrepreneurs, owning their own company represents the ultimate in freedom. The freedom to determine business goals and create a product or service that fills a need creates the motivation to succeed. Entrepreneurs who are self-employed often know that they will not receive the same perks as employees, but they usually have the extra motivation and fortitude to overcome all the odds. Whether you are a small business owner or an employee, there are many differences between owning and working. Which would you prefer?
Many small business owners believe that the answer to the question, “Are small business owners capitalists?” is “no”. In today's society, there are too many people who believe that they have to work harder than everyone else just to get ahead. In order to succeed, many owners elect to use their own money in order to finance their ventures; they feel that hard work should produce wealth rather than receiving handouts from the government.
On the other side of the coin, there are also many people who would argue that the lack of job security, less vacation time, and the need for raises have caused many small business owners to work themselves to death. Owners of franchises realize that they need customers and in order to do that they must employ staff. This can be a double blow for the franchisee as well. On one hand, he has lost his investment in the franchise and his livelihood is on the line; while on the other hand, he may not receive a raise but instead be forced to take on employees at higher wages and/or work fewer hours. Many small business owners consider these sacrifices to be the price they pay for being successful.
Now, do you see the difference between the two arguments presented above? If you are a small business owner who are struggling to keep your head above water, and you are asking yourself, “Are small business owners capitalists? “, the first thing you need to ask yourself is if you are indeed a capitalist.
As defined in the United States Constitution, a capitalist is a person who manufactures or otherwise produces goods to sell for retail prices. By definition, this excludes large businesses such as Wall Street banks and brokerage houses. Small business owners cannot be capitalized to the point where they become wealthy without having to work their butt off for years at a time. So, if you are a small business owner, are you capitalized?
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