Biggest Problems Facing Small Business - Research Paper Example

Introduction Small businesses stand a significant chance of failing than a large business yet many of them survive and grow as per research studies. The frustration of people goes up when their expectations are not met. We are now into a highly competitive world with a fast pacing global economy. Customers are having an extensive range of choices for services and products nowadays. If the management does not provide good service then the customer retention is zero. The customer going away takes away all his social contacts such as friends, colleagues and relatives. In today’s business environment it is necessary for a small business to think beyond survival. Lack of key management services could limit the success of a small business. An entrepreneur is one who possesses a burning desire to make a change through dedication, determination and hard work, knowing that it satisfies their ultimate business and personal objectives. Entrepreneur is a term applied to the individual who is ready to take upon him or herself a new enterprise or venture and accepts complete accountability for the outcome. Entrepreneurship refers to a company formed with an express goal of growing with a defined growth path. Small businesses are generally consortium of professionals or a family-owned company formed with specific objectives in place. In majority of the cases, providing adequate income is more important than aggressive growth. Consumer cautiousness has arisen regarding trying new services, companies or products. Most of the consumers make purchases based on familiar purchasing patterns and highlighted brand names. It is far easier for consumers to purchase brands which recognize or generally purchase. A new business to be considered has to create a brand image in the minds of the consumers. The rising advertising and promotional tools have made it really difficult for a small business to make a mark or even survive. Traditional methods of promotion and advertising do not help the consumers in the brand recognition. The management must ensure delivering of their promises and high quality experience on the first purchase of the consumer. If the experience of the consumer is not good on the first instance itself then it will lead to negative publicity and the business will not get an extra chance. Problems and Challenges Entrepreneurs have become one of the most vibrant forces in the economy with the boom in internet and technology. They are now driving the boom in technology, which itself is driving majority of the economic growth of the world making entrepreneurs very significant from a macro-economic perspective. They have a major impact on the economy. Due to growing globalization, the impact will be felt even more deeply. They have already become a major force in developing nations and in the worldwide economy. The scope of entrepreneurship will continue to change and evolve with the changing world. Some common issues pertaining to business continue to exist such as how to start a business, how to finance it, how to run the business with a sharing and learning environment within the community. Entrepreneurism is an established field with a wide range of problems at various stages of the enterprises. The challenge of starting a business is a common factor for all the entrepreneurs. Be it looking for an idea, through inventing something, finding the right opportunity to buy a franchise or breaking into a new business. Financing their entrepreneurial venture is a challenge faced by all the entrepreneurs. They are even faced with financial hurdles within corporate rules. So unless it is a self-funded venture, getting finances is a challenge that requires preparation of applications or funding proposals to be presented for IPO’s, angel investors, loans or even venture capital. There is no smooth sailing through even after passing the above challenges. Minute glitches should be taken into consideration having a good business plan. The implementation stage is very essential for a business’ successful take-off. According to hypotheses, people behind the idea and the people behind the implementation are very different or dissimilar from each other in their approaches towards the business. At the implementation stage, a wide variety of skills are required which a single person cannot manage. Entrepreneurs should know what they are good at and then hire subcontractors or employees to fill up those gaps. The implementation stage should be seen in way like the different skills required in operating a business. It involves advertising, sales, public relations, marketing, employees, legal needs, equipping the office, disaster planning, insurance, software, hardware, the financial aspects of the company – barter, managing debt, bookkeeping, and taxes, the internet, government regulations, risk management, technology, and crisis management. There is no business without a strong fundamental. The conceptual aspect of management: leadership, ethics, the exit strategy, and the growth philosophy of the company. These aspects are comparatively less tangible, yet set the overall direction and theme of the business. Critical Challenges Lack of a clear plan – Over 50% of the businesses fails because they lack a clear plan. The cash problem also worsens and cash is wasted chasing tempting diversions and by throwing money at problems is because of a lack of plan. The business requires a clear plan before the initiation of the business activities. It should have a clear and precise defined business idea including the various ideas, evaluation of the ideas, idea selected, the business proposal for raising funds, financial planning, risk analysis, market assessment and competition, and a successful market research. Planning the business – Planning is the essence of every business. Planning starts from the stage at which the idea is generated and then carries over for the following: the fund requirement to be ascertained, how the funds can be arranged, deployment of the funds etc. Planning is very closely linked to uncertainty. Failure in planning means you are planning to fail. It is not done for the present business so owners generally have the perception that they are wasting time in planning. Planning is done to reduce the effect future uncertainties that arise in a business. Strategic plan with a clear set of objectives provides a reference and acts as an outline to keep the business on track. It also helps you link every aspect of the business from competitors to staff, current and future markets, products and services. It helps analyze the correlation between each area and how changes in one part of the business could impact on other parts. People generally perceive that a business plan is required only at the start of a business in order to borrow money. An up to date plan should be an integral part of every successful organization. Defined objectives – Objectives are basically yardsticks for performance measurement for an organization. Objectives should be measurable, appropriate, realistic and specific. It acts as a performance measurement tool for the business where the business can move towards its goals faster if the employees move on the defined objectives of the business. Funding – It is one of the most significant factor in a business. Without funding or access to capital one cannot proceed with the functioning of the business. There is a need to be pragmatic about establishment costs. New entrepreneurs often misjudge the time it takes for a business to start earning profits and the amount of money required to be invested in the business before it proves profitable. Developing an honest and thorough financial plan will help in avoiding this mistake. It is really difficult to obtain cash and it is never enough for a business. In the case of a fast growing company, one can rapidly outgrow their available resources. In case of underperforming company, it becomes really difficult to obtain cash. Majority of the companies are unable to manage cash efficiently and effectively. Effective cash management also leads to good credit score. It not only helps in borrowing money but it also affects one’s ability to secure good terms on trade credit (McAllister, 2013). Ineffective leadership – The depth of leadership ascertains the effectiveness of the leadership. The founder of the company despite being effective has little or no management depth behind her or him. This eventually causes the company to cease growing. This could lead to failure of the business. It is not that the leader does not possess the skills that are required to lead, but it is not his primary strength. Ineffective leadership could also cause the employees to be ineffective for the business. The strongest teams are made up of employees from thinkers and doers to leaders and nurturers. There must be mutual respect and a good balance for different working styles for a team to work in the best possible manner. It needs the leader to be strong and intuitive to make all these personalities work well together. Leaders should be inculcated with strong social skills, inspirational attitude and empathy so that at the tough times he/she can inspire high performance in the employees. The owner usually find himself continuously involved in day to day matters due to the fact that a highly diversified and specialized workforce is not employed in a small business to take care of the various facets of the business. Small businesses can be very disadvantageous if the leader is unable to devote the time required to vision, strategy, problem solving and leadership (Monette, 2010). Marketing / Sales effectiveness – This relates to leadership and planning of the founder of the business. The sales and marketing team if not effective will not appeal and reach to the end consumers. The marketing strategies should be in line with the product or service requirements. If one applies marketing strategies relevant for some other product then it cannot appeal to the customers. The marketing and sales activities should be effective in a manner that the appeal is drawn out from the consumers. If the appeal is not drawn out from the consumers the marketing strategy is a failure. If the sales and marketing strategy or activity fails, it is a failure for the business. Only providing products or services up to the mark is not enough for a business. It has to be measured in terms of effectiveness that is whether the products are selling in the market or not. Skill and Knowledge – The responsibilities of employees are narrowed down to a job description. One becomes responsible for everything from R & D to product delivery to bookkeeping at the launch of a business. This means that there will certainly be some tasks that will be beyond the owner's area of expertise. The owner may or may not have staff on board to handle various responsibilities depending on the scope of the business. It is very crucial to be honest about your own limitations and seek out the support of good mentors and expert advice when needed. In large organizations we find employees who are task oriented not even department oriented so the role of a employee is not defined and therefore the skills a specialized employee holds is not present in the employee of a small business. The employees in a small business have a more diversified skill set and knowledge base. Time - When becoming an entrepreneur, one will work harder for himself than you would ever work for any employer. While self employment brings flexibility to the work schedule, building a successful business requires a large investment of time. It will be important to schedule specific work hours. Setting goals can also help you to stay on track. Regulation – For many businesses, both in service and manufacturing sectors have to be up to date with the regulations that come into force. It’s not only the big ones are affected, even the smallest businesses have to comply with the safety and health legislations, environmental regulations and employment law. Globalization and the extensive growth in foreign trade have added to the regulatory burden. Understanding regulations and legislations of the international markets is the key to do business in other markets. Failure in understanding the regulations and legislations may lead to failure in international trade which restricts the scope of the business. Change and innovation – It can be called Information technology overload. With personal and professional stress increasing it is becoming virtually impossible to make clear-headed decisions. It becomes sometimes very difficult to make the aged employees adapt to the continuous improvements and change in technology but with the kind of experience they possess it becomes really difficult to exclude them from the organization. In this ever changing world of technology it is becoming really difficult for an organization to survive without adapting to the latest technology. Uncertainty – It plays an important role in a business because business is full of risks and uncertainties. An uncertainty affects the business enormously and can arise at any time or situation. A successful leader should be able to handle uncertainties. Handling uncertainties at times of pressure makes a successful leader. Proper planning is the key to escape uncertainties in a business. It may not help one escape it completely but makes the individual strong enough to handle those uncertainties with ease. This is the key differentiating factor between small businesses and large businesses (Rosenberg, 2012). Problem solving – Adequate problem solving ability is required in today’s leader for efficient and effective running of the business. Absence of sophisticated problem solving competence in business leaders limits their ability to adequately deal with all the issues arising out of the business. In this rapid changing business environment it is really difficult for leaders to effectively run the business without adequate problem solving skills and expertise. Complexity – As the business grows it keeps on growing complex. The leader should focus on developing processes and systems to simplify the business model and minimize complexity. If the leader starts focusing on the complexity of more connected and diverse suppliers and consumers then it becomes very difficult to minimize the complexity of the business and thus results in the failure of business processes (BMGI, 2013). Cost-advantage – Smaller businesses often land up in trouble when they get into a price war with larger firms. The larger firms win the fight with absolute cost advantage because of their huge scale of operations. So, the product to be marketed should not be such that is being produced on a large scale otherwise it becomes really difficult for the business to survive the tough cost competition. Small businesses are unable to achieve the cost-advantage which large firms enjoy as because of limitation or constraint or resources such as technology, manpower, funding etc. No internal controls – Companies do not maintain proper books of accounts despite the fact it is a legal requirement of owning a business. Proper internal controls should be in place for every business otherwise it becomes very difficult for the business to review the performance and the employees also can opt to frauds with the business. The internal control for a small business should be such that it is able to monitor and evaluate the performance of employees. It is a process affected by a business’ work, people, management information systems, structure, and authority flows designed to help the business attain specific objectives or goals (Lennox, 2007). Lack of execution – The biggest problem of all the above is lack of execution. Majority of the projects fail in terms of execution. The execution fails because majority of the employees are not clear on the company’s vision and mission. The execution can be appropriate only when it is in line with the company’s mission and vision statement. Conclusion Although these challenges can often be quite intimidating for small businesses, there are a number of benefits that a small business has above a larger enterprise. By nurturing what they do best and utilizing their strengths, a small business can actually compete successfully with its larger counterparts. For example, a small business can often cater in a more effective way to a niche market, since smaller companies can carry fewer inventories and adjust to changing trends quickly. Another way that a small company can do what it does best while still taking advantage of the power of larger businesses is to form a partnership with a larger company. A large company can be a supplier for the small company, thereby increasing the success of both companies. Small companies can also increase their influence and success by embracing e-commerce and the Internet in general. The Internet does a good job at leveling the playing field, since a small company can appear to be just as successful as a much larger company online. Small companies can also make up for some of their deficiencies by getting involved in small business organizations, which can provide some of the resources that they may be lacking on their own. Small businesses face problems as stated above. As per my opinion, the problems faced by a small business can be coped up with a clear plan of action, clear and precise objectives, proper allocation of funds, training employees, executing proper internal controls, meeting the regulations and time management issues. A small business faces problems when it has to face competition with the bigger ones in terms of cost and quantity. The bigger firms generally enjoy cost leadership over the smaller businesses. The smaller firms are unable to go on with promotional and advertising activities to the extent that bigger firms adopt. In case of smaller firms, it is really difficult for them to create a bigger brand image than the existing larger firms in the industry. The smaller firms have to distinguish their product or service from the larger firms to create a market of their own and gain considerable market share and enjoy relevant high profits as the bigger firms in the industry. Reference Lennox, D. (2007). Top 12 Issues Facing Small Businesses. Retrieved from http://www.dslcs.com/top_12_reasons_for_failing.pdf. Monette, H. (2010). Problems of Small Business. Retrieved from http://www.insidebusiness360.com/index.php/problems-of-small-business-12336/. McAllister, T. (2013). The Top 5 Challenges New Small Businesses Face. Retrieved from http://www.smallbusinessbc.ca/starting-a-business/top-5-challenges-new-small-businesses-face Rosenberg, J. (2012). 5 issues facing small businesses in 2013. Retrieved from http://www.nbcnews.com/business/5-issues-facing-small-businesses-2013-1C7660251 BMGI. (2013). Top ten problems faced by business. Retrieved from https://www.bmgi.com/resources/articles/top-ten-problems-faced-business Read More