The Challenge Facing Small Businesses in Australia in the 21st Century - Assignment Example

DISCUSS THE CHALLENGE FACING SMALL BUSINESSES IN AUSTRALIA IN THE 21ST CENTURY Australia is a famous country with its constant growing economic standard, it is well known for looking after its people well. A large number of people are leaving or have left their highly paid jobs to start their own businesses in order to be their own bosses and work according to their own standards. But this is not that easy nor can anyone set up their own large business easily that is why smaller businesses are more popular not only in Australia but all over the world. But with this comes many challenges which these small business must face, what are they; we will discuss this issue in this paper. Firstly it is important to know what a small business is. One can describe a small business as something that is owned independently and operated with a small number of employees, if we take a look at the US and the EU there are around under 50 employees but since our concern is with Australia that is what we will discuss. A small business in Australia is defined as a 1-19 employees and a medium business would be around 20-200 employees. In addition to the number of employees the other method used to clarify small companies include annual sales, the value of the assets and a balance sheet. Small businesses are usually not dominant in their field of operation. Besides Australia, there are many countries where small businesses are common depending upon the economic system in operation, typical examples would be of bakeries, hairdressers, lawyers, accountants, guest houses etc. the smallest businesses which are often located in private homes are called “micro businesses” and another term is “mom and pop business” which is a common expression for a single family operated business with maybe few or possibly no employees other then the owners. Where there are challenges there are also advantages, and that is that having a small business can be started at a very low cost and it can also be done on a part time basis. The properties of the small business tend to be more intimate with their customer and client. And as a result it accounts in to more accountability and responsiveness. another advantage is the independence which comes with it, a survey was done and it showed that the main reason for people leaving their jobs at other companies was that they wanted to be their own boss and around 38% agreed to this. The ability or the freedom to operate independently is a reward for small business owners, these owners also have the pleasure of making their own decisions within the constraint imposed by the economic and environmental factors. But however, entrepreneurs have to work very long hours and understand that ultimately their customers are their bosses. Now lets discuss the challenges which these smaller businesses are facing today, the first and foremost is the case of bankruptcy, this is a result of poor planning on part of the owner. Therefore it is advised that the owner of the business should have access to a sum of money which is at least equal to the projected revenue for the first year of business. An example of this would be if the future owner thinks that he/she will generate $100,000 in revenues in the first year with $150,000 in start up expenses then he/she should have no less then $250,000 available to them. If they don’t have this then bankruptcy occurs. Another challenge is a mindful of sales minus the variable cost, where capital is not the only concern. To break even the business it must be able to reach a level of sales where the contribution margin equals the fixed costs. When one starts in the beginning, many owners under price their products to a point where even at their full capacity it would be difficult to break even, the solution to this is to increase the prices. In order to cope with the challenges and to increase the prices of the product it is essential to market the small businesses well. this can include networking, customers telling each other, yellow pages directory, television, radio and email but television can be more expensive compared to the rest so its main job is to just create an awareness of a product or a service so that is why internet marketing is more affordable and easily accessible to all. One thing which any new owner should keep in mind is that when establishing a business its important to build trust with the new customers, this can be a very difficult task especially for a upcoming business but now today in the 21st century there are organizations, like the “better business bureau” or “the international charter” which offer certificates to these businesses stating their quality of the services and the goods produced which can encourage new and larger amount of customers. There are also various sources also for funding these businesses, namely, A). self financing by the owner through cash b). loans from friends or relatives C). private stock issues d). forming partnerships e). angel investors another challenge faced is the further financing through credit cards debt, which is not at all advisable as the interest rate on these cards are often the several times the rate that would be paid on a line of credit or a bank loan. It is estimated that there were around 1,233,200 private sector small businesses in Australia during 2000 and 2001 which represented the 97% of all private sector businesses; these small businesses employed almost 3.6 million people about 49% of all private sector employment. (Source;-Australian bureau of statistics, released in 2002) For many purposes “business” is a single legal entity such as a registered company, a partnership or a trust which can be legally recognized organization which provides goods or services. At other times all legal entities that came under common ownership or control are regarded as single business. Let me talk a bit about the speech which the prime minister of Australia made on 24th October 2008 in Brisbane while addressing the small business summit people, in this he too discussed the challenges and the solutions provided by the government. he said that firstly it was a good opportunity for the government and the people to sit and discuss the economic conditions in the small business sector, he in accordance with the small business minister, Craig Emerson, said that Australia faced difficult economic circumstances and that Australia was a economy which was robust but it wasn’t immune from what was happening in the rest of the world. He also stated that the economy was stimulated with a $10.4 billion economic security strategy which had the best regulated banking system in the world. The world economic forum recently rated Australia’s banking system as equal to a second out of the 134 banking systems in the world. Another thing which I found interesting was that he felt that small businesses had a crucial role to play in fortifying the economy during the difficult economic circumstances, Australia had 2 million small businesses which employed 4 million people, Australia’s small businesses contributed 1/3rd of the nations GDP, he believed that if the small businesses were strong the over all economy would be strong as well and if they were held back then the economy would be held back too. He also stated that it was important to bring about a good policy for the future in an economic climate such as what confronts Australia and that represents a challenge which the prime minister believes can be done, it is also known that the small businesses are the first to feel the effects of the weaker economic conditions. What occurs is that customers close their wallets, the orders drop and the cash flow seems to dry up. According to the October edition of the private business barometer published by the price water house it said that the sales growth was down from 13.2% to a 10.9% in the past year, the profit growth was down by a 11.3% to a 10.3%.he also urged larger businesses to pay on time as it made a big difference to the smaller businesses with cash flow challenges, he also said that he was aware of the tax offices commitment to working with small businesses that were having difficulty in meeting their tax obligation. Another thing which was said was that many thousands of small businesses had access to the advice and the assistance through the government’s $42 million small business advisory centre which provided the common wealth funding for the first time to 36 business enterprise centres around Australia. These were the responses provided by the government to the challenges that small businesses face today in the 21st century. It is important that the economy generates a positive economic growth. Linda Harley spoke with Dr. Craig Emerson and he listed the challenges faced by small businesses in Australia as inflation, tax, the outlook for the small businesses which means that’s its all about creative thinking for the future, the government is trying to build a modern economy where Australia can meet the challenges of the 21st century. Small businesses are the major job providers in most economies the top provider is those with less then 10 employees. Australia is forecasted to grow again at 2.75% in 2008-2009 which is above average, the growth rate members of the OECD, according to the World Bank a new business can be established in Australia within 2 days compared with an OECD average of 20 days. To build a modern Australia which is ready for the challenges of the 21st century it is important to shape a long term strategy for the nation’s future, also a vision is needed for its economy where small businesses are able to see bright future. The critical success factors which affect small businesses are the role of education and training, the impact of development, prior knowledge and experience on the success are divided in to four categories. According to mike Simpson, who wrote an article on small businesses but only one category showed clear evidence that education and training had a positive effect on the success of the business, I will present 4 case studies which will show that education and training are an important factor. The first case study is of “a happy house sitter”, it was founded in 1999 by Ruth Myers, this is now one of the largest house sitting sites attracting over 195,000 unique visitors per month. she believes that in order to set up a business its important to develop values and know what one stands for, then develop the look and the feel after that is done then set about communicating with the other customer base. Knowledge is important as to market this new small business Ruth used the internet to understand who her customers were and how was it possible to reach them. This is a business for animal lovers and it was developed in response to two important social trends, Australians increasing commitment to their pets and the growing housing affordability crisis. Another case study is of Adina watches, they are the only ones in Australia to assemble and design watches, Adina entered the world in 1871, it was a very competitive landscape with famous names like Rolex and omega still available at the local jeweller, the idea was to attack the entry level of the market with a high end fashionable and reliable product, they also wanted to be easily accessible to their customers. The reason as to why they are so famous is that it is known for their highly skilled workers, their labour intensive nature of watch assembly. They get only educated people who are well trained in the watch making profession. There aim is to buy only the best quality components from wherever they are produced. The challenges which they faced were personnel, cash flow and technical. They dedicate their success to a lot of passion and hard work. The third case study is of the “toot toot toys”, this was established in Melbourne by Maxine auld in order to keep her newborn twins entertained. The reason why this is a success is because Maxine knows about trains and the rest she feels weren’t a success as their product knowledge wasn’t as defined as hers. She also believes that challenges over the years for small business owners are similar to most other small businesses-cash flow. The fourth and the final case study are of ripples which were established in 2003 with a focus on water awareness, it was founded by Tracy Bialek, and his success is his commitment, knowledge and vision. He feels that in order to be a success it’s important to think very hard about your goals and clearly define them. All of the above are best examples of the factors which effect the small businesses growth, with Australia wanting to increase their small businesses it has given the people excellent opportunity to be their own boss and venture in to doing things they love most. In order to progress it is important to do what one loves best and everything and everywhere there are challenges, the key to tackle them is with your head held high and a smile on your face. As it is said in the bible, “Challenge it and it will change” This is the best line for the Australians to cope with their smaller businesses in the 21st century. Bibliography:- 1). www.google.com 2). the economist magazine, 2008 Read More