Small Business Start-up and Management - Assignment Example

Small Business Start-up and Management Name: Institution: Course: Lecturer: Name: Part A List and describe the entrepreneurial challenges that a new venture faces, particularly in a new family business A lot of challenges face entrepreneurs in the course of running their business. However, it is important that such entrepreneurs prepare to deal with challenges as they arise. Nevertheless, managing a startup is not easy especially when the enterprise is family owned. In many cases, entrepreneurs are not prepared of the challenges coming their way. The most vital issue to understand is that challenges are part of the business. Thus, each problem should be faced with determination as well as a proper solution. The problems faced are stipulated as under. Financial versus Profitability Challenges: finances are attributed to be the leading cause of business failures. New ventures start businesses with little finance which cannot be sustainable. Moreover, entrepreneurs develop high hopes that with the little capital invested, business will yield massive profitability. Expecting instant profit from an enterprise is the biggest mistake that entrepreneurs make. According to business experts, a business start-up should be given a span of two years without returns expectations (Arregle, Batjargal, Hitt, Webb, Miller & Tsui, 2015). Time: this is the major hurdle faced by family start-ups. There is always a weakness in which responsibilities to manage the business is shared between the owners. Time is an important resource. Planning issues in advance as well as ensuring that duties are performed in time is essential for the prosperity of the enterprise. The schedule developed should be achievable. Entrepreneurs should allocate themselves time to perform tasks with accuracy. If there is no time allocation and adjustments for future projects, that’s a recipe for failure. Entrepreneurs should utilize calendars to ensure that tasks are implemented as per the stipulated deadline. Spending time effectively will actually save money for the enterprise (Arregle, Batjargal, Hitt, Webb, Miller & Tsui, 2015). Lack of Knowledge and Skills: This falls under the many mistakes that entrepreneurs do. A sizeable number of them start a business lacking knowledge of the industry they are entering. These entails lack of competitors’ knowledge, target market, the current trends, marketing techniques and financial know-how. Thus, the owners lack the skills to start and manage the enterprise. Therefore, it is always important for the owners to undergo proper training to equip them with the required knowledge. Thorough research should be performed through books and online platforms. Otherwise, if no knowledge is gathered, the business will tend to fail (Arregle, Batjargal, Hitt, Webb, Miller & Tsui, 2015). Information Overload: Change is constant and vital. It is also continuous. This is particularly in regard to modern business start-ups. Global information keeps changing. This is where new data as well as facts change and replace the existing beliefs and trends. Due to these happenings, it becomes a challenge to find amicable solutions. The business start-ups find it challenging to navigate through these data to make effective decisions. However, smart entrepreneurs look for the authenticity of data. Performing research, collaborations and engaging in continuous learning is important. This involves developing relations with successful entrepreneurs and learning from them. Lack of Innovation: A substantial number of ventures stick to the conventional old book rules. The entrepreneurs never come up with an innovative culture. However, lack of innovative culture is still persistent within large corporations. Entrepreneurs get accustomed to work culture without thinking overboard. Such businesses are characterized by lack of ideas. The entrepreneurs and their employees shun and resist change that may deem appropriate for their enterprise. This is solved by creating an open culture of innovation. The entrepreneurs should encourage themselves and their employees to come up with new ideas. In such a case, reward mechanisms should be introduced (Arregle, Batjargal, Hitt, Webb, Miller & Tsui, 2015). Lack of Direction and Planning: this emanate from failure of creating a thorough as well as detailed business plan. The excitement that comes with setting up a new venture makes entrepreneurs forget to make a proper plan which defines the goals and mission of the firm. Without a plan, entrepreneurs lack a basis for learning financial situation prevailing in the business, roadmap to follow as well as competition analysis (Arregle, Batjargal, Hitt, Webb, Miller & Tsui, 2015). Poor Marketing: a comprehensive business plan is followed up by a marketing plan. Marketing plan prepares the enterprise to venture into the market. Poor marketing is characterized by lack of research about target market as well as competition. Moreover, entrepreneurs never allocate a budget to advertise and promote their product pricing as well as perform detailed market analysis. Part B List and describe the sources of finance available for an entrepreneurial start-up. Analyze the advantages and disadvantages of each source of finance Entrepreneurs should learn about the right choices of capital that fit their businesses. The major reason behind this is that capital will influence the firm for duration of time. Raising funds should be a mutual collaboration among business owners (depending with business type). Money is normally at disposal of many firms (Söderblom & Samuelsson). However, each source has its own unique characteristics. Thus, entrepreneurs should weigh on the merits and demerits of each source of finance. The different sources are discussed below. 1. Equity Capital This is a representation of owner’s investment into the business. In most cases, equity capital is commonly referred to as risk capital since the owners are bound to lose their investment once the business fails. However, equity capital never accrues interest like debt capital. Merits of Equity Capital Less Burden – no loan is repaid in case of equity financing. This is very important in case the enterprise is not in a position to generate profits. Credit Issue – in case the business or its owners lack credit worthiness, or are incurring poor credit rating, then equity financing is preferred (Feldkamp & Whalen, 2014). Gain form partners – with equity financing, it is probable to form partnerships with knowledgeable and experienced individuals. Demerits of Equity Capital Profit Sharing – all the investors expect to share a piece of the profitability. However, it is a worthwhile trade-off in case the business benefit from the value the investors instill within. Loss of Control – if an individual or a group of individuals controlled the business, they are likely to lose control if some other investor pumps equity finance (Söderblom & Samuelsson). Potential Conflict – sharing ownership of a firm and the idea of working with others often lead to tension and conflict in case differences in vision and management style exists. 2. Debt Capital Debt financing entails taking finances from financial institutions in form of a loan. Therefore, debt financing is treated as a liability in the financial statements of the firm. The modalities of securing debt financing are the same as with equity financing. However, acquiring debt finance is easier but risky (Feldkamp & Whalen, 2014). Merits of Debt Financing Control – with debt financing, the owners are able to retain control of the enterprise. The lending institution never interferes with how the owners manage the enterprise. Business relationship ends once the debt is complete. Tax Advantage – the money that is paid as interest for debt is tax deductable. This consequently reduces the net obligation of the business (Söderblom & Samuelsson). Easier Planning – the owners are able to make financial projections on the amount payable as principal and interest during the month, quarter and yearly. This simplifies the budget as well as the financial plans. Demerits Qualification Requirements – the firm need to have excellent credit rating to qualify for a debt. Collateral – this type of financing require collaterals. Providing collateral of the lending institution exposes the business to risk, in case it fails to settle the obligation. Discipline – business firms especially the ones owned by a family may lack discipline in making repayments of debts. This may arise out of the conflict. More so, a firm that relies so much on debt could be viewed as high risky (Feldkamp & Whalen, 2014). 3. Venture Capital This is a form of financing where an individual or corporation decides to part with funds in exchange of ownership and management of the firm. The investors are referred to as venture capitalists and may buy 20 to 40 percent of the business. They invest in businesses they are familiar with. Merits of Venture Capital Business Expertise – apart from gaining financial support, young enterprise can benefit from valuable source of consultation as well as guidance. This may impact the decision making of the firm (Feldkamp & Whalen, 2014). Additional Resources – a venture capitalist can provide additional resources related to legal, tax as well as personal matters which may turn out vital during the growth stage of the firm. Demerits Loss of Control – the major drawback associated with venture capital is loss of control of key areas of the management. The size of the capital injection will be used to determine the say that the investor will have in shaping the firm’s direction (Feldkamp & Whalen, 2014). Minority Ownership – In case the investors take up the ownership of the firm in excess of 50 percent, the company owners may lose the entire management control and gain the minority status. References Feldkamp, F.L. and Whalen, R.C., 2014. Sources of Capital. Financial Stability: Fraud, Confidence, and the Wealth of Nations, pp.195-195. Söderblom, A. and Samuelsson, M., 2014. SOURCES OF CAPITAL FOR INNOVATIVE STARTUP FIRMS. An emperical study of the Swedish situation. Entreprenörskapsforum. Arregle, J.L., Batjargal, B., Hitt, M.A., Webb, J.W., Miller, T. and Tsui, A.S., 2015. Family ties in entrepreneurs' social networks and new venture growth. Entrepreneurship Theory and Practice, 39(2), pp.313-344. Read More