Factors of Success-Failure of Small Business Enterprises - Essay Example

? Running head: ERIC: A CASE STUDY FOR SMALL BUSINESS ENTREPRENEURS Success or failure of small business enterprises will depend upon the vision of their entrepreneurs duly supported by risk taking ability and hard work. Risk taking ability goes along with unconventional approach, devoid of sentimentalism. Commitment to an idea and hard work to put that idea to work combines to bring success. However, it is equally important that one undergoes formal schooling/training to achieve higher levels of success in business. Such schooling/training expands one’s vision to available opportunities and strategies, and inculcates professionalism. Business plans reflect the professional approach to entrepreneurism. Key words: Small businesses, entrepreneurs, competition, customer preferences, survival, growth. Eric: A Case Study for Small Business Entrepreneurs Q. 1: Factors for success/failure of small businesses Entrepreneurship is characterized by either family tradition or an individual’s desire to break free from routine - to give expression to adventurous ideas. Eric falls in the later category and has been exhibiting traits of an entrepreneur – be it in his vision to head a large and successful corporation in later life or his demonstrated risk taking ability in starting two small ventures and selling them off even before he reached the age of 20 or his determination to pursue college education on full time basis for long-term success. The main ingredients of success for small businesses, as Eric would vouch for us, are enthusiasm for backing an idea with hard work, firm belief and commitment to ideas, practical thinking as opposed to sentimental approach, and the importance of formal training for achieving higher goals. As Milton Friedman famously stated, “The social responsibility of business is to increase its profit” (The New York Times Magazine, September 13, 1970). All businesses, and more so the small businesses, must make adequate profits to survive and grow and in Eric’s case, it has been the profits from his ventures that kept him self-sustained and are now enabling him to join college for full time. On the other hand, had Eric not backed his ideas with hard work or was afraid of competition or was content to hang on to his profitable ventures for sentimental or other reasons, his small businesses would have failed in the long run for want of competitive edge. In market conditions characterized by intense competition, small businesses fail if they do not adapt to changing customer preferences. Finally, formal training through college education brings in its wake a clearer perspective of the market opportunities, competitive forces and strategies for survival and growth of businesses. Q. 2: Business plan A business plan is a document that gives shape to the vision of an entrepreneur and to that extent helps the key management team to assume ownership the business idea and work towards its success. It is also presented to investors for availing financial support and is essentially a road-map for the proposed business from inception to the time of repayment of loan and interest (Ed., ehow.com, 2011). Its key components are briefly described as below: Cover letter: While forwarding the business plan document, the cover letter spells out the request being made for financial support on behalf of the business in a legally binding manner between the loan seeker and the loan giver. It identifies the parties to a deal and commits to discuss details and offer any clarifications that may be needed. Executive summary: Executive summary is especially meant for senior managers/decision makers, to quickly grasp the key elements of a proposal and decide whether it is worth their time to go into details or not. Hence this is a very important document in marketing a proposal for financing by investors. Company background: It spells out the credentials of a company and its promoters. In respect of existing companies, it briefly describes the lines of business, performance of the past few years and prospects for future. For new ventures, it briefly describes the market opportunity which the promoters wish to exploit using their credentials such as experience, qualifications and investment as owner’s equity. Management team: It is the group of key personnel with the requisite professional qualifications and experience to realize the organizational goals. Financial plan: It is a forecast of the financing of a business during the stages of implementation and till such time as the debt liabilities to investors/institutions (principal and interest components) are fully cleared. It spells out the promoter equity and loan components, identifies the stream of expenses and revenues in a defined period of (say) 5 or 10 years and presents the break-even point, sensitivity analysis to determine the factor of safety of investments by the promoters and institutions. Capital required: It is the expenditure on land, buildings, plant and machinery, technology/training, administrative expenses and contingencies during the implementation stage of a business plan. Part of the working capital which is needed in the initial period of operations (commonly called, margin money) is included in the capital required. Marketing plan: It is the plan that a business proposes to reach its products/services to the customers and is based on an identified strategy. Location analysis: This is an assessment of the alternative choices for location of a business in order to achieve competitive advantage and may encompass factors such as access to input materials, trained manpower, customer reach, local incentives etc. (Ellis, R., 2007). Manufacturing plan: This is a brief description of the processes (along with the corresponding machinery/facilities) to be adopted at various stages of converting the input materials into finished products. Appendix: This section of a business plan contains all the supporting documents mentioned in the main text and particularly, plant location and layout drawings, sources of input materials along with quantities/prices, details of utilities such as water, power, fuels etc., manpower needs, and financial section containing capital expenditure plan, sources and utilization of funds, break-even analysis, forecast of revenues/repayment of liabilities etc. References Editor, (2011). What are the key components of a business plan? Retrieved from: http://www.ehow.com/about_5066207_key-components-business-plan.html. Ellis, R. (2007). “Location analysis”. Retrieved from: http://www.cbre.com/ISA/Services/CBRE+Consulting/Location+Analysis.htm. Friedman, M. (1970). “The social responsibility of business is to increase its profit”, The New York Times Magazine, September 13, 1970. Retrieved from: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html. Read More