Report on Key Issues in Small Business Enterprises

Key issues in teensy-weensy worry enterprises Personal Reflective piece Zdravko Mihaylov BA (HONS) Business Enterprise Development2012 Introduction delicate course enterprises argon important for the modern market economy in terms of innovation, body of work and flexibility. They atomic number 18 the backb unrivaled of our economy. Around 98. 6% of all ancestryes are considered low-toned (Goodman, 2006) and every large business was at some point tiny. nice business enterprises are very different to large business enterprises.They perish in different circumstances, such as having different management techniques, cladding different financial constraints and production choices, and bearing different relative regulative magnetic cores. This reports aim is to identify some of the notice issues veneering small business enterprises today, addressed in the Enterprise Finance unit, in order to give better view of the challenges presented in their survival and growth. Smal l business enterprises are oft at a competitive loss to large business enterprises.They may eat problem achieving economies of ordered series, where large enterprises have already been well established, they often have difficulty in getting sources of finance and they may have problems with government policy and ordinance, which are often knowing to assist specifically large enterprises (Holmes et al, 2003). Other factors that may pick out to small enterprise nonstarter include inadequate credit management, poor stock management, poor pricing practice, excessive pelf distribution, excessive enthronisation in long term assets and others (Holmes et al, 2003142).They are very dependent on the founding owners and have higher business jeopardize. Evaluation In summary, ii broad forms of business failure laughingstock be identified. The first involves the opening-up of the business, bankruptcy, liquidation, unforced wind-up/closure. The second form is where the business continues to operate, but the provide on capital, judgment of conviction and effort contributed by owners is bellow the desired. Small business enterprises have difficulty competing with already established large enterprises.New enterprises rarely have the financial patronage to set up a large-scale operation to take quick advantage of scale economies. Except the challenges brought by the lack of history and reputation, a development of a price cutting war may catch a great threat to small enterprises, as they may non have the financial capacity to withstand such competition. Some of the scale economies non available to small enterprises are listed in Figure 1. 1 in the Appendices. A way of overcoming those issues is adopting strategies to overcome some of the disadvantages or to channelize small niche markets in which to operate.Small business enterprises suffer from chronic undercapitalisation as they often have limited access to the capital and money markets (Tamari, 1980 ). dickens main breachs toilet be identifies as responsible for that Knowledge gap lack of awareness of appropriate sources of finance and their relative merits resulting in confine use of debt Supply gap unavailability of funds or majestic cost of debt. Another barrier is the take higher rate of return on funds invested or lent due to the higher risk in small business enterprises (Storet, 1994).Problems can even arrive from the owners pickpocket of not wanting to share misrepresent of the business with investors. Other universal cause of small business failure is the lack of liquidity or little financial planning and control. Two critical periods of financial call for are identified within the business life cycle the start up and the rapid expansion. To overcome this problem and avoid overtrading1, a long-run finance source is needed. Different financial stress factors have alike been identified by Hutchinson and Ray (1986) in each stage of the lifecycle, which can be seen on Figure 1. in Appendices. Another major challenge for small enterprises is the burden of complying with government regulations. Part of the burden problem can be attributed to poorly designed legislations. Two disadvantages are seen by this, listed in Figure 1. 2 in the Appendices. While a lot of studies commemorate that small enterprises face a greater relative compliance burden than large enterprises, some consider that some of them are so flawed that we must view their findings with scepticism (Brock and Evans, 1986 pp. 134-5).When looking at the small unwavering survival over a period of cartridge clip, a key variant is net profit. It is defined by subtracting all operational be from pull in profits and the costs of closing down a business. For staying in business over a period of time, it is required that net profit should not fall below zero. In case of cosmos positive, the firm great power have some prospect for growth, while in case of being zero, it is jus t breaking even. If it stays negative for a period of years, it invites failure and exit from the market.Thus one might express that for staying in business, net profit should be non-negative. Small business enterprises usually have centralized control by the owner, thus his managing skills are critical for the survival of the business. Perry and Pendelton (1983) estimated that 90% of the business failures are associated with management inexperience and/or incompetence. It has been identified that managerial roles advert to the lifecycle of a business enterprise (Holmes et al, 2003150), so different managerial skills are required for each lifecycle stage.In other words, if owners do not have the incumbent managerial skill for each stage, the business might be at a great risk. Conclusion The objective of this project was to determine the key issues facing small business enterprises today, discussed in the Enterprise Finance unit, and to repulsion the knowledge gained. Firstly, the report begins with analysis of the disadvantages of barrier of entry, Overtrading1 when a business expands without a solid financial foundation financial and government regulation issues of small enterprises.The report continues with examination of the survival over a period of time and the role of the owner-manager in small business enterprises. The issues listed in this report cannot be generalised for all small business enterprises, as each one has a unique structure, resources and capabilities. Further research may be required in this area before any decisive conclusions can be drawn. Bibliography Brock, W. A. , & Evans, D. S. (1986). The Economies of Small Businesses Their Role and Regulation in the US Economy. Holmes and Meier New York. Goodman, G. (2006).Five Challenges either Small Business Owner Faces. From http//ezinearticles. com/? Five-Challenges-Every-Small-Business-Owner-Faces&id=158921 Holmes et al. (2003). Small Enterprise Finance. John Wiley & Sons Australia Ltd Sydney Perry, C. , & Pendelton. W. (1983). in(predicate) Small Business Management. Pitman Publishing Sydney. Storey, D. J. (1994). Understanding the small business Sector. Routledge London. Tamari, M. (1980). The financial structure of the small firm. American Journal of Small Businesses, 44 20-34. Appendices -Figure 1. 1 Scale economies of large enterprises, not available to small enterprises Longer production runs based on larger and more technologically advanced plant and machineryQuantity discounts on input purchasesEmploying specialistsMore widespread advertisingAccess to more forms of finance on better terms and conditionsMore sophisticated information gatheringLower unit costs in complying with government regulations and reporting obligations (Adopted from Holmes et al. , 2003, pp. 52-53) - Figure 1. 2 Government regulation disadvantages A greater relative cost burden in complying with many forms of government regulation, because of the substantial fixed costs involvedGove rnment policy measures being designed to assist large enterprises more than small enterprises (Adopted from Holmes et al. , 2003, pp. 54) - Figure 1. 3 A view of the financial lifecycle of a smaller growth enterprise dress Finance used Predominant financial stress factor rootage Owners resources Undercapitalisation Growth 1 (Take-off) Owners resources plus retained profits, dole out credit,