Report on Key Issues in Small Business Enterprises

Key issues in picayune ancestry enterprises Personal thoughtful Report Zdravko Mihaylov BA (HONS) care Enterprise Development2012 Introduction mild championship enterprises argon important for the modern market economy in cost of innovation, employment and flexibility. They atomic number 18 the backbone of our economy. Around 98. 6% of all transmission linees are considered small (Goodman, 2006) and every great(p) business was at some request small. Small business enterprises are very different to large(p) business enterprises.They ope localise in different circumstances, such as having different heed techniques, facing different fiscal constraints and issue choices, and bearing different comparative regulatory burdens. This newspapers aim is to identify some of the discern issues facing small business enterprises today, addressed in the Enterprise pay unit, in order to give give away view of the challenges presented in their survival of the fittest and growth. Small business enterprises are often at a hawkish disadvantage to large business enterprises.They whitethorn bring on difficulty achieving economies of scale, where large enterprises pick up already been well established, they often keep back difficulty in acquiring sources of finance and they whitethorn have problems with presidency policy and ordinance, which are often designed to assist specifically large enterprises (Holmes et al, 2003). otherwise factors that may bring to small enterprise failure include poor credence management, poor stock management, poor pricing practice, spendthrift clams distribution, excessive investment in long term assets and others (Holmes et al, 2003142).They are very mutually beneficial on the founding owners and have high business risk. Evaluation In summary, two broad forms of business failure git be identified. The rootage involves the start-up of the business, bankruptcy, liquidation, voluntary wind-up/closure. The second form is where the business continues to operate, but the return on capital, time 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 pecuniary backing to set up a large-scale operation to aim immediate advantage of scale economies. Except the challenges brought by the lack of register and reputation, a development of a price cutting war may become a great threat to small enterprises, as they may not have the monetary capacity to withstand such competition. most of the scale economies not available to small enterprises are listed in view 1. 1 in the Appendices. A way of overcoming those issues is adopting strategies to overcome some of the disadvantages or to target small niche markets in which to operate.Small business enterprises suffer from inveterate undercapitalisation as they often have limited access to the capital and capital markets (Tamari, 198 0). Two main gaps can be identifies as responsible for that knowledge gap lack of awareness of appropriate sources of finance and their relative merits resulting in restricted use of debt Supply gap unavailability of funds or exceeding cost of debt. Another barrier is the required higher rate of return on funds invested or lent due to the higher risk in small business enterprises (Storet, 1994).Problems can even mystify from the owners inclination of not wanting to share control of the business with investors. Other frequent cause of small business failure is the lack of liquid state or little financial planning and control. Two critical completions of financial needs are identified within the business life roulette wheel the start up and the rapid expansion. To overcome this problem and avoid overtrading1, a long-term finance source is needed. Different financial stress factors have also been identified by Hutchinson and Ray (1986) in separately dress of the lifecycle, whi ch can be seen on Figure 1. in Appendices. Another study 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 agglomerate of studies show that small enterprises face a greater relative accordance burden than large enterprises, some consider that many 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 rigid survival over a degree of time, a bring out variable is enlighten profit. It is defined by subtracting all operational cost from gross 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 fortune of being positive, the firm might have some prospect for growth, while in case of being zero, it is j ust 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 relate 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 necessary managerial skill for each stage, the business might be at a great risk. Conclusion The objective of this project was to desexualize the key issues facing small business enterprises today, discussed in the Enterprise finance unit, and to draw the knowledge gained. Firstly, the r eport 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 organise, 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 Every 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). Successful 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 &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212-Figure 1. 1 Scale economies of large enterprises, not available to small enterprises Longer production runs based on larger and more technologically advanced appoint 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) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Figure 1. 2 Govern ment regulation disadvantages A greater relative cost burden in complying with many forms of government regulation, because of the demonstrable fixed costs involvedGovernment policy measures being designed to assist large enterprises more than small enterprises (Adopted from Holmes et al. , 2003, pp. 54) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Figure 1. 3 A view of the financial lifecycle of a smaller growth enterprise Stage Finance apply Predominant financial stress factor Inception Owners resources Undercapitalisation Growth 1 (Take-off) Owners resources plus retained profits, trade credit,