Discuss the main challenges facing small business management. (20 marks) Financial limitations

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Discuss the main challenges facing small business management. (20 marks)

Financial limitations

This problem is worsened by under-capitalization due to poor planning, lack of initial start-up capital, poor management reflected in capital tied up in stock, poor profit margins and cash flows, delays in the release of debt financing and poor security.

These financial limitations seriously hamper small enterprises trying to handle big orders, trying to provide for working capital, invest in product and process development or improving technology.

Weaknesses in entrepreneurial or managerial functions

Usually in small enterprises, one person performs entrepreneurial and managerial functions. The owner manager makes strategic and tactical decisions and also takes care of functional area that is, marketing, production, finance, personnel etc. Weaknesses in these areas may be traced to a number of factors;

  • The entrepreneur may have started out with just one skill but he may not have experience in business management

  • The smallness of operations does not justify an in-house team of specialists

  • The enterprise has fewer financial resources and poor networking capabilities for example, it is believed that Asian businesses succeed because of their fantastic network.

Inaccessibility to markets

Small enterprises generally serve markets that are in the immediate vicinity which offer only limited opportunity for expansion. This tendency may persist as a result of;

  • Imitative patterns of development so that markets become saturated

  • Limited marketing management capabilities and marketing resources

  • Insufficient of technical base and know-how which confines small enterprises within a narrow range of products and services

  • Limited exposure to information on new products and markets opportunities and lack of resources

  • Limited resources to undertake product and market development

Limited knowledge of Production and Technology

Small enterprises generally rely on the technical knowledge of the entrepreneur or the partner. Workers usually acquire skills on the job and they don’t have money to hire highly qualified workers. The following worsens this situation;

  • Limited access to technical training and upgrading

  • Limited access to technological information and sources of technical assistance.

  • Limited resources to invest in improved appropriate technology

Inaccessibility to Information

Insufficiency of information is one of the causes of problems and difficulties mentioned above. It’s also a major constraint with regard not only to markets, finance, technology and sources of other inputs but also to changes in the business environment and administrative procedures, which are essential to the business survival. Access to information is blocked by the following factors;

  • The entrepreneurs limited education

  • His restricted circle of conducts and networks. He relies mainly on his immediate business contacts i.e. family. Relatives, his suppliers, customers and salesperson

  • His lack of financial resources to buy information.

Unsupportive Policies and Regulations

While small enterprises are flexible, they can be particularly vulnerable to unsupportive policies and regulations because they don’t have resources and reserves to fall on. They also don’t have the managerial and technical capacity to deal with variable and economic and business policies. The situation can been worsened by the ambiguous legislation, corruption, inefficiencies and generally policies that are biased against small enterprises
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