Cash Flow Financing Activities Common Stock Additional Paid In Capital Small Business Owners Are Known to Be ‘Tough’ – Why Most Owner-Managers of Small Businesses Fail

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Small Business Owners Are Known to Be ‘Tough’ – Why Most Owner-Managers of Small Businesses Fail

Typically, one or more of the following may be present before a small business owner manager fails.

a. Lack of financial and human resources: Lack of financial resources stems to a lesser extent from a lack of financial knowledge. Most of the SMEs were not aware that there are various sources of financing available to them which can be availed by the government viz. knowledge gap. Still, where there were some contributions, what they got was not enough. For example, in 1997 an amount of $72,000, about 41,500 Ghana cedis, was paid to 1,400 small businesses in Ghana. This was not enough if you have great vision. As is well known, most SME equity comes from family members and friends, but this is not easy to obtain, as most people cannot simply trust their owner-manager friends or a family member to part with huge sums of money, even if they agree to repay .

b. Poor financial management practices: Growth comes with so many responsibilities, including hiring new staff, premises, increasing inventory and possibly taking out a loan for expansion, etc. If these are not properly managed financially, over-trading, over-stocking or under-stocking occurs, resulting in an inability to meet customer needs. This has been found to lead to loss of sales, profits and the inability of the company to service loans, which can ultimately lead to the failure of the company.

c. No Collateral as Loan Guarantee: Banks in Ghana require collateral as collateral before processing the loan for any business expansion in this case. These collaterals are in the form of houses and land, which some owner-managers cannot insure. Owning or owning land in Ghana is considered a prestige that is usually held by the entire extended family. This makes its use as collateral not only difficult but impossible unless the consent of the entire extended family can be obtained.

d. Inadequate financial management skills in terms of management and control ie. no financial knowledge: this was also to blame. Recall that approximately 30% of owner-managers stated that they had never approached a banker to assess the growth potential of their business. In fact; it was ignorance of what benefits financial management can bring to a company. Therefore, they did not want to consult an expert for free, let alone pay for the services of a consultant who would help them turn the business around financially and keep the business in the system.

e. Failure to use appropriate financial management strategies: This means that it has been found that most SMEs do not follow the strategies or tactics required to succeed in the market. Following the same principle of not using an appropriate source of funding, financial strategies are linked to the overall vision and mission of the company. For example, the liquidity needs and capabilities of a financial and banking services company due to its capital adequacy requirement will certainly differ from the liquidity needs and capabilities of a manufacturing company, which may have more inventory if it continues operations in the near future. However, in the cases studied; financial strategies were not adapted but generalized. This should not be the case.

f. Poor Financial Planning: Financial planning is very important for any business whether it is short term, medium term or long term. There is evidence of poor financial planning in SMEs in Ghana. In some cases, this has resulted in them missing out on opportunities from supplying equipment for the business to being unable to meet other important financial obligations, hindering the opportunity for growth. The reasons for this are the lack of knowledge about financial management and the perceived differences between SMEs and large organizations among some owner-managers.

Mr. Insufficient financial management, financial control and financial monitoring systems: As discussed in the literature review, it was found that combining sufficient financial management, financial control and effective monitoring helps SMEs in their quest for growth. Where they were deficient, SMEs failed to maintain their growth as expected.

h. Inadequate Marketing Skills, Lack of Customer Orientation and Limited Distribution Channels: Most small proprietorships lack adequate marketing and customer service skills as any casual observer in Ghana can attest. The issue of customer service relationships is not popular in the Ghanaian business community in general and small businesses in particular. The reason is said to come from the culture and notion of “you go buy because you are in need”, which creates the impression that the seller is doing a favor to the buyer and not the other way around. To some extent, proof of the strength of the supplier. Things are gradually changing anyway with the introduction of marketing subjects into secondary, post-secondary and tertiary programmes. The issue of limited distribution channels is the result of a lack of resources and/or inadequate financial planning to open distribution channels.

me. Lack of strategic direction: companies follow each other’s vision. This means that companies tend to copy what one competitor does if it has been found to sell or is attractive in the market. Ironically, one of the limitations to the sustainable growth of SMEs is essentially a lack of strategic direction. For 32% of the examined companies, it was found that they do not have a strategic direction in terms of a long-term financial (management) plan. The significance of these findings is that these companies cover three major industries in Ghana – light manufacturing, retail and import, and processing. These three are considered the bedrock of Ghanaian SMEs. The concern would be to do something about it.

j. Lack of training, career advancement and staff development in (in terms of) product knowledge and financial management: Product knowledge and financial management were low in career advancement and staff development training in the small businesses surveyed. Instead, the interest was very high in order to make a profit. In small to medium-sized companies, accounting is usually confused with financial management and is usually ignored. In the long term, the lack of knowledge of products and financial management has a negative impact on the growth of the company, as the needs of customers are not adequately addressed.

The failure of a small business could be blamed to a lesser extent on the owner who runs the business himself but did not have much knowledge of the issues described above. The tide could be turned if it turns out that the company is managed efficiently and with successful business practices.

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