Problems & challenges faced by small scale enterprises – A Case Analysis

Introduction:
        An enterprise is an undertaking, especially one of some scope, complication and risk. It is a business organisation, which is undertaken, something attempted to be performed a projected which involves activity, courage, energy and the like. A business which is running in a small level with less capital is termed as small scale enterprises. A Small scale enterprises plays a significant role in the development of the economy, it contributed significantly to the national income and provides employment opportunities to the large number of people in rural economy. Capital shortage is the most important problem faced by Indian Economy in introducing latest technology, other than this there are many other problems faced by them.
Problems of Women Entrepreneurs in India:

• Low-level risk taking attitude is another factor affecting women folk decision to get into business. Though the risk tolerance ability of the women folk in day-to-day life is high compared to male members, while in business it is found opposite to that

• The confidence to travel across day and night and even different regions and states are less found in women compared to male entrepreneurs. This shows the low level freedom of expression and freedom of mobility of the women entrepreneurs.

• The interest of the family members is a determinant factor in the realization of women folk business aspirations.

• The financial institutions discourage women entrepreneurs on the belief that they can at any time leave their business and become housewives again. The result is that they are forced to rely on their own savings, and loan from relatives and family friends.

Problems faced by small scale businesses:
            Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions. Small businesses face a number of challenges. From the startup phase to maintaining the business to growing the business, entrepreneurs need to constantly face a number of challenges, some of which are unique to small businesses. Foremost of course of these challenges is ensuring that the business survives.
Challenges faced by a small scale entrepreneur: A Case Analysis:
            Small – scale industries in India could not progress satisfactorily due to various problems that they are confronted with while running enterprises. In spite of having huge potentials, the major problems, small scale industries faced are:
1.      Problem of skilled manpower:
            The success of a small enterprise resolves around the entrepreneur and its employees, provided the employees are skilled and efficient. Because of inefficient human factor and unskilled manpower create innumerable problems for the survival of small industries. Non- availability of adequate skilled manpower in the rural sector poses problem to small – scale industries.
2.      Inadequate credit assistance:
            Adequate and timely supply of credit facilities is an important problem faced by small – scale industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the small units in the country.
3.      Irregular supply of raw materials:
            Small units face severe problems in procuring the raw materials whether they use locally available raw materials or imported raw materials. The problems arise due to faulty and irregular supply of raw materials. Non- availability of sufficient quantity of raw materials, sometimes poor quality of raw materials, and increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of entrepreneurs regarding government policy are other few hindrances for small – scale sector.
4.      Absence of organized marketing:
                        Another problem faced by small – scale units is the absence of organised    marketing system. In the absence of organised marketing, their products compare       unfavourably with the quality of the product of large scale units. They also fail to get          adequate information about consumer's choice, taste and preferences of the type of             product. The above problems do not allow them to stay in the market.
5.      Lack of machinery and equipment:
            Small – scale units are striving hard to employ modern machineries and equipment in their process of production in order to complete their large industries. Most of the small units employ outdated and traditional technology and equipment. Lack of appropriate technology and equipment create a major stumbling block for the growth of small – scale industries.
6.      Absence of adequate infrastructure:
            Indian economy is characterized by inadequate infrastructure which is the major problems for small units to grow. Most of the small units and industrial estates found in towns and cities are having one or more problems like lack of power supply, water and drainage problems, poor roads, raw materials and marketing problems. Thus absence of adequate infrastructure adversely affects the quality, quantity and production schedule of the enterprises which ultimately results in under – utilization of capacity.
7.      Competition from large – scale units and imported articles:
            Small scale units find it very difficult to compete with the product of large – scale units and imported articles which are comparatively very cheap and of better quality than small units' product.
Other problems faced by the small scale enterprises:

• Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have not less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.

•  In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners under price their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem.

•  In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs, taxes and taxcompliance. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.

• Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly.

• Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.

Small business bankruptcy
         When small business fails, the owner may file bankruptcy. In most cases this can be handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business and valuable corporate assets are likely to be repossessed by secured creditors there is little advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions for small business assets so they can continue to operate during and after personal bankruptcy. However, corporate assets are normally not exempt; hence it may be more difficult to continue operating an incorporated business if the owner files bankruptcy.
Social Responsibility
         Small businesses can encounter several problems related to corporate social responsibility due to characteristics inherent in their construction. Owners of small businesses often participate heavily in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate socially responsible efforts. Additionally, a small business owner's expertise often falls outside the realm of socially responsible practices contributing to a lack of participation. Small businesses also face a form of peer pressure from larger forces in their respective industries making it difficult to oppose and work against industry expectations. Furthermore, small businesses undergo stress from shareholder expectations. Because small businesses have more personal relationships with their patrons and local shareholders they must also be prepared to withstand closer scrutiny if they want to share in the benefits of committing to socially responsible practices or not.
Job Quality
          While small businesses employ over half the workforce and have been established as a main driving force behind job creation the quality of the jobs these businesses create has been called into question. Small businesses generally employ individuals from the Secondary labor market. As a result, in the U.S. wages are 49% higher for employees of large firms. Additionally, many small businesses struggle or are unable to provide employees with benefits they would be given at larger firms. Research from the U.S. Small Business Administration indicates that employees of large firms are 17% more likely to receive benefits including salary, paid leave, paid holidays, bonuses, insurance, and retirement plans. Both lower wages and fewer benefits combine to create a job turnover rate among U.S. small businesses that is 3 times higher than large firms. Employees of small businesses also must adapt to the higher failure rate of small firms. In the U.S. 69% last at least 2 years, but this percentage drops to 51% for firms reaching 5 years in operation. U.S. Small Business Administration counts companies with as much as $35.5 million in sales and 1,500 employees, depending on the industry. Outside government, companies with less than $7 million in sales and fewer than 500 employees are widely considered small businesses.
Major challenges facing while starting a new small scale business:
1. Developing the Vision and Business Idea
2. Raising Capital for your Startup
3. Assembling a Business Team
4. Finding the Right Business Location
5. Finding Good Employees
6. Finding Good Customers
7. Dealing with Competition
8. Unforeseen Business Challenges and Expenses
9. Keeping Up With Industrial Changes and Trends
10. Exiting the Business
Conclusion:
                        Besides the above problems, small – scale units have been of constrained by a number of other problems also. They include project planning, managerial inadequacies, old and orthodox designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems the development of small – scale industries could not reach prestigious stage. Small businesses face a number of challenges. From the startup to maintaining the business to growing the business, entrepreneurs need to constantly number of challenges, some of which are unique to small businesses. Foremost of course these challenges are ensuring that the business survives.

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