Small businesses failure in the UK

Introduction According to the Federation of Small Businesses (2012), â€Å"there are 4.5 million small businesses in the UK†. Their significance in the country’s economy is confirmed by statistics from the same organization, revealing that small business account for 99% of all the businesses in the United Kingdom.Advertising We will write a custom critical writing sample on Small businesses failure in the UK specifically for you for only $16.05 $11/page Learn More They account for more than 48% of the private sector turnover and employ 58.8% of the people working in the private sector. London is leading with the highest number of small businesses approximated at 748,000. The South East is second with 745,000 registered small businesses. The number has been on the rise in the recent past with over 87,000 small business registered in2010 alone. Even as this number goes up, the rate of failure is still alarming, and a cause for concern. In 200 4 alone, small businesses in the UK registered a 43% failure rate (Small Business UK, 2012). According to Federation of Small Businesses (2012), â€Å"the government recognizes that small businesses are the backbone of the United Kingdom’s economy†. Combining the public and private sectors together, each year, the small businesses represent over 90% of the employer firms. In the last 15 years, 64% of all the news jobs created in the UK have come from the small businesses. Furthermore, â€Å"small businesses produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited† (Federation of Small Businesses, 2012). The sectors significance in the country is further proven by the fact that they create more than half the country’s non-farm gross domestic product comes from it. Half the country’s high-tech workers are employed in the small businesses. Thes e include the computer programmers, chemical analysts, engineers and scientists. Small businesses in the UK offer income and convenience to a big percentage of the investors.Advertising Looking for critical writing on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More More than half are home-based, while 2% are franchises (Small Business UK, 2012). According to the same statistics, small businesses made up more than 97% percent of all registered and identified exporters in the country in 2007. In the same year, 30.2% of the known export value in the United Kingdom was from them. Other than the financial benefits that they offer the country, small business have a political and social importance both domestically and internationally. They have been found to make significant contributions to the economical and foreign relationships between the UK and other nations, especially with most of the industrially advanced and developin g nations including the United States. Small businesses are considered as one of the major driving forces of socio-economic development in the country. Because small businesses stimulate private ownership and entrepreneurship skills they generate more innovative opportunities (Repa, 2010) They offer stability since they are flexible and adapt themselves to changing market demand and supply situations easily. Review of relevant literature indicates that many international agencies and governments have identified the importance of maintaining healthy and supportive growth standards in small businesses (Kakkar, 2009). However, there exist very few details of the strategies recommended by prior research. Provision of services, information and support for small businesses is not well defined in most of the past studies. Nature of small business, changing patterns of employment and changes in economic environment are found to be some of the reasons for lack of focus in the research (Trevi no and Katherine, 2011). Nature of small businesses The contribution to modern economic life by the small enterprises is significant and cannot be ignored. In many of the advanced industrialized nations, the enhanced share of contribution to the economic growth is the strong evidence for their prominent place in changing the economic profile of these nations. Available information from government statistics has shown that failures are more common in small businesses than in larger companies, perhaps from the fact that big businesses have the capacity to handle risks and potentially dangerous uncertainties. â€Å"It is acknowledged that such high incidence of failure is not mainly because the small enterprises undertake more dangerous business tasks; but because of unsatisfactory management and implementation arrangements in small businesses† (Koeng and Root, 2006).Advertising We will write a custom critical writing sample on Small businesses failure in the UK specificall y for you for only $16.05 $11/page Learn More Effective management of strategy in small businesses faces considerable challenges from the fact they are more vulnerable and exposed to uncertainties and changes in the markets. As far as management is concerned, the owner is regarded as the central and dominant actor in relation to any proposal for changes in the structure or operations of small businesses. Many researches point out the personal values and priorities of the owners as the determinants of culture, social relations and attitude of the small enterprises. Based on such characteristics, small businesses could be described as organizations that have to fight for survival. These organizations have the owners as the responsible persons to handle several issues affecting the business at the same time (Tsai and Wen, 2009). The owner-manager gets significant part of his identity from the enterprise. The personal values and beliefs of the owners form the gu idelines for the development of small businesses. The management style of owners of small businesses is often a patriarchal one, and hence it is ego-centric and action-oriented (Longenecker, 2010). Causes of failure among small business Cash flow problems The most significant challenge among small entrepreneurs is having a healthy and managing cash flow. Daily (2011) points out that â€Å"many businesses struggle through poor cash flow management†. Even where good skills are available, less than enough financial resources make it hard for them to bear any fruits. A common mistake among small business people is going into business with the exact amount needed to start up, and sometimes even less. When the business is not profitable immediately, there is no money to cater for expenses and cater for the day-to-day expenses of the business. The results are either accumulated debts at an early age of the business, or failure at an early stage. Poor business planning Daniels (2010) advices that â€Å"a business plan should cover aspects such as marketing, finance, sales and promotion plans, as well as detailed breakdowns of costs and profit predictions†. Unfortunately, small businesses lack a comprehensive plan and more often leave out the important aspects of a business.Advertising Looking for critical writing on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More For example, a plan that lacks direction on costs and expenses may not be able to sustain itself regardless of how well marketing and sales were planned. In the UK, a considerable number of small business owners are young and may lack the much needed level of experience to address some of the challenges that arise from poor planning. The result is the inability for small businesses to go through any challenges that arise. Poor marketing Understanding a market is paramount for businesses that intend to establish a long-lasting presence in any market. For a business to be successful, they have to understand and meet the needs of their clientele. When this is lacking, resources spent to introduce products and market will not bear any positive results for the business. Furthermore, small businesses in the UK suffer from stiff competition since most industries are quite competitive. Lack of sufficient funds makes it even more difficult for them to invest in understanding markets and even compete effectively. Most of them also lack proper distribution channels and are unable to create a consistent flow of goods or services to the targeted clientele. Lack of finances According to Barreto (2007), â€Å"insufficient finance often means that businesses are unable to take opportunities available to them, or have to compromise-going for high cost solutions to problems, rather than lower cost ones that would yield greater competitive advantage†. In the UK, the government recognizes the significance of the small businesses by offering different kinds of support. This is through grants, financial advice and information, as well as making loans more available to small entrepreneurs. Grants are today more available through the government and other non-governmental organizations. Information and advice are essential since most small businesses suffer from poor financial management, bad credit and inability to sustain the high costs in the early days of business. Failure to embrace new technologies Inability to embrace new developments and technologies arises from a lack of financial resources. At an age when technology is evolving so fast, dragging behind may cause more harm than a business could anticipate. In a fast changing world, leading investors are those that access to modern solutions and know how to use them to their advantage. Young business may suffer weak and inexperienced capacity to manage changes that occur too fast as far as their technological needs are concerned. Issues of safety â€Å"The issues that surround running a business are more pronounced in small enterprises by virtue of their sizes act to restrict the initiatives for meeting the health and safety standards for their workers† (Armstrong, 2009). The issue of safety is especially important for those businesses in high risk industries such as production. Issues of safety can further be categorized into management, finance, compliance and environmental practices. All these issues are inter-linked, are dependent on each other, and operate as a total force. Based on this premise, the key factors that affect the occupational health and safety in small businesses can be grouped under these heads. They are (a) low or lack of management and training skills; (b) lack of financial and human resources; (c) burden of statutory and regulatory compliance; (d) relationship with regulatory agencies and the use of consultants; (e) dependent relationship with large businesses; and (f) employment and occupational health and safety practices. Poor management Management in small businesses differs largely from that of a large undertaking with formal structures. As against large businesses, in small business enterprises, the lines of communication are shorter with simple organizational structure (Bohlander, 2010). The small enterprises feel the commercial pressures almost instantaneously and severely. In the small businesses, management practices are intertwined w ith other aspects of running the business and it is not possible to separate them for higher focus. According to (Bohlander, 2010) â€Å"a shift in one area of functioning will have immediate consequences on another because of the inter-relationship between the functions of operating a small business is tightly knit†. In most cases the employer has to consider the provision of even basic management measures based on the cash flow. Human resource management Most of the small enterprises face the challenge of training and skill development. This is especially so in the area of business communication and management. Small businesses mostly lack both the management attainment and adequate resources to meet their commitments on human resource requirements of the industry (Clutterbuck, 2007). The small business owners generally do not understand their obligations and responsibilities as far as their workers are concerned. Small business employers are often specialized in their part icular trade rather than on the business management practices. They can frequently be characterized by a norm of independence and a shared belief in their personal values. The small business owners are keen in their individual autonomy and hence do not take much care of what the rest of the team thins or requires. The tension between the role of management and the rest of the team in the small business also act to distance the owner-managers from meeting the requirements of the employees. Statutory and regulatory requirements The burden of compliance with statutory and regulatory requirements is a challenge that the small businesses have to face continuously. While medium and large sized firms are able to keep their knowledge up to date on the changes in business laws and regulations, small businesses have not. Unlike large businesses, meeting the regulatory requirements may often place considerable financial burden on small businesses. This is because the smaller businesses are una ble to spread the cost of compliance over large number of products as it is the case with larger firms. This inability may put the small businesses at a significant disadvantage. Studies also indicate that small business owners consider that government regulations may affect their profitability and ultimately lead to the closure of the business (Vance and Yongsun, 2011). This presumption that the cost of compliance will negatively affect the profitability of small businesses has led a large number of small businesses to find ways in which they could opt out of their legal obligations in the country. Viable solutions to reduce failure rates In consistent with the previous researches, Longenecker (2010) suggested that the small and medium enterprises in the UK have slowly evolved their management systems to make them better. Steingold (2009) found that with the increase in the organizational size the quality of business issues management increased. Lack of resources has been identifie d to be one of the major reasons small businesses are failing in the UK. Schneider and Pietra (2010) found more evidences to prove that small business organizations had resorted to more preventive activities such as insurance and compensation when challenges occur. Putting this into consideration, it is notable that availability of resources will be very helpful to the small entrepreneurs. The first resource that small businesses need is education and training. This is in areas of cash flow management, health and safety, marketing, and compliance with laws and regulations, among other areas. Santos, Fatima and Joaquim (2011) studied health and safety systems in small construction companies in the Asian region. The authors reported that newly hired construction workers in the small organizations are particularly at risk of occupational injuries because of insufficient safety education and training. This is important for small businesses in such industries where safety issues could co llapse a business. It is also important for small businesses to learn how to receive and send important information on issues that affect them. For example, full compliance to the law would require being fully updated on any new changes and new requirements. Another area in which small businesses need help is managing human resources. Many times small businesses employ less qualified personnel in an attempt to cut cost. Low level of literacy among the workers then makes it hard for them to be trained or adapt to new and challenging business environments in the UK. Because of their lack of knowledge, the workers are unaware of how different factors affect the business. In small enterprises, controls are normally decided by custom and practice and not by an exact risk assessment of the work practices. Reason (2008) found that the owners cited number of barriers including limited resources, lack of in-house expertise and competition as to why they were failing in human resource managem ent. It is therefore important that small business use everything they have to improve their human resource, as well as seek help on those issues that they cannot address. Another significant area of concern for small business is attitude towards their relationship with the government and law enforcement bodies. Small businesses are characterized by their indifferent attitude towards and their unwillingness to cooperate with regulatory agencies, as well as a common tendency to use consultants who may not be qualified for regulatory advice (Delgado, 2011). The same author observed three major reasons for the small business owners resorting to external consultants to assist them in compliance issues rather than dealing with the government agencies directly. First reason is that many small business owners feel alienated from the state. As a result, small business owners choose not to approach government agencies and relevant authorities directly for advice or guidance on matters that a ffect occupational, safety and health at work. Secondly the small business enterprise owners always presume that they might be prosecuted by the government for not meeting the regulatory requirements. The result is that small business owners are not in direct contact with the government, and will instead be more comfortable to use the services of small business advisors. The intermediaries may not relay all the information to both stakeholders, creating a communication breakdown. Thirdly when the small business owners do not have the competence to understand their obligation and do not seek advice from small business advisor. It is important that all relevant stakeholders put effort to fill the gap in their management knowledge. It is important for businesses and the government to note that by relying on the advisors to guide them on managing regulatory requirements, small businesses may not have access to all the relevant information. Important subjects such as financial, tax and l egal issues may not be fully addressed. For this reason, the government must ensure easy access of such information by reaching the small business instead of waiting for them to reach them. Compliance can also be improved by making it affordable for the small businesses. Financial challenges are obviously challenges that stakeholders cannot afford to ignore. Small businesses are at a higher risk of closing down due to lack of sufficient funds to run their day to day expenses. Financial related challenges can be solved through education, training and making funds available for small businesses. The UK government can get involved by having subsidized interest rates for small business loans, making the process of accessing funds easier, and encouraging non-governmental organizations to get involved through grants and training. The UK government in the recent past has put in place measures to encourage small entrepreneurs through government funded grants. Budgetary allocations for small businesses further need to be increased to help more start-up access financial support. Even though the government plays a major role in the problem, every stakeholder needs to be involved aggressively for failure rates to be reduced. â€Å"Businesses need to put a plan ahead to know what the most likely risks are in a given workplace environment and prepare for them to avoid them altogether† (Shane, 2008). To avoid stagnation and the consequences that arise when they happen, it is important for businesses to have a specific plan and regularly train employees on how to avoid being in such situations. It is also paramount for businesses to train employees on how to react when hardships occur so that they do not panic and aggravate the problem further. The size of the small business may not really be an important factor in the provision of workplace support. The assumption of high risks, poor assessment and high incidence of failure in small businesses compared to larger once has not been supported by empirical evidences. The right information is paramount in ensuring that the right policies and measures are installed correctly and that irrelevant assumptions are not made. Information at the employees’ level is also crucial in helping employees avoid any areas where they may easily expose themselves the business to risks that hurt the business. Employee and public education can be carried out through training at the workplace, government forums and annual awareness week, usually addressing different types of challenges. As discussed earlier, issues of safety are a significant problem for small businesses which may not have the resources to manage damages that arise when incidents occur. For manufacturing businesses, and those that use hazardous substances, health and safety should be addressed comprehensively. It is important to ensure that chemicals do not mix or come into contact with each other accidentally. The cleaning of production and stora ge facilities must be done in accordance with procedures that ensure safety and protection. Many industries in the region adopt mechanisms such as continuous process cleaning (CPC), to avoid any contact with the contaminated water during cleaning. Other mechanisms adopted from other regions such as Japan allow employees to arrange offices, stores and other facilitates in a way that allows easy exit in case of emergencies. Another important step for proper management and protection management of small businesses is compiling a highly skilled team in the businesses. A proper team is important for preparation, prevention and response when problems and risks that could lead to closure occur. The team must have access to every part of the business, meaning that a business must have the right teams in all its departments from the executive to the ground level. Since it is very easy to make the wrong decisions in panic, procedural manuals for incidents such as cash shortages, damaged goods and low sales must be in place to prevent such happenings. It is important for the new businesses in the United Kingdom to seek external help from bigger and more mature businesses who may have been exposed to significant crises and business threatening incidents in the past, and were able to manage it effectively. To fully benefit from new technological innovations, companies must also consult to benefit from each other’s new ideas. Consultations are made possible by fine tuning a company’s communication style and establishing good relationships with fellow investors. Such initiatives prove very helpful when a company needs help in times of trouble. Setting timeline for important projects will help the small businesses improve their preparedness. It also helps manage its workers in a timelier manner. â€Å"Each process scenario must be highlighted in the timeline to ensure that teams don’t spend unnecessarily long times on one aspect of a crisis† (Reuvi d, 2010). Timeliness allows order and organization during an incident management mission, an initiative that could go a long way in saving lives and minimizing damage. Waste management and environmental challenges should be accorded the right attention in a business right from its inception. For those who make products from raw materials, reactivity and toxicity tests can be used to further determine whether waste should be considered hazardous or not. All wastes must go through these tests to determine how hazardous they are to the environment and human health before disposal. When collecting waste, it should be segregated and collected according to different waste categories depending with how they test for different parameters. Waste should be not be mixed and should be collected in containers with secure lids securely sealed thereafter to avoid spillage. When these measures are not addressed, small businesses find themselves in trouble with environmental organizations and may en d up paying hefty fines that will eat into its capital base. Small business should have the capability to test the level of risk and exposure in the markets they venture into. The level of interaction with risks allows the analysts to determine the amount of damage that may have occurred in a business (Haddow, Jane and Damon, 2011). In case of Therefore, it is important for small businesses to be equipped with the necessary tools and kits to perform these assessments and minimize negative effects on its operations. The other important step is identifying the most fundamental success factors for safety in their business strategy. These are factors that must be available if sustainability initiatives have to work out and give results. They include things such as technology requirements, availability of resources, tools for measuring performance and the how the process will be aligned. Conclusion In conclusion, a proper workplace management plan can help small businesses in the United Kingdom preserve their reputation as the backbone of the country’s economy. The first step towards a proper management planning is having the right information (U.S Small Business Administration, 2011). Any company intending to perfect their art of survival must have the right data and information about their population, level of threat, climatic trends, and rates at which risks occur in the industry region and causes. False facts can lead to wrong decisions in the face of a crisis and could cost more losses than should have happened. In the country, small businesses have done much to ensure their survival rates increase. There needs to be more awareness and training for small entrepreneurs, especially those in high risk industries. The general view of planning is to create a specific response to economical, physical, social, psychological and environmental challenges. The effectiveness of the plan is influenced by both local and external factors. Particular circumstances suc h as the economic environment, human resources conditions, accessibility of business papers, number of people involved and many other parameters may also influence the outcomes of a new business. When all these factors are put into consideration, all small businesses in the United Kingdom will be in a position to develop a more effective strategy. Reference List Armstrong, M., 2009. Armstrong’s handbook of management and leadership: A  guide to managing for results. London; Kogan page. Barreto, H.V., 2007. The engine of America: The secrets to small business  success from entrepreneurs who have made it. Hoboken, N.J.: John Wiley Sons. Bohlander, G.W., 2010. Managing human resources. Mason: South-Western. Clutterbuck, D., 2007. 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Managing business ethics; Straight talk  about how to do it right. New York: John Wiley. Tsai, W.H. and Wen, C.C., 2009. Selecting management systems for sustainable development in SMEs: A novel hybrid model based on DEMATEL, ANP, and ZOGP. Exper t Systems with Applications, 36(2): pp. 1444-1458. U.S Small Business Administration, 2011. Advocacy for small business  statistics and research. Web. Vance, C.M. and Yongsun, P., 2011. Managing a global workforce: Challenges  and opportunities in international human resource management. Armonk: Sharpe. This critical writing on Small businesses failure in the UK was written and submitted by user Juliet E. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.