The Global Entrepreneurial Monitor’s (GEM) report 2013-14 findings demonstrate the difficulty entrepreneurs face across the globe. Now in its fifteenth year, the report covers each region in the world encompassing 70 economies be they developing, semi-developed or developed (e.g. termed Factor- Driven; Efficiency-Driven and Innovation-driven in the report) old (Source- Global Entrepreneurship Monitor (GEM) 2014 by Jose Ernesto Amoros, Niels Bosma and Global Entrepreneurship Research Association [GERA].
Over the fifteen years GEM has been going, one finding repeated itself- the vast majority of nascent entrepreneurs (also known as early-stage entrepreneurs) globally – involved in setting up a business – fail. It means they never become owner-manager of a new business (up to 3.5 years old) or advance to become owner-manager of an established business, more than 3.5 years]).
The finding raises a question: What makes it so difficult to start a small business and ensure moving to the owner-manager of an established business stage?
GEM report cites reasons as per comment by the entrepreneurs themselves! Starting and discontinuing a business – in the eyes of business-owner – boils down to an unprofitable business, problems getting finance and personal reasons. Financial issues (unprofitable businesses or problems obtaining finance) remain the most important reason mentioned for business discontinuation in the majority of economies, also in other stages of economic development.
Finance – the lack thereof is understandable. The rate of business discontinuance is highest in the factor-driven economies -mainly in Sub-Saharan African economies – where high level poverty is common.
Extrapolating from GEM findings, in some – mainly-innovation-driven economies – a significant share of entrepreneurs who discontinued owning and managing their business did so for reasons such as selling the business as it had value, the opportunity to get a good job; and for some, an improvement in their personal situation.
Many entrepreneurs who managed to stay afloat will tell a prospective small business owner they are still trying as hard as they could – each and every day – to survive; let alone getting into a position to turn their business into something with a high market value ready for selling. They would also agree on the energy needed to manage a business spending many hours early mornings and late evenings.
Seasoned entrepreneurs would warn against learning as you grow along the business life cycle.
It is important to work hard and smart. Few small businesses can afford a team of specialized staff, forcing the business-owner to become multi skilled.
Discussed are key owner-management functions a prospective and going entrepreneur face from a skills and knowledge point of view.
Managing a small business warrants a holistic approach comprising at least the following.
Administration is often underestimated. Main types (they exclude the often cumbersome inherent tasks to each) include: Bookkeeping and other financial administration, cost accounting and administration, finance and credit administration, payroll administration, production administration, purchasing administration, quality administration and control, sales administration, and inventory administration.
Other forms of administration: Quoting administration, costing administration, debt administration, client databases and Complaints administrations.
Some of these administrative tasks would be very relevant to your type of business and industry, others less!
Finding a way to learn more about administration skill and knowledge is advised as you prepare for a venture.
You will found yourself communicating with many different types of people. Audiences will include customers, the bank manager, suppliers, creditors (those you owe money), debtors (those that owe you money) and others.
If not a natural speaker or compiling documentation, then there is need to consider how to overcome these weaknesses! Daily running of a business entails answering telephones, doing presentations to customers, negotiation with bank managers for an extended overdraft, negotiation with creditors for more time and negotiation with debtors to pay outstanding invoices! Writing, oral and presentation skills are important.
Finding a way to learn more about business communication skill and knowledge is advised as you prepare for a venture.
Failure at managing a business financially could potentially mean failing before the venture had a chance to move into a growth cycle. Many business owners opt to make an accountant (given they can afford one), financial manager! While the accountant could be a valuable source of advice the entrepreneur should learn how to take financial decisions based on financial data.
Entrepreneurs, more often than not, do not have formal training in fundamental bookkeeping, or in financial management. Managing finances even at a basic level is a very challenging task.
Entrepreneurs would find yourself trying to master at least the following: Profit planning, costing of products and services, sales planning (revenue) balancing it with expenses and possible taxes, general ledger, accounts receivable ledger, accounts payable ledger, general journal, sales book, cash book (or their equivalents) and regular books of account
Accountants would at the end of the financial year consolidate all financial data and present the business owner with financial statements to enable submission of tax returns.
Entrepreneurs are advised to master basic accounting and managing finances.
Business-owners surviving harsh times to grow later will end up with a few staff members. Once the entrepreneur gets to that stage he (or she) would have to manage people and the following: Employee contracts and role description, introduce staff to their environment (induction training), training for workers, practice of Labour legislation, fair discipline and how to address disobedience, high morale and positive attitude, production levels, recruitment and selection- getting the right people, staff benefits, staff demands and staff planning generally
By learning more about these tasks the entrepreneurs prepare itself for the day they would need the knowledge. The internet provides a wealth of information and examples of human resources management in a small business setting.
Which bring one to a crucial skill, information-technology!
Entrepreneurs find themselves in an age of information. Tools are needed to manage waves of information from outside the business.
Each and every aspect of business is related in some way or another to information and the technology linked to it. First and foremost there is the issue of computer skill and use of software programmes (as many as one could, always relevant to your business).
If fortunate enough to afford a personal assistant to take care of tasks on the computer, this would still not exonerate entrepreneurs from being equally skilled at using this technology.
Business owners find themselves many hours behind the computer long after the assistant has gone home.
Entrepreneurs are advised to master computer skill and software to run its business more effectively!
Entrepreneurs will gradually find themselves learning more about the legal side of a business as legal advice and assistance are costly.
Entrepreneur come across at least the following related to the laws of the country you find yourself in, including: Registration of your business with the relevant authorities (unless you operate as a sole proprietor), Income tax registration, company taxes and registration with relevant Labour authorities
Legal areas that have an impact on the business including (among many others potentially): Income Tax Acts, Labour legislation Acts, trade licences, product liability Acts, environmental Acts, standards for products and services, Usury Act, information Acts and consumer Acts
Regarding contracts (in addition to all of the above)! Entrepreneur should be able to read, interpret and analyse contracts. Identifying potential pitfalls is important. One could turn to a legal expert for advice, but would there be capital to cover fees for each smallish business deal?
Entrepreneurs could learn to draft elementary agreements. If a business deal is very complex then consider legal assistance.
Seasoned business owners would advise against not having agreements in place, bargaining on mutual trust and potential dire consequences!
There are templates available covering a variety of agreement types. To acquire a library of these and absorb the content is advised! Business agreements should be documented, covering all deliverables and costs in detail; and be signed!
- Marketing, sales and distribution
As part of business planning the entrepreneur drafted a comprehensive marketing plan to be put into action.
Some entrepreneurs are natural at sales and marketing! A potential problem is they can become overly embroiled in the marketing side of their business, neglecting the other areas of management. What happens then?
Orders fly in but no-one can invoice as the entrepreneur might be computer illiterate not taking heed of how important technology is to business.
Or, not taking stock recently, the shelves are empty.
Equally bad for business, the orders are based on prices dating back months while there was old stock. The entrepreneur will now, if he delivers, be selling at a loss.
The lesson learned is an administrative and technical one.
- Production or/and service and retail
Business is about manufacturing and selling a commodity, or if the entrepreneur is in services render a service at a fee.
Manufacturers would come across a number of start-up tasks when starting his (or her) business, including: Factory or office layout, product design, production planning, materials management, stock control, maintenance and upgrading, selling of product and distribution and post sale services planning.
It amounts to a lot of work considering business owners also have to take care of all other management tasks discussed thus far! Or if fortunate enough to afford staff, the business owner would ensure a handle on each management task.
Input to ensure the business work successful comes to a multitude of activities!
In conclusion, many prospective entrepreneurs might feel disillusioned after reading the article but it is better to be prepared when deciding to become an entrepreneur. Entrepreneurs knowledgeable about main challenges – when starting a venture – would have an edge over those who walk into one not knowing how important skill and knowledge are in surviving!