Weaknesses of a Small Business

On the other hand, there are major constraints and weaknesses that have to be addressed in order to make small businesses stronger and more competitive. These constraints include:

v  Marketing in small businesses is characterized by competitors selling a large number of similar products mostly to small local markets, resulting in small sales and narrow profit margins. Small manufacturers also find it difficult to compete against imported goods and those produced by multinationals and other larger firms. Generally, distributors are reluctant to accept their products, preferring the more established bigger-name brands.

v  Small businesses lack skills in market planning and in doing market studies. Consequently, owner-managers are hard pressed to identify the needs, preferences, and buying habits of customers. Small firms generally find it difficult to produce marketable goods that measure up to quality standards in sophisticated or upscale markets, including export markets.

v  Small businesses hardly undertake promotional activities, notably media advertising. While many should be able to get by with low-cost advertising strategies, they lack skills on how to do these.

v  In production, the most commonly-cited problem has to do with raw materials – their availability, quality, and cost. Small entrepreneurs also have to cope with wastage and late delivery of materials, problems which hamper the efficiency of production.

v  Labor-related problems are also experienced, notably in terms of demand for higher wages, negative attitude of workers, high worker turnover, and low productivity of workers.

v  Because of limited capacity, small enterprises cannot avail of economies of scale not only in production but also in procuring raw materials. Consequently, they tend to operate at higher costs.

v  Other production-related problems include: machine breakdowns, lack of technical know-how, quality control problems, and obsolete technology. Small factories also need technical support on product design and development, quality control, and productivity improvement.

v  In finance, many small businesses fail or falter because of a basic lack of a realistic and workable business and financial plan. Generally, they use inadequate cash control tools and techniques, resulting in shortage or loss of funds and high operating costs. Planning cash requirements is hardly practiced. Many also purchase raw materials on cash basis and sell goods on credit, leaving them with very little funds for current needs.

v  Many entrepreneurs do not know how to generate funds from within their operations. They do not realize that they could cut down unnecessary expenditures by reducing wastage, increasing efficiency of production, keeping inventories to the minimum and, generally, improving operations.

v  Lack of capital remains a major problem for most small enterprises in spite of numerous policies and programs designed to provide them with more credit. This is because commercial banks still prefer to lend to large firms since they are considered low-risk.

v  In management, control and administration of the firm is centralized in the hands of the owner-manager. This implies lack of provision for the continuity of the business as well as lack of planning and control. Because the owner-manager lacks specialized staff, he does not have access to the financial information necessary for sound decision-making.

v  Few management staff results in the owner-manager being too engrossed in day-to- day operations of the company at the expense of long-term planning.

v  Other management problems facing small businesses include: inadequate system of internal administration; poor and inadequate record keeping; unsystematic recruitment and selection of workers; and unscientific decision-making.

Click here for the Table of Contents of Your Guide to Starting a Small Enterprise

The information contained in this article is for general information purposes only. We would like to extend our thanks to DTI and the people behind in realizing this guidebook. There efforts are greatly appreciated. Now we have this information FREE for us to use and eventually be one of the best guide in starting your own small enterprise in the Philippines.
Again, if you would like to receive a soft copy of "Your Guide to Starting a Small Enterprise", please send us a private message on our RICHDADph FACEBOOK page. And we will be glad to answer your queries and request. Looking forward to your comments and suggestions.