Question:

Answer:

Introduction

In the current business scenario, new companies develop new jobs, creates opportunities for growing social mobility, reinforce competition, economic efficiency as well as economic flexibility. As a result, it creates economic growth. Business failure is a key factor in dynamic economies which may affect the economic growth and development. Along with this, entry and exit from the business are extensively linked with each other. Business growth relies on two different factors named internal and external factors. The key challenge of managing the successful business is more critical as well complex in current scenario as compared to other times (Storey, 2016).

Structure of study

This research entails different section. In this way, the theoretical structure defines the theoretical perspectives of different authors regarding business failure causes. Along with this, research methodology defines the quantitative research approaches as well as uses questionnaires to discover the small business failure. The next chapter shows the findings of gathered data which demonstrates the result and emphasizes on failure factors as per the different author’s perspectives. In the last, conclusion section demonstrates the summarization of research output (Lussier, and Corman, 2015).

Aims and objectives

• To explore the characteristics of small business
• To analyze the causes of small business failure
• To recommend the ways to avoid the small business failure

Research questions

What are characteristics of small business?

What are the causes of small business failure?

How to avoid the small business failure?

Literature review

Characteristics of small business

According to Ucbasaran et al. (2013), revenue and profitability are a characteristic of recognizing small business. This kind of business could be in different forms like sole proprietorships, partnership, and privately owned corporations. These businesses have fewer employees and less amount of annual revenue as compared to regular size business. The maximum revenue allowance for the small business size company is set at less than $1 billion per year. This revenue could be varied from business to business as it depends on the type of business.

In support to this, Bewayo (2015) stated that location is another characteristic of identifying the small business. It is found that small business has a limited area to deal with the customers. For instance, a high amount of Small Corporation deals through a single office, service outlets and retails stores. In addition, it also stated that small businesses operate in the smaller area as compared to larger private companies. The small-scale business deals in single communities like a convenience store in rural communities. It is also evaluated that small business hires fewer teams of employees as compared to larger corporations. The small size business is managed by a single individual and smaller team members (Amini, et al., 2013).

Causes of Small business failure

In the view of Mueller and Shepherdn (2016), lack of experience is a key cause of small business failure. It is a great reason which describes why a business fails in the first year of operation. Due to lack of experience, the business owner makes poor planning regarding resources and business analysis. This can also create the under the capital situation in the business. As a result, business confronts failure in the market. It is also evaluated that improper cash flow planning is a key cause of small business failure. It is analyzed that approximately 68% of small business have insolvent due to the bad analysis of cash flow.

In contrast to this, Glaub et al. (2014) illustrated that poor financial control is a cause of small business failure. It is analyzed that due to lack of skills, company unable to handle the finance and arrange the credits. As a result, it directly affects the monetary position of the company such as declining sales as compared to anticipates.  Ineffective strategic management is another cause of small business failure. Since, ineffective strategic management creates complexities to generate more productivity and profitability (Eid, et al., 2013).

Strategies to avoid small business failure

According to Song (2015), effective cash flow management is a key strategy to avoid the small business failure. There are different startup companies in Australia which confront the cash flow issues. These corporations should keep a balance between required cash through maintaining the expenses and sales. In case, the company suffers from negative cash flow from long period then it will adversely impact on business existence. Hence, the company should make an effective strategy to generate more revenues with limited expenses.

According to Arasti et al. (2014), the development of strong business plan can be effective to overcome the issues of small business failure. It can also be stated that in case of the organization is not able to make an effective business plan then it can decline the growth of the business firm. The business plan can also make an appropriate outline about the success of the business. From using this path, the company can increase their revenues. It can also be illustrated that SBA offers appropriate resources to small firm’s owners to make their business plan before start its business
In oppose to this, Goss (2015) stated that development of accurate projection can also effective to the success of small business. A large number of entrepreneurs are idealists by nature. They make an effective idea to make changes at the global level and towards their activities. Since, the positivity can lead entrepreneurs to overestimate their possible revenues along with underestimating their upcoming cost. It can be stated that unrealistic projections can force the entrepreneur to take an inappropriate decision about the business of the inaccurate information. At the same time, rose-colored glasses to make an accurate decision about revenue as well as enhancement in the productivity of the organization.

Research methodology

Introduction

This chapter of the report can support to select the appropriate techniques to complete the research. The research methodology includes some significant factors like research philosophies, research approach, research design, data collection method, which helps in getting the accurate information about research dilemma (Nummela, et al., 2016).

Research Philosophy

For this research, research has executed interpretivism philosophy due to improving the quality of research. The major reason to use this research philosophy is that is associated with the situation of idealism that supports to obtain the reliable and valid data (Chen, 2013).

Research Approach

In this research report, a researcher has used an inductive approach to collect the data about research dilemma. At the same time, this research dilemma is subjective in nature. From using this approach researcher was able to collect the opinion and views of participants about the research dilemma (Wyrwich, et al., 2016).

Research Strategy

The research strategy can also be effective to meet the research task in specified time and cost.  A researcher has implied literature review and surveys through a questionnaire to meet the research objectives and aim (Glover, et al., 2016).  From using survey strategy, a researcher will enable to gather the data to participant regarding small business failure. From the literature review, the researcher has executed magazines, books, online and offline sources due to creating understanding about small business failure. These sources can help the researcher to improve the validity and reliability of the outcome of research (Zhao, et al., 2015).

Research design

For this research, the researcher has practices both research methods such as quantitative and qualitative research design. The qualitative research is known as an exploratory research that is implied to create theoretical knowledge about research dilemma. Besides this, Quantitative research design is used by the researcher to present the numerical data through statistical measurements (Madanoglu, et al., 2017).

Data Collection Method

Data collection method can support to collect the data about the research dilemma.There are two kinds of data collection methods such as primary and secondary data. The primary data collection method is used by the researcher to collect new information through experiment, survey through questionnaire, and observations (Rhoads, 2016). While, the secondary data is collected through existing information by using many sources such as government publications, books, journal articles, and books. In this research, the researcher has used both data collection method such as primary and secondary data collection method due to getting the reliable outcome (Scherger, et al., 2014).

Sampling Procedure

In this research, the researcher has executed probability sampling method through random sampling due to selecting participant’s survey through a questionnaire. Due to this, researcher select 40 managers with the different small organization of Australia such as Challenger Institute of Technology, Perpetual Limited, Cochlear Limited. These techniques help the researcher to evaluate the reasons for small business failure (Hunter, 2014).

Data analysis

Demographic Factors analysis

The survey through questionnaire is conducted on a large number of managers to know their responses with respect to small business failure. Their responses are demonstrated in following tables:

Table 1: Gender

For this research, both feminine and masculine participants are chosen to conduct the survey. Below table and chart depict the number of respondents entailed in survey process:

From the above pie chart, it is depicted that researcher has selected equal participants to avoid the biases from research such as it has selected 50% feminine as well as 50% of masculine participants to get the information.

Table 2: Age group

As per the above column chart, it can be illustrated that a high number of participants belongs to 26-42. These age categories of people have more understanding and skills rather than another age category of people.

Table 3:

From the above chart, it can be demonstrated that 16 out of 40 participants have earned less than 1 billion annual revenues as compared to others. In contrast to this, it is stated that only 6 out of 40 participants get less than $500 million.

Questions related to research objectives

Characteristics of small business failure

Table 4:

As per the above analysis, it can be exhibited that there are different characteristics of a small business named fewer employees, low revenue and profitability and small market area. It is also assessed that 12 out of 40 participants believed that fewer employees are key characteristics of small business failure. In opposed to this, only 9 out of 40 participants believed that low revenue and profitability are key characteristics of the small business.

Table 5:

This question is also related to the first objective in which researcher was asked the question to get beliefs on the statement that small business deals in the smaller area. In this way, participants gave their different responses that are given as below:

From the above chart and table, it can be depicted that 31 out of 40 participants are agreed with the statement that small business deals in smaller areas while only 4 out of 40 respondents disagreed with this statement.

Causes of small business failure

The following question was related to second objectives which show the causes of small business failure:

Table 6:

As per the above bar chart, it can be stated that there are different causes of small business failure named cash flow planning, ineffective strategic management, poor financial control and lack of experience. It is also illustrated that 13 out of 40 participants were agreed with the statement that ineffective strategic management is a key cause of small business failure. In opposed to this, 7 out of 40 participants were disagreed with the statement and agreed that poor financial control is a key cause of small business failure.

Table 7:

From the above chart, it can be stated that 33 out of 40 participants are agreed with the statement that lack of financial resources is a key cause of small business failure while only 3 out of 40 participants disagreed with this statement.

Table 8:

As per the above table and chart, it can be stated that 33 out of 40 participants were agreed with the statement that strategic management can avoid the issue of small business failure while only 5 disagreed with this statement.

Strategies to avoid the small business failure

Table 9:

From the above chart, it can be stated that there are different causes of small business failure like cash flow management, develop a strategic business plan and make an accurate projection. In this way, 16 out of 40 participants believed that cash management can be an effective strategy to avoid the small business failure. In opposed to this, only 11 out of 40 participants were agreed with the statement that development of strategic plan could be beneficial to avoid the small business failure.

Table 10:

As per the above chart, it can be stated that 75% of respondents believe that proper cash flow management is a key strategy to avoid the issue of small business failure.

Findings and discussion

Characteristics of small business

From the data analysis, it is found out that most of the respondents believe that fewer employees are key characteristics of the small business. This finding is also supported by the view of Madanoglu et al. (2017), as it was evaluated that small business has less amount of employees as compared to other larger business.  It is also analyzed that most of the respondents think that smaller businesses deal in the smaller area. This finding is also favored by the view of Storey et al. (2016) as it is stated that small business has a limited area to deal with the customers. For example, a large number of small businesses work in single office and retail store.

Causes of small business failure

From data analysis, it can be evaluated that most of the participants agree that ineffective strategic management is a major cause of small business failure. This finding is also supported by the view of Kumar Patel et al. (2016) as it was evaluated that ineffective strategy management creates problem to make proper planning and also impact on the business existence.

It is also analyzed that a large number of participants are agreed that lack of financial resource of key cause of small business failure. This finding is also supported by the view of Longenecker et al. (2013) as it was stated that poor financial control can arise due to the inadequate proficiency of handling the fiancé and credits. Consequently, it may directly affect the liquidity position of the small business.

Strategies to avoid small business failure

From the data analysis, it can be stated that most of the participants believed that cash flow management is a key issue to avoid small business failure. It is also analyzed that most of the people believe that proper cash flow management is a key strategy to avoid the issue of small business failure. This finding is supported by the view of Sarasvathy et al. (2013) as it was illustrated that proper cash flow management is a key strategy to avoid the small business failure. In this way, it is stated that company should maintain their cash by increasing the revenues and declining the cost.

Conclusion

As per the above interpretation, it can be concluded that small business has different characteristics such as fewer employees, small market area and low revenue and profitability. It can be also summarized that there are different causes of small business failure named Lack of experience, poor financial control, and ineffective strategic management. In the last, it can be recommended that there are different strategies to avoid the small business failure named cash flow management, develop a strategic business plan, and makes an accurate projection.

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