Overview of the Problem

Small businesses make substantial contribution to the Australian economy. In terms of the employment rate, small businesses account for 43 percent of the national employment in the non-financial sector. However, recent study shows that since the 2008-09 Global financial crisis, this rate has incontrovertibly stalled. While the Global financial. While all firms suffered during the financial crisis, small businesses suffered a lot due to their inability to sustain threats with huge operational impact. Some of the sectors that with large representations of small business include business service sector, agricultural sector, household and distribution service industries, construction sector, and, partly, manufacturing sectors.

Over the past decade, small businesses have been facing challenges, some of which have wiped out the many businesses out of the market. Some of the challenges emanates from within while others are caused by external factors. Some of the internal challenges that small businesses face include financial issues, low confidence level to the future expectations, managerial issues, high operation costs, and lack of adequate resources. The main external challenges include business cycle fluctuations, demand fluctuations, technological advancements, government regulations, and intense global as well as local competition.

This paper provides a thorough analysis on the how the aforementioned challenges jeopardize the management of the small businesses, and ABC Café in particular. The paper concedes that small businesses in the hotel industry do not have the efficacy to adapt to the existential challenges, and as such, their occurrences threaten the survival of such enterprises within the hotel industry. The first segment of the paper succinctly highlights the objective of the project. The second segment of the paper is a brief overview on the scope of the problem. The subsequent section comprehensively dissects the challenges facing small businesses by first analysing how they have been performing in the economy in terms of employability. The literature review relies on the past studies to conceptualize and critically analyse the problem.

According to Zikmund (2012), a good research objective should be clear, specific, and complete. William et al (2015) add that research objective should narrow down and focus on the study. An ideal research objective guides the researcher on the type of data that is appropriate for the study and facilitates development of methodology. In this context, challenges are perceived are as independent variable while small business performance as a dependent variable. The following are the objectives of this project:

To establish how internal and external challenges affect the performance of small businesses

Internal and External Challenges Faced by Small Businesses

To establish how internal and external challenges affect the management of ABC Café

To explore the significance of small businesses to the economy 

Jackson (2015) hold that an ideal project scope should identify the problem as well as the conditions that affects it. The growth of small businesses in Australia has stalled over the recent past. Some of the common challenges that small businesses face are related to the managerial issues, financial relationships, high fixed cost, and economies of scale. Small businesses contribute substantively to the Australian economy and therefore there is need of establishing policies that can improve the sector to stimulate economic growth. However, before designing policies that can improve the operation of small businesses, it is imperative to conceptualize challenges that face the sector and the consequences of the underlying challenges. While there are several research studies on small businesses, there is still insufficient study on the challenges that affect the performance of the small businesses in Australia. Therefore, this project seeks to fill the gap by exploring both internal and external challenges that small businesses face.

According to Bryman and Bell (2015), a good literature review should be relevant and address research questions. This literature review provides a thorough analysis on the available literature with respect to the title of the projects. Small business enterprises have significant influence on the Australian economy. Small businesses represent a large number of private enterprises in the economy. They also account for a substantial share in the employment level as well as value addition. Nevertheless, small businesses are exposed to many existential challenges that may edge them towards extinction compared to the large enterprises. According to the Nicholls and Orsmond (2015), small businesses are “entities that are independent and privately owned, are managed by an individual or a small number of persons, and have less than 20 employees.”

According to the Nicholls and Orsmond (2015), the number of small businesses in Australia exceeds two million. Most of the small businesses are micro-businesses, two-thirds do not have employees, and a quarter have only employed 1-4 persons. About 10 percent of the small businesses have employed 5-19 people (Australian Bureau of Statistics, 2016). ABC Café falls into this category. Small businesses have a larger share in all the major industrial sectors in the Australian economy. Nicholls and Orsmond (2015), find that more than 90 percent of the small businesses employ not more than twenty persons. A third of the small businesses in Australia are based on the business service industry and a fifth on construction, household, and distribution service industries. Only 0.4 percent of the small businesses are in the manufacturing industry (Nicholls and Orsmond 2015, p.7). ABC Café is in the business service industry.

Objectives of the Project

According to ABS (2016), the major non-employing firms include construction, business service, and agricultural industries. Similarly, more than 50 percent of the household service and manufacturing sectors hardly employ staffs. Based on the ABS (2016), small businesses account for 43 percent of the national employment in the non-financial sector. This share has been declining gradually over the recent past but has been offset by the medium-sized enterprises; medium-sized businesses have 20-199 employees. Small businesses account for 60 percent of the employment in the construction industries and 83 percent in the agricultural sector. On the other hand, small businesses only account for one-third of the total employment in the distribution, manufacturing, and business and household services industries. Nevertheless, they have much less impact in the mining industry employment. 

Since the 2008-09 Global Financial Crisis, small businesses have been experiencing challenging economic condition (Temouri and Jones 2014, p.46), and ABC Café is included. While all firms suffered during the financial crisis, ABC Cafe suffered a lot due to their inability to sustain threats with huge operational impact. Unlike in the case of the large firms, confidence for the business enterprise has stalled “around one standard deviation and below their long-run averages “with small sign of rebound (Nicholls and Orsmond 2015, p.8). The underlying backlash has been experienced in all the economic aspects of the small business enterprises. Selling prices have been under intense pressure due to below-trend demand. Consequently, ABC Café has been facing a decline in profit levels. Most of them have counteracted the backlash by downsizing and cutting down on capital spending. Abor (2016) attributes this trend to the “weak global demand condition” and escalating global competition.

Nicholls and Orsmond (2015) attest that that the main challenges facing small businesses emanate from “weak economic conditions, the low level of confidence, low risk tolerance threshold, and the relatively high Australian dollar.” Grösser (2017) observe that small businesses are quintessentially less resilient to intense economic shocks compared to the larger enterprises and more vulnerable to the challenges. Salimzadeh (2016) focuses on the four main challenges facing the small business sectors: managerial issues, financial relationships, high fixed cost, and economies of scale. To explore the main operational and economic factors that facing ABC Cafe, it is imperative to analyse the causes of the escalating failure rates. Nicholls and Orsmond (2015) find that most small businesses cannot adapt to the cyclical fluctuations in terms of the reduced demand because such changes spawn consequences that are inimical to the flow of revenue in small businesses. This weakness, according to Salimzadeh (2016), is evident in “a wider distribution of revenue growth rates for small businesses.” However, English and Moate (2011) attribute this trend to the “higher risk-return nature” of investments that small businesses undertake, as well as narrowed geographical markets that they dwell on, which make them more sensitive to the demand fluctuations.

Literature Review

According to Cavusgil et al (2016), proliferation of communication technology and declining global transport cost presents an intensified competition particularly on the foreign production. It is coherent to argue that ABC Café could maximize the growth in communication technology to grow financially, but accentuates that these technological developments involve high fixed costs and that small businesses cannot contend with them. English and Moate (2011) identify three factors that affect the firms’ efficaciousness to adopt the new technology: business readiness to adopt the new system, the owners-manager’s attitude towards the new technology, and availability of expertise to install the new system. Nicholls and Orsmond (2015), also acknowledge that a firm must have sufficient resources to adopt new systems of production and operation. Besides financial constraint, lack of knowledge to implement the new technology, poor consultation with information system consultants, and inadequate mass adoption of the system are some of the factors that hinder ABC Café from adopting the new technology.

Based on the issue of high fixed cost, Ennab and Neamat (2015) recognize that most small businesses find it difficult to sustain competition from the larger firms. This is because unlike larger firms, small businesses do not enjoy economies of scale hence they do not have the capacity to reduce their average costs. Some of the high costs that ABC Café incurs are labour costs, tax, search costs, training and development, and other changes in regulation requirements. High operating costs also consumes more time that an organization would have committed in a more useful task. Small businesses represents represent a small proportion of the broad industry that they operate in and therefore they are prone to unfavourable pricing adjustments by suppliers (Ennab and Neamat, 2015, p. 221). Such arrangements weaken their ability to compete against the larger enterprises. Although ABC Café can gain competitive edge by selling a differentiated product or service, most smaller businesses concentrate on products or services that are broadly identical to the ones that larger businesses offer, which makes them to operate under slightly smaller margin. Cavusgil et al (2016) find that small businesses are employment is has a direct linear relationship with demand, and during low demand seasons, small businesses find it difficult to employ more staff. However, (Ennab and Neamat, 2015, p. 232) contends that small businesses do not consider their current capacity whenever they are making hiring decisions. 

Nicholls and Orsmond (2015) acknowledge managerial issue as one the major challenges facing small businesses. When small businesses grow, their owners tend to extend their skills beyond limit by struggling to contain the soaring complexity of managing an expanding business. Most owner-managers lack experience in management of cash flows, evaluation of capital investment, or adapting to the new regulations. According to Abor (2016, p.331), many small businesses fail because they do not have an ideal business plan that can enable them secure contracts and loans to expand their businesses and generate more revenue regardless of the thin margin that is reflected on the bidding prices. The management challenges that ABC Café has been facing have roots on the inability of the owner to adopt a sound business plan to expand the business.

Significance of Small Businesses to the Economy

Nicholls and Orsmond (2015) observe that in most cases, owners of small businesses contribute to the collapse of the small businesses by failing to realize or ignoring the fact that they need to hire a professional manager to deal with the expanding business. Heenetigala et al (2014) cite low capital, weak economic situations, and insufficient cash flow as the major causes of failure in the small business sector. These backlashes make the ABC Café vulnerable particularly during tight financial conditions or demand fluctuation. Nicholls and Orsmond (2015) hold that many of small businesses collapse because they do not plan for the future risks and uncertainties. This may be due to lack of management and consultant expertise or less confidence that small business have towards the future expectations. Heenetigala et al (2014) argue that projecting the expected future demand is a challenge to small businesses because they have highly volatile revenues.

In practice, ABC Café still embrace traditional, rigid, and outdated leadership techniques coupled with centralized planning, hard authority, and inconsiderate budgeting and decision-making processes. When business enterprise do not have ideal leadership in place, it is more likely to collapse because excluding employees from decision-making process makes demoralizes employees. Unmotivated employees have tendency of not utilize their full potential to accomplish business tasks. Nicholls and Orsmond (2015) attest that, typically, owner-managers of small businesses tend to apply “extensive use of learned competencies in the form of ‘perceived’ rationality and the use of rudimentary analytical tools” and inherent intuition from the proprietor’s experiences. The modern business environment is more dynamic and complex and therefore inclusive and transformational leadership is essential for ABC Café to meet its objective.

Heenetigala et al (204) examine factors that influence small business behaviour, in terms of plans for future growth, changing prices, wage rate, and employment rate. One of the factors that author identifies is that small businesses that that have strategic visions towards their performance in the market tend to make investment, pricing, and hiring decisions pre-emptively, pursuant to the projections of future demand of their products. Such businesses consider expected demand as a critical variable that influences their behaviour. However, small businesses whose owner-managers are driven by lifestyle choices and firms that are more susceptible to uncertainties, like ABC Café, may fail to be strategic in their conduct. 

Qian and King (2016) recognizes financial relationship as a potential threat to the growth of small businesses. Some of the financial challenges that small businesses face include limited access to finance for investment or working capital, high costs, and cash constraints. When ABC Café does not have access to funding, it cannot invest to expand the business even if the expected future demand is high (Temouri and Jones, 2014). Similarly, inaccessibility to funds makes inhibits the business efforts to hire qualified staff. Abor (2016) identifies delayed payment by customers as another financial challenge that small businesses factor. According to Nicholls and Orsmond (2015), failure of the continuing personnel at the enterprise to conceptualize the operations of the firm may be detrimental to the firm’s financial health. Qian and King (2016) argue that many small businesses have failed to secure loan due to the legal requirement that they should attach the owner’s property as collateral. However, susceptibility of small businesses that is tied to the financial regulations simply implies that lending risk to such enterprises is undeniably high. Nicholls and Orsmond (2015) attest that most decisions on small business loans are underpinned on the postcodes rather than the expected return as indicated in the business plan.

Cavusgil et al (2016) identify regulatory burden as one of the major challenge to the small businesses. Apart from taxation, the government employs regulation schemes to influence the business behaviour and stimulate change towards a certain direction. Whereas regulation in the egalitarian society is meant to reinforce safety and efficiency, overregulation they can be costly, burdensome, and confusing to small businesses since many do not have the capacity to acclimatize to regulatory shock. When the taxation policy is complex and burdensome, ABC Café can barely thrive. ABC Café lacks sufficient resources to meet the burden of taxation, which inhibits their ability to expand, sustain competition from the large enterprises, and invest in research and development. According to (Ennab and Neamat 2015), ideal tax system should be integrated with a country’s or sectorial productivity, long-term sustainability, economic recovery, and competitiveness.  

Conclusion

The paper has explored the significance of the small business sector in the Australian economy, by focusing on ABC Café. Small businesses face a number of internal and external challenges that inhibit their performance growth, affects their cash inflow, constraint the firms financially, increases debt accumulation, and limits availability of working capital. Once they hit the industry, some of these challenges make it difficult for small business to recover. Usually, like in the case of ABC Café, small businesses respond by downsizing or cutting down on capital spending, if not shutting down.

Some of the internal challenges like lack of adequate management and leadership skills can be mitigated by providing education to small business-managers through training and seminars. Such training programs should aim at enlightening proprietors on how to adopt to the new technological systems to enhance efficiency, how to access capital to expand their enterprises, comply with new regulations, and how to manage their employees effectively. On external challenges, the government should adopt policies that seek to reduce small businesses taxation, facilitate their owner’s training and development, and facilitate their research and development through partnerships and availing vital information on market patterns. 

List of References

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Cavusgil, S. T., Knight, G. A., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2016). International Business: The New Realities (4th ed.). Pearson.

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