Chapter one Introduction 1.

1 Back ground of the study

Because of their unique economic and organizational characteristics, small businesses are well placed in todays economy. Especially for developing countries like Ethiopia, where there are shortages of capital, financial and managerial resources, the promotion of small enterprises may be an important approach to economic development. Today, governments in most countries become more interested in the effects of small businesses for various reasons. As S.R.Bhomik and M. Bhowmik (2008:p.12) wrote, small enterprises in every country, even in highly technologically advanced countries with large industries have a special role on five grounds: Generate employment opportunities. Helps in equitable distribution of national income. Mobilization of capital and entrepreneurial skills. Dispersal of industries. Contribution of exports. This shows that how small businesses are very important in the economic development given country, if they have given the necessary considerations. However, when we see the nature of small businesses in most countries including Ethiopia, growth is not a major consideration beyond the point of gaining stability to their owners. In other words most small businesses grow only in the first few years after start-up and then stabilize to provide their owners an acceptable and independent life-style, with sufficient income. Many people set up small businesses simply because they prefer to be their own boss and work at their own pace. This leads most small business owners/managers not to organize their businesses with the necessary manpower that are essential for growth. According to Jim Dew Hurst and Paul Burns (1993:p.369) It is estimated that over twothirds of small businesses consist of only one or two people and often the second person is the spouse. for these people embarking on a high-growth strategy means leading themselves to lose their independence. Others have already argued that they have limited formal education and inflexible to change and not innovative. The other problem of small businesses is the question of how the venture will be financed, and whether owner can afford the required capital to lunch the business.

Because, some opportunities require large amount of capital just to get started. Money may be required for market research, production facilities, or for advertising before a firm makes its first sale. It is owners/managers must mobilize resources to meet objectives. However, their chances of success on this basis are slim. In general, the growth and survival of small businesses can be affected by several factors. These factors could be internalfabricated by owners/managers themselves or sometimes external- factors beyond their power and control. When S.R Bhowmik and M. Bhowmik (2008: p.42) expressed this issue:
Even having all the facilities and knowledges in hand to develop a small business enterprise, problems do arise as bolts from blue to thwart its growth. Many of them are complex and confusing. Qualitative growth is the significant sign of healthy enterprise but growth in itself brings problems in its wake.

This shows that how the unpredicted innumerable problems that can affect the successful operation of small businesses can be emerged from several factors and especially for owners/ managers who run small businesses that have growth potential the inevitability of problems, unless and otherwise they take necessary actions that are essential to make growth viable.

1.2 Statement of the problem

Though small businesses play a very important role in a given country economic recovery, growth, social progress, employment opportunity, Income generation, resource utilization etc In Ethiopia, as far as concerned the role of small businesses in the economy, their contribution limited for the last many years because of lack of consideration by government due to ideological difference and the misconception created in the society due to religion, culture, lack of persuasion etc. Even today, though the government seems to have taken a lot of measures that are used to mobilize the small business sector in the economy, still there are several factors that affect the successful operation of these businesses in the economy. organization, by giving attention for the following issues: What barriers currently affect the marketing activity of small businesses? What factors limit the production and/or operation efficiency of small businesses? What are the major organization and management limitations of small businesses? The main concern of this study was therefore to assess the current factors that affect the growth of small businesses in Kaffa zone Bonga town small business

 How is the efficiency of small businesses in: 1. Financing their business? 2. Maintaining financial record keeping? 3. Calculating and determining costs?

1.3 Hypothesis of the problem

Based on the statement of the problem, the researcher believes that the following are the major factors that affect the growth of small businesses: Most small businesses lack the experience of preparing business plan and conducting market research, prior to opening the business as well as after the business started operation. The fact that most small businesses are established and operated in the area where there are no patent requirements, huge capital investment, sophisticated technology, skilled manpower etc.. This situation might lead them high competitive situation. Most small businesses often start up operation in their own residences or choose places and buildings available at a cheap price. This informal location decision might lead them to lose competition advantage, to o much transportation costs, loss of customers due to inconvenience ( safety and security),loss of opportunities for expansion and diversification of operation etc Most small businesses consider advertising as an expense rather than an Investment. This situation leads them unable to communicate effectively and efficiently with their customers. The fact that most small businesses are established and operated by individuals who place great value for their independence, for these individuals embarking on a high growth strategy means losing their independency. Most small businesses hire employees among friends or family members. This practice leads them not to select an appropriate employee/s having the required skill or commitment. Most small businesses do not have the experience of paying appropriate remuneration for their employees, motivate them through incentives, and create good industrial relationship among employees which in turn causes for less productivity as well as jeopardize The fact that many small businesses lack stability and continuity of operation at the beginning of their establishment and the inability of building fixed assets that are essential for collateral obligation, this situation might lead them unable to get debt finance which is much essential for their operation.

 Most small businesses lack the experience of calculating and determining costs as well as maintained appropriate financial record keeping. This situation leads them unable to evaluate the financial progress of the business as well as to produce information that are essential for decision making.

1.4 Objectives of the study

The main objective of this study was to assess factors that affect the successful operation small businesses in Kaffa zone Bonga town small business organization and to provide remedial actions and/or policy ideas to the concerned parties who are in need to assist small businesses in various ways. More specifically the objectives of this study were to: Identify the factors that affect the marketing activities of small businesses. Specify factors that affect the production and/or operation efficiency of small businesses. Investigate the major organization and management limitation of small business. Evaluate financial strength of small businesses as well as their dependency on loan capital. Test the effectiveness of small businesses in calculating and determining costs, as well as maintaining financial record keeping.

1.6 Significance of the study

The writer emphasizes on the topic because of the following reasons: 1. The study could help to create awareness between the small business community and the various parties that assists their operation such as NGOs, Micro finance institutions, government assigned bodies, etc. 2. The recommendation given by the researcher may stimulate and provoke concerned parties to take actions that are necessary to overcome problems that affect the growth of small businesses. 3. The issue raised and the information contained on this topic could serve as a springboard for others who wants to conduct an in depth study.

1.7 Organization of the study

This study will have five chapters. The first chapter is introduction about problem of the study and its approach. The second chapter is review of related literature. The third is about the research design and methodology. The fourth chapter will be about data presentation, analysis and interpretation and the last chapter, chapter five, deals with summary, conclusions and recommendation.

1.8 Limitation of the study

The findings of this study would have been fruitful if it was conducted widely. However due to time and financial constraints and multi nature of problems that affect the growth small scale business, it is impossible to incorporate all. The fact that the involuntariness of some hired managers and their employees to fill questionnaires without the consent of the owner of the business and some owners and employees were not in a position to fill the questionnaires totally without any reason, This makes the data gathering process so exhausting and time consuming. Therefore, the researcher delimits the study to manageable size using sampling techniques and by emphasizing on factors that can affect small business as whole.

Chapter Two Review of Related literature

2.1 Definition of small business
The environment of small businesses often defined by the type of product or service rendered and in most instances the opportunities for small businesses is defined by the characteristics of a community. In other words the criteria used to measure and define small businesses vary from country to country. For example in USA, according to a small business administration of USA, small business is those not dominate its industry, has less than 10 million in annual sales, and has fewer than 1000 employees. In UK, small businesses are those with a gross turnover of 2.6m and under. In Ethiopia, according to Trade and Industry development bureau, small enterprises are those enterprises with a paid up capital of above Birr 20,000 and not exceeding Birr 500,000 and excluding high-tech consultancy firms and other tech establishments. Small business by definition includes entrepreneurs because most new ventures start small. However, a small business is distinguished by the nature of the enterprise or the intention of its owner. The small businessperson is likely to start a venture that serves a local market with products or services without growth potential or the intention of growing. In other words, small businesses are those started by individuals who seek income substitution and who serve a local constituency. They probably have opportunities to expand into new markets or to develop into larger organizations, but they prefer the autonomy of a small business and substantially avoid rapid expansion. This profile of small businesses is remarkably similar among most free market nations. As David H.Holt (2003:P.69) wrote:
Most small business owners are not concerned with changing the world, finding a cure for the common cold, or setting industry on its heel with some marvelous new invention. To the contrary, they are concerned with filling immediate needs of their customers and clients within the scope of well-defined markets.

This shows that the involvement of most small businesses in the market is primarily based on the provision of goods and services that are already in the market by considering the unsatisfied needs and wants of consumers rather than creating new product or service to achieve their objectives

2.2 Fields of Small Businesses

Small firms operate in all industries, but they differ greatly in their nature and importance from industry to industry. In thinking about their economic contribution therefore, we need first to identify the major industries and to note the types of small firms that function in these industries.

2.2.1 Mining and Agriculture

Small-scale mining is one major area of industry that involves the production of basic raw materials. There are several small firms which produce coal, sand and stone, gravel etc. in the agricultural sector, there are many small enterprises which provide a means of living to majority of the population today than ever before in different parts of the country in different sectors such as farming, animals breading, fishery, poultry, beekeeping etc.

2.2.2 Manufacturing
In our economy, today, there are many small firms in manufacturing industry. These includes among others bakeries, flour mills, small scale oil industries, shoe factories, book binding plants, small machine shops, carpenter workshops, Brocket manufactures, small scale textile manufacturing plants, craftsman etc.

2.2.3 Wholesaling
Wholesalers primary function is to act as an intermediary between manufacturers and retailers or industrial users by assembling, storing, and distributing products. Small businesses are dominant in the area of wholesaling. They sell a wide range of products such as drugs, groceries, hardwires, fruits, vegetables, grain and farm products, farm implements, machinery, industrial supplies, electrical appliances etc.

2.2.4 Retailing
Retailers are merchants who sell goods to ultimate consumers who buy goods and services for individual or family use. Small businesses are bound in the field of retailing. Among others, they include corner drug stores, alimentary grocery meat shops, clothing stores, shoe shops, spare part, vendors, stationary stores, music stores, book centers etc.

2.2.5 Services
There are several broad categories of service firms. One category, called professional services, relates to enterprises based on the personal skills and knowledge of individuals with well-defined credentials. Physicians, dentists, attorneys, certified public accountants and architects fall into the group. Another category, personal services, includes enterprises that perform specific individual services, but there is not always a requirement that entrepreneurs be credentialed such as quick print shops, contract custodians, software engineers, interior designers, tailors, management consultants etc. 7

2.3 Risk and failure

Failure can be thrust upon small business owner (manager) through external conditions or fabricated by the owner/manager himself through personal shortcomings. Small business owners are particularly vulnerable to both situations because, they are usually preoccupied with immediate needs of survival.

2.3.1 External factors of failure

Every business is affected by externalities: economic business cycles, fluctuating interest rates, interrupted supplies, labor market trends, inflation, government regulations and unstable financial markets. A general rise in consumer prices will detect from sales. A similar rise in producer prices will inflate costs. However, the smaller enterprise is far more susceptible to these forces than a large firm. For example, when small businesses want to get debt finance they will certainly run in the first place to banks. However, small businesses that are not debt free cannot afford to trim prices nor can they substantially reduce costs. A small change in economic conditions can result in huge changes in profits. Small businesses that are debt free relatively still operate in a more intense, price sensitive environment. This shows that large enterprises have access to capital resources to ride out of a recession or alternative financing when interest rates soar. However, small enterprises may run out of cash quickly and go under or simply they may watch their profits evaporate in precipitous debt obligations.

2.3.1.1 Competition
It is essential to identify competitors and to analyze how competition is likely to change when a new venture faces competition. Too often, small business owner/managers skim over these issues and find themselves outgunned in the market. The minimum requirement is to identify existing competitors and to explain their strengths and weaknesses. As S.R. Bhowmik and M. Bhowmik (2008: p.13) wrote,
All over the world small enterprises face marketing problems. Most of the small enterprises do suffer from competitive disadvantages vis--vis large industries. Because of shortages of capital, and financial resources these enterprises do not have adequate staying power and are often forced to sell their products at un-remunerative prices.

For a new business without knowing competitors, the challenge is to evaluate the potential for competitors to emerge. In other words, there is a threat of entry by other firms. There is also a threat of customers making rather than buying an entrepreneurs product. Foreign competition is always a threat if the new business proves to 8

be profitable. Successful entrepreneurs know their competition and can demonstrate in their plans how they will compete. If a new product is to be introduced to in a highly competitive market, just describing competitors may be an over whelming task for most small businesses.

2.3.2 Personal Factors of Failure

Just how many businesses fail because of uncontrollable external factors and how many fail because of their own personal factors is debatable? However, dun and Bradstreet statistics attribute shows that about 52 percent of all business failures to management issues and as much as 90 percent of small business failures to incompetent managers. Specifically, Dun & Bradstreet cites the inability of small business managers to control purchasing costs (inventory), to control capacity (production costs), to generate consumers (lack of marketing expertise), to generate consumers (lack of marketing expertise), or to manage financial assets (feeble cash control being the primary issue). David H. Holt (2003: pp.73-74) The personal characteristics of the owner/manager are particularly important factors early in the life of a business when failure rates are so high. In a survey of the literature, Berryman lists such personal problems as delegation, reluctance to seek help, excessive optimism, and unawareness of the environment, inability to adapt to change and thinness of management talent as reasons for failure. He lists some twenty-five different deficiencies, grouped under the general headings of accounting deficiencies, marketing deficiencies, lack of adequate finance, and other areas such as excessive drawings, deficiencies in accounting and managerial knowledge and advice, as well as personal problems. According to them the insight into the process of failure is valuable, not only because it may help to avoid the event, but also because it reinforces many of the lessons of success.

2.3.2.1 Lack of vision

A good way to fail quickly in any business is to start without a clear vision. A vision encompasses the value that the owner/manager will provide for his or her customers, and if that product or service is achieved, it encompasses the results that the owner/manager will achieve. Without this basic vision, starting a business on a whim is tantamount to shooting dice; you are relying on chance to dictate your fate. David H. Holt (2003:P.218)

2.3.2.2 Inexperience
Too often, entrepreneurs /small business owners/ launch their enterprises without having sufficient experience to succeed. Inexperience can be translated to mean a lack of technical skills or management acumen. Each of these short comings can lead to disaster, but they also can be overcome by an individual willing to make the commitment of time and energy to learn about business. In other instances, capable individuals start new enterprises within their

respective fields but cannot manage their resources or provide leadership for their employees. As David H. Holt (2003 P.77) wrote:
An engineer who starts a consulting firm with excellent credentials, yet who ignores employee needs, risks losing the primary resource essential to succeed. A clothier who is a fashion expert but cannot control inventory costs could easily buy in to oblivion

2.3.2.3 Poor Business Philosophy

An unfortunate aspect of many business failures is that too often individual owners priorities get in a way of sound business practices. In the least obtrusive way, small business owners may not be fully committed to the long hours required to make a venture successful. The early stage of starting a business requires intensity of effort, sacrifices, and the ability to endure at high energy levels without becoming over extended to the point of exhaustion. As the business stabilizes, the challenge is to hire good employees who can manage in the owners absence. A more sinister side of business failure is a blatant disregard for customers. The principal success factor of all business is to Create a satisfied customer. and as peter Ducker explains, To be of value to society by providing a needed, useful, and safe product or service. This is the essence of the marketing concept, and it means that business managers will succeed when they can generate satisfied customers by providing quality goods and services. Too many individuals however, exploit customers to make a fast buck. Commitment to quality is replaced by a commitment to use to cheapest materials, to pass on marginally safe or defective products, and to serve customers only reluctantly. Cheating and deception exist in small businesses just as they do in large enterprises. Customers typically have other options for car repairs, computer services, clothes, professional services, and most other products and services offered by local businesses. If they feel cheated, they will spend their money elsewhere. David H. Holt (2003:p.78). This means that for desired success, small businesses should make honesty as best as policy.

2.3.2.4 Arrogance
Any small businesspersons particularly investors and innovative entrepreneurs with new products-become egocentrically engrossed in their ventures. They become consumed with their own brilliance, convinced beyond reason (often without market research), and they assume that their bright idea will change the world. Their arrogance will not allow them to take advices from others. S.R. Bhowmik and M. Bhowmik (2008: p.84).

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This means that being a businessman; it needs to give attention for everybody, but should act to the mind. That is advice should be sought from everybody, and benefits should be derived from that, but a businessperson should act according to his/her own decision.

2.4 Lack of planning and controlling through budgets

Plans and budgets can be used to control and monitor the performance of the business. They allow the owner /manager to adopt management by exception, by comparing actual results to his budgets on a timely basis, and investigating the reasons for devotions from the budget. This can save time and allow him to concentrate his effort in the areas where there are problems, where things are not going according to the plan. The difference b/n actual results and the budgets called Variances can be analyzed in such a way as to give indications of the causes of these devotions from plan. In short the budget provides a frame work for controlling the running of a business in an efficient way. Jim. Dew Hurst and Paul Burns (1993:p.266) On the other hand David H. Holt wrote about plans, plans are guide lines for action, and as the business evolve, they must be continuously upgraded to reflect the changes in the business environment. Research supports a strong case for well-developed plans with clear objectives prior to starting any venture. Because, it is nearly impossible to acquire capital, obtain loan or solidify vendor contracts without documented sales forecasts, financial statements, market analysis, and a clear statement of the business purpose. As far as concerned the experience of small business owners in this area, too often planning stops after loans and investment capital are acquired. Research shows, less than half of small business owners had formal plans prior to going into business. Many engaged in formal planning soon after starting their business. But one-third could not recall ever having a formal business plan. Growth is allowed to occur rather than be managed. New products may be added to a line without clear evaluation of how they fit into the existing business or serve customer needs. Several problems emerge from lack of appropriate planning, such as: poor business locations, over extended capital requirements, unrealistic sales projections etc David H. Holt (2003:p.78)

2.5 Lack of managerial experience

Management is an activity (process) composed of some basic functions, for getting the objectives of any enterprise accomplish through and with the efforts of its personnel. Wherever and whenever objectives are endeavor, management becomes essential for directing and unifying group efforts towards the accomplishment of common purpose. S. N. Roy (2003:p.1) Business results are quite sensitive to small errors. Therefore, several categories of management mistakes can cause small businesses to void. Humble small businesspersons steeped in experience can still go under simply through mismanagement of resource. They simply made bad decisions in critical situations. 11

Over investment in fixed assets is common. When starting or expanding a business, it is tempting to buy facilities and equipment rather than lease or subcontract. Poor inventory control threatens the success of nearly all retail enterprises. Inventory is the critical cost factor for most stories. Purchasing too much inventory increases the risk of low turnover and obsolescence. On the other hand having too little inventory undermines customer selection and sales. Buying the wrong inventory, or buying at the wrong time, evaporates cash. In each scenario the business ties up high-powered cash in non-earning assets, and inventory items can rarely be disposed of for more than a fraction of their costs in an emergency. The result is that a business purchases itself into insolvency. David H. Holt (2003:p.75) This shows that managing a small business requires to balance a variety of needs and goals. It requires a search for right objectives and takes necessary actions that are needed in every area, where performance and results are directly and vitally affect the survival of the purpose.

2.6 Lack of awareness about market, Marketing and Marketing research.

2.6.1 Market
Markets and marketing are critical to all companies. Most institutional investors see this as an area where major mistakes are made by new businesses. Too many small businesses set up without thinking about this essential question. Setting up a business needs a business idea. The idea does not have to be original but it does have to meet the needs of a clearly identified group of customers. It also has to be sufficiently different from products or services offered by competitors to have some chance of survival in the market place. According to S.R. Bhowmik and M. Bhowmik (2008 p.13) Satisfying customers is the fundamental objective of successful marketing in every organization. Achieving this objective involves far more than simply providing goods and services. It requires anticipating and meeting the needs of the customer the most important person in any business. John Egan MD of Jaguar, also write about marketing, he said, Marketing is about making money from satisfied customers-without satisfied customers there can be no future for any commercial organization. This shows that marketing is the process of matching the needs of the customer to the capabilities and resources of the firm. Thus, understanding customer/consumer needs and their motivation is central to marketing activities of all firms.

2.6.2 Marketing research

As we shall see success often rests with a quality business plan that provides a clear marketing strategy. Consequently, owners/managers must do a great deal of serious market research to understand who their customers are and how best to serve them. Therefore, owner/managers should seek out the best market research information 12

available. Research activities should takes place before opening the new venture and they should continue throughout the business existence since the essence of marketing research is to provide information that are used in decision making prior to start-up and after a firm is established. Prior to opening a business, the owner must know whether a market exists for a new product or service, who is likely to be a primary customer, how to position the enterprise in the market, and how the product or service will be priced, promoted, and distributed. Addressing these and other issues become part of the pre-start-up planning process. Once a firm has become established, much of this information is authenticated through actual experience, and market research should expand to include a continuous competitive analysis. Every business must deeply understand that the effectiveness of the marketing effort of any product /service idea depends on the decisions made in each of the four ps of marketing called the marketing mix: product, price, place and promotion.

2.7 Quality, the basic

This is often the heart of the marketing mix. Because, the product or service must not be something that constraining the marketing mix. It must be flexible and capable of adoption to the changing needs of the customer. Even though most small businesses are not concerned in manufacturing process, those who deals must remember that particular features and benefits must be valued while producing products. According to William J. Stevenson (2002:p.394) the evolution of quality took a dramatic shift from quality assurance to a strategic approach to quality in the late 1970s. Up until that time, the main emphasis had been on finding and correcting defective products before they reached the market. The strategic approach is proactive, focusing on preventing mistakes from occurring altogether. Quality and profits are more closely linked. This approach also places greater emphasis on customer satisfaction, and it involves owners, managers as well as workers in continuing effort to increase quality. The term quality is used in a variety of ways sometimes it refers to the grade of a product, at other times, it refers to materials, workmanship, or special features and it relates to price as in a Cheap or Expensive, although it is not a dimensions of quality. Quality may vary somewhat from product to product or between a product and a service.

2.7.1 Determinants of quality

The degree to which a product or service successfully satisfies its intended purpose has four primary determinants: Design, How well it confirms to the designer, ease of use and service after delivery. It is important for management to recognize the different ways that the quality of the firms products or services can affect the organization and to take these into account in developing and maintaining a quality assurance program. Some of the major ways that quality affects an organization are: Loss of the business, liability, productivity and costs. Poor designs or defective 13

products or services can result in loss of business. Failure to devote adequate attention to quality can damage a profit-oriented organizations image and leads to a decreased share of the market, or it can lead to increased criticism. According to William J. Stevenson (2002: pp.398-399) Poor designs or defective products or services can result in loss of business. Failure to devote adequate attention to quality can damage a profit-oriented organizations image and leads to a decreased share of the market, or it can lead to increased criticism. When he expressed this issue:
A potentially devastating consequence to the bottom line is the reaction of the consumer who receives a defective or otherwise unsatisfactory product or service. A recent study showed that, while a satisfied customer will tell a few people about his/her experience, whereas dissatisfied person will tell an average of 19 others.

This shows that the importance of paying special attention by any business while producing and providing products and services for its consumers to reduce its potential liability that can lead to customer dissatisfaction due to damages or injuries resulting from either faulty design or poor workmanship, poor customer service etc. Productivity and quality are often closely related. According to William J. Stevenson (2002 p.399) Organizations liability costs can often be substantial, especially if large numbers of items are involved. Poor quality can adversely affect productivity during the manufacturing process if parts are defective and have to be re worked. Poor quality in tools and equipment also can lead to injuries and defective output, which must be reworked or scrapped, thereby reducing the amount of useable output for a given amount of input. Similarly poor service can mean having to re-do the service and reduce service productivity. Any serious attempt to deal with quality issues must take into account the costs associated with quality.

2.7.2 Benefits of Good Quality

According to William J. Stevenson (2002: p.402), Business organizations with good or excellent quality typically benefit in a variety of ways: An enhanced reputation for quality, an increased market share, greater customer loyalty, lower liability costs, fewer production or service problem which yields higher productivity, fewer complaints from customers, lower production costs, and higher profits.

2.8 Lack of experience to choose appropriate location

Place decisions are an important part of marketing strategy of every organization. For any business, choosing the right location is partly an art and partly a science. Too often, businesses locations are selected without proper study, investigation and planning. Some new or small business owners/Managers tend to adopt a rather informal approach of location decision because, the owner lives there, he/she notices a vacant place or building, and still 14

others by considering only the amount of money paid for rent, although it is provident not to pay an excessive amount of rent. Therefore the location question is much critical that should not leave to chance.

2.8.1 Strategic Importance of location decision

There are several reasons why location decisions are a highly important part of production system design. One is that they entail a long term commitment, which makes mistakes difficult to overcome. A second is that location decisions often have an impact on investment requirements, operations, operation costs, and revenues. A poor choice of location might result in excessive transportation costs, a shortage of qualified labor, and loss of competitive advantage, inadequate supplies of raw materials, or some similar conditions that is determinant to operations. For service and retail businesses, a poor location could result in lack of customers, and/or causes high operational costs. For manufacturing, location decisions can have a significant impact on competitive advantage. And a third reason for the importance of location decisions is their strategic importance for supply chains, According to William J. Stevenson (2002: p.356)

2.8.2 Factors that affect location decision

The way an organization approaches location decisions often depends on the size, nature and scope of its operations. Many factors influence location decisions, however, it often happens that one or a few factors are so important that they dominate the decision. For example, in manufacturing, the potentially dominating factors usually include availability of abundant energy and water supply and proximity to raw materials. Transportation costs can be a major factor. In service organizations, possible dominating factors are market related factors that include: traffic patterns, convenience, and competitors locations, as well as proximity to the market. Good transportation and /or parking facilities can be vital to retail establishments. Customer safety and security can be key factors, particularly in urban settings, for all types of service locations.

2.9 Lack of promotion

There are many ways of promoting a business. These includes: Advertising, personal selling, public relation, and other methods of bringing buyers and sellers together. However, when we see the experience of many small

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businesses, most of them choose not to advertise or promote their businesses. Simply they channel the money that can be used for advertising and promotions to other areas of the business. In other words they ignore the fact that having a good product or service and not to advertise or promote the business is like not having a business at all. In one way they assume that the business will advertise or promote itself, on other hand they consider advertising or promotion is an expense rather than an investment. Others who do little promotional effort, most of the time they are unsuccessful due to several problems in the area. When William D. Perreoult and E.Jerome Mc carthy (2003: p.354) expressed about this issue, It is often said that half of the money spent on advertising and promotion is wasted-but that too few managers know which half. This shows that many owners/managers, who do advertising or promotion for their businesses, are not successful in the area due to several reasons. This could be due to lack of experience in defining the advertising objective, lack of creative thinking in organizing the message, setting the advertising budget, choosing an appropriate channel, appropriate time etc According to William D.perreault and E.Jerome McCarthy (2003:p.302), Promotion is to communicate information between sellers and potential buyers or others in the channel to influence attitudes and behavior. Therefore, to execute the marketing program and reaching a sales target, necessary arrangements have to be made in advance for promotion work. In other words when marketing budget is prepared, a certain amount should be fixed for promotion: to increase sales, quick turnover, creating dealer interest, lowering costs, create goodwill, as well as to encourage employees good performance. Jim Dews Hurst and Paul Burns (1993 p.71) also wrote about the importance of promotion for competitive advantage. Especially for businesses that are involved in the provision of similar products or services, how often promotion is very important to differentiate themselves.

2.10 Lack of Costing, Pricing, and Break Even Analysis Technique

2.10.1 Costing
Costs are the sacrifices required to obtain something. It is just a question of being able to disentangle the information and find the costs that are relevant to almost all organizations: manufacturers, retailers or service businesses. However, the case of manufacturing company is probably the most comprehensive and general. It embraces production, marketing and general administration functions, and if we can develop an understanding of cost accounting in this sort of organization, it can readily be applied to any organization. According to Hurst & Paul Burns (1993:P.108), costs are generally important for three purposes:
Income determination:-In order to determine income you need to have an accurate measure of costs.

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 Control and planning of the business:-This involves controlling the costs of various activities, departments or cost centers as well as product costs.
Decision making:-In choosing between alternative courses of action cost will be an important element for

decision-making. However, many small and even large businesses get into trouble because they do not know how to calculate and determine their costs. When Jim Dew Hurst and Paul burns (1993:P.257) expressed about this issue:
Any business must control its costs if it wishes to remain competitive. A large business needs to control costs in total as well as the costs of particular departments or activities. It also needs to control the costs of particular products or services. A small business will probably not have separate departments until much later in its department. Its major problem will be controlling costs in total, as well as individual product costs.

This shows that for any business controlling costs that are incurred at different stages is a must for various reasons. However calculating and determining costs is out of major problems of small businesses.

2.10.2 Pricing
Pricing is the governor of marketing activity, since the pricing of products mainly circumscribes sales. As Jim Dew Hurst and Paul Burns (1993.p.73) wrote, Pricing is of course, an important part of the marketing mix. Too many small firms, however, compete primarily on price simply because the other elements in the marketing mix are insufficiently different from their competitors. A number of considerations are involved in the pricing of products. First, the price must be high enough to cover all the costs of production, but at the same time, it should be low enough to attract consumers. Secondly, the extent of competition that a particular line of product has to face in the market often influences the pricing of products. For the sake of competition, varying margins of profits may be required to be fixed for the different products of an enterprise. Thirdly, the marketing process calls for the determination, of several prices for different parties, that is wholesale price, retail price, and consumer price. These price differentials must be satisfactory to all parties, otherwise traders may not push the goods in the market and consumers may be driven to products of other concerns. Some retailers and whole sellers, however think high markups mean big profits, often this is not true. A high markup may result in a price that is too high- price at which few customers will buy. In other words we cannot earn much, if we dont sell much, no matter how high our mark up on a single item is. So, high mark ups may lead to low profits, According to William D. Perreault & E. Jerome MC McCarthy (2003: pp 410- 411)

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2.10.3 Break Even Analysis

The break-even point is a point at which the venture starts to generate profit. Since marketing analysis is often a difficult thing for a small business, particularly a new start up small business, the break-even point is an essential piece of information, around which marketing plans can be built. It is a valuable control technique and a planning device in any business enterprise. It depicts the relation between total cost and total revenue at the level of a particular output. Ordinarily the profit of an enterprise depends upon the selling price of product (Revenues and cost price of a product). If the owner /manager aware of calculating the cost and selling price of a product or service, he can plan the volume of his sale in order to achieve a certain level of profit. According to S.N Roy (2003:PP.362363), the break-even analysis renders many benefits for managerial guidance and action: Tool for profit planning and controlling: - cost, volume, price and product mix being the four variable affecting profit, planning and controlling of profit are better effected by the breakeven system which shows the interplay and mutual relationships of these variables Spencer a tucker points out, the break even analysis, like a business calculation, can be considered to be a desk top tool for managements with which it can play control, pretest, decide, and coordinate all of its business activities. Basis for budgeting:-budgeting calls for marshalling anticipated costs and budgeted revenues, for realizing optimum profits, the breakeven method can only show the most profitable path for projecting budgets.
Objectivity in controlling cost:- the break even analysis introduces objectivity in cost control by indicating

the way of controlling costs. Although changes in fixed cost affect the break-even point, it is not susceptible to control by managerial actions in the short run. But variable costs along with selling price are subject to managerial control for improving the PV for better results. As a more profit can be earned by enlarging the PV rather than by reducing the cost, the cost accounting system fails to see the forest in the midst of trees without a break-even analysis. Indication of safety margin:-the break even system not only points out the level of sales at which the company breaks even on expenses, but it also indicates the extent of nearness of sales to the breakeven point before losses occur. By providing this information about the safety margin, management is forewarned for taking remedial actions. BEP = __Fc__ X 100% SR VC According to William D. Perreauit Jr. and E. Jerome McCarthy (2003:p.417), Some price setters use break even analysis in their pricing. Break-even analysis evaluates whether the firm will be able to break even that is cover all

18

its costs with a particular price. This is important because, a firm must cover all its costs in the long run or there is not much point being in business. This method focuses on the break-even point the quantity where the firms total cost will just equal its total revenue.

2.11 Lack of effective Hiring, Training and Motivation

For growing businesses increased sales means changes in human resources and a substantial responsibility for attracting, hiring, training, and re-training employees. During the early stage of planning, it is important to clearly understand that there is no way businesses can grow if owner/managers try to do everything themselves. To resolve these difficulty owner/managers: 1. Must purposely describe their roles and how those roles will change with growth. 2. Have to write employee job descriptions. 3. Have to write expanded job descriptions for employees whose jobs will change with growth. These descriptions will help to identify how responsibilities will change, and therefore opportunities for career development can be created. However when we see the experience of small businesses in this area they are very weak due to several factors.

2.11.1 Hiring
Research shows that patterns of employment for most small businesses are relatively fixed at movement of opening. This generalization is particularly true for personal service enterprises that start and remain small. The pattern of employment for small enterprises is that owners will initially hire one or two full-time persons and supplement busy reasons with par timers. One of the full time employees usually will be skilled or experienced in the trade. The rest often will have to be trained. Unfortunately small business owners rarely follow good personnel practices in hiring. Many full time employees are hired from among friends or family members. This practice provides no assurance of having employees with the required skills or commitment to make a business successful. When David H. Holt (2003 P.219) wrote about this issue:
Perhaps a small firm can survive without systematic hiring and training practices, but entrepreneurs often experience high turnover among employees who are poorly prepared to do a good job. Also, there is a fundamental problem with finding highly motivated long-term employees because smaller firms can seldom offer high wages, good benefits, or opportunities for advancement.

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2.11.2 Training
Small firms face more difficulties in hiring and training than large ones do. Because, first, they lack the resources to pay well or to provide good benefits, and second, they offer limited career advancement opportunities. Consequently, smaller enterprises have fewer traditional motivation tools to inspire performance. Though training seems expensive for most small businesses, it is very important for success. According to Thomas J. carton (2004: P. 49), modern organization education and training needs are more important since trained personnel helps to support changes and improvements that the organization must take to succeed or survive. In short training and education should be managed, like any other important investment, beginning with planning. According to David H. Holt (2003:P.221), for most small businesses training poses two problem: First, learning, how to seek out and hire people with potential and second, establishing effective methods of employee training. Learning how to seek out and hire good people is not a simple matter that can be addressed to anyone. However, aspiring owner/managers can acquire insight by taking formal courses in personnel administration or by attending seminars regularly offered by consulting and training firms, government agencies as well as educational institutions.

2.11.3 Motivation
Any enterprise needs people of high standards of performance to achieve the goal. A question arises what motivation is needed. As Mc Cleland and Winter have made considerable studies- and concluded that what motives a person to do something new or something to seek better is the inner urge which direct him/her to words such ends. This urge also forces a person to use the resources efficiently than to be negligent of it. Motivation is an indispensable function of management. When man is at work, he cannot be forced to work like a machine. He is a human being who has his dignity, self-respect, belief, sentiments and aspirations apart from the economic status. Under such circumstances the efficiency of the enterprise is related not merely to the efficiency of sophisticated machines installed, but more importantly upon the satisfaction and spontaneous desire of man to put his mind and heart on to work. This spontaneous urge to involve in work is not merely related to monetary awards, assignment of responsibility, and the direction to perform the duty or even the fear of punishment, but the mechanism or system of motivation. David H. Holt (2003:p. 471).

2.12 Lack of Financial Resources

Business can obtain cash through two general sources: equity or debt, and both can be obtained from literally hundreds of different sources. According to Jim Dew Hurst & Paul burns (2003:P.187) financial resources are

20

essential for business, but particular requirements change as an enterprise grows. Obtaining those resources in the amount needed and at the time when they are needed can be very difficult for most small businesses because, they are generally considered more risky than established large enterprises. According to them, it is almost impossible to over rate the importance of bank finance to small businesses. At present some 60 percent of all the funds needed by small businesses come from the banks, although the pattern of borrowing by large businesses is changing and there is some evidence that they are looking elsewhere in their search for funds, this is not true for small businesses. David H.Holt (2003:p.439) also wrote about the problem of small businesses with regard to source of finance. According to him small businesses have fewer choices than large firms for obtaining debt financing. They are excluded from financial sources such as money raised through the sale of bonds, debentures and commercial paper. Because, most new ventures in the start up phase lack performance records or assets to secure substantial loans, and lenders will require general liens against all tangible assets before writing a loan. In addition, they tend to write short-term loans with repayment periods of less than one year even though the length of time depends on why the money is being borrowed and the collateral being offered. The other problem of small businesses is that not all commercial banks are willing to give loan for these businesses even if they have strong collateral. Because, most commercial banks now a days give their attention to large businesses by leaving their service to the newly created micro finance institutions that are not satisfactory in their loan service. According to David H. Holt (2003:p.439)
Financing means more than merely obtaining money, it is very much a process of managing assets wisely to use capital efficiently. The critical issue is to assure sufficient cash flow for operations, as well as to plan financing that coincides with changes in the enterprise.

This shows that financing is not simply matter of investing money that are essential to operate the business, rather than it is a function of finding, allocating and using it effectively and efficiently in the various areas of the business, to achieve organizational objectives.

2.13 Lack of Accounting Records

Without adequate accounting information it is impossible to monitor the performance of a business and if you have got this far in the book, you will know where that will lead. As Jim Dew Hurst and Paul Burns (1993:p.231) wrote, It is reckless to run a business without any accounting records. According to S.R Bhowmik and M.Bhowmik (2008: p.35) to a businessman or a business unit whether small or large, account keeping is necessary for the following reasons:

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 For self-satisfaction:-To know the actual position of a specific period, say an accounting or financial period. Statutory obligations: - Accounts for the specific period should be submitted to income tax, sales tax, and authorities as may be required. Record keeping:-For entry of day-to-day transaction, proper administration and financial control. Management information service:-To know the details of investment in assets, position of liabilities, turnover, profit ration, budgetary control etc Poor financial control is a fatal flow for most small businesses. Even those firms with excellent inventory management, good leadership, solid markets, and a reasonable capital structure, financial problems arise simply through sloppy bookkeeping. It is not surprising that most small business entrepreneurs see their roles on the firing line as marketers engineers, technicians, or merchandisers and, in the process, forget to attend to backshop books. Others who do attend to the books simply do not know what they are doing. It is rather easy to miss payments to vendors and destroy the companys credit rating (or worse, lose the source of inventory). It is just easy to overdraw a bank account and nullify loan sources. David H. Holt (2003: P.77)

Chapter Three Research design and Methodology 3.1 Subject of the study
The study of factors that affects the growth of small businesses conducted on the businesses that are found in Kaffa zone Bonga town small business organization.

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3.2 Data type and source

For study, both primary and secondary sources of data employed. Secondary datas used in this study were datas acquired from several published and unpublished sources with the help of desk research/ document analysis/. The primary datas that are used to conduct this study were datas acquired directly from:
1. Owners/managers of small businesses. 2. Employees and, 3.

Five governmental and non-governmental institutions with the help self administrated

questionnaires and structured interviews.

3.3 Sampling technique and sample size

In this study due to time and financial constraints a non-probabilistic quota sampling technique employed. Based on this frame work two kinds of questionnaires having 90 copies were distributed equally and randomly to small business owners (managers) and their employees that are operated in the fields of manufacturing retailing and service giving ones.

3.4 Method of data analysis

In this study a descriptive method of data analysis technique applied, since this method of analysis helps to describe the nature of the affair (issue) as it is. The data that were collected from several sources with the help of self administered questionnaires and structured interviews first systematically organized, with the help of tables and then interpreted using a descriptive method of data analysis. Based on the made, recommendations forwarded to concerned parties. interpretation and conclusions

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Chapter Four Data Analysis and Interpretation

This chapter shows how the data and information collected from several sources with the help of structured interviews and self administered questionnaires organized and interpreted to find out the main findings of the study. Out of the 90 copies of questionnaires distributed to be filled by owners or managers of small businesses and another 90 copies of questionnaires distributed to be employees,77(85.5%) questionnaires were filled and returned. Table 4.1 characteristics of owner/managers respondents
No
1

Characteristics Sex a/ Male b/ Female Total Age a/ 18 25 Years b/ 26 35 Years c/ 36 45 Years d/ Above 46 Years Total Position (Responsibility) a/ Owner b/ Mired Manager Total Field of operation a/ Manufacturing

Respondents Number 60 17 77 19 40 15 3 77 57 20 77 23 Rate (%) 77.9 22.1 100% 24.7 51.9 19.5 3.9 100% 74 26 100% 29.9

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b/ Service giving c/ Retailing Total Form of business organization. a/ Sole proprietorship b/ Partnership c/ Corporation Total Experience of the business in the field. a/ 2 5 Years b/ 6 10 Years c/ 11 20 Years d/ Above 20 Years Total No of employees a/ 2 5 employees b/ 6 10 employees c/ 11 20 employees d/ Above 20 employees Total

30 24 77 51 26 77 40 25 12 77 46 13 9 9 77

39.0 31.1 100% 66.2 33.8 100% 51.9 32.5 15.6 100% 59.7 18.9 11.7 11.7 100%

Table 4.1 portrays the characteristics of owner/Manager respondents. As one can see from the table (4.1) out of the 77 owner/manager respondents, 60 (77.9%) are males and 17 (22.1%) females. On the same table in item No 2, as far as concerned the respondents age distribution, 19 (24.7%) were between 18-25 years, 40 (51.9%) were between 26-35 years, and 15 (19.5%) were between 36-45 years and the rest 3 (3.9%) were above 46 years. In item No 3, as far as concerned their position (responsibility) owners/managers in the business, 57 (74%) they are owner and at the same time managers of the business, whereas 20 (26%) are hired managers. In item No 4, as far as concerned field of operation of small businesses 23 (29.9%) were from manufacturing, 30 (39%) service giving, and the rest 24 (31.1%) were from operated in retailing. In item No 5 as far as concerned the form of business organization, 51 (66.2%) were sole proprietorship form of businesses, where as the remaining 26 (33.8%) were partnership form of businesses. In item No 6 regarding the experience of these businesses in the field, 40 (51.9%) businesses have 2-5 years experience, 25 (32.5%) 6 10 years, and the rest 12 (15.6%) businesses 11 20 years businesses experience. In item No 7 as far as concerned the number of employees in these businesses 46 (59.7%) businesses consists 2-5 of employees, 13 (18.9%) consists 6 10 employees, 9 (11.7%) consists 11 20 employees and another 9 (11.7%) businesses consists above 20 employees. Table 4.2 characteristics of employees respondents
No
Characteristics Respondents Number Rate (%)

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Sex a/ Male b/ Female Total Age a/ 18 25 Years b/ 26 35 Years c/ 36 45 Years d/ Above 46 Years Total Experience in the business a/ 2 4 Years b/ 5 10 Years c/ Above 11 Years Total Status (Position) in the business a/ Technical Worker b/ Conceptual (Mental) worker c/ Both mental and technical Total 48 29 77 43 27 6 1 77 19 40 15 3 77 10 19 48 77 62.3 37.7 100% 55.8 35.1 7.8 1.3 100% 24.7 51.9 19.5 3.9 100% 13 24.7 62.3 100%

Table 4.1.2 shows the characteristics of employees. As one can understand easily from the above table, in item No 1, out of the 77 employees who works in small businesses, 48 (62.3%) were males, whereas 29 (37.7%) were females. On the same table in item No 2 As far as Concerned age distribution of employees, 43 (55.8%) were between 18 25 years, 27 (35.1%) between 26 35 years, 6 (7.8%) between 36 -45 years, and the remaining 1 (1.3%) is above 46 years. On the same table in item No 2 as far as concerned the business experience of employees, 19 (24.7%) employees their experience is less than one year, 40 (51.9%) employees 24 years experience, 15 (19.5%) 5-10 years experience and the rest 3 (3.9%) above 10 years business experience. Table 4.3 Responses of owners/managers of small businesses related to marketing.
No
1

Items How is the market share of the business? a/ High b/ Medium c/ Low Total Main reason if it is medium or low. a/ The business is not competent enough b/ Large No of competitors in the area c/ Low demand of consumers d/ Others Total Does the business employ a written business plan regularly? a/ Yes b/ Some times c/ No Total Does the business conduct market research? a/ Yes b/ No c/ Some times

Respondents Number Rate (%) 6 52 19 77 3 40 26 2 71 24 19 34 77 21 31 25 7.8 67.5 24.7 100% 4.23 56.34 36.62 2.81 100% 31.2 24.6 44.2 100% 27.3 40.3 32.4

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Total How is the promotion effort of the business? a/ High b/ Low c/ No effort at all Total Main reason if promotion effort is low or not at all. a/ Unable to afford its cost b/ Lack of opportunities to promote. c/ Its minimum impact to affect sales. d/ Lack of awareness how to promote. Total

77 41 32 4 77 9 6 5 16 36

100% 53.3 41.5 5.2 100% 25 16.7 13.9 44.6 100%

According to the data presented in the above table (4.3), in item No 1, regarding the marketing share of small businesses, 6(7.8%) respondents confirmed that the marketing share of their businesses is high, 52 (67.5%) respondents which makes the majority, confirmed that the market share of their businesses is medium, 19 (24.7%) the marketing share of their businesses is low. In item No 2 of the same table, the reason they gave why their market share is medium or low? Is that, 3(4.23%) respondents agreed that their business is not competent, 40(56.4%) respondents agreed that because of large number of competitors in the area and 26(36.62 %) respondents agreed because of low demand of consumers and the rest 2(2.81) due to other reasons. From this one can easily understand that most small businesses established and operated in the area where everyone can penetrate easily without any creativity or in a market which already statured. In item No 3 of the same table as far as concerned the preparation and use of business plan by small businesses, 24(31.2%) respondents confirmed the presence of regular business plan preparation and implementation in their businesses, 19 (24.6%) respondents confirmed the intermittent use of business plan and the rest that makes the majority, 34 (44.2%) respondents confirmed the absence of business plan preparation and implementation in their businesses. From this one can inferred that majority of small businesses operate their businesses without forecasting its futurity or without clear strategy. Similarly in item No 4 of the same table, as far as concerned the market research experience of small business,21(27.3%) confirmed the presence of conducting market research all the time, 25(32.4%) confirmed the existence of conducting market research sometimes, and 31(40.3%) which makes the majority, confirmed the absence of conducting market research in their business totally. From this one can generalize that 72.7% of small businesses manage their business without clear and accurate information that are important decisions about the market. In item No 5 of the same table, regarding to the promotional effort of small businesses, 41(53.3%) confirmed the presence of high promotional effort in their businesses, 32(41.5%) confirmed the presence of low promotional effort and the remaining 4(5.2 %) confirmed the absence of promotional effort in their business totally. On the same table

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in item No 6, the reason they gave why promotional effort is low or no effort at all? is that, 9(25%) respondents reported that because, they are unable to afford the advertizing cost, 6(16.7%) because of lack of opportunities to promote, 5(13.9%) because of its minimum impact to affect sales and 16(44.6%) which makes the majority due to because of lack of awareness how to promote. From this one can inferred that nearly half of small businesses loses the opportunity to communicate effectively with their customers, create opportunities, to build goodwill, as well as to get competitive advantage, mainly because of lack of awareness how to promote and unable to afford the advertizing cost.

Table 4.4 Responses of owners /managers about the production and/or operation activities of small businesses. 4.4.1 Technology (equipment)
No
1

Item How is the business in terms of the necessary technology or equipment? a/ Well equipped b/ Partially equipped c/ Not equipped at all Total Main reason if it is partially equipped or not equipped at all. a/ Shortage of capital b/ Unable to get the technology in the market c/ The work does not require sophisticated technology d/ The cost of technology and the benefit earned is not proportional e/ Others Total

Respondents Number Rate (%) 14 39 24 77 28 25 2 8 63 18.2 50.6 31.2 100% 44.4 39.7 3.2 12.7 100%

As far as concerned the technological aspect of small businesses on the above table (4.4.1) in item No 1 14(18.2%) confirmed technologically they are well equipped, 39(50.6%) confirmed that their businesses equipped partially, and 24(31.2%) not yet equipped. On the same table in item No 2 and the reason they gave why their business not equipped well is, 28(44.4%) reported because of shortage of capital 25(39.7%) because of the absence of the necessary technology (equipment) in the market, 8(12.7%) because of the cost of technology and benefit acquired from the technology not proportional, and 2(3.2%) the nature of their business does not require sophisticated technology or equipment. From this one can easily understand that majority of small businesses 63(81.8) affected by absence of technology mainly because of shortage of capital and due to absence of the required technology in the market.

4.4.2 Raw materials

No
Item Respondents Number Rate (%)

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The accessibility of raw materials or parts that are used to produce goods or services. a/ Fully accessible b/ more often c/ Partially d/ Rarely Total Capability of the business to buy and accumulate raw materials to reduce its cost. a/ High b/ Medium c/ Low Total Main reason if it is medium or low. a/ Due to shortage of capital b/ Due to shortage of warehouse facilities c/ Due to the perishable nature of raw materials d/ Others Total

23 21 26 7 77 17 33 27 77 33 18 6 3 60

29.9 27.3 33.7 9.1 100% 22 43 35 100% 55 30 10 5 100%

As far as concerned the accessibility of raw materials ( parts) on the above table (4.4.2) in item No 1, 23(29.9%)

confirmed their full accessibility to raw materials or parts, 21(27.3%) accessible more often, 26(33.7%) accessible partially, and 7(9.1%) accessible rarely. on the same table, in item No 2, regarding the capability of small businesses to buy and accumulate raw materials to minimize costs, 17(22%) reported their capability buy and accumulate raw materials, 33(43%) have medium capability, and 27(35%) have low capability. In item No 3 of the same table, the reason they address why they are unable to buy and accumulate raw materials is 33(43%) due to shortage of capital and 18(30%) due to shortage of ware housing facilities, 6(10%) due to the perishable nature of raw materials and 3(5%) From this one can inferred that one third of small businesses affected by shortage of raw materials, of which 85% of small businesses, their problem emanated from shortage of capital and warehouse facilities. 4.4.3 Labor Power
No
1

Item How is the business in terms of the required labor power? a/ Satisfactory b/ Not satisfactory Total Main reason if it is not satisfactory. a/ Unable to cover its cost b/ Unable to get and employ workers. c/ Due to seasonal nature of the work d/ other Total

Respondents Number Rate (%) 39 38 77 20 1 16 1 38 50.6 49.4 100% 52.7 2.6 42.1 2.6 100%

As far as concerned the utilization of labor power by small businesses, in the above table (4.4.3) item No 1, 39(50.9%) argued that the labor power they have is satisfactory. Whereas 38(49.4%) argued that the labor power they have not satisfactory. In item No 2 of the same table, the reason they address why their labor power not satisfactory is that 20(52.7%) because, they are unable to cover its cost, 16(42.1%) because of the seasonal nature

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of their work, and the remaining 1(2.6%) due to other reasons. From this one can understand easily that nearly half of small businesses affected by poor personnel practice. 4.4.4 Place (Location)
No 1 Item Number How is the suitability of location for production and selling? a/ Suitable b/ Not suitable Total If it is not suitable why the business unable to change its location? a/ Unable to get alternatives b/ Shortage of capital c/ The location has not impact on the business d/ Other Total The place that the business currently operated is : a/ Its own possession b/ Leased from individuals c/ Leased from government d/ Denoted from government Total 38 39 77 13 23 2 1 39 9 43 19 6 77

Respondents
Rate (%) 49.4 50.6 100% 33.3 59.0 5.1 2.6 100% 11.7 55.8 24.7 7.8 100%

As far as concerned the suitability of place (location) of small businesses in the above table (4.4.4) in item No 1, 38(49.4%) confirmed that their location is suitable. 39(50.6%0 respondents confirmed that their location not satisfactory. On the same table in item No 2, the reason they address why they are unable to change the location, if it is not satisfactory, 13(33.3%) agreed because they are unable to get alternative, and 23(59%) because of shortage of capital to buy or lease, 2(5.1%) because the location has no impact on the business and the rest1 (2.6%) due to other reasons. In item No 3 of the same table, as far as concerned the possession, of land and building, 9(11.7 %) operate their business in their own possession, 43(55%) by renting from individuals, 19(24.7 %) by renting from the government, and 6(7.8%) denoted by the government. From this one can inferred how the production and /or operation activity of small businesses affected poor location decision because of shortage of capital to buy or rent and unable to get alternatives. Table 4.5 Responses of owners/managers about the organization and management aspect of small businesses 4.5.1 Legal aspect and management
No
1

Item Does the business get legal protection to secure its right? a/ Yes b/ No Total Who manages the business?

Respondents Number Rate (%) 47 30 77 61 39 100%

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a/ The experienced owner him self b/ The qualified hired manager c/ Experienced hired manager d/ Qualified owner himself Total

49 10 10 8 77

63.6 13.0 13.0 10.4 100%

Based on the above table (4.5.1) businesses, 49(63.6%)

47(61%) respondents confirmed the presence of legal protection the legal

protection, whereas, 30(39%) do not. In item No 2 of the same table, as far as concerned the management of small small businesses managed by experienced owners themselves, 10(13%) managed by From this one can inferred most small businesses managed traditionally (not 4.5.2 Recruitment and Training
No 1 Item Does the business offer awareness and performance training before and after placement? a/ Yes b/ No Total If No what is the main reason? a/ Due to the simple nature of the work b/ due to its highest cost c/ Absence of training institutions d/ Others Total Respondents Number Rate (%) 36 41 77 13 16 6 6 41 46.8 53.2 100% 31.7 39.1 14.6 14.6 100%

qualified hired managers, Another 10(13%) managed by the experienced hired managers and 8(10.4%) by qualified owners themselves. supported by modern management).

On the above table, in item No 1 as far as concerned the training experience of small businesses,

36(46.8%)

confirmed having good experience of offering training for their employees, where as 41(53.2%) respondents do not. And the reason they address in item No 2 of the same table, not to give training is, 16(39.1%) due to high cost of training, 13 (31.7%) due to the simplest nature of the work, 6(14.6%) due to the absence of training institutions, and another 6(14.6%) due to other reasons. From this one can understand easily how the production and/or operation affected by several factors. Table 4.6 Responses of employees about the Organization and Management aspect of small businesses Shown below are the summarized data and information collected from 77 employees with the help of self administered questionnaires, related to the organization and management aspect of small businesses, to test the reliability and validity of data and information acquired from owners/managers. 4.6.1 Recruitment and training
No Item Respondents

31

Number 1 The way that the business recruits employees a/ family wise relationship b/ through friend relationship c/ through government facilitator d/ other Total Does your employer organization equipped with the necessary manpower? a/ Yes b/ No c/ Partially Total Is your employer organization having the experience of offering training before and after placement to increase employees performance? a/ Yes b/ No c/ some times Total 40 22 12 3 77 21 18 38 77 26 36 15 77

Rate (%) 51.9 28.6 15.6 3.9 100% 27.3 23.4 49.3 100% 33.8 46.8 19.4 100%

As one can see on the above table(4.6.1) in item number one, the recruitment and training experience of small business, 40(51.9%) recruit their employees through family wise relationship, 22(28.6%) through friend relationship, 12(15.6%) through government facilitator this shows that most small business recruit their employees with out giving attention for qualification and experience. On the same table, in item number 2, as far as concerned the organization of small businesses with the necessary man power on the above table (4.6.1) in item No1, 21(27.3%) agreed that their business organized very well, 38(49.3%) agreed organized partially, and 18(23.4%) agreed not organized very well. On the same table, in item No 2, concerning the training offering experience of the business to its employees, 26(33.8%) confirmed the existence of training before and after placement. 15(19.4%) confirmed the existence training sometimes and, 36(46%) confirmed the absence of training totally in the business. Here the information acquired from managers also agreed with this idea. 4.6.2 Industrial Relationship
No
1

Item From your own point of view, how do you evaluate relationship among employees as well as their leaders? a/ Extremely, good relationship. b/ Partially good relationship. c/ Rarely Total From your own point of view how do you evaluate the interest of employees to stay and serve the organization? a/ High b/ Low c/ Difficult to evaluate Total

Respondents Number Rate (%) 48 27 2 77 26 32 19 77 62.3 35.1 2.6 100% 33.8 41.5 24.7 100%

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concerning the relationship among employees as well as their leaders, in item No 1 of the above table (4.6.3), 48(62.3%) confirmed the presence of extreme relationship among employees and their leaders, 27(35.1%) the presence of partial relationship, and 2(2.6%) absence of good relationship. On the other hand in item No 2, of the same table, as far as concerned the interest of employees to stay and serve the business, 26(33.8%) reported the presence of great interest to stay and serve the business, 32(41.5%) the presence of low interest and 19(24.7%) unable to gauge. From the above situation one can inferred though there is good relationship, among employees, as well as their leaders. Table 4.7 Responses of owners/managers about the financial aspect of small businesses. 4.7.1 Finance
No 1 Item Does the business financially strong enough to manage its day to day activities? a/ Yes b/ No Total If No to solve the problem have you borrowed money from financial institutions? a/ Yes b/ No Total If No what is the reason not to borrow? a/ Due to the complex criteria set by lenders b/ Due to high interest set by lenders c/ Lack of awareness how to borrow d/ Inefficiency of lenders to offer the required amount. e/ Others Total Respondents Number Rate (%) 36 41 77 5 31 36 18 12 2 4 31 46.8 53.2 100% 12.2 87.8 100% 50.0 33.3 5.6 11.1 100%

As shown on the above table (4.7.1) based on item no 1, as far as concerned the financial strength of small businesses, 36(46%) argued that they financially strong, whereas 41(53.1%) argued that financially they are not strong. In Item No 2, on the same table, as far as concerned the exposure of small businesses to loan capital, out of the 41 businesses that were not financially strong, only 5(12.2%) businesses borrowed money from financial institutions. Whereas 36 (87.8%) do not have the experience of borrowing. And the reason they gave why they did not use loan capital was, 18(50%) due to the complex criteria set by borrowers, 12(33.3%) due to high interest rate, 2(5.6) because of lack of awareness how to borrow and, the rest 4(11.1%) because of the inefficiency of lenders to offer the required amount of money. From the above information one can easily understand that more than half of small businesses face financial limitations mainly because of lack of awareness how to borrow and by fearing the complex criteria set by lenders.

4.7.2 Calculating and determining costs

No Item Respondents

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Number 1 Does the business make payments for the work contributed by family members? a/ Yes b/ No Total If your business performs its activity in its own possession and able to save the money that was paid for rent, the money saved___ a/ Can be considered as an expense b/ It is not considered as an expense, since there is no direct payment. c/ It is very difficult to decide Total 34 43 77 21 16 40 77

Rate (%) 44.2 55.8 100% 27.3 20.8 51.9 100%

Regarding the efficiency of small businesses in calculating and determining costs, 0n the above table (4.7.2), in item No 1out of the 77 respondents, 34(44.2%) owner/managers agreed the necessity of making payments for the work contributed by family members. Whereas 43(55.8%) of the respondents did not agree. The same question forwarded In item No 2, 21(27.3%) believed that the money saved must be considered as an expense, 16(20%) believed that it should not be considered as an expense, 40(51.9%) reported their inability to decide. From the above information one can understand that more than half of small businesses have limitations to calculate and determine costs by considering indirect costs. 4.7.3 Financial record keeping
No 1 Item Does your business maintain proper financial record keeping? a/ Yes b/ No Total If No what is the main reason? a/ Unable to get the skilled manpower in the labor market b/ Unable to employee due to shortage of finance c/ The work does not require to maintain record keeping d/ Other Total Respondents Number Rate (%) 45 32 77 2 7 20 3 32 58.4 41.6 100% 6.3 21.9 62.5 9.3 100%

Based on the above table in item No 1 the small businesses capability maintaining proper financial record keeping, 45(58.4%) confirmed the presence of financial record keeping where as 32(41.6%) the absence of proper financial recordkeeping. On the same table in item No 2, the reason addressed by those who do not maintain financial record keeping is 2o (62.5%) because of that their work did not require proper financial record keeping, 2(6.3%) unable to get the skilled man power in the market.7 (21.9%) unable to employ workers due to shortage of finance, 3(9.3%) due to other reasons. From this one can understand that nearly half of small businesses have limitations in keeping financial records.

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Chapter five Summary of findings, conclusion and recommendations 5.1 summaries

The main purpose of this study was to assess factors that affect the growth of small businesses in Kaffa zone Bonga town small business organization. The study was conducted on the attempt to answer the following basic issues: 1) What barriers currently affect the marketing activity of small businesses? 2) What factors limit the Production and/or service giving efficiency of small businesses? 3) What organization and management limitations affect the growth of small businesses? 4) How is the capability of small businesses in financing their business? Maintaining financial record keeping? And calculating and determining costs? 35

Based on this frame work the followings are the main findings of the study.

I. with respect to Marketing

92 % of small businesses their market share is medium and below medium because of large number of competitors

in the area and, due to low demand of consumers.

Nearly, eighty (77%) of small businesses do not employ business plan in their day to day operation totally.

72% of small businesses have limitations in conducting marketing research. Nearly half percent (47%) of small businesses, their promotional effort is weak due to lack of awareness how to promote and due to lack of awareness. (Source: table 4.3)

II. with respect to Production and/ or operation management.

84% of small businesses are not organized with the necessary technology that is essential to their operation mainly

because of lack of opportunity to get the necessary technology in the market and because of shortage of finance. (Source: table 4.4.1)

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43% of small businesses do not have access to get raw materials that are essential for their operation, mainly because of shortage of capital and due to shortage of warehouse facilities.(Source: 4.4.2)

50% of small businesses not organized by the necessary manpower mainly due to shortage of finance to cover labor cost and due to the seasonal nature of their work.(source: table 4.4.3)

51% of small businesses conduct their business activities in an area which is not convenient to their operation and 80% of small businesses operate their activities by renting buildings and land either from the government or individuals.

III. With respect to organization and management.

39% of small businesses operated in business activities that cannot enable them to get legal protection.

77% of small businesses managed by experienced people. 52% small businesses recruit employees thorough family wise relationship (nepotism). In addition

64% of small businesses do not give awareness as well as performance training totally.

67% of small businesses do not motivate their employees through incentives.

41% of small businesses

employees do not have interest to Stay serve the business where as 25% unable to decide.

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Iv. With respect to Finance and financial record keeping.

53% of small businesses financially they are not strong.

89% of small businesses their intensity to finance their business by using loan capital is very weak because of the complex criteria set by lenders and high interest rate.

55% of small businesses have limitations to realize indirect costs while calculating and determining costs.

42% of small businesses do not have proper financial record keeping by the assumption that their working need not require financial record keeping.

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Factors that affect the financial activities of small businesses

5.2 Conclusion
Based on the findings of the study the following conclusions made. The main objective any business is to maximize its profit. This is possible if and only if the business able to satisfy its consumers better than its competitors. Most small businesses lack this experience because; initially most of them start operation in the area where entry barriers are low whereas exiting barriers are very high. In other words most small businesses lacks marketing expertise such as market planning, market research, promotion, product/service improvement etc. The success of any business depend on the quality of its business plan since a business plan serves as a guide line for action and a tool to measure performance. However half of the small businesses did not have business plan. To produce an appropriate product or service at the schedule, with the desired quality and at minimum cost, technology or equipment is absolutely necessary. However, majority of small businesses did not support their operation by the desired technology.

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Place (location) is an essential factor for any business. However majority of small businesses operate their business activities by renting land and buildings from individuals and government. And more than half of these businesses operate their business activities in an area which is not suitable for operation.

For a growing business sales increased s means changes in human resource. Majority of small businesses managed through traditional experience. In addition most of them did not organize their business by the necessary man power. The recruitment, training and motivation experience of these businesses also very poor.

Finance is the blood root of business. However, for majority of small businesses obtaining finance in the amount needed and at the time they need is found to be very difficult.

Without adequate financial record keeping it is very difficult to monitor and evaluate the performance of the business. When we see the experience of small businesses in this area, nearly half of small businesses did not have proper financial record keeping.

For any business calculating and determining costs is a must if it wants to be competent. However, most small businesses have limitations in calculating and determining costs.

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5.3 Recommendations
Based on the findings of the study and the conclusions made, the following suggestions forwarded. Apply value added product or service strategy in their marketing activities. Owners/managers should take management trainings that are essential to manage their businesses. Instead of operating individually and computing each other form partnership to use their resources effectively Give awareness and performance training to their employees regularly by communicating with governmental Motivate their employees by offering appropriate remuneration and incentives. Maintain good relationships with micro finance institutions and discuss on various issues to reach in common Promote their businesses using opportunities such as exhibitions and bazaars. If possible prepare bazaars and Apply at least simple recording systems to evaluate the progress and effectiveness of their businesses. Develop awareness how to calculate and determine costs as well as setting reasonable costs

as well as to get financial and technical assistance from the government. and non-governmental institutions who give training in various fields.

agreement. exhibitions by themselves to promote their businesses.

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9. Thomas J.Cartin. (2004) Principles and Practices of Organizational Performance Excellence. Prentice, Hall of India Private Limited, New Delhi. 10. William D.Perreault, Jr., E. Jerome McCarthy (2003) Essentials of marketing. A Global-managerial Approach, Mc GrawHill Companies, Inc. 11. William J.Stevenson. (2002). Operations Management. Seventh Edition. McGraw Hill Companies, Inc.

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