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Problems Of Start Business
PROBLEMS OF A BUSINESSMAN
Problems of a
businessman may be classified into two groups: (a) problems of being an
entrepreneur, and (b) the problems of entrepreneurs that cause business
failure.
Here it is pertinent
to state that most of the problems discussed below pertain to new entrepreneurs
and to entrepreneurs operating on small scale. As business gets older and grows
in size; the problems are gradually removed and management of business becomes
a comparatively simple.
Problems of Being an
Entrepreneur
These problems
include three types of risks that one undertakes while engaging oneself as
entrepreneur
1. Financial Risks
It is the
businessman who assumes financial risk of a business enterprise. Therefore, an
entrepreneur is responsible to provide initial finance to start the business
and he is liable to pay all expenses of the business even if the business is
not generating sufficient revenues. The entrepreneur is required to pay all
business expenses and liabilities even if the payment involves money out of his
personal savings or sale of his personal effects or residential house.
for a new
Financial risks are especially very high for a entrepreneur. It is common
observation that a business success is preceded by a few business failures.
Even if the first project of an entrepreneur proves successful still it
generally takes two or three year, technically termed as gestation period, to
make the business a profit earning project.
Therefore, one
who is planning to become a businessman should be in possession of (or he
should be able to raise) enough funds so that he may be capable to absorb shock
of initial failure, if any, and to meet his household expenses during the
gestation period.
2. Career Risks
It is the risk
that once you leave your profession to start a business and subsequently the
business proves unsuccessful, re entry in the profession, in most of the cases,
is very difficult. There are only a few professions, such as law, that may
permit an interruption of few years in one's career without excessive penalty.
But most of the professional careers cannot be so easily turned off and on at
will. For example, the urge to start own business may cause a senior executive
to relinquish seniority. vested savings, and retirement benefits.
3. Personal Risks
Commitment of
all of entrepreneur's energies and leisure for the success of a business,
especially during first two or three years of the business, is almost
inescapable. At the same time, starting a new business generally involves a
temporary reduction in income for few years. These are the factors that cause
personal risks of the businessman. Working day never ends, meals get cold,
weekends vanish from the calendar, vacations disappear, social invitations go
unaccepted and unrepeated, reduced family income may dictate fewer dinners out
and less entertainment etc. are a few consequences of starting a new business
venture.
Problems that Cause
Business Failure
Mismanagement is
the most frequent cause of business failure. Mismanagement may take any of the
following forms:
1. Defective Business
Feasibility
In many cases of
business failure the problem is rooted in feasibility that was prepared by
businessman before starting the business. Instead of making estimates on
reasonable and logical basis, the entrepreneurs project their wishes and
desires in the feasibility. Typical errors in this respect include selection of
wrong location, overestimation of demand, wrong estimation of competitors'
reaction, non-recognition of lack of technical skill and expertise, etc. There
is no remedy to save a business which should not have been started.
2. Overexpansion
Overexpansion
means unplanned expansion of business which beyond the means and capabilities
of the businessman. Encouraged by the initial success the entrepreneurs become
overzealous and start expanding their business without having proper
appreciation of financial requirements and human resource needs of a large
scale business. Consequently, an otherwise flourishing business faces the
disaster of closure.
3. Lack of Capital
Sometimes a new
business which is otherwise feasible cannot takeoff because of shortage of
working capital. entrepreneurs while estimating financial requirements fail to
recognize gestation period or time lag between expenses and revenues. As a
result, their short term liquidity is so undermined that they are forced to
close down a business which would have been a profit earning unit had it been
able to meet its short term. financial needs.
4. Overextension of
Credit
In many
businesses goods are sold on credit and buyers make payment of previous
consignment only after receiving new consignment from the seller. As a result
the businessman is required to invest heavily in accounts receivable. Where a
businessman in such a trade fails to make a sound estimate of capital needed
for granting such credit, he ultimately faces a situation where he finds
himself out of funds to give new supplies to his customers, which stops
recovery of the debts. Financial crisis thus created leads to business failure.
5. Excessive Bad Debts
In order to
attract additional sales sometimes entrepreneurs start extending credit
injudiciously. Consequently, they face heavy losses on accounts of bad debts.
Excessive bad debts may be the result of an attempt to sell an un-saleable
product. Shortage of capital created by bad debts may be so acute so as force
the businessman to shut down his venture.
6. Poor Inventory
Management
In many cases
the problem that causes business failure is poor inventory management. Due to
failure to maintain a balanced inventory the entrepreneur faces frequent loss
of sale and repeat sale because items demanded by the customers are out of
stock. He finds his capital tied up in inventories of obsolete, out-of-date and
poor quality products which can be sold only at heavy loss.
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