Usually one or more of the following could be present before the failure of the owner manager of a small business.
a. Lack of financial and human resources: The lack of financial resources to some lesser extent has its root in the lack of financial know-how. Most SMEs did not know that there were various sources of finance opened to them to benefit from the Government i.e. the knowledge gap . Nonetheless, where there was some amount of contributions what they got was not enough. For example, in 1997, an amount $72,000 about 41,500 Ghana cedis was disbursed to 1,400 small businesses in Ghana . This was not enough if you have big vision. As it is known, most of the equity of SMEs are from family members and friends but this is not easy to get as most people cannot just trust their owner-manager friends or family member and part with huge sums of money even with an agreement to pay back.
b. Improper financial management practices: Growth comes with so many responsibilities including hiring new staff, premises, increase stocks and maybe raise loan for expansion and so on. In the situation where these are not properly managed financially, it results in overtrading, overstocking or under stocking leading to inability to meet customer needs. This was found to lead to loss of sales, earnings and the firm’s inability to service the loans which can ultimately lead to the demise of the firm.
c. No collateral as security for loan: banks in Ghana require collateral as security before a loan is processed for any business expansion in this instance. These collaterals come in the form of houses and land which some of these owner-managers cannot provide. Land ownership or tenure in Ghana is considered a prestige usually owned by the entire extended family. This makes using it as a collateral not only difficult but also impossible if one cannot get the consent of the entire extended family.
d. Inadequate financial management skills in terms of leadership and control i.e. no financial know-how: this was also to be blamed. Recall that about 30% of owner-managers said they had never approached a banker to assess the potential for growth of their businesses. Actually; it was ignorance of what benefits financial management can bring to the business. Thus they were reluctant to consult with an expert for free let alone to pay for the services of a consultant to help turn around the business financially to keep the business running in the system.
e. Not applying the relevant financial management strategies: This is to say that most of the SMEs were found not to pursue the strategies or tactics needed to succeed in the market. Following the same principle of not using the relevant source of financing, the financial strategies are to do with the overall vision and mission of the company. For example a Financial and Banking services company’s liquidity needs and capabilities due to its capital adequacy requirement will definitely differ from that of a manufacturing firm, which might have more stock if it should continue in the business in the foreseeable future. However, in cases studied; financial strategies were not customised but generalised.This should not have been the case.
f. Poor financial planning: Financial planning is of great importance to any firm whether it is short-, medium-, or long-term. There was evidence of poor financial planning within the SMEs in Ghana. In some cases, this led to them missing opportunities from delivery of equipment for the firm to not able to meet other important financial obligations thereby hindering the growth opportunity. The reasons for this are lack of knowledge in financial management and the perceived differences between SMEs and large organisations amongst some owner-managers .
g. Insufficient financial management, financial controls and financial monitoring systems: as discussed in the literature review , combining sufficient financial management,financial controls and monitoring effectively was found to help SMEs in their growth pursuit. Where they were deficient, SMEs failed to maintain their growth as expected.
h. Inadequate marketing skills, lack of customer orientation and limited distribution channels: most of the small owner businesses lack proper marketing and customer service skills as every casual observer in Ghana can attest to that. The question of customer service relationship is not popular with the Ghanaian business community in general and the small business enterprise in particular. The reason is thought to stem from the culture and the notion that “you go to buy because you are in need”, thus creating the impression that the seller is doing the buyer a favour and not vice versa. An evidence of supplier power to some extent. Things are now changing gradually, anyway, as a result of introduction of marketing courses in secondary, colleges and tertiary education curricula. The question of limited distribution channels is as a result of lack of funds and or improper financial planning to open up distribution channels.
i. Lack of strategic direction: The companies’ follow one other’s vision. This is to say that companies tend to copy what one competitor is doing if it was found to be selling or appealing well to the market. Ironically one of the constraints for sustainable growth in SMEs is basically as a result of lack of strategic direction.32% of the companies examined were found to have no strategic direction in terms of a long term financial (management) plan. The significance of these findings is that these businesses cut across the three major industries in Ghana-light manufacturing, retail and imports, and processing. These three are perceived to be the bedrock of Ghanaian SME.The concern would be to do something about this.
j. The lack of training, career progression and development of staff in (terms of) product knowledge and financial management: Product knowledge and financial management were low in the career progression and development training for staff in the small enterprises researched. Rather interest was very high to make profits . Accounting is usually misconstrued with financial management amongst the small medium enterprises and usually ignored. In the long run, the lack of product knowledge and financial management has negative impact on the growth of the business because customers’ needs are not addressed adequately.
The failure of the small business to some lesser extent could be blamed on the owner who is managing the business himself but had no considerable knowledge on issues outlined above.The tide could turn if it transpires that the business is being managed with the efficient and effective business practices.