Small Business Financial Crisis And Survival

Small Business Financial Crisis and Survival.
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Table of Contents TOC \o "1-3" \h \z \u Small Business Financial Crisis And Survival. PAGEREF _Toc530833680 \h 3Executive Summary PAGEREF _Toc530833681 \h 3Analysis/Importance Of The News PAGEREF _Toc530833682 \h 3Justification of the Study PAGEREF _Toc530833683 \h 4The Economic Implications Of The News PAGEREF _Toc530833684 \h 5Approaches To Dealing With The Problem PAGEREF _Toc530833685 \h 61. Strengthen themselves in technology innovation as well as marketing activities PAGEREF _Toc530833686 \h 62. Short reporting cycles. PAGEREF _Toc530833687 \h 73. Cash generation PAGEREF _Toc530833688 \h 74. Increased staff monitoring PAGEREF _Toc530833689 \h 75. Tight budget control. PAGEREF _Toc530833690 \h 7Literature Review PAGEREF _Toc530833691 \h 7Lessons Learned and Recommendations PAGEREF _Toc530833693 \h 8References PAGEREF _Toc530833694 \h 10
Small Business Financial Crisis and Survival
Executive Summary
During a recession or slowdown, most management experts usually advise people to quit jobs and start a business. The idea of becoming an employer and not an employee can be too tempting especially for people who are having some financial crisis. Upon this thought, many people will put their foot down and decide to take the plunge (Altinay 24). With the vision of earning more money, many people will start drafting their business plans and if need be present them to the relevant investors so they could get the necessary funding. Small businesses appear to be doing well for the first months apart from the money does not flow as one expected, the interests on loans keep swirling up, investors asking for their money back and to make matters worse, IMF predicts some global slowdown. Before, embarking on starting a business, it is imperative to come up with ways that will assist you to mitigate financial challenges which are prevalent in small enterprises.
According to a study conducted by Enterprise Research Centre, it shows that some small and medium-sized businesses survive financial crisis while others do not. In Europe, 99 per cent of firms are small and medium-sized businesses, and they offer employment to about 70 per cent of the population (Berry 455). This paper will analyse the financial crisis that faces small businesses in the UK and the approaches that they put in place to assist them to survive and remain resilient in spite of the financial challenges that they encounter.
Analysis/Importance of The News
A press release titled Why do some firms survive a crisis and others don’t a study conducted by ERC was recently released. The article captures the reality of this challenge and stipulates the details of the financial crisis during 2008. During this time, The Federation of Small Business estimated that almost 50 companies would close daily in the UK while others survived and more SMEs kept emerging and currently, there are more SMEs than ever with FSB reporting 5.7 million in the previous year 2017 (Biggs 645).
The two-year research which was supported by JP Morgan of Chase Foundation involved 3000 SMEs been surveyed. In this study, SMEs are defined as firms that have less than 250 employees in Milan, London, Madrid, Paris and Frankfurt (Bridges 444). Although there is inadequate research on the strength and resilience in these small firms, researchers from Aston University give information and sheds some light on the challenge at hand. According to this researcher, the challenges faced by business people vary based on their backgrounds and social groups.
It is reasonable to make assumptions such as establishing a resilient enterprise can be challenging for people coming from disadvantaged people such as the unemployed and people who live in deprived areas or who come from the minority groups (Carpenter 298). However, challenges that face these disadvantaged entrepreneurs are usually lack of established networks and capital which can raise the risk of business and can lead to business failure.
It is important to note that business leaders who are facing disadvantage may have established innovative approaches to dealing with and solving these challenges, and novel. In return, these strengthen and benefit their businesses. The research indicates that in spite of the systematic and personal problems, many entrepreneurs respond to the ingenuity and resilient with a broad range of shocks to their enterprises which may range from a negative financial environment, natural disaster and to unexpected theft and staffing changes.
Justification of the Study
About 280 SMEs are leaving business every week, and the number might increase as the recession continues according to FSB. However, these losses are still under control as compared to 1990s when almost 1000 SMEs would close every week. Some of the things that keep battering SMEs are rising costs as well as falling orders especially at a time when credit crunch has made it complex for SMEs to convince banks to fund their overdrafts at reasonable and affordable terms (Cowling 778). The spokesperson of FSB Alambritis says that the costs are going up while the orders are going down.
FSB is hoping that the Bank of England will cut the interest rates in the next two months. However, Alambritis warned that the number of start-ups and SMEs would keep going up if banks persisted on making access to finance difficult for small businesses. The reason that these study is being carried out is to help identify the key challenges that SMEs face and look into meaningful approaches that will help mitigate the problem and in return ensure that the retention of these businesses is enhanced (Glancey 249). It is imperative to note that these small businesses are a key factor in the economy of a country according to the latest figures released by the Department for Business and Enterprise, SMEs represent almost 99.9 per cent of UK private sector businesses. Since they play a key role in the economy of the UK, it is imperative to understand how they survive during financial crises.
The Economic Implications of The News
The financial crisis for small businesses in the UK started in 2008 and had significantly contributed to the fall of UK’s gross domestic product in recent years. This crisis has had its source and roots in the banking sector, credit and retail institutions increasingly become unwilling to lend to business and personal sector especially those financial institutions that were predisposed to riskier lending markets and products (Hankinson 168). Although the accusations on the bank for refusing to lend money were a huge contributor, there exist some gaps concerning the types and nature of businesses that the banks were unwilling to finance or lend money to. In the face of a financial crisis, it is naïve for people to expect the credit demand from SMEs to remain the same.
As earlier mentioned, the SMEs are a source of employment to many people and the more they survive, the more opportunities are created for people, and these in return bring economic prosperity in the country as well as in the future (Herbane 43). One of the first metrics that pops up in someon...