Challenges of Small

Enterprises in
Cabanatuan City
Objectives

 To identify the challenges being faced by small enterprises in cabanatuan city and
to provide relevant solution to help them overcome those challenges.
Review of Related Literature and Studies

Foreign Study
The Challenges Among Malaysian SME: A Theoretical Perspective
Nurulhasanah Abdul Rahman*, Zulnaidi Yaacob** and Rafisah Mat Radzi*
World Journal of Social Sciences Vol. 6. No. 3. 
September 2016
 
     This paper aims to identify the current challenges being faced by
SMEs in Malaysia. The researcher used library search which consists of
online and offline materials from articles in journals to articles in
books. An analysis of previous literature review was also conducted to
accomplish the study. The article search was selected from the
prominent database for management and high rank journals, namely ISI
Web of Science, Scopus and Emerald (with the keyword: SME challenges).
 In a study conducted by Salikin, Wahab and Muhammad (2013), SMEs faced not only
financial issues but also non financial issues. Business owners of small and medium
enterprises tend to establish business without a proper amount of knowledge about
management and tend to rely only on their experience. With these issues not being
addressed properly, it will be hard for SMEs to survive. According to the  CEO of
SMECorp., Malaysia (2015), Dato’ Hafsah Hashim, “In order for SMEs to survive, they
need to reconstruct their financial system, enhance their management skills and focus
on providing high quality products/services”. 

       Although there are many challenges that the SMEs face, previous studies separate
challenges into two main categories namely: Financial challenges; and Non financial
challenges (Bamfo, 2012). 
 
1. Financial Constraints
       Small and Medium Enterprise had faced many challenges and had been discussed
through different studies for many years.  According to Smit and Watkins (2012), the
most discussed among challenges from previous studies are lack of access to finance.
Smit and Watkins (2012) said that lack of financial access is one of the main
external factors that limit SMEs. Due to its risky nature and low perceived return
(St-Pierre and Bahri, 2006), South African Banks are more willing to finance large
enterprises than SMEs (Pretorius and Shaw, 2004). In addition to this, a risk averse
strategy which favors big businesses and high loan-to-value homeowners otherwise
known as safe borrowers are being used by the Royal bank of Scotland as instructed by
the Treasury and a welter of new banking rules even though it is are pressured to
pull back its lending and save its cash. Apart from this, averse strategy is designed
to ignore the request of SMEs who's regarded as risky borrowers (Inman, 2013). A
study conducted by Tan (2002) shows that even though it has been easy to raise
capital through bank credit, equity sales and corporate debt issues, SMEs and newly
built businesses still find it difficult to access finance and raise capital.
2. Management Issues
The need for management competencies varies on the size of the organization.  As stated by Snell and
Lau (1994), small organizations need more management competencies to grow compared to larger
organizations. This leads to smaller organizations failing to develop skills, knowledge and
competencies among workers in the organization (see Omar, Arokiasamy & Ismail, 2009) It is an
important thing to remember that, Management skills is necessary, for it plays a vital role in
preparing SMEs for growth. This has to be observed since it has been identified that factors like,
insufficient knowledge of the SME entrepreneur, contribute to the intricate financing problem. For
instance, drafting up an ineffective business plan, not being able to determine the credit risk of the
SME, due to the unreliable and lacking information of the enterprise, and general communication issues
(Berry, Sweeting, Goto & Taylor, 2002).The authors also added that SME’s are not only facing
management issues but issues that can also affect the profitability of the organization, like
miscellaneous problems which are common to other businesses. Hence, having an experienced and
knowledgeable business manager is vital to the organization, in order to cope with the unceasing rapid
changes that is occurring in the business environment. As such, with regards to the article prepared
by King (2007), it is advised for successful firms to take care of routine accounting requirements,
although at often times, it is undeniable that their staff and management do lack the experience
required to overcome the challenges of SME growth. Which was quoted by a chartered accountant, named
James Phillipson. 
Derived from a study by Gray and Lawless (2000), it has been identified that management issues
encircling SMEs in Britain, are predominantly related to finance, cost, poor time management,  
marketing, personnel management and technological changes. Which are the issues that is extensively
researched, but still challenges SME management beyond Britain, and across Europe as well. Supported
by Hayton (2015), it is identified that deficiencies in leadership and management skills are the key
limitations on SME performance. It is revealed that entrepreneurship and leadership skills are the
most consistent, in influencing good management practice and the improvement of SME performance. as
based on the findings of the study. This proved that leadership and management skills are crucial in
determining the success of business in Britain However, it is a different issue in Asian Countries. In
Asia, management issues among SMEs are more focused on short term objectives and investment issues.
These issues are not perceived as an opportunity, but as a cost to the business (Thaker & Mohammed,
2013).
 
 Foreign Literature 
 Article in International Business Management · January 2017
 According to Hashim (2015) finds that the level of ICT skills among 383 SME owners is
relatively poor. Consequently, it leads to a slow and low level of 1<1' adoption. In addition
 According to Hashim (2015) also discovers that the main reason for a lack of ICT usage among
SMEs is that the respondents often see ICT as difficult to be implemented and choose to use
the manual system instead. This perception is deeply rooted among the senior managers who
often find ICT as a challenging and complicated system to comprehend. 
 According to Rufaro et al. (2008), SMEs do not only have limited resources in technology but
also in financing their operations, marketing their products and having an inadequate bucket
for training their staff. 
 According Jasra et al. (2011) find similar problems in which SMEs often have insufficient
funds particularly in developing and marketing their products. Given the status of a business
environment where the competition is intense, SMEs need adequate financial resources to
survive. To stay highly competitive in the marketplace, research needs to be done from time to
time to cater the needs of the consumers, Thus, inevitably SMEs must have a bigger capital to
invest in the research and development (R&D) projects in ensuring that their products meet the
expectations of the customers and that the products' demands continue in the future. Any
shortage in financial resources may hinder SMEs from growing.
 According  Senik et al (2012) in addition argue that a lack of financial capability among the
SMEs is one of the reasons for the inability of the SMES to embark on computerized
environment, as they could not afford buying the facilities needed. SMEs in Malaysia are also
found to have similar shortcomings.
 According to Salikin et al. (2014) among others indicates that the survival of SMEs is
challenging as competition is immense and financial viability remains at the unsatisfactory
level. They claim that the financial weaknesses faced by the SMEs in Malaysia are largely due
to a lack of capital, incomplete accounting records, poor financial performance, difficulties
in getting financial support such as loans, high operational costs and poor collection of
debts.
 According to Nor et al. (2016) reports identical findings. Limited financial resources
continue to be a major obstacle that adversely affects the development of SMEs in Malaysia
as many investment projects with favorable returns could not be implemented.
 In addition to Nor et al. (2016) also attribute the failure of SMEs to survive to other
influential factors such as a lack of professional skills, business competitiveness,
insufficient supporting infrastructure and unfavorable government policy. These flaws impact
the going concern of the SMEs and expose them to a high risk of business failure. RESULTS
AND DISCUSSION Impacts of the problems on SMEs: The discussion in the preceding section
highlights the critical problems that the SMEs are facing. These problems arguably may bring
negative consequences for the performance and sustainability of the SMEs. Due to a lack of
accounting knowledge and the feeling of less accountable to prepare the accounting reports,
the SMEs are likely to face problems in managing their costs, expenditure, cash flows and
also having difficulties in getting appropriate infonnation to support the monitoring and
controlling systems
 According to (Son et al., 2006). Also, appointing external independent accountants to
perform the accounting functions, although may help in the proper maintaining of the
accounting records but is likely to burden the SMEs with high additional costs
 According to (Salikin et al., 201 4) and also reduce the managers' awareness on the
importance of financial information. High costs incurred could result in a negative effect
on the turnover of the SMEs A proper maintaining of accounting information is unavoidable to
SMEs
 According to (Davis et al., 2009). As such, the SMEs need to ensure that they have a proper
record keeping system which is in accorchnce to the promulgated standards and guidelines. If
the SMEs fail to do just that, then the accounting infonnation may not be able to show the
true view of the financial performance and position of the SMEs. 
 A study by the infonnation published is inaccurate, unreliable and inelevant for decision
making (Mukherji, 2002; Smirat, 2013). This makes it even more difficult for the SMEs to
attract external financing sources (Arnidu et al., 2011). Moreover, the calculation of
tax fcm• SMEs may as well be affected since accurate financial accounting is paramount in
the computation of tax (Smirat, 2013). The SMEs should utili;æ the accounting infonnation
that they have in making business decisions, business expansion and also in managing the
organizational activ ities effectively. With the rapid change of technology, the SMEs need
to adopt the cutting edge technologies to sustain a competitive advantage
 According to (Jayabalan et al., 2009). prior literature suggests that there are many SMEs
still refusing to use ICT and the computerized system in their day to day operations due to
many reasom (Duan and Kinman, 2000; Breen et al., 2003). 
 According to Tovar (2012), low adoption of technologies may affect the effectiveness of the
company and may make it difficult for the company to remain competitive and achieve growth
since IT is an enabling factor for the organizational success. Investment in technology
especially the manufacturing technology could help the SMEs to reorganize the production,
increase the quality of product 49.
 https://www.researchgate.net/publication/320163628_Small_and_Medium_Enterprises_Critical_Pro
blems_and_Possible_Solutions
 Foreign Literature
 
 According to Almahfadi, Abdullah. (2019). The challenges faced by small businesses. Study found the following:
 Startinga business is a big achievement for many entrepreneurs, but maintaining one is the larger challenge. There are many standard
challenges every business faces whether they are large or small. These include things like hiring the right people, building a brand
and so on. However, there are some that are unique to small businesses, ones most large companies have grown out of long ago. Here are
the five biggest challenges for small businesses.
 ClientDependence If a single client makes up more than half of your income, you are more of an independent contractor than a business
owner. Diversifying your client base is vital to growing a business, but it can be difficult, especially when the client in question
pays well and on time. For many small businesses, having a client willing to pay on time for a product or service is a godsend.
Unfortunately, this can result in a longer term handicap because, even if you have employees and so on, you may be still acting as a
sub-contractor for a larger business. This arrangement allows the client to avoid the risks of adding payroll in an area where the work
may dry up at any time. All of that risk is transferred from the larger company to you and your employees. This arrangement can work if
your main client has a consistent need for your product or service. However, it is generally better for a business to have a
diversified client base to pick up the slack when any single client quits paying. Money Management Having enough cash to cover the
bills is a must for any business, but it is also a must for every individual. Whether it is your business or your life, one will likely
emerge as a capital drain that puts pressure on the other. To avoid this problem, small businesses owners must either be heavily
capitalized or be able to pick up extra income to shore up cash reserves when needed. This is why many small businesses start out with
the founders working a job and building a business simultaneously. While this split focus can make it difficult to grow a business,
running out of cash makes growing a business impossible. Money management becomes even more important when cash is flowing into the
business and to the owner. Although handling business accounting and taxes may be within the capabilities of most business owners,
professional help is usually a good idea. The complexity of a company's books goes up with each client and employee, so getting an
assist on the bookkeeping can prevent it from becoming a reason not to expand. 4 ‫من‬ 3 ‫فحة‬N‫ص‬ ‫ ال‬Fatigue The hours, the work and the
constant pressure to perform wears on even the most passionate individuals. Many business owners, even successful ones, get stuck
working much longer hours than their employees. Moreover, they fear their business will stall in their absence, so they avoid taking
any time away from work to recharge. Fatigue can lead to rash decisions about the business, including the desire to abandon it
completely. Finding a pace that keeps the business humming without grinding down the owner is a challenge that comes early (and often)
in the evolution of a small business. Founder Dependence If you get hit by a car, is your business still producing income the next day?
A business that can't operate without its founder is a business with a deadline. Many businesses suffer from founder dependence, and
this dependence is often caused by the founder being unable to let go of certain decisions and responsibilities as the business grows.
Meeting this challenge is easy in theory—a business owner merely has to give over more control to their employees or partners. In
practice, however, this is a big stumbling block for founders because it usually involves compromising (at least initially) on the
quality of work being done until the person doing the work learns the ropes. Balancing Quality and Growth Even when a business is not
founder-dependent, there comes a time when the issues from growth seem to match or even outweigh the benefits. Whether a service or a
product, at some point a business must sacrifice in order to scale. This may mean not being able to personally manage every client
relationship or not inspecting every widget. Unfortunately, it is usually that level of personal engagement and attention to detail
that makes a business semi-successful. Therefore, many small business owners often find themselves tied to these habits to the
detriment of the company's growth. There is a large middle ground between shoddy work and an unhealthy obsession with quality, so it is
up to the business owner to navigate the company's processes towards a compromise that allows scale without hurting the brand.
 Oneof the worst things a would-be business owner can do is to go into a small business without considering the challenges ahead. We've
looked at some things to help make these challenges easier, but there is no avoiding them. Besides, a competitive drive is often one of
the reasons people start their own business, and every challenge represents another opportunity to compete.
 https://www.researchgate.net/publication/332709587_The_challenges_faced_by_small_businesses
LOCAL LITERATURE
WRITTEN BY JANIS MAE NARVAS AUG 1, 2020 2:00:00 AM
 
  Putting up your own business can be exhilarating: you become your own boss and, maybe for the first
time in your life, you will be running your own show. Once you get your business off the ground,
however, you find that as your business grows, you may find yourself inundated with the many
challenges faced by small businesses. Cash flow problems are amongst the more common issues faced by
growing businesses. A study released in December showed that generating sufficient cash flow is one
of the biggest pain points of small businesses. In addition, entrepreneurs may find it challenging to
balance their business and personal finances, as well as learning how to budget. Cash flow is the
lifeblood of your business. To avoid problems related to cash flow, proper budgeting and
forecasting should be conducted. The challenge of exporting Any business looking at expanding their
market will face many challenges. Before you decide to expand abroad, make sure that you understand
international trading regulations. Find the right person to help you navigate international
regulations, foreign currency, and tax and compliance to ensure optimal business performance. To go
to the cloud or not  Cloudaccounting software made a buzz at the start of the decade, and it is
surely here to stay. Taking your financial and accounting data to the cloud has many benefits,
including having access to your financial information anywhere, anytime on multiple devices. Whether
you decide to go for cloud-based applications or not, what’s more important is that your chosen
solution suits your current needs. Nevertheless, it would not be wise to dismiss the value of the
existing cloud-based solutions in the market today  Tax complexity  For any entrepreneur who has put
up their own start-up business, there’s a huge learning curve when it comes to understanding tax and
accounting regulations. There are many factors that could affect these rules, such as volatility in
the political climate and shifts in markets and technologies. It only makes sense to hire a
consultant who will navigate the complex tax requirements; else, you’ll run the risk of incurring
fines or penalties for non-compliance. Finding the right talent As you scale your business, more
headcount challenges will crop up. If you have been spending more hours on production or marketing,
you could find it difficult to get a handle on your finances if you don’t already have a small
business accounting staff to help you. Important tasks such as filing business taxes and managing
your finances could be a challenge when you do not have the right resources to help you. One of the
ways to avoid this headache is by outsourcing your accounting functions.
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