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Success.9.Thmb.jpg Why SMEs fail - keep your eyes open

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Bikky Khosla | 21 May, 2013
Surveys and studies conducted across the world over different time periods provide compelling evidence that a vast number of small businesses fail in the first few years. Majority of failures occur in the first two years while only a handful succeed to complete their first five years. Expert opinions on why this happens vary, but overall most of them point out some common pitfalls into which small business start-ups easily tumble into.

First of all, lack of planning is the Achilles' heel. Recently, I talked to a struggling start-up entrepreneur who had started a small manufacturing unit a few months ago, investing whatever savings he had. Two months later when he was just getting ready to market his products, it came to his knowledge that he must acquire a specific license before that. So he approached the licensing authority, but now another bolt from the blue struck -- he found that meeting the requirements set by the license terms was not possible for him -- he had already spent all his money.

This kind of lack of planning is characteristic of our small businesses. My suggestion is that if you are considering starting up a business, do proper planning right from the beginning. Get yourself educated about every aspect of your new business, know the market and competitors involved, set goals, identify risks and prepare strategies to deal with them. Every small business must have a business plan, and it should revisit and revise the plan periodically.

Management is another area where small and medium enterprises lack. An SME owner usually has to wear so many hats -- CEO, accountant, human resources manager, purchasing manager, financial officer -- and in most of these fields he lacks adequate management skills, which in turn usually results in a number of mistakes, including poor time management, inadequate record keeping and financial controls, pricing mistakes, faulty hiring, and so on. To prevent these mistakes SME owners should  put utmost effort in acquiring the basic skills in areas where they want to involve themselves, and delegate or outsource the expertise they lack.  

Marketing is the heart of every business, but many small businesses don't take much care of it. This may sound a no-brainer, but you'd be surprised how often small businesses fall into this trap. Many small firms don't bother even to have a marketing plan; they don't do market research, underestimate value of existing customers, choose wrong or costly advertising mediums, put less or no emphasis on online marketing, don't follow up customers, don't track marketing return on investment, don't take customer feedback -- these are some common lapses.

I think many of the small business failures out there are preventable. Starting a business of your own requires you to prepare emotionally and financially, but this is not enough -- you also have to be extremely committed to its constant needs until it matures. Keeping an open mind and giving a close look at the common reasons of failure can help you jump the potholes. I request our readers to share their recommendations.
 
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load of taxation on sme to be reduced
Mukesh Mehrishi | Wed May 7 02:01:35 2014
sme's cant survive if they keep all deptt like big companies.Excise,service tax (small amount of gtt),cst,vat,professional tax,esi,pf so many other small issues.If you do a turnover of 1.40 crore not to go for excise you cant survive as your rawmaterial becomes expensive.Maximum man hour hour goes into taxation related issues.Labour shortages,no financial help whereas sme gives jobs to several people and indirect jobs to several people.One tax like world over, no c forms.Government should implement GST FASTER.ON TRANSPORT YOU PAY SERVICE TAX OF VERY SMALL AMOUNT WHICH WILL TAKE MORE MAN HOUR THAN THE TAX.


SME's don't know the initial formalities
Rajesh | Mon May 27 01:32:07 2013
its rightly said that most of SME's don't know the initial formalities. Apart from this most of SME's must have to set some small goals in initial days and try to achieve those goals. Once these achieved set another goal for a specified time frame. SME's must have to plan for money, time utilisation, and utilisation of all resources.


Why SME Fails
Na Raghu | Sat May 25 07:29:49 2013
Without knowing what is ahead, I find people start out business purely on emotional decision. People work in SME out of frustration - lack of motivation or compensation, start up similar line of business and kills the parent company by competing and lands up in trouble by working with wafer thin margin. The idea should be fresh and unique and have a USP for every start up with proper planning which will bring more success.


Finance & marketing
Gurudutt Pai | Fri May 24 15:03:55 2013
Finance & marketing are the main hitches for a SME start-up. Most of the successful SMEs are started by persons working in a larger organisation & got insider info on technology, raw material sources & buyers for the end products. With proper finance hand, such SMEs are generally successful as major hitches are avoided. The points listed in the article are true for most of the other SMEs. Indian SMEs could have had advanced comparable to that of China today , if the govt. in the past had laid more emphasis on helping SMEs get export oriented customers who buy Indian products & help in such transactions involving foreign trade , as the SMEs would be exposed to foreign markets. 30 years back I had put this up in a public SSI meet to Mr. N. Vittal, then advisor to the govt. The reply was "If you are doing the business & making profit why should the govt. help you" The technical support put up by the govt. was more useful to running businesses than for fledgling SMEs. I feel that if such a plan implemented when China was not even off the starting line, India could have captured the global market. Now most of the SMEs & even big companies just do small work in India, which is expensive elsewhere in the world. Most of the raw material is sourced from China & East Asian countries where export oriented manufacturing has been given support. The plan would also have had a multiplier effect as earlier SMEs having moved up the ladder, new SMEs would move in.


Red Tape
Sunil Tauro | Fri May 24 14:25:21 2013
To start a labour contract job, the authorities specify that we must have PF & ESIC. That accepted, but the minimum employees reqd. is 20 people for ESIC. That too pay 6 months in advance. Now for SME's that's absolute Nonsense.


Main problem - Finance
Sunil Tauro | Fri May 24 13:11:19 2013
The main problem is the finance part. I have 13 years of experience in "Facade Cleaning" or "Window Cleaning" work. Last two years I have started on my own. I even know where and how to get the workmen. But the main problem is finance. The clients will pay me after 30-60 days. For that period I will have to sustain my cash flow.


Role of the SME business owner
Ankit Taneja | Fri May 24 12:13:30 2013
It is very rightly mentioned in the article that a SME business owner has to wear hats of a CEO, Purchase manager, Marketing manager, Accountant etc. It is very important for a business owner to focus on areas like strategy, business development, cost reduction, preparing business plan etc and free himself from day to day work or ineffective areas, these need to be delegated to others. This will make life of the business owner easier as he will have free time to focus on key performance areas and also lead to growth of the business.


No time of creative work
Anil | Fri May 24 07:26:27 2013
Most of our times goes in to doing paper work for gov. VAT return, CST rerun , LBT return, monthly stock and debtors statement and every 3 month audited debtor statement in between handling income tax, sale tax and professional tax queries . No time of creative work. 

  Re: No time of creative work
Mukesh Mehrishi | Wed May 7 02:07:11 2014
you are very right, c form collection and if you don't get heavy penalty.You cant untrust your customer for c form but you never get in time.


Editorials helpful
sugumaran babu | Fri May 24 05:45:02 2013
Past year or more I had been following your articles for SMEs. No doubt they are important points not only for starters, but for all. I am a small shop owner at a remote part of India. Still I got lot to learn and also applied some of them by which I am benefitted, no doubt. Thanks to you and wish you to continue many more years.


SME fail
KIRTI P SHAH | Thu May 23 14:31:12 2013
Good Information which will help. 


SME Funding Solution
Karan Malhotra - kmalhotra@bibbyfinancialservices.com | Thu May 23 09:56:13 2013
Greetings for the day We, at Bibby Financial Services India Private Limited, provide funding solutions based on receivables of the company. It is called factoring solution. We strive to help MSMEs/SMEs even when banks are not supporting them. 1. Benefits to the company 2. Flexible funding solution 3. Niche focus – SMEs/MSMEs 4. Fast approvals 5. Funding based on receivables so bank line of credit is not disturbed 6. Get funding from 50 lacs to 5 crores. 7. Collections will be done on client behalf Visit - www.bibbyfinancialservices.in Or mail us for quick quote - indiasales@bibbyfinancialservices.com Contact 1. GURGAON Bibby Financial Services (India) Private Limited 121 First Floor Sector 44 Gurgaon 122003 T: 91 124 4675300 Fax: 91 124 4675310 2. CHENNAI Bibby Financial Services (India) Private Limited Suite No.316 Apeejay Business Centre 39/12, Haddows Road Nungambakkam Chennai - 600 006 Venkatraman P – 08681010111 Jacob Raphael – 09790844355. Board Line -044 2822 4949 Extn.3143 3. MUMBAI Bibby Financial Services (India) Private Limited First Floor, P&G Plaza, CTS-495 Cardinal Gracias Road Opp Chakala Church, Andheri East Mumbai 400099 Shruti Mahajan – 09920853309, Sandeep Routray 09545559616 - Board Number: 022-40868000 Our Corporate Profile and Presentation https://docs.google.com/file/d/0B7aY8eJRBJVjN2pVdjNCMktWNDQ/edit?usp=sharing https://docs.google.com/file/d/0B7aY8eJRBJVjcEZZZm5zbnVPMUk/edit?u


Start up should tie up before starting
Arun Poddar | Wed May 22 15:55:47 2013
I agree with the points describe. On such incident I would like to share is that when I started my unit I had tie up with one buyer who agreed to buy the whole production. And later I found more buyers and subsequently I increased my production and now have double the existing production. So i suggest one should definitely go for tie up before production. I will again come back with more realty . . .



S THIAGARAJAN | Wed May 22 15:46:28 2013
Business involves lot of activities but one or some do the all works we consider the points but we are unable to execute the system because lack of finance, workmen and so on


Why SMEs fail
Kimani Kagera | Wed May 22 14:50:27 2013
Some things never cross the mind of a SME proprietor especially if they are ''experts'' in their fields, yet that is a narrow view in comparison with the whole picture.


SME
KAMAL CHAUHAN | Wed May 22 13:24:24 2013
THIS EDITORIAL IS NO DOUBT A EYE OPENER I LIKED VERY MUCH


SMEs not sound financially to have all these studies
Rjaendra Mishra | Wed May 22 11:43:01 2013
It is very easy to comment from the outside that the SME FAIL DUE TO IMPROPER PLANING & MARKETING STRATEGY but the truth behind the story is the SMEs themselves are not so sound financially to have all these studies before starting a small scale business nor does able get the true statistics on the product before starting the new venture.From my experience in SME I am of the opinion that the nodal agencies set by the Govt should provide all the statistics for a small entrepreneurship for setting up a unit and also they should made accountable for the same.The other main cause for failure of SME is under & in adequate finance gave birth to a sick unit.


Skills
Raghunath | Wed May 22 11:41:35 2013
HR seems the most neglected field in SMEs. This field is taken for granted and results in high attrition due to poor HR practices, lack of training and sporadic wage hikes and salaries.


Training Institutes required:
Ragul Anand | Wed May 22 11:15:39 2013
The article rightly points all the causes that no one can deny, I request the author to provide more details in his next article regarding the training opportunities available in India, where one can get themselves prepared to face a start-ups (SMEs) race. Because in most of management courses, the content is all about dealing with the bigger projects & concerns.


Planning
Nishesh Agrawal | Wed May 22 10:21:31 2013
A good brief over all, but what's important is that how to be sure if the planning done is good enough?


Why SMEs fail
Samaila Mohammed | Wed May 22 10:10:18 2013
An excellent article and concise. One can think of many other reasons why SMEs fail but this article has summarized the main reasons adequately. A cause for optimism is that some research have found that those SMEs start-ups that survive the first 10 years usually endure. Still there is no room for complacency. The world is dynamic and changing: so must SMEs, also.


Risk Taking & Hand holding should be encouraged
Anand Pherwani | Wed May 22 09:42:52 2013
I agree with the views and have the following to add. RISK TAKING: Indians as a race are risk-averse, and it is the main cause of our poor rate of growth. Business by definition is a calculated risk taking ability (assuming all points mentioned by the author are adhered to) and even if 1 out of 10 business succeeds, it provides a multiplier effect for the whole economy. Hand Holding: We should incentivise risk taking by having easier and cheaper access to credit (main problems businesses close, they RUN OUT OF CASH), thereby helping to nurture businesses during their infancy (the way we would nurture our newly born child) and once stable, load the business to repay all its obligations.


A brief guide to initiate a SME
Jayesh N.Doshi | Wed May 22 08:34:38 2013
I totally agree with this article. To the best of my knowledge and experience for starting an SME it should be done phase wise as under (in brief): 1. Develop a concept for the product. 2. Do a market survey for the feasibility of the product. 3. Shortlist vendors for the product. 4. Check for the necessary licenses required if any 5. Work on the production cost and the expected retail(end user) price for the product Note: A retailer will promote your product only if he gets substantial margins 6. Arrange for the finances for the production line, and working capital 7. Develop a marketing strategy for the product.(including sales personnel) 8. Start production 9. Keep consultants specially for the taxation part (filing returns etc (Penalties can kill you) 10. Sell your product Regards giftss@gmail.com


Before you start
KRISHNA AGHORAM | Wed May 22 07:31:57 2013
Sir: You are right. I just read a report 2 days ago that 25% of the start-ups in India, and about 49% in the US succeed, and the rest drop out. These days we hear a lot about start-ups. Some over zealous youngsters believe that once you have a computer and good connectivity you can become another Mark Zekerberg or Bill Gates. We must promote a lot of mentoring by experienced hands. All the young entrepreneurs should go through a six month orientation course before they start anything. - KRISHNA AGHORAM


Appreciation
Mohamad | Wed May 22 07:21:07 2013
Thanks. It is full of noble pieces of advice.


Priceless advice
Paul H | Wed May 22 06:28:45 2013
This advice given is absolutely priceless - hits the spot every time. Even though it hurts it needs actioning by every SME.


I like your article
Vimal Nayak | Wed May 22 06:11:58 2013
I like your article. Will you please guide us on purchase of automatic plant for our SME unit? if yes than I will discuss in details with you.


Indian SMEs ignore consultants
Firdaus Kapadia. | Wed May 22 05:32:41 2013
I agree with your contention that the SME owner has to wear many hats and it is simply impossible for one person to have all that expertise. That's where consultants come in. Unfortunately Indian SME owners simply ignore their need for a consultant and this is one of the main reasons why foreign SMEs do better. In Western countries specialised consultancy for SME owners is very common and I have nearly 6000 associates who are accredited to do only that at a fixed monthly cost.

  Re: Indian SMEs ignore consultants
Pawan Naulakha | Fri May 24 13:28:51 2013
I agree hiring a consulting firm is a must to gain as much as experience before just launching your start up, but do start up's generally carry that FUND quota to shell out to their consultants? Rather I suggest the SME should focus on PR and networking, spreading a buzz about their brand as much as possible.

  Re: Re: Indian SMEs ignore consultants
Firdaus Kapadia. | Mon May 5 05:15:34 2014
The consulting firm should ensure that the SME's accounts show a benefit of over 200% of what they charged them for the Consultancy. If the SME does not have this pre-operative fund available then they could be in deep trouble pretty soon as no SME can generate profits from day one or have a positive cash flow soon after startup.


Red tape kills time
T K Chanana | Wed May 22 05:23:55 2013
Sir The pitfalls you have pointed out are quite relevant but there are dimensions to this.The apathy of officials, corruption at the hands of regulating agencies, power issuing/sanctioning authority, no confidence of the bankers and inadequate sanctioning of funds when it is required most in the initial period are also very important and pertinent. As you have rightly said the entrepreneur has to wear number of hats he is engrossed with number of jobs where as he is required to have lot of futile visits to the govt offices with not results adding to the problems is exploitation by the market forces.


Good Stuff
Vimal | Wed May 22 05:18:03 2013
AS I am also SME Owner, this article good in general, but many specific details need to discuss.


Gain experience before starting business
Rajesh Kumar | Wed May 22 04:45:16 2013
One of the root causes of one SME failing is overconfidence and no field knowledge. Prior to set up his own business/ manufacturing/ service industry, the entrepreneur should have gained 2-3 years of working or hand-on experience. This will make him aquatint with forthcoming problems as well as their way outs, customers behavior and how to deal with them without loosing temper. Once equipped with technique, one should enter his own Industry or business and chances of failure are minimum.


How to plan
Balakrishna | Wed May 22 04:39:05 2013
Planning is important. Next question is what are factors we should consider for planning. In SME the nature of Business is so Dynamic that it is very difficult to keep up with plan. So please help me in how we should plan.

  Re: How to plan
amit panchal | Thu May 30 10:17:29 2013
sir how to plan plastic recycling plant. 


Finance is also a big challenge
ASHRAFUL ISLAM MAHMUD | Wed May 22 04:33:00 2013
I just add, arrangement of finance is also a big challenge for SME's. Because there is no financial market targeting SMEs. Financial institutions also do not take them into confidence. So that they have to look for informal market where return on investment is very high.


Excellent analysis
Sundaram Bhanumoorthy | Wed May 22 04:23:28 2013
Excellent analysis. We are going to complete five years in LED Lights mfg unit. Whatever the points are discussed is 100% true. In spite of our efforts we still try to achieve the breakthrough. Recently we have appointed an agency to market our products. This article is to be forwarded to all the Public sector banks who are the leading lender for SME/MSME and they offer finance without asking for any collateral security. Finally if SMEs fail, the bank tend to lose all their money given to SMEs. Another reason for failure of SMEs is that funds are getting diverted and capital flow get stops leading to failures.


Complacency dangerous
K Narayan | Wed May 22 04:08:04 2013
I fully agree with what has been reported having personally experienced the rigor of surviving the first 6 years of launch of my company. In my case the pitfall was complacency that had set even before start due to my 25 long years of stint in automation industry. I strongly feel that having a good "core" team is essential for success. Additionally the directors / partners need to be carefully picked who already have requisite industry experience.


We all need solutions
Ram Prakash | Wed May 22 02:48:35 2013
We all need solutions which can be implemented by the SMEs. Most of the SMEs know the problems but getting the solutions -- either expensive or some other bottleneck?

  Re: We all need solutions
Firdaus Kapadia | Mon May 5 05:18:05 2014
If you opt for consultants trained to help SMEs then their fees should not be a problem.


Shortage of workmen
Jasween Singh Gujral | Tue May 21 18:07:59 2013
Hey everybody, We own a 250TPH stone crushing unit and provide metal aggregate F.O.R. destination and otherwise. We have to also deal with the unorganized sector especially drivers, mechanics and helpers. Lately, we have been facing troubles in finding eligible drivers and conductors. They often abruptly elope and go absent without leave for days, perhaps may never come back. This causes problems in supply ergo hampering sales and trust. The scene has become so dismay that new drivers have to be recruited weekly. This sounds simple but really isn't. They have to be fetched from different markets even their homes. I want to learn more about ways to maintain such staff and any other helpful advice in this regard. Regards, Jasween Singh

  Re: Shortage of workmen
Firdaus Kapadia. | Mon May 5 05:19:06 2014
Have you tried outsourcing this staff to a facility management company who would manage the manpower requried for your operations and also take off the statutory load from your shoulders.


Lack of planning of financials
Major Mukesh Tulli | Tue May 21 16:03:27 2013
Lack of planning of financials for operating the unit (Running Capital) is the backbone of any new unit and plays the basic role to make the unit success or failure.


 
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