Discuss the challenge facing small business in Australia in the twenty first centuryDefinition of a small businessABS (1995, 1996) defines small business as a privately owned and managed profit-oriented enterprise that may be a limited company by virtue of partnership or family owned company by virtue of sole proprietorship. ABS (1995) indicates small business employs less than 20 employees. Small business Reports (1993:26) argues a business entity with less than five employees is known as a micro-business and is classified as a small business or a small-micro-enterprise. Scott and Bruce (1987:45-52) and Eichinger and Ulrich (1997:50-61) argue that small business grows in phases.
Gibbs and Davies (1992:3-35) have indicated that the phases of growth of a small business are governed by owner’s management skills, owner’s ability to strategize and adopt customer changing product preferences, geographical location of the business, level of income of the customers and degree of applied leadership skills. Shuman and Seeger (1986) argue that the phases of the growth should be planned before they are implemented subject to proportions of training on management skills of the owners. Economic benefits of small businessesHerzberg (1987:38-46) argues that small businesses economically add to gross domestic product (GPP) through internally or externally consumed or produced products and services.
Haapanieni (1996:4-18) argues that small businesses assist in generation of government revenue through sales of business permits and taxes. Fowler (1994:34-37) indicates that retired workers are able to setup micro-businesses that help to reduce high dependence ratio among the working class as small businesses provide employment opportunities and are a form of investment. Bakke (1992:74-82) provides that small businesses create employment directly or indirectly. According to Bakke (1992:74-82), small businesses directly employ workers who earn income and therefore alleviate standards of living.
Drucker (1955) shows that small manufacturing businesses provide market for raw materials that are provided locally as well as market for imported raw materials. Losey (1998) indicates that small businesses provide market for machines like cash registers that are required for tax registration and are vital tools for financial reporting as they show sales turnover of the firm which is essential in tax calculation of the business. Barney (1991:99-120) shows that small businesses indirectly provides employment opportunities and market to service and tertiary sectors of economy like insurance, transport and contribute towards urbanization and development of amenities like entertainment facilities, schools, health and shopping centers.
Haapanieni (1996:4-18) argues that exports of goods and services produced by small businesses earn Australia foreign exchange hence contributing to government revenue. Success factors of small businesses Sibely (1998:8) indicates that although small businesses are easy to start, due to low capital inputs, they face many challenges as they grow and develop into medium and large business entities. McKee (1997:151-156) and Churchill and Lewis (1983:30-50) indicate the biggest challenge as undercapitalization which is brought about by poor forecasting of the business phases of growth and business life cycles, poor planning both financial and human resource as opposed by unfavorable economic conditions outlined by Burke (1997:71-79).
Marlow and Patton (1993) and Deshpande and Golhar (1994:49-56) show that small businesses are at risks of being exposed to insolvency conditions due to poor financial planning that may result into managers being declared bankrupt and sued in bankruptcy courts according to the theory of undercapitalization.
Rowden (1995:355-373) indicates that small business entrepreneurs should have enough capital to start and run the business for a period that the business will attain a financial position when the business can afford to pay allowances to its owner(s). credit insolvency that is sweeping across the globe has also reduced borrowing potential of small businesses as they cannot be lend money by banks making small businesses to initiate downsizing that is characterized by lack of human resource procedures.