Australian Small to Medium Enterprises - Term Paper Example

Report on Australian Small to Medium Enterprises (SMEs) Table of Contents 2.0 Executive summary 2 3.0 Introduction 4 4.0 About Australian SMEs 4 4.1 Nature 4 4.2 Number of SMEs 5 4.3 Characteristics 6 5.0 Factors that influence the success or failure of business 6 5.1 Success factors 6 5.2 Failure factors 7 6.0 Characteristics of successful entrepreneurs 7 6.1 Characteristics 7 6.1.1 Business image promoter 7 6.1.2 Good money manager 7 6.1.3 Technology compliant 8 6.1.4 Good masterly negotiations 8 6.2 Carolyn Creswell view on entrepreneurial skills 8 7.0 Business opportunity and framework 9 7.1 Nature of business opportunity 9 7.2 The viability of the business 9 7.2.1 The legal framework/structure 10 7.2.2 Core benefit of the product 10 7.2.3 Business’ competitive advantage 11 7.2.4 Financial overview of the business 12 8.0 Conclusion 13 9.0 References 14 10 Appendices 15 1.0 Transmittal letter With regard to the task assigned to me on Small to Medium Enterprises (SMEs) in Australia that required me to give a report on the business environment, nature, number and characteristics of Australian SMEs, factors for failure and success of enterprises and the characters that explain the best entrepreneur, I wish to submit my report together with the synopsis of my business that deals with outside catering service. The report has entirely summarized the business environment in Australia, the factors that contribute to business success as well as failure, characteristics of a good entrepreneur and the synopsis of my business choice together with its justification on viability. 2.0 Executive summary These businesses have created numerous employment opportunities for the unemployed Australians and therefore changing the lives of many people for the better. The service sector is one of the business sectors that have attracted quite a number of business interests with development of increasing numbers of start-up enterprises. The sector has continued to show incredible results in terms of numbers of business startups and realized revenues and as such is one of the reasons that have made this my choice of business interest. In this report I realized that there are several factors that contribute to the success of any enterprise which include allocation of adequate funds for the project, proper management of financial resources, use of a more efficient technology, economic environment, proper legal structures of the country, skilled and experienced human resource as well as a fair competitive market environment. Market surveys also play a crucial role in making a business a success. However, it is also notable that there other forces that can lead to failure in business which include inadequate funds, poor management skills and inadequate market research. For any business to succeed there must be some driving force and this force comes from the entrepreneur himself who is expected to play a vital role making the business a success. Some of the characteristics that are associated with a good entrepreneur include image promoter, good financial manager, imaginative and creative as well as good negotiation skills. The business I chose is one that is charged with offering outside catering services. This choice was based on the observation that there is an increasing and ongoing need for these types of services. There are always functions which require catering services such as weddings, birthdays, conferences and seminars. In addition, over the past few years, there have been an increasing number of international business conferences. The cost for commencing the business is approximately 1.5 AUD. This cost has been reached after factoring in all cost areas for the start of the business. 3.0 Introduction Entrepreneurship is one of the key areas of any given economy. The numerous advantages it carries include revenue generation through payment of taxes and creation of employment for the jobless people who wish to make their career in enterprising. This report is aimed at giving a general view of the business environment in Australia for possible sponsorship by Ms Irene Cando who is a retired business lady from Canada. The report will summarize the key factors that influence the success or failure of business, the nature, number and characteristics of Austrian SMEs, the requirement for successful entrepreneurship as well as the legal framework that regulates entrepreneurship apart from giving the financial estimates for the start of the business (Timmons & Spinelli 2004). 4.0 About Australian SMEs 4.1 Nature Australia is a developed economy which has for a long time relied on several business ventures running from private owned corporations to state corporations. SMEs have also played a great role in developing the country’s economy. The economy’s SMEs businesses include retail businesses, wholesale, franchise, ICT, construction and manufacturing as illustrated by Schaper & Volery (2011). Since the onset of enterprising in Australia there have been numerous challenges that effect negatively on the performance of small businesses. Most of the small businesses fail or are rendered meaningless because it is difficult to survive the kind of business environment in which they must sometimes operate. However, with the establishment of the Department that is responsible for managing small businesses notable growth has been witnessed whereby several businesses have been started including those owned by families, communities, societies, franchises, service industry businesses such as Information and Communications Technology ICT and products dealers. The SMEs in Australia are evenly distributed throughout the country and they handle a number services and products which include processed goods from industries and from agricultural firms as stated by Timmons & Spinelli (2004). 4.2 Number of SMEs SME businesses in Australia have continued to grow significantly over years. According to the report produced by the Australian Bureau of Statistics in 2009, it was revealed that there are more than 2 million businesses across the county whereby about 85% of them are owned by individuals. According to this report entry into business in the country stands at 20% per year which is believed to be the same percentage of those businesses that exited in the 2007/2008 financial year, and therefore leading to stagnant growth of business in Australia during that year. By June 2009, it was also reported by the Australian Bureau of Statistics that 30% of the businesses were inactive. However, the Australian Bureau of Statistics (ABS) data has continued to reveal consistent growth in various sectors of the economy which includes the property and the service sector, retail industry, construction and primary industry. Many of these businesses are home-based as argued by Weaven & Frazer (2005). Table 1.0 summarizes the statistics from the ABS for 2007 financial year. Type of business Number of employees Number of businesses Percentages Micro-businesses 0-4 1,699,277 84.5 Small businesses 5-19 228,313 11.3 Medium-sized 20-199 78,304 3.9 Large enterprises 200+ 5,876 0.3 Total 2,000,000 100 Source: Australian Bureau of Statistics, 2008 (Frazer, 2008, p. 90) From the table above it is clear that the Australian SMEs are mainly micro-businesses with approximately 85%, while small businesses entail 11.3%, medium-sized 3.9% and finally large enterprises contributes about 0.3% of the SMEs in the country. This can be associated with general difficulties encountered when starting and running large businesses in terms of capital and management difficulties as well as compliance issues with the many legal requirements. 4.3 Characteristics In Australia, SMEs are mainly privately owned and constitute a large percentage of the country’s businesses. Some of these businesses are owned by individuals, families, society groups, communities and even the state itself. The SMEs in Australia can be characterized by their diversity in the business they undertake. Some of them engage in agricultural related business activities, processing, manufacturing and merchandizing. It is notable that many of the businesses are run and managed by individuals who don’t have formal skills; this is something that has led to a number of many businesses collapsing soon after their establishment. Like other SMEs across the world, Australian SMEs are financially constrained, and their expansion is limited to the amount of capital resources accessible to the individual. This is because access to credit facilities from financial institutions like banks is limited due to tough credit requirements that must be met before getting business loans as considered by Timmons & Spinelli (2004). 5.0 Factors that influence the success or failure of business 5.1 Success factors The main agenda that makes any entrepreneur go into business are because of the benefits which can be realized after engaging his resources. In this case the entrepreneur is interested in making profits a part from making this engagement his career. However, for an entrepreneur to ensure that his business is made a success, a number of things must be fulfilled which include: proper management of financial and human resources, undertaking adequate market surveys, and planning and being focused. Management of financial resources is a critical responsibility for any business. This is necessary because it helps an individual to do proper allocation of resources to various functions of the business. Human resources (HR) play a vital role in any business since they are the ones who are expected to execute the functions of the business, and therefore both their experience and skills must be considered. Any successful business must be one that is consistent with the market conditions. Market surveys aid the business to identify and provide for that need with the most appropriate service or product. Other factors that contribute to the success of the business include the market competitors, legal factors and economic factors as argued by Frazer & Wright (2008). 5.2 Failure factors Any given business is subject to fail if a number of things are not done. Inadequate capital to start and run the business, in most cases, amount to the biggest percentage of those factors that contribute either to the success or failure of the enterprise. An inadequate finance for the business means that the business cannot be able to pay for its daily expenses. The undercapitalized business is subjected to so many debts that it can easily be lead to early failure and subsequent closure. Businesses are expected to do frequent market surveys to inform its daily operations. However, the challenge to most businesses is failing to adhere to the market survey reports which make the business to be irrelevant in the market place. Lack of management skills can also contribute to business failure. Managerial skills are important in any business since they can be used to make informed business decisions as argued by Frazer & Wright (2008). 6.0 Characteristics of successful entrepreneurs 6.1 Characteristics 6.1.1 Business image promoter A successful entrepreneur is the one who is always on the run to positively frame the image of the business in order to create a lasting impression among his customers. He must always make an effort to create and project a professional business image that will have an impact in influencing customers’ purchasing decisions. This requires one to be imaginative and creative in creating an environment that is impressing to the customers by paying attention to business activities as argued by Hutchinson & Forsaith (1993). 6.1.2 Good money manager Continuity of a business is depended on how well its cash flows are managed. A good entrepreneur is the one who always knows when to order inventory, incur cost, buy equipment, market the business and pay the employees. All home based entrepreneurs must ensure that there is constant flow of cash and that all bills are settled on time to reduce the burden of debts (Hutchinson & Forsaith, 1993). 6.1.3 Technology compliant Successful entrepreneurs are always aware that technology is changing. The aware business owners take the necessary steps to ensure that their technology is up to date. This enables them to use technology to their fullest advantage. They take full advantage of ever changing technology (Frazer & Wright, 2008). 6.1.4 Good masterly negotiations Making business deals is believed to be one of the major skills that any entrepreneur must have, and therefore good masterly of the skill is essential. Good negotiation skills help business people to make deals and close sales thereby getting returns from their business engagement. These skills help business guys to reach win-win business deals that leave both the customer and the entrepreneur satisfied as stated by Frazer & Wright (2008). 6.2 Carolyn Creswell view on entrepreneurial skills Carolyn Creswell is a great entrepreneurial lady in Australia who believes that good entrepreneurial skills can do wonders in the world of business. According to Carolyn Creswell, entrepreneurs must always be ready to think hard and outside the box. Carolyn Creswell was once quoted saying she does not have no for an answer but always a risk-taker. Opportunities must be recognized and then actualized by use of informed and brilliant ideas. Carolyn Creswell is of the view that an entrepreneur must be able to balance business career with life issues such as taking care of and providing for the family. Patience and persistence are key factors for one to succeed in business meaning that all entrepreneurs must be able to understand that businesses need not to make money from the first day. On her general view about entrepreneurship, one must be able to balance both work and home life as argued by Holmes & Hutchinson (2003). 7.0 Business opportunity and framework 7.1 Nature of business opportunity Outside Catering business has not been fully exploited in Brisbane hence the great potential in terms of investment. In order to meet my entrepreneurial goals, I decided to choose the Outside Catering business that will offer catering services for its customers who are within the city of Brisbane and its environs. I chose this kind of business based on information obtained through extensive market research. During the market survey, it was discovered that this kind of business has not been fully exploited, and there are many more opportunities. The main agenda of my business is to provide world class outside catering services in order to meet the catering needs of customers who hold various ceremonies. The target market includes the wedding functions, birthdays, conferences, seminars and cocktails. Our intention is to come up with a strong business model that will allow us to reach a bigger market and to capture as much market share as possible (Weaven & Frazer, 2005). The main aspects that the business will deal with include excellent services, quality and speed of operations. My business intends to link with a few existing businesses that are operate within the same line in order to gather information about the market and determining the possibility of expanding my business to other cities including across borders in a decade’s time. I intend toll diversify the business in order to fully personalize service delivery as long as it is legally acceptable. The business has the agenda of coming up with standard menus that will meet the needs of different customers, including those who are not Australian nationals, purposely to meet the demands of the international conferences that are always held in Australia as illustrated by Weaven & Frazer (2005). 7.2 The viability of the business 7.2.1 The legal framework/structure The legal framework refers to those regulations that have been put in place in order to manage the process of registration and establishment of businesses within the country. Each kind of business is founded on its own laws that must be followed before its formation and official operation. SMEs are divided into three broad categories: namely the sole proprietorship, partnership and companies. Sole proprietorships are formed and owned by single persons who in most cases assume managerial roles of the business. The main challenge to the sole proprietorship is that it is limited to small amounts of capital, and therefore they are limited in expansion. Continuation is also not possible in the case of the owner no longer being able to run the business because of some reasons such as disease and even death. Partnerships, unlike the sole proprietorship, are owned with two or more people who come together in order to pursue a common agenda. However, like sole proprietorships, partnerships are limited to resource mobilization and limited liability. Given the above circumstances, it is justified that my business will be registered under the Company’s Act. This Act is the only legal framework that can allow the business the continuity it deserves apart from setting the foundation for mobilizing enough capital resources and its clause on limited liability (Weaven & Frazer, 2005). In addition to this law, in Brisbane, the law on SMEs is reaffirmed whereby the licenses for operating businesses have been categorized according to the type of business that is being registered; that is, operating licenses as well as occupational licenses. Given this legal requirement, my business is expected to apply for the operative business in order to avoid any punishment by the state by denying it the revenue that it is expected to generate from licenses. 7.2.2 Core benefit of the product Philip Kotler classified the product into three major levels including core product, actual product, and augmented product. According to Kotler, a customer chooses a product based on its perceived value. Satisfaction can be viewed as the extent to which the real use of product is equivalent to the perceived value during the time of buying. A customer becomes satisfied when the actual value exceeds or becomes equal to the perceived value. Core product involves the core service or product that provides the core benefit to the customer. This is quality of the services provided. Tangible product involves features, quality, styling, and packaging of the product. Augmented product on the other hand involves delivery & credit, installation, after sale service, and warranty. The core benefit of my business will be to offer high quality and excellent services to the clients. This is through ensuring the services provided are on time and up to their expected standards. The objective of the business is to ensure that the quality of its services offered to the customers is the best in the market place. This is accomplished by understanding customer needs and delivering on those needs, exactly what the customers’ demand. We intend to offer more than just catering services by valuing the customer money and tastes. The tangible product will involve proper packaging, and quality. Hygienic conditions will also be taken into consideration as well as the nature of the tangible product. Apart from offering outside catering services, the business is aimed at building a very strong brand identified by high quality services that exceeds the taste of the day. This could be achieved by offering product features that will have a competitive advantage over the competition. My business will offer safety assurance and health measures that will convince the customers that our servings are not only safe, but exceed acceptable standards. The business has taken into consideration all the cost factors as one way of coming up with the most affordable prices for the company products according to Timmons & Spinelli (2004). 7.2.3 Business’ competitive advantage For the purpose of gaining competitive advantage in the market place, I have developed a guiding question: ‘what can we do best in order to outshine the competitor and make the customers prefer our products as their first choice?’ Having this in mind, the business has to develop a unique selling proposition by bringing all the aspects of the business together in order to check on the best combination that will enable the business to be more competitive than the rest as illustrated by Waldron & Hubbard (1991). Given that outside catering services are businesses that operate with orders from the customers, it is to the business’ advantage to realize the element of cost and how it can be reduced by contracting employees who work for the business. The business will hire its employees who will work for the business only on short-term basis especially during high seasons, thereby doing away with those costs that can be incurred when employing the workers on a permanent basis. Cost savings will then be translated to the customers by providing them high quality services at more affordable prices than the competitors (Waldron & Hubbard, 1991). The business will also design its strategy in such a way that it can be able to offer 24 hour services so as to make the business more flexible to the customers. By providing a variety of services for selection by the customers, protecting customer confidentiality, providing a variety of payment modes such as cheques, cash and credit cards, the business will be more accommodating to the majority of the customers apart from offering better return procedures, customer service delivery and better exchange policies (Waldron & Hubbard, 1991). 7.2.4 Financial overview of the business In order to start this business, a number of cost areas have been identified as part of the process of developing an appropriate plan for business commencement. The first cost that is inevitable is registration fees that will allow the business to be allowed to legally operate. The other costs that will be incurred include labour costs such as the salaries and wages for the employees, office rent which are expected to range between $500 and $720 per month, and other related costs such as utilities. Utilities include water bills, electricity bills and security services which add up to approximately $2000. The business office is also supposed to be well equipped with various facilities that will allow the business to operate conveniently. Equipment costs include such things as computers, fax machines, internet, and furniture such as including tables and chairs (Waldron & Hubbard, 1991). Apart from establishing the business office, the business requires that some kitchen machines need to be purchased. Kitchen machines are needed because they are part of what is needed to prepare food and beverages. The business is also planning to conduct more research on the available opportunities in the other parts of the country in order to determine the expansion possibilities of the business. This has created the need for the business to have in place, a budget for advertising through internet web sites, business magazines, exhibitions and tradeshows as a way of reaching the wider market which would otherwise be forgotten. Finally, the business considered training of employees as vital to ensuring that the workforce is skilled and has the necessary experience to offer high quality services. The business cannot operate without keeping proper record for business transactions. It was decided for the initial startup of the business, that a number of business use documents such as invoices, quotations and catalogue books, must be printed. After all, taking into consideration all these costs and the start-up cost, it is approximated that required start up costs for the business will approximate 1.5 million AUD to start (Waldron & Hubbard, 1991). 8.0 Conclusion The report on Australian SMEs, as indicated in the introduction, is to give the investor, a wider view of the country’s business environment with regard to SMEs. It is evident that in Australia, entrepreneurship is real and has contributed enormously to building the economy. However, SMEs are faced with a few challenges here and there including the difficulties of raising enough resources to sustain and expand their businesses. The legal framework is wide and varies from one state to another, thereby making it difficult for small businesses to expand to other states. The cost of starting new businesses is also high in terms of mobilizing resources for startup capital, therefore hindering many people from enterprising (Weaven & Frazer, 2005). 9.0 References Frazer, L., Weaven, S & Wright, O 2008, Franchising Australia 2008 Survey, Asia-Pacific Centre for Franchising Excellence, Griffith University, Brisbane. Holmes, P & Hutchinson, D 2003, Small Enterprise Finance, John Wiley & Sons, Brisbane. McMahon, R., Holmes, S., Hutchinson, P & Forsaith, D 1993, Small Enterprise Financial Management: Theory and Practice, Harcourt Brace, Sydney. Timmons, J & Spinelli, S 2004, New Venture Creation: Entrepreneurship for the 21st Century, Mc-Graw-Hill, Boston. Waldron, D & Hubbard, M 1991, Valuation methods and estimates in relation to investing versus consulting, Entrepreneurship Theory and Practice, Cambridge, Cambridge University Press. Weaven, S & Frazer, L 2005, Current status of franchising in Australia, McGraw-Hill Australia, North Ryde. Schaper, M & Volery, T 2011, Entrepreneurship and small business, John Wiley & Sons, Milton, Queensland 10 Appendices Table 1.0 summarizes the statistics from the ABS for 2007 financial year. Type of business Number of employees Number of businesses Percentages Micro-businesses 0-4 1,699,277 84.5 Small businesses 5-19 228,313 11.3 Medium-sized 20-199 78,304 3.9 Large enterprises 200+ 5,876 0.3 Total 2,000,000 100 Source: Australian Bureau of Statistics, 2008 (Frazer, 2008, p. 90 ) Read More