What are Small Business Problems?

What are Small Business Problems?

 All businesses no matter small or big will face problems in certain times. This problem arises from inside and outside a business. Problems stemming either from within or from outside has strong reciprocal effect and if it is not controlled, will destroy a business.These problems have two main aspects:

 1. Specific problems for a business in an economic environment that is registering real growth. This issue involves new businesses trying to gain a foothold in an industry and business who are trying to maintain its position as a result of competition arising. This problem is often related to management and marketing issues.

 2. Problems arising in a grim and / or less favorable economic environment. The problem is due to the external factors that can not be controlled by a business. These external factors include circulation of the world economy and political factors.

Small business problems can be viewed through three perspectives:

1. Problems lacking business capital

This problem has a close connection to cash management problems. The problem of lack of turnaround capital arises from several sources:

a. Unprecedented credit sales practices

b. Stock management of raw materials of unscrupulous sales items causes cash to be tied in stock

c. The absence of credit facilities from suppliers or tenderers

d. The timing difference between the beginning of the withdrawal process and the timing of cash receipts for sales has already been made

Credit sales have become a practice in the business world. Businesses that are just starting out often face the dilemma of whether to grant a credit facility or obtain a small subscription. Small businesses need stocks of certain quantities of goods as an attraction especially for the retail industry and this requires a large round capital.

In the manufacturing industry, the special needs of industries requiring raw material order made in a certain time and the quantity of the purchase cost. The ability to obtain credit facilities from suppliers or tenderers may reduce the capital loads. This credit facility is rarely earned by a small start-up business.

The time factor between the payment time of the expenditure to start the production process and the timing of receipt for the already done sales is one of the problems often faced by small traders. The current problem is closely related to the practice of giving credit to the customer and the conditions set by the supplier.

2. Marketing issues

The problem of small business marketing is always linked to the fierce business problems that arise in an industry. By scanning the market in Malaysia is divided by race and way of life. This competition exists especially in the food and beverage industry for bumiputera small producers. The food and beverage industry, for example, was monopolized by large and non-Bumiputera companies. For example the beverage industry is dominated by F & N, Yeoh Hiap Seng and Nestle.

In addition, small traders express the difficulties faced in marketing their output through existing marketing channels. This problem may arise from the perceptions of small traders who consider more profitable gains by carrying out their own marketing work without going through the middlemen. Small producers rarely present technical questions such as quality and packaging as a source of marketing problems.

3. Location problem

In the business world, location is very important and a good or strategic location is very limited. The struggle for this strategic location depends on financial and business politics. Most small traders voice the problem of obtaining strategic places or locations as the main reason why their business performance is less favorable. This location or business location problem is one of the factors that are related to marketing performance. Location problem is a major problem of small businessmen in urban areas.

Financial institutions in particular commercial banks, leasing companies and financial companies have different views on business sector problems identified by these financial institutions are:

a. Less experience factor

Financial institutions put the experience as one of the variables that will determine the success of a business project. Experience here includes technical and management fields. Commercial banks rarely give loans to new entrepreneurs without studying the capabilities and capabilities of each application. Commercial banks are more focused on past experience before approving a loan application.

b. Performance of work quality

Performance of work quality is very important to the manufacturing and services sectors. The quality of manufactured goods or services depends on the competence and capabilities of employees and management of a company. Most small businesses only have one or two skilled workers in the operating section. Performance quality of work is what will cause problems in particular to review marketing opportunities in the past.

c. Neutral management

Financial institutions that act as lenders focus on financial management, especially in the management of working capital. Small businesses with small start-ups face great problems in managing round capitalization. Any delay in the receipt of cash will affect the running of the business. In addition, any delay in the payment of debts to be paid will affect the relationship with the supplier.

Businesses that are in the early stages, especially in the first three years often face a shortage of capital rounds due to poor cash use. For example, A who opens a petrol station for two years already uses some of the profits to invest in an entrepreneurial transport project. Delay of return of the investment projects and the emergence of unexpected expenses in the business of running a lead in a tight spot.

In addition, financial institutions are looking to stock management because it directly affects the cash position in a business. The stock management issue is often experienced by a new business that has not been experienced.

The government's perspective or views on the problems faced by the small business sector can be viewed from two sources, namely government agencies involved in determining and forming trade and industrial policies and agencies that are directly related to entrepreneurial development. Small business problems identified based on research and aggregated data from relevant agencies and government bodies. For example, information on bumiputera wholesalers can be obtained from the reports of the Hearth which is now known as the Contracting Association.

Among the small business sector problems identified are:

1. Marketing

Small business marketing problems arise as a result of great competition in markets divided by racial diversity. This atmosphere is complicated if an industry is considered an easy-to-use industry. For example most new entrepreneurs in the food industry are able to work on the industry to make soy sauce, yellow mee or bread.

In addition to competition issues, there are also problems with marketing channels. The problem of marketing channel system arises because first, small traders especially Bumiputeras do not get shadows under this system and second, due to the attitude of doing their own marketing work. The problem of marketing channel chain is a problem that stemens economic development among Bumiputeras.

Another marketing problem faced by Bumiputera entrepreneurs is the problem of price competition with other traders. The information obtained shows the cause of the problem arising from the price offered by the suppliers. This problem has long been known and still exists today.

2. Business location              

This problem is often faced by new entrepreneurs. New entrepreneurs have no experience in choosing a business site. Usually the decisions are made based on the advice and experience of long-standing traders.

New entrepreneurs usually take the rental cost of the building or site first when assessing and determining the location of a business. Factors customer potential and the good name of a place was rated after assessing the cost of rent or place of business is situated less direct impact on the performance of a particular business subscriptions cost implications.

3. Performance of work quality

Government agencies, especially those involved in standardization work and research have the same views with financial institutions regarding the quality of work in the sector of small-scale manufacturers. The performance of this quality of work is a result of limited capacity among small manufacturers to carry out research work that requires a large amount of spending.

4. Business capital financing

Government agencies involved in entrepreneurship, particularly in the areas of training and consultation, such as the Malaysian Entrepreneur Development Center (MEDEC), National Productivity Center (NPC) and MARA, raise business capital financing as a source of small business problems during or after the business began. This problem led to a lack of capital round problems. Often the amount of capital requirements identified and planned by entrepreneurs is found to be inadequate as businesses begin.

The problem of business capital financing is a dilemma for new entrepreneurs. The shortage of assets that can be used as collateral and the convincing ability of the guarantor is a barrier to obtaining loan facilities from financial institutions. In addition, the absence of potential alternative institutions in the surrounding community also causes capital financing problems in the business to be a dilemma.

What is the Support Scheme Required by Small Traders?

The experience of government and financial institutions recognizing and understanding the problems faced by the small business sector in Malaysia enabled these institutions to submit support schemes to develop the small business sector.

In Malaysia, the government takes a major initiative in assisting the small business sector. The role of the government can be seen through the establishment of a special ministry namely the Ministry of Entrepreneur Development previously known as the Ministry of Public Enterprises and a statutory body of SMIDEC or Small Business Development Corporation under the Ministry of Industry and Commerce of the Rural. These two institutions are responsible for forming monetary and tax policies to streamline support systems to small and medium businesses. The support assistance provided imposes certain conditions for the purpose of guaranteeing the effectiveness of a scheme offered. These conditions may be in the form of guarantees and experience in business or targeted economic activities that are given priority by the government.

Generally, support assistance provided by financial institutions and the government can be divided into four parts:

1. Business and marketing opportunities

2. Financing and financing facilities

3. Consultancy Service

4. Entrepreneurial training scheme

5. Research and development (R & D)

Assistance in the form of business opportunities and marketing is given through government agencies and agencies. Business opportunities and marketing are divided into two stages:

1. Ranking in a country

2. International level

At the domestic level, there are specific concepts to help small entrepreneurs get business opportunities. The agencies and government agencies involved with this umbrella concept are the Contractors Association previously known as PESAKABUMI under the Ministry of Works, Majlis Amanah Rakyat or MARA through Available Wood, Ministry of Trade and Industry through Bumiputera Participation Unit, FAMA, Bank Pembangunan Malaysia Berhad through Besta Distributors and Prosper through the Ministry of Entrepreneur Development.

Internationally, business and marketing opportunities are conducted by MATRADE or International Trade of Malaysia. MATRADE through its chain of trade commissioners worldwide including in several European countries, the United States, South America and the Middle East, East Asia and South East Asia provides information on international import and export opportunities.

Financial financing facilities for fixed capital and business turnaround capital are provided by certain financial institutions and agencies and government bodies. Financial institutions comprise commercial banks, finance companies, leasing companies and factoring companies. The companies and banks wholly owned by the government that carry out the business of borrowing are defined as financial institutions. The companies involved are MIDF or Malaysian Industrial Development Finance and Development Leasing Sendirian Berhad. Banks that are related is the Agricultural Bank of Malaysia Berhad, Industrial Development Bank, Bank Bumiputra Malaysia Berhad, Sabah Development Bank and Bank Pembangunan Malaysia Berhad.

Bank Islam Malaysia Berhad is also involved in providing financial facilities to the business and industrial sectors to further strengthen banking and business operations as a whole. Financial institutions provide eight main facilities for business use:

1. Bank overdraft

2. Leverage Loan

3. Special Loan Scheme (CGC)

4. New Investment Fund

5. Accepted Account Discounted Facility

6. Letter of Credit

7. Lease Tax

8. Hire Purchase

The bank overdraft facility allows businesses with current accounts in a commercial bank to issue checks exceeding the actual deposits held in their current account. The allowed limit of the overdraft amount is subject to the customer's record with the bank concerned and the bank's discretion. Under certain conditions the banks impose collateral requirements for overdraft facilities. This facility can be used to finance turnaround capital. Bank overdrafts are limited to RM50, 000.00 Typically, banks require collateral from a new applicant. Benefits imposed based on daily overdraft balances.

This timely lending facility is provided by commercial banks and finance companies and these are the normal loans issued by the institution. This loan is subject to interest and requires collateral. The loan term is between 1 and 5 years. This Special Loan Scheme is a financial facility dedicated specifically to the development of the small business sector. The scheme is organized by the Central Government and is fully controlled by the Credit Guarantee Corporation. Under this special loan scheme, seven facilities are offered:

1. Small Enterprise Guarantee Scheme between RM 10 000 to RM 50 000.00. Loan period is between 1 to 5 years. The interest rate charged is a basic loan interest rate plus 1.5% per annum.

2. New Main Guarantee Scheme. The scheme is dedicated to promoting growth in the manufacturing sector and the priority sectors of the Malaysian Government.

3. Guarantee Scheme For Non-Interesting Banking. The CGC provides lending guarantees under the Islamic banking system offered by Commercial Banks with special Islamic banking counters.

4. Eligibility Guarantee Scheme. The scheme provides loans to entrepreneurs under Small and Medium Entrepreneurs Fund (TIKS), Small and Medium Entrepreneur Recovery Fund (TPIKS), New Entrepreneur Fund (TUB), and Fund for Food (TUM).

5. Integrated Warranty Scheme. The scheme is dedicated to iron, plastic, electrical and electronic, pharmaceutical and pharmaceutical-based sectors.

6. Direct Routing Guarantee Scheme. Under the Scheme the application is made directly to CGC. Sectors that can apply are manufacture, assembly and processing of products, export import activities, repairs and franchises.

7. Youth Development Fund Fund Fund. The fund is aimed at helping youths venture into business.

The New Investment Fund is a loan facility for the business and industrial sectors. This facility is offered by commercial banks with low interest rates compared to regular loan interest rates. The scheme is launched and controlled by Bank Negara Malaysia.

Discount Accounts Receivable is a facility which banks buy all the bills on credit sales from customers by discounting at a certain rate. Only certain commercial banks like Maybank Factoring offer this facility. The discounted rate depends on the possibility of the bank recovering all the debts. This facility can help overcome the problem of round capital in business.

This Letter of Credit (LC) is a facility provided by the Commercial Bank with advanced payments to overseas exporters who claim payment from importers in Malaysia. The bank will charge interest and service charges by time period requested by the customer. This facility is used by importers of raw materials and merchandise.

Financial institutions, especially tax leasing companies, provide tax lease facilities for businesses wishing to use machines without them. This facility avoids the much needed business money in the daily deal rather than being tied up in assets such as machines.Payments under this lease facility are monthly and the amount paid is less than the amount in accordance with the hire purchase method.

This hire purchase facility is paying customers monthly gradual buying an asset. The ownership of the asset is jointly demanded by the finance company and the customer as long as the installment payment has not been recovered. The interest rate is charged on the amount borrowed to buy the asset. This facility is used by customers who wish to use and own an asset but have no money required to buy in cash.

Financing facilities by the government through agencies and certain Ministries provide alternatives to small entrepreneurs to find funding sources. The ultimate agency is the People's Trust Council. The Ministry involved in providing business financing facilities is the Ministry of Youth and Sports and the Ministry of Rural Development. MARA provides loan facilities to bumiputera entrepreneurs for fixed capital and revolving capital. This lender is subject to certain conditions and the loan limit is set to RM 250 000.00. The Ministry of Youth and Sports provides facilities for financing business capital under the scheme of its Youth Plans scheme. Loan limit of up to RM 30 000.00 is offered according to the viability of the project implemented.

The Ministry of Rural Development provided financing facilities to develop the village industry. The facilities offered are to finance the purchase of fixed assets such as factory building machines.

The establishment of the first Islamic Bank in Malaysia in 1984 brought a broader perspective on the financing of financing in business or muamalat. Financing in Islam consists of three main methods that can be used in business and industry ie:

1. Mudharabah or Profit sharing

2. Musyarakah or Equity Participation

3. Al-Bai Bithaman Ajil or Deferred Assets or Murabahah Financing

4. Al-Ijarah or Lease taxes

5. Al-Ijarah Thumma Al-Bai or lease with option to buy

6. Al-Qardh Al-Hassan

Method murabaha is a financial institution or body how to prioritize payments to the customer for fixed assets such as industrial lots. Client must pay by installment to the party that has already paid the payment ie the financial institution or the institution. The amount of money payable by this installment is determined by the division of the amount of the financing with the repayment period. Total financing is obtained by adding the value of the asset at the time purchased with the profits that the bank has set. For example the market price for an industrial lot is RM 500 000.00. The bank will make a profit of 5% per annum on RM 500 000.00, if the period selected by the customer is 15 years old. In the purchase of assets such as machinery subject to depreciation, calculations based on the benefits to be obtained for the assets used to produce the results. The number of installments payable is RM4, 861 per month.

The mudharabah method can help traders who face problems in financing the turnaround capital and business capital. This concept requires two parties ie investors and entrepreneurs. Investors will withdraw financing needs and employers will use this money to carry out commercial or industrial activities. Agreement is an important matter between investors and entrepreneurs. This agreement determines the distribution of profits and guarantee losses in this joint venture. The investor is entitled to know the position of the project undertaken by the entrepreneur. Bank Islam Malaysia Berhad has implemented a mudharabah method that overpay profits to those who run the project.

Musyarakah or a company or entity is a concept of equity participation involving more than two parties undertaking a business or industrial project. The parties involved in the company or Incorporated will donate part of their capital in accordance with the agreement that has been approved in terms of capital contributions of money and labor among the members of this persyarikatannya.

The Islamic Banking Act and amendments to the Act in the 1987 Budget Policy provide opportunities for the establishment of Islamic institutions and financial institutions in Malaysia. Consultancy services provided by the government through its agencies and institutions of higher learning. In addition, the private sector also offers this service. The agencies provide consultation services are:

1. Malaysian Industrial Standards Institute (SIRIM)

2. Malaysian Forest Research Institute (FRIM)

3. Malaysian Agricultural Research Institute (MARDI)

4. Malaysian Rubber Research Center (RRIM)

5. Malaysian Metal Research Center (MIDEC)

6. State Production Corporation (NPC)

7. Majlis Amanah Rakyat (MARA)

Institutions of Higher Education that provides consultation services are:

1. Industrial Research and Consultancy Unit (IRCU), Universiti Sains Malaysia

2. Faculty of Engineering, University of Malaya

3. Small Enterprise Development Center (SBDC), Universiti Pertanian Malaysia

4. Malaysian Entrepreneur Development Center (MEDEC), Universiti Teknologi MARA

In the private sector there are several companies doing consultancy in specific industries, as well as foreign companies in Brazil.

The government agencies mentioned above provide advisory services in terms of management and technical services. Certain agencies charge a minimum fee for the convenience of these advisory services. MARDI provides advisory services under its guidance scheme.

A major change in helping the manufacturing sector no matter small or big is the implementation of industrial incubators by SIRIM and unit share of the MIDEC. The concept of implementation of this incubator provides the expertise of the expertise and the use of machines for entrepreneurs.

Institutions of higher learning provide advisory and research services for the manufacturing and manufacturing sectors. The main initiative is carried out by the Faculty of Engineering, University of Malaya. The implementation of the concept of industrial incubator was pioneered by the University of Malaya. Meanwhile, Universiti Sains Malaysia with its industrial services unit already provides consultancy and research for the industrial sector. Institutions of higher learning are other features such as MEDEC at ITM and a small business center in UPM offers advisory services in terms of business management.