Problems of small business (short note)

Small business

In India, small businesses are classified by investment and turnover. Since 1 July 2020, an enterprise counts as micro if it has no more than one crore rupees put into plant, machinery or equipment and a turnover of up to five crore rupees; for a small enterprise the two ceilings are ten crore and fifty crore rupees. Such units have real strengths, but their potential is often not realised fully because of problems linked to their size and the way they operate.

Problems of small business

1. Limited managerial skill. A small unit is usually promoted and run by one person, who may have sound technical knowledge but not every managerial skill, may lack time for all the functions, and cannot afford professional managers.
2. Finance. Most units start with a small capital base and lack the creditworthiness to raise money in the capital market, so they lean on local sources and are often exploited by moneylenders. Working capital runs short when dues are paid late or capital is locked up in unsold stock, and banks ask for collateral, guarantees and margin money that many cannot provide.
3. Marketing. Marketing is often their weakest area, so they depend heavily on middlemen, who may pay them low prices and pay late.
4. Raw materials. When materials are scarce they must either accept poorer quality or pay high prices; they buy in small quantities, so their bargaining power is low, and they lack storage space to buy in bulk.
5. Global competition. With globalisation they face competition not only from medium and large firms but also from multinational giants.
6. Quality. Many units cut costs and keep prices low instead of keeping to quality standards, since they lack the resources for quality research and the expertise to upgrade technology; quality is their weakest point in global markets.
7. Idle capacity. For want of marketing skill or demand, many units work below full capacity; their operating costs rise, and this can slowly lead to sickness and closure.

Units that try to export face further difficulties: little data on foreign markets, weak market intelligence, exchange rate swings, quality standards and pre-shipment finance. Many also operate from remote places with poor infrastructure and use traditional technology. A brass-ware maker in Moradabad, for instance, may struggle at once to get bank credit without collateral, to sell except through a trader who pays months later, and to match the finish of imported goods.

Conclusion

Small businesses suffer mainly from their size: limited money, skills and bargaining power. Some official support addresses the money problem directly; for example, the Credit Guarantee Fund Trust for Micro and Small Enterprises guarantees loans given to them without collateral, and the MSMED Act, 2006 says that a payment period agreed in writing with such a supplier can never exceed 45 days from acceptance or deemed acceptance.