“WHAT BARRIERS TO GROWTH DO SMALL FIRMS FACE”
A thesis submitted to
The National College of Ireland.
In partial fulfilment of the requirement of the
Bachelor of Arts Degree in European Business
and Languages
Carole Leamy
B.A. in Eurpoean Business and Languages
APRIL 2000
ACKNOWLEDGMENTS
I wish to thank my parents, John and Annette for their support and encouragement
during the completion of this thesis, especially my Father for his helpful comments and
advice on the various drafts of the thesis.
I also wish to offer my appreciation to Mr. Brendan Me Evoy, my supervisor. His
advice and direction were invaluable throughout the writing of this dissertation.
Finally I would like to thank all my friends, especially Yvonne and Aoibheann for their
help and typing skills through out the year.
ABSTRACT
The object of this research study was to examine the barriers to growth that face small
firms. The research also set out to focus on the State agencies and organisation that
are available to help and support small businesses, and certain factors that may be
beneficial to aid the survival of start-ups or of developing businesses are also put
forward.
The research for this dissertation was conducted over a six month period and involved
evaluating primary and secondary data relating to the topic. The primary data was
collected through the method of postal questionnaires. The questionnaire set out to
test “Are there significant barriers to growth facing small firms in Ireland”. From
the thirty firms that were sent questionnaires, twenty-two replies were returned
representing a response rate of 73.3%. The individuals who replied were very eager to
assist in the research, gave freely of their time and were open with their opinions.
The outcome of the questionnaire identified four critical factors that act as barriers to
growth for small firms. These are as follows: \
® Small firms suffer from a lack of knowledge concerning the different support
mechanisms that are provided by State agencies and organisations.
• Finance acts as a barrier to growth especially interest rates and asset backing or
personal guarantees that may be needed to secure a loan.
• Small firms are not familiar with the importance of business planning
• The implementation of labour legislation by employers acts as a barrier to growth.
TABLE OF CONTENTS
ACKNOWLEDGMENTS
ABSTRACT
TABLE OF CONTENTS
CHAPTER 1
INTRODUCTION
1
CHAPTER 2
SUPPORT SYSTEMS FOR SMALL FIRMS
5
I
CHAPTER 3
RESEARCH & METHODOLOGY
16
CHAPTER 4
BARRIERS TO GROWTH
20
CHAPTER 5
RESULTS OF THE QUESTIONNAIRE
30
CHAPTER 6
FACTORS NEEDED FOR SUCCESS
35
CHAPTER 7
FINDINGS & CONCLUSIONS
45
APPENDICES
APPENDIX 1
QUESTIONNAIRE
APPENDIX 2
COVERING LETTER
BIBLIOGRAPHY
CHAPTER 1
INTRODUCTION
What Constitutes a Small Business in Ireland?
The Task Force Report commissioned by Minister for Commerce and
Technology Seamus Brennan T.D in 1994 offers a number of definition as to
what constitutes a small firm
“One in which fewer than fifty persons are engaged or annual turnover is less
than £3 million”.(Task Force on Small Business March 1994. 3.)
The same Report the European Union defined small firms as “Those with fewer
than 100 employees’\
The Service Industries Research Center U.C.D commissioned by the European
Center for the Development of Vocational Training (C E D E.F.O.P: 1992 p 7)
cited small firms as being
“There is no legal or official definition o f a small to medium sized enterprise
in Ireland though, in practice it is taken to mean less than 50 people and
having fixed assets with a book value o f less than 649,351 E C U ”
The Importance of Small Firms in Ireland
Looking at these definitions, it would be easy to mistakenly dismiss such firms
as relatively unimportant to any economy. However, An Tanaiste Mary Harney
Minister for Enterprise, Trade and Employment emphasised that small
businesses are vitally important to the Irish economy “Small businesses are the
backbone to the Irish economy ” (Running Your Business Success Strategies for
Small Business October/November 1999 p 19). There has been increasing
1
emphasis internationally on the importance of a small firms sector in improving
national economic performance and meeting the employment needs of society.
Since World War II, ninety-five per cent of all radical innovations and half of all
innovations began as small start-ups these included fast foods, the x-ray
machine, microcomputers and others (Timmons 1994). (Mulrennan 2000)
concludes that the average small enterprise will double in size over the next ten
years.
Thus, their importance to the Irish Economy
should not be
underestimated.
Storey et A1 (1987) found that only a tiny portion of small firms ever become
medium or large enterprises. Most small firms tend to either remain small or
cease trading and that half of small firms cease to trade within one year of
setting up. In addition, out of every group of one hundred small businesses that
survive, the four fastest growing firms create over half the jobs generated by the
group in the decade after start-up. The Task Force Report concluded that since
the 1970s small business have become the “net creator jobs” while large firms
been the “net shedder o f jobs
This has been reflected in Ireland, by the
current employment trends, where the numbers employed in small enterprises
has been expanding. Table 1 shows the number of new jobs created by small
businesses from 1995 to 1998. If, as seems to be the case, that a high
percentage of small firms offer any real potential in terms of employment
creation, then it is also important that firms with such potential are identified
and targeted by the Government policies that will focus on the growth of this
sector.
Table 1
Year
No. of new jobs in Small Business
1995
36,000
1996
43,000
1997
51,000
1998
56,700
(Source Annual Report on Small Business in Ireland 1997 p 10)
Given then the importance of small firms for the Irish economy in general and
the importance of growth and non-growth of such firms the research question
for this dissertation becomes
" What Barrier to Growth do Small Firms Face ? ”
Structure of the Thesis
The thesis is structured in the following manner:
Chapter 2 describes the various State Agencies and Organisation that help and
support small firms.
Chapter 3 discusses the Research and Methodology that was used for this
thesis.
3
Chapter 4 examines the barriers to growth. It takes an in-depth look at the
barriers that are facing small firms attempting to survive, or successful
companies attempting to grow. It concludes that not all of the barriers that are
identified will affect the growth of every small business, but given the wide
degree of barriers that exist it is fair to say that some will affect the firm either
at start-up stage or later during the development of the company.
Chapter 5 combines all the results of the questionnaire and highlights the issues
that emerged from the findings.
Chapter 6, using the issues that came to light from the findings in Chapter 4 and
5, details that will be of benefit to small firms to help them grow and survive are
put forward.
Chapter 7 draws conclusions from and attempts to make sense of the underlying
issues that the previous chapters and results from the questionnaires revealed.
Conclusions are reached, which must be addressed by the Government if small
firms are to be successful.
The range of subject matters covered by the research and the fact that the topic
is a live issue affecting educational and an informative exercise. It is hoped that
the final product will be of benefit to both small firms and the Government and
provides a structured and focused analysis of the barriers to growth that face
small firms.
4
CHAPTER 2
SUPPORT SYSTEMS FOR SMALL FIRMS
Introduction
The following are a number of state agencies, independent organisations and
groups, that have been established to assist and promote small firms. There are a
number agencies and organisations that are of particular relevance to small
businesses. These include, County Enterprise Boards, Enterprise Ireland,
Shannon Development, Udaras na Gaeltachta, Small Firms Association, An
Bord Trachtala, Small Business Division and FAS. Each one of these agencies
plays a vital part in the setting up of a business and in other day to day activities.
In this Chapter each organisation will be examined, to clarify what function they
serve in the assistance and promotion of small firms in Ireland.
State Support
The Government has placed a great deal of effort in recent years in encouraging
Ireland's indigenous Small Firms Industry. To date the Government’s aim has
been to
“Encompass all areas o f public policy which have a significant impact on the
creation and maintenance o f competitive enterprises ” through areas such as
“taxation, education and training (National Development Plan 1994-1999:39).
According to the business forecasters Amarach the main reason for the
increased emphasises in Government support is “The average small or medium
Irish enterprise is expected to double in size over the next ten years (Irish
Independent Business, 19th of January 2000 p 11).
State Support Systems
1.1 City and County Enterprise Boards (CEBs): Were established in
October 1993 and are locally controlled enterprise development companies
established in each county and local urban authority area in Ireland. The
function of the Boards is to help develop small firm’s potential and to stimulate
economic activity in local areas. This is done by providing financial support to
individuals, firms and community groups providing that the projects prove to be
commercial viable. The following is one of then main support measures that the
City and County Enterprise Boards have put in place to support small firms.
Support Measures
Finance: CEBs provide a wide spectrum of financial resources including capital
and employment and feasibility study grants. CEB have filled the long standing
gap for capital start up for micro enterprises. Currently the capital given is to "a
maximum o f 50% o f the cost o f capital and other investments or £50,000 M
whichever is less (Annual Report on Small Business in Ireland 1997 p 82-83 ).
Each new full-time position that is offered, an employment grant of up to
£5,000 may be received. A feasibility study grant may also be offered, but only
to a maximum of £5,000.
CEBS are involved in other areas such as working in conjunction with other
support organisations to provide extra funding. They also provide assistance
and information to both private enterprises and community centres.
6
1.2. Enterprise Ireland
Enterprise Ireland was established in July 1998, and was formerly known as the
IDA later Forbairt. It is the government organisation responsible for assisting in
the development of Irish enterprises. The organisation’s mission is
“to work in partnership with client companies to develop a sustainable
competitive advantage, leading to a significant increase in profitable sales,
exports and employment ”fhttp://www.enterprise-ireland.com).
Enterprise Ireland focuses its work on clients which are involved in Irish
manufacturing and internationally traded services companies employing ten or
more people. It also provides overseas food and natural resources companies
operating in Ireland. The organisation offers a range of services in business
development, export marketing, technology, enterprise development and
business training. These services can be accessed through a network of thirteen
offices in Ireland and thirty other offices worldwide.
Support Measures
Basic Research Grants Scheme: The aim of these grants is to encourage
scientific research and to develop the level of scientific expertise within the third
level sector. The scheme is conducted by the National Research Support Fund
Board (NRSFB) a sub-board of the Enterprise Ireland Board. This Board is
comprised o f representatives of third level education bodies, industry,
appropriate Government Departments, Enterprise Ireland and Forfas. This
scheme is open to full time and contract staff in Third Level Colleges in Ireland.
Grants are limited to maximum of £40,000 pounds over a two year period.
Strategic Research Grants: This scheme is conducted under the auspices of
the National Research Support Fund Board (NRSFB). It is open to all full time
and contact academic staff in Third Level Colleges in Ireland. Applications for
grants are accepted for projects in the following Advanced Manufacturing
Technologies, Engineering Technologies and Information Technologies.
Encouraging Investment in Ireland: Due to current economic prosperity
Ireland offers an excellent base for international businesses. Enterprise Ireland
helps and encourages foreign firms to set up in areas such as food, drink and
timber manufacturing operations. The Millennium Entrepreneur Fund provides
an early stage seed capital funding to highly skilled individuals or teams
involving an Irish National who is willing to relocate to Ireland. The Fund
applies to projects in manufacturing or internationally traded services sectors.
Mentor Programme: Many entrepreneurs may not be looking for another
agency to contact- but seeking another human being to turn to for advice, the
solution to this problem is the Mentor Programme. The Programme was
established in 1988, by Enterprise Ireland (then the IDA, later Forbairt) and
supported from the beginning by Allied Irish Banks. The programme sprang
from a perception on the part of then IDA that many Small and Medium firms
were floundering from a lack of business know-how. An initial panel of twenty
8
Mentors was put in place, all of whom had practical experience of running a
business. They were all prepared to volunteer their services to the programme,
he/she acted as a “guide, philosopher and frien d ” to an entrepreneur facing a
business problem. (Running Your Business Success Strategies for Small
Business p 10). In the first year, 120 companies were helped by a mentor, a
decade later there are 400 mentors assisting 4,500 companies. Companies
applying for a mentor are offered the choice of three individuals whose business
background matches theirs. The selected mentor can make up to ten visits to the
company. The cost of the programme is borne by Enterprise Ireland, AIB Bank
and Shannon Development.
1.3. Shannon Development
Provides support to various small businesses through a range of state funded «
grants i.e. Feasibility, Management Development Grants and Employment and
Training Grants, the following are some initiatives which Shannon Development
has led and supported, (http://www.enterprise-ireland.com)
Support Measures
Ventures Newsletter: This newsletter was introduced in 1996, its aim was to
raise awareness of venture capital in the Shannon region. The newsletter covers
a wide range of issues, for example topics that affect the Irish and international
venture capital industry. It is delivered to all companies, accountants, banks and
other professionals in the region.
9
Campus Enterprise Programme: This programme is in partnership with
University of Limerick and the Limerick Institute of Technology, Tralee. The
programme aims to support young entrepreneurs at Third level who are
involved in the establishment of new technology based companies.
Business Skills Programme: This was introduced in 1995 by the Shannon
Development, to assist new entrepreneurs in acquiring the necessary business
skills in areas such as Research and Development and Customer Relations.
Campus Capital: Campus Capital is a new Seed Capital Investment
Programme specifically aimed at assisting potential campus based companies to
enter the commercial world . To improve the awareness of seed capital as an
option for campus based companies, a number of the existing aspects of seed
capital investment were put together to form a cohesive group of activities.
10
1.4 Udaras Na Gaeltachta
“Is responsible fo r the linguistic, cultural and economic development o f the
Gaeltacht”.(Annual Report on Small Business in Ireland 1997 p 88). The main
thrust of Udaras activities are directed at small businesses. An tUdaras assists
small businesses by providing a chain of locally based offices in Donegal, Mayo
Galway and Kerry. By having the offices based in local areas inquiries can be
made and assistance given in the native language of the owner /manager of the
firm. This organistion has always promoted the marine culture and fishing
industry. Over recent years they started to create awareness about the visual and
cultural tourism sectors in Ireland. Specialised course are designed to help
training and incentive packages were introduced to encourage investment.
1.5 FAS
FAS provides an extensive range of services to businesses in Ireland. These
services are offered to small medium and large firms, indigenous and foreign
firms, and those who operate in all sectors of industry and services. FAS runs
specific programmes to assist businesses and also provides a training advisory
service on a regional basis. Small firms can avail of the following services.
fhttp://www.fas.ie)
11
Support Measures
Training Support Scheme: Provides a wide spectrum of training and
development programmes for ground floor workers right up to management
level. The aim behind FAS is that through improved training of workers, you
therefore increase quality, productivity and competitiveness of your workers
and firm. This scheme is open to firms engaged in manufacturing industry and
internationally-traded services, as well as wholesale and retail, physical and
motor industry. Companies are required to provide evidence that the training
need is clearly necessary, and should be incorporated into a formal business
plan. Grants are normally a percentage of the training cost, in the cases of small
firms a higher percentage of the costs is given.
Company Development “Cluster” Programme: This scheme is aimed at start
up companies in the early years of business. FAS aims to strengthen a firms
competitive advantage through improving management skills. The training given
is of a focused nature to meet individual requirements following a business skills
audit.
Co-Operative Development Unit (CDU): CDU was set up to help and
support individuals and groups who want to set themselves up to into worker
co-operatives enterprises. The CDU gives guidance on finance, marketing,
production, training, legal structures and development of worker co-operative
ventures. The CDU supports New Business, Development of Associate
Companies, Employee Buyouts, Phoenix Company and Passing on Family
Business.
12
1.6. An Bord Trachtala (ABT)
An Bord Trachtala provides a range of services to help companies grow and
expand into international markets Their main focus is to help a firm “ increase
its market share in the export market ” The following are schemes and projects
organised by An Bord Trachtala. (http://www.irish.trade.ie)
Support Measures
New Exporter Programme: This programme provides workshops covering all
areas of exporting. It is run by experienced ABT staff who help people draw up
an action plan so that the company can achieve their exporting objectives.
Marketing Finance for Smaller Exporters: Companies who have exports less
than one million, and who are developing new ideas with the view to increasing
profits can apply for a limited no- repayable grant. Eligible companies may apply
each year, for a maximum of three years, for support towards 50% of eligible
expenditure detailed in an agreed marketing plan.
17. Small Business Division
To ensure small businesses and services will never be overlooked in public
policy making, the Task Force recommended that a Small Business and Services
Division should be established. The Department of Enterprise, Trade and
Employment introduced such a division in June 1994 This division is the first of
its kind to have central responsibility for “support and Promotion o f small
fir m ”. (Third Report of The Joint Committee on Small Businesses and Services
13
April 1997 p 14). The division is responsible for the implementation of the
Small Business Operational Programme which is providing over £50 million in
E.U, State and private sector funding for small businesses between 1995 and
1999. The division represents Ireland at all E.U. meetings concerned with the
development of E.U. policy for small and medium enterprises. The Small
Business and Services Forum gave added impetus to their work. The Forum
was established in September 1995 to advise the Minister for Enterprise, Trade
and Employment in relation to policies concerning small business and services
and to ensure that the small firms sector is developed
1.8. Small Firms Association (SFA)
This association was established in 1972, it is Irelands only organisation aimed
at solely representing and supporting small businesses. SFA represents the views
of small firms to " the Government, Banks, State Agencies and Companies and
European Institutions
(http://www.smal! firms ass.ie)
Functions
1.8.1. SFA acts as a voice on behalf of small business community. It represents
and defends the interest of small businesses in their dealings with the
Government, State Agencies and the Revenue Commissioners. SFA participate
on numerous committees including IDA Regional Committees, Small Business
Task Force and Company Law Review Group.
14
1.8.2. It holds regular seminars on issues such as finance, legislation, marketing
and the association regularly publish “Running Your Own Business ” which is
entirely concerned with small business issues.
Conclusion
The importance of fostering an enterprise culture is now widely recognised
throughout Ireland, the agencies and organisations have an important role to
play in helping the development and in enhancing the recognition which small
businesses need to receive from all sectors of the Government and community.
Without the advice, training and financial assistance received from the agencies
and organisations many small firms would not be in existence today.
15
CHAPTER 3
RESEARCH AND METHODOLOGY
The research began with the reading of books, journals, reports and
newspapers. The Ilac, U.C.D, National College of Ireland and Rathmines
libraries and the Internet were used to obtain further information.
HYPOTHESIS: This dissertation focuses on the growth problems
experienced by small firms, the author felt that one major factor
should be
examined in this study
• “Are there significant barriers to growth facing small firms in Ireland"
Sampling: 30 small firms were identified across abroad spectrum for this
study, the companies were chosen by reference to their employment levels and
from a variety o f different industries, this ensured an even spread of companies.
The study was of mixed companies ranging in age from 1-3 years, 4-6 years and
7 or more years. Purposive sampling is hand-picking supposedly typical or
interesting cases to use as a sample. This method of sampling was used to
choose the companies for this questionnaire, as the author had personal contacts
in each company and this ensured a quicker response rate. Each respondent was
given a guarantee of confidentiality and it was therefore important that there
was no indication of his/her name on the questionnaires. Therefore a master list
of the people who were sent a questionnaire was kept and code numbers were
assigned to each person on the list ranging from 001 to 030. This code was
written on the master
The Questionnaire: The author chose the method of postal questionnaires
for the purpose of the study as ( Bailey 1978: 153) cited that a seventy five
percent rate of return can be achieved using postal questionnaires, also the use
of questionnaires meant that a broad spectrum of firms could be contacted. This
section examines the main questions that are included in the survey with
consideration to the aim of the study. The questions used in the questionnaire
fall into the following categories.
Finance: Given the importance of the relationship between small businesses and
finance, the information in the questionnaire included questions on the following
categories.
% Sources of finance at start-up stage.
• Difficulties in receiving finance.
• Was a grant received and from which Government agency.
% Business plan at start-up stage and development use of it.
Staff: This information was required to identify if problems relating to staff
would hinder the growth of small firms, the information sought in the
questionnaire included question on the following categories.
•
Characteristics of the firm.
• Staff training.
• Labour legislation.
Pre-test: A pilot study was carried out. This was given to a director of a
company to receive his advice and to see if the questions were addressing the
issues concerned. At this stage some adjustments were necessary, to clarify
certain questions.
Main Survey: All firms selected were sent a covering letter with the
questionnaire stating the purpose of the study and ensuring confidentiality. The
questionnaires were sent to the owners of the company as they would have the
best knowledge of the company. A stamped addressed envelope was enclosed
with the questionnaire to ensure a quicker response. This proved beneficial, but
in some cases a telephone call was needed to obtain a response. Some
companies were unwilling to participate and in these cases a letter was received
stating the company could not afford the time to complete the questionnaire.
Response Rate: From the 30 firms that were sent a letter 17 replies were
sent back. All the letters were received back within two weeks of being sent
out. In a small minority of cases a telephone call was needed to ensure
confidentiality and under no circumstances would the firms names appear in the
findings.
18
Limitations to Research
At the beginning of the project, the author felt that the respondents from the
questionnaire might not be forthcoming with information, which proved not to
be the case. All those who responded were generous with their time, open with
their views and provided full and complete answers to all issues and questions
posed. However the results of the research were some what constrained due to
the fact that a full response rate was not achieved.
19
CHAPTER 4
BARRIERS TO GROWTH
Introduction
Much of the literature on this issue is anecdotal rather than empirical, and even
more problematic is the tendency to write as if the problems facing small firms
at birth are synonymous with those of established small firms attempting to
survive, or successful small firms attempting to grow. Nevertheless, some of the
recurrent topics in the literature will be briefly discussed below.
Finance
Growing small firms are unlikely to be able to generate internally the level of
capital they require for expansion. (Bannock 1981). Investment in the growth of
a small firm, particularly in the manufacturing sector, is typically not required in
small amounts, but in a series of jumps. A move to larger premises or
investment in new machinery will require a very large investment in relation to
capital for a small firm. In most cases the only practical solution to the financing
of an expansion of a small business is to approach the clearing banks.
Welsh and White (1981) acknowledge that growth requires cash and that the
levels of cash required is rarely available inside the firm. They contend that a
difference exist between small and large firms in terms of the availability of this
cash from lending sources. They argue that the very size of small businesses
creates a condition they refer to as "resource poverty ”, resulting from a number
of conditions that are particular to small businesses. Firstly, small businesses
20
tend to be clustered in highly fragmented industries (e.g., retailing and services),
that may have many competitors which are prone to price cutting in order to
build their revenues. Secondly, the owners-manager’s salary in a small business
represents a much larger fraction of revenue than in a big company, often
leaving little to pay additional managers or to reward investors. Thirdly, small
businesses cannot afford to pay for the kind of accounting and bookkeeping
services that they need, nor can new employees be adequately tested and trained
in advance. Fourthly, small businesses are susceptible to seasonal fluctuations in
sales and may lack the expertise and finance to deal with this effectively and
ensure the survival of the company. Finally, external forces (e.g., Government
regulations, changes in tax laws etc.) have more impact on the expense of a
small business than those of large one. All of this puts small businesses in a
different position to larger firms when it comes to borrowing for expansion
from external resources.
“Resource p o o r” small firms enter into highly
personalised negotiations with banks.
Hall (1989) develops this theme and states that clearing banks are the principal
vehicle by which small businesses compensate for the shortfall in their ability to
internally generate all the capital they require. He agrees with Welsh and White
(1981) that small businesses are often discriminated against by such banks, in
comparison to larger firms. He contends that smaller firms are often charged
more than larger firms, and that greater levels of security are requested.
21
Binks (1979) summarised the problem of financing for the new small firm in the
form of a statement: “ The smaller the firm , the larger the proportionate
increase in capital base required to respond to an increase in demand\ but the
lower its ability to command loan equity and finance
Hall (1992) acknowledges that some of this discrimination may be due to the
higher probability of failure within the small firm sector. Binks (1979), however
also highlights the further difficulty that the size and age of the firm are often
inversely related to the financial expertise of management. In a small, relatively
young firm, the proprietor may not have the skills necessary for producing the
sophisticated cash flow projections often required by the lender to determine the
viability of the borrower.
The impact of the lack of finance for growth in Ireland is unclear. The fact that
the lack of finance is constantly highlighted about in the business and news
media, Kinsella (1994) found evidence to the contrary. He studied small firms in
Northern Ireland and the Republic and found that both firms in the Republic and
Northern Ireland ranked obtaining finance only eighth out of a list of fourteen
problems. Contrary to what the theoretical literature would have us believe,
eighty-five percent of respondents claimed to have never been refused finance
from eternal institutions. Thus the evidence of the degree to which lack of
finance occurs in small firms, is inconclusive, but Kinsella (1994) may indicate
that the problem is not as pervasive as it was once thought to be.
22
Business Plan
As the NESC Report (1993) suggests, tackling the problem of financing new
small businesses involves not just correcting the financial constraints, but also
looking at the underlying strengths and weaknesses to make them more
attractive to investors and financiers, thereby increasing the confidence level in
the sector as a whole . This can be done by examing the importance of the
business plan.
The decision to invest equity and provide bank or grant finance to new business
is based primarily on the evaluation of the promoters and the business plan they
have produced. The reliability and thoroughness of the business planning
process is essential to a successful business. Even though the business plan is a
key ingredient to a profitable business the (Third Report of the Joint Committee
on Small Business and Services 1997) found that many entrepreneurs
considered the business plan as a persuasion, and of no real importance once
financial backing had been secured. (Walsh 2000) added to this by stating that
many companies see the business plan only as a document that had to be
prepared to secure finance.
Red Tape
Bannock (1981) highlights the problem that red tape and form- filling presents
to many small businesses. The level of paperwork required to operate even the
smallest of businesses places a heavy burden on the owner-manager. At first
glance this may appear to be an inconvenience rather than a serious barrier to
23
small business growth. Kinsella (1994) found that the major problem
experienced by Irish small firms attempting to grow was the time constraint
on management. He also reported that the Government bureaucracy, the volume
of paperwork and the time it took to “get things done” as problematic. The
Task Force also recommended “reducing burdens”, that is to say the cost of
complying with the states regulatory and administrative requirements need to be
reduced. They recommended the reduction of paperwork and the frequency
with which forms have to be submitted (V.A.T) and make the numerous forms
into one.
Labour Costs
Bosworth (1992) examined labour costs and legislation as barriers to the
growth of small firms. Increasing labour costs can act as a deterrent for growth
in small businesses. He notes that the cost of labour increases with size, as more
non-manual workers are recruited who demand higher wages. In addition, the
larger the firm gets, and employees numbers increase facilities must be of higher
quality. The quality of the workforce in small firms may also inhibit growth.
Small firms tend to start from a lower quality base in terms of employees. This
maybe due to the fact that the company may not be able to afford high quality
staff, or because quality staff may not be attracted to working in a small firm
with limited opportunities for advancement. In addition, the lack of resources
available to train the existing workforce and thus increase its quality, may act as
a barrier growth.
24
Labour Legislation
The vast amount of new labour legislation, much of it imposed by the European
Union, but also that introduced by national governments, may also be a barrier
to growth, (Bannock 1981 and Kinsella 1994). Obeying the legislation can
create additional costs which unfairly burden small business. Currently there are
at least 40 provisions
relating to labour law that small businesses have to
comply with. These include maternity, recruitment , Contract of Employment
and dismissal controls. Many of the smallest firms are exempt from such
legislation, but expansion in employee numbers would mean that it would have
to be enforced. This may act as a de-motivating influence for owner-managers
considering the growth of their business.
Peripheral Workforces
On a more optimistic note, Bosworth (1992) contends that the extent of small
business growth may somewhat be masked by the tendency of small businesses
to operate a labour force consisting of core and peripheral workers. Rather then
taking on additional employees to cope with fluctuations in demand, many small
businesses maintain a peripheral workforce consisting of part-time, temporary,
casual and home workers. Due to the terms of their employment, peripheral
workers are usually cheaper, in terms of wage costs but also in terms of
additional costs created by obeying labour legislation. Thus peripheral workers
may mask the true size of any given small firm.
25
Market Structure
Mcgee (1992) states that the structure of the market in which a small firm
operates may have a profound effect on its ability to grow. Small firms
operating in homogenous markets, with standardised products will be at an
extreme disadvantage in comparison to their larger counterparts. Usually
economies of scale and scope must be achieved in order to remain competitive
and profitable in such markets. Small firms with limited resources will be unable
to accommodate the long production runs and large quantities that are
necessary. Heterogeneous markets, on the other hand, allow small firms to
pursue a niching strategy and achieve competitive advantage through
differentiation and specialization. Small firms can opt to serve one or several
segments of such markets.
Market Size
Kinsella (1994) found that the problem for small firms was not so much the
structure of the markets they operated in but the size. Naturally, the size of any
domestic market is limited by Ireland’s small population. Small firms also find
that their ability to grow companies, is hampered by the transport costs they
incur, thus rendering their products uncompetitive.
26
Industry
The stage of development of the industry is a very important determinant of the
likelihood of success of any growth strategy. Porter (1980) identified four
stages of the industry development, loosely based on the product life cycle,
introduction, growth, maturity and decline. For example, in new industries there
will be many new entrants, all jostling for positions, and growth prospects will
be favourable. As the industry matures sales will level off and a shake-out
period will result as less able competitors drop out. Those competitors that are
left will compete more intensely with each other, adopting various cost and
differentiation/ niching strategies. The growth rate of any business in a given
industry will thus depend on the stage of industry development. As the industry
develops, the basis for competition changes. Therefore, it is important for small
business owners to understand the concept of industry development when
considering a growth strategy. This understanding can increase growth
prospects because as the industry develops, the cost of reacting strategically will
increase as the need for change becomes more obvious. Porter illustrates very
effectively how industry structure and the lack of understanding can impede
small business growth. He suggests that many businesses flounder as they
pursue competitive strategies that are well thought out and planned but yet fail
to take account of the industry structure.
27
The Dark side of the Entrepreneur
El-Namaki (1990: 81) describes managerial skill as the “prime barrier to small
business development ” For him, the existence of limited managerial capabilities
leads to a multi-functional role for the entrepreneur and identifiable job
overlaps. He states that the demands on the entrepreneurial function brought
about by growth lead to the emergence of the “dark side ” of the entrepreneur’s
personality. This may make the entrepreneur impossible to work with. The
features of this ” dark side ” include an overwhelming need for control; and a
difficulty with structures. This may lead the entrepreneurs to resent the
increasing formalisation of a growing organisation. In direct contrast to
Churchhill (1983) assertion that a low need for status is vital for entrepreneurial
success, El- Namaki states that many entrepreneurs exhibit a high need for
recognition and respect, it may not be in material terms but certainly on an
interpersonal level.
El -Namaki highlights several other shortcomings exhibited by entrepreneurs
that may have a profound effect to the growth process.
Slow Learning: many entrepreneurs are slow to absorb new technology and
even slower at developing their own.
Vague notion of the long term: strategic planning carried out by small
business people is often only short term planning.
Limited ability to manage the financial resources: is a continuing problem
throughout the business development, but becomes more acute when the
financial resources increase as the company grows.
28
Selective approach to training: small business owners are often skeptical
about the benefits of formal training programmes. They regard
such
programmes as expensive in terms of the monetary cost and the working hours
that may be lost and appear to ignore opportunities for improved performance
through more effective training.
Conclusion
In this chapter we have examined some of the barriers that can impede the
growth of small firms, it can be seen from the evidence that there are a number
of barriers that can hinder the growth of businesses. Baring these barriers in
mind the owner/manager of a start-up business should identify which barriers
will affect the growth of his/her firm before start-up of the business. The author
feels that not all of these barriers will hinder the growth prospects of each
individual firm, but given the wide degree of barriers that exist it would be fair
to concluded that one or two will most probably affect the firm either at start-up
stage or later during the development of the company.
29
CHAPTER 5
RESULTS OF THE QUESTIONNAIRE
For this study thirty small firms were identified across a broad spectrum of
industries and sectors. The businesses were chosen by reference to their
employment levels and from a variety of different industries. The study was of
firms ranging in age from 1-3 years, 4-6 years and 7 or more years.
Convenience sampling was used to choose the firms as the author had personal
contacts in each of the companies and this guaranteed a strong response rate.
From the 30 firms that were sent a letter 22 replies were returned representing a
response rate of 73.3%.
Section A: Finance
Question one dealt with the issue of how firms were financed at the start-up
stage. The findings showed that a vast majority (59%) were financed by some
form of personal finance at the start up stage. However (50%) received a loan
from the banking industry, (36%) of the respondents received government
backing in the form of grant assistance. In the sample only (9%) used their
mortgage as a source of finance at start-up stage and (13%) of owners obtained
some other form of finance to help them start their business. Surprisingly, of the
people who replied to the questionnaire (41%) of them used more than one
source of finance at their start-up stage.
Sources
Persona]
Loan
Grant
Mortgage
Other
59%
50%
36%
9%
13%
Results of Question 1
30
Questions 4 , 5 and 6 dealt with the issue of government grants and sought to
establish the number of firms that obtained grants and how reliant businesses
were on government grants. However, the results showed that only 4 of the
respondents or 18% had received grants and accordingly the results of this part
o f the questionnaire are inconclusive and cannot be relied on. Surprisingly, in
response to question 4 (a) when firms were asked if they were aware of all the
State Agencies and Organisations that offer grants and advice, (68%) claimed
that they did not know about every agency that is available to help small firms.
In response to question 7,
13 of the firms (59%) had made contact with a
Government agency for advice. On a scale of 1 to 5 to establish how helpful
these agencies were 8 of the firms sated that the agencies were either helpful or
very helpful. In fact, 5 firms (38%) found the agencies to be very helpful.
Questions 8, 9 and 10 of the survey examined the use made by the respondents
of business planning. A very high percentage (77%) had drawn up a business
plan at the start of the enterprise. The converse of this is that 23% or nearly a
quarter of the firms had no business plan at all. Of the firms who had prepared
business plans 30% were for a period of 5 year or more while the majority
(70%) had opted for a planning period of 1 to 3 years.
However, when
questioned as to whether they had in fact kept to their business plan 52% of the
firms answered that they had not.
Of the 22% of firms that had not drawn up a business plan the majority of those
had not done so because they did not know what a business plan was.
31
Section B: Staff
Questions, 11 and 12 first sought some background information on each of the
firms surveyed.
In question 11 (a) information was sought as to the sector/industry each of the
firms surveyed operated in. The results show a relatively even spread across all
sectors with a slight bias in favour of the services sector.
Sector
Clothing
Services
Industrial
Technical
Catering
9%
45%
22%
13%
9%
Results of Question 11(a)
Part (b) of this question then sought to establish the spread of businesses
between rural and urban. The results were that 54% of those surveyed were
based in urban areas and 46% were rural based.
From the response to question 12 the survey established that 65% of the firms
had been in business for 4 years or more while 35% had been in business for 1
to 3 years. Interestingly, 22% of those surveyed had been in business for 7
years or more.
Time in business
1 to 3 years
4 to 6 years
7 years or more
35%
43%
22%
Results of Question 12 (a)
32
Question 13 part (a) enquired as to the number of staff each of the firms
employed. The vast majority of respondents, 86% employed 20 people or less
while 50% employed less that 10 people.
Part (b) of this question examined the category of workers each of the firms
engaged. The following table gives the results;
Category
Part-time
Casual
Home
Full-time
60%
10%
5%
68%
Results of Question 13 (b)
Three quarters of those surveyed engage peripheral workers and there is a clear
bias towards a mixed work force comprising of part-time and full-time workers.
Question 14 dealt with the issue of training of staff and the results show that
68% of the firms provide additional training for their staff. When asked why
they provided this training the main reasons given were to;
=> Improve performance
=> Staff motivation and
=> To be more Competitive
In response to question 15 as to whether those surveyed felt that government
agencies provide adequate training for small firms a very high percentage, 95%,
were of the view that inadequate training was provided.
Question 16 then examined the area of labour legislation and sought to
establish if firms found it difficult to implement and if they did so what areas of
the legislation did they find most difficult. Of those surveyed 60% said that they
found labour legislation difficult to implement.
With regard to what aspects they found most difficult the following table gives
the results and shows that firms have the greatest difficulty in implementing the
legislation surrounding contracts of employment
Legislation
Maternity
Recruitment
Dismissal
Contract.
8%
15%
8%
70%
Results of Question 16
34
CHAPTER 6
FACTORS NEEDED FOR SUCCESS
Introduction
Chapter 4 discussed the most common recurrent barriers that may hinder the
growth of small firms, either at the start-up stage or of established small firms
attempting to survive and grow. In the previous, the results of the questionnaire
were examined. In this chapter we will combine the two chapters together to
establish some factors that may help small firms overcome these barriers to
growth. Firstly, we will examine the personal changes an owner/manager may
have to implement . Secondly, we will look at the financial opportunities made
available by the banking industry that small firms can now avail of to help them
obtain finance capital. Also, we will discuss the importance of the business plan
and the steps needed for a successful business plan. Finally, we will examine
how small firms can over come the problem of labour legislation.
General Characteristics Needed for Successful Growth
Churchill (1983) recognised the owner manager as the most important
determinant of a firms ability to grow. He identified several characteristics of
the entrepreneur/owner manager that are essential for success if the business is
to develop, each is differing in importance, depending on what stage of
development the business is in. They are discussed below:
Good health, personal energy and drive: these traits are vital in the early
stages o f the business, and are crucial once again if the owner decides to grow
the business.
Self confidence: this is vital in the early development of the business, but it can
be detrimental to growth if it prevents the owner-manager from delegating,
taking advice and sharing power.
Realism: this is important in deciding to start the business, in assessing the
prospects and making the right decision with respect to growth.
Objective approach to interpersonal relationships: this is not important until
other people enter the organisation. Hoy and Carland (1982) reinforce this with
their findings that successful entrepreneurs are task rather than people
orientated in comparison to those who are unsuccessful in growing their
businesses. However this objective approach can hinder growth when people
need to be trained and decisions need to made on a more consenual level.
Sufficient emotional stability: similar to realism this quality is always
important
but especially so in the early stages when
setbacks
and
disappointments must be coped with.
Resources and abilities for Successful Growth
Churchill and Lewis (1983) added eight more factors to this list, on which the
successful growth and development of the company depends. Four relate to the
company and four relate to the abilities, as distinct from the personal
characteristics of the owner manager.
Firstly, if the company is to grow it must possess adequate resources in terms
of:
Finance: (i.e. cash and borrowing power)
Personnel: (i.e. the number and quality of employees, particularly at the
management and staff levels)
Systems: (i.e. the degree of sophistication of both information, planning and
control; systems)
Business resources: (i.e. customer relations, market share, supplier relations,
manufacturing and distribution processes, technology, and reputation ). It is
these that determine the company’s position in its industiy and market.
Cash is an extremely important resource in the early stages of establishing a
business and when the business begins to grow. It is important that when the
company begins to grow that the financial needs and the risks entailed in
expanding the company are recognised. The importance of personal resources,
systems resources and business resources all increase as the company develops,
and it is necessary that these resources are in place and accessible as the
business grows.
The four crucial factors that relate to the owner-manager’s abilities, as distinct
from personal characteristics are:
Goals: the owner’s goals for him/herself and for the business.
Operational abilities: the owners ability to do such jobs as marketing,
inventing and producing.
Managerial abilities: the owners ability to manage people, time and resources
and his/her willingness to delegate responsibility.
37
Strategic abilities: the owners ability to look beyond the present and to match
the organisation’s strengths and weaknesses with his/her own goals.
The owner will thus face several managerial challenges in attempting to grow.
In the early stages the business is built upon his/her ability to do the job i.e., to
make and sell the product and therefore operational abilities are the most
important at this time. His/her ability to delegate is irrelevant, as there are few,
if any employees to delegate to. As the business progresses the owner will
spend less time doing and more time managing, which involves delegation.
Learning to delegate is vital if the business is to succeed. At the same time it
may be one of the hardest tasks facing the entrepreneur, given their need for
control (Welsh and White, 1981). The owner’s strategic abilities become
important as the business expands and personal goals must be matched to the
organisation strengths and weaknesses.
Finance
Section A of the questionnaire set out to investigate if the issue of finance
actually acted as a barrier to growth for small firms. In response to the
questionnaire 50% of respondents received a loan and out of this percentage
81% of owners/managers were charged a higher interest rate then above the
normal interest rate. In relation to this 76% of firms needed asset backing and
23% needed to provide personal guarantees to obtain their loans. Due to these
findings it is felt that many firms are not aware of the changes that have taken
place in the banking industry, new schemes and loans are now available at a
much lower interest rate, and in some cases asset backing or personal
guarantees may not be needed. The following research has been put forward in
the hope that the information may be of some benefit to small firms.
(Delaney 1999) concluded due to an increase in consumer awareness,
expectations and changing attitudes towards banks has brought about an
improved service for small firms. Customer loyalty has taken second place to
customer services, efficiency and charges. The response to these changes by the
baking sector has been to establish a complete new up to date package of
services for small business clients. He has also examined some of the major
improvements that occurred in the major Irish Banks, these changes are as
follows.
Allied Irish Banks (A.I.B)
A.I.B offer local small business workshops, consultation with Enterprise
Development Bureau on feasibility projects finally starter packs with brochures
on business planning. They offer a wide variety of loan schemes/funds to small
businesses, these are just a small minority of schemes that the bank now
implements.
1. European Investment Bank Global Loan Scheme. This loan is for
investment in new fixed assets, subject to certain criteria. Interest rates are fixed
or variable and there is a maximum limit of £15k that can be borrowed.
2. Enterprise Loan Scheme. The loan scheme provides working capital/asset
finance facilities for start-up firms. A maximum of £3k can be borrowed.
39
3. Business Training Fund. According to the bank this loan offers financial
support at a low fixed interest rate for training and education in small firms.
Bank of Ireland (B.O.I)
In 1999 B.O.I launched a new fee package for business start-ups which will
significantly help new owners to save costs in the first few years of business.
The bank has dropped its standard current account fees and a range of other
charges that are normally applicable to new businesses for the first two yeas of
business. B.O.I have also implemented a new £20 million fund to help finance
growth in new and growing small businesses, it is also available at 6.65% rate of
interest which is lower than the standard lending rate. The following are just
some of the other loan schemes that the bank have put in place.
1. Enterprise 2000 Fund. This fund is open to manufacturing, technology,
software, food and agriculture sectors, it is run in conjunction with Enterprise
Ireland and is open to small businesses. A minimum of £25k and a maximum of
£100k can be borrowed, interest rates depend on the individual application.
2. Bank of Ireland Enterprise Fund. This fund focuses on equity investment
in companies who operate in food and technology sectors; A minimum of £100k
and a maximum of £500k can be lent, interest rates depend on the individual
application.
3. Enterprise Support Unit. This fund supports the start-up and development
of small and medium enterprises. It especially focuses on businesses in import
substitution, internationally traded services, value added tourism, food,
agriculture and service products with export potential. A minimum of £20k and
a maximum of £150k can be borrowed, again interest rated are dependent on
individual application.
Ulster Bank
Ulster bank provide the following schemes for small and expanding businesses
in Ireland.
1. Enterprise Loan Scheme. Any type of business start-up can apply for this
scheme. A maximum of £100k can be borrowed at an 7.5% interest rate, loans
are available for up to ten years.
2. Business Development Loan. Start-up and expanding businesses can apply
for this loan, the business can be in any industry sector. Both secured and
unsecured loans can be given for up to ten years at a 7.0% fixed interest rate, a
maximum of £250k can be borrowed.
3. SME Loan. This scheme is applicable to start-ups and expanding businesses
in any industry sector. The loan can be for a duration between 10 and 20 years,
at an interest rate of 5.625%. A minimum of £20k and a maximum of £150k can
be borrowed.
Business Plan
In the survey that was carried out question eight, nine and ten examined the use
made by owners/managers of business planning. From the responses received
77% of those surveyed said they used a business plan, while 23% of businesses
had never drawn one up. When asked how far ahead they had planned 70% o f
firms had only succeeded in planning for a period o f one to three years while
30% had chosen to plan five or more years ahead. When asked as to whether
they had kept to their business plan, surprising 52% of the firms responded that
they had not kept to their plan. From these findings, it is felt that companies
suffer from a lack of knowledge concerning the importance of the business plan.
The next section will highlight the benefits of a good business plan and identifies
the steps that are necessary to draw up a sound plan. The business plan is an
important tool to secure finance, but also to manage the business. However, as
we said in the previous chapter many people only use the business plan simply
to obtain a loan from the bank, but it is much more than that as it can be a firms
key to success. (Walsh 2000) contends that a good business plan should contain
three elements, so that the plan can be effective. These are categorised as
follows,
1. An analysis of the customer and how your product or service is going to
satisfy them more then your competitors. Using the business plan helps you to
clarify how this can best be achieved.
2. The number of staff at start-up through to expansion is a key criteria to be
considered in the business plan. Research has proven “that a team o f at least
three people doubles the chance o f business success by providing a range o f
skills "(Running Your Business Success
Strategies For
Small Business
February/March p i 2). As the business expands recruitment becomes an essential
issue, this is why planning is vital at an early stage.
3. The business plan also contains finance issues about profitability and
cashflow. Profitability can be defined as price minus cost, it is important that the
price of the goods and services are sold at a competitive price. Cashflow firms
may fail if their cash is tied up in stock and assets. Failure can be avoided by
simple calculations and adjustments that can be made in the business plan in
relation to profitability and cashflow.
The business plan is a companies formula to success, it sets out the companies
goals and objectives and how they can be achieved. The business plan can be
used to measure company performance in all areas and help make necessary
changes to keep up with the changing environment in which the firm operates.
Labour Legislation
In Section B of the questionnaire the issue as to whether staff acted as a barrier
to growth was addressed. Question sixteen dealt with the issue of labour
legislation. This question sought to establish if small firms found it difficult to
implement the legislation and in what areas of was it difficult to implement. Of
those surveyed 60% said they found labour legislation difficult to implement. In
regard to what area they found most difficult 70% said they found Contract
Law to be they most difficult, 15% found Recruitment Law hard to follow and
8% agreed that both Dismissal and Maternity Law was equally hard to
implement. Therefore, the following literary research is put forward so that
Small Firms are aware of how to implement Labour Legislation quickly and
efficiently. Employment Law has become increasingly difficult to implement
over the past few years, with many changes occurring in Irish and European
Law. Due to these changes it can be difficult for an employer to follow the
43
necessary requirements and recommendations, therefore, the Minister for
Labour, Trade and Consumer Affairs, Tom Kitt TD, launched an Employment
guide for Small Businesses on the 1st of November last. The Guide sets out the
rights and obligations of employers and employees, it is written using laymans
language and contains 20 different legislative issues. As changes in legislation
occurs the Guide will be updated to meet these current changes. It is hoped that
this Guide will help employers and employees to solve disputes and save time
trying to implement the Laws.(Running Your Business Success Strategies For
Small Businesses December/January 2000 p 12).
Conclusion
In order to succeed at the start-up stage and to have continuity of success the
business and the owner will have to make several changes to succeed. Firstly,
we say that the owner must possess certain personal qualities in order to
succeed, he/she must be emotionally stable, have good health, self-confidence
and realism to start the business . On the other hand the success of the business
not only depends on the personal qualities of the entrepreneur, but also finance,
personnel, resources and systems that are in place in the company. Secondly, we
looked at the types of finance that are now available to entrepreneurs, we saw
the importance of the business plan and how if implemented correctly, can be a
strategic tool for small businesses. Lastly we saw how it is now easier for
employers to follow and implement Labour Legislation. These are just some of
the factors that may be of benefit to small firms, however it is acknowledged
44
CHAPTER 7
FINDINGS AND CONCLUSIONS
In this chapter the author will take a general overview of the previous chapters
by incorporating the results of the previous literary research and the results of
the questionnaire which has been carried out. Areas of weakness, issues and
recommendations in the different industries and government policies will be
highlighted and recommendations will be made accordingly.
Chapter 2 discusses the number of State agencies and organisations that are of
particular relevance to small businesses. These agencies and organisation have
an integral role to play in supporting small businesses in Ireland. However, in
response to the questionnaire only 18% of respondents received a grant, this
low response rate could be due to the fact that many small businesses are
unaware of the variety of help and support that is available from State agencies
and organisations. This statement seems to be accurate as when firms were
asked in the questionnaire, were they aware of the numerous State agencies and
organisations that offered support to small firms, 68% replied that they were not
aware of all the agencies and organisations. State agencies and organisations
need to place more emphasis on promoting the advise and help that they offer.
The author identified an extensive and complex system of grants that are
available to small businesses. Grants are available to assist a wide variety of
actives ranging from employment, capital expenditure to scientific and technical
improvements. These various grants are provided by a plethora of State
agencies and organisations. The introduction of “A One Stop Shop” to deal
with all State assistance for small businesses and services, this would mean that
firms could obtain all the information that they needed from just one source.
With the
changing technological
environment,
the government
should
amalgamate all the information and help that is available from State agencies
and organisations onto one Government website. This website would mean that
small businesses will have ready accessible information available to them.
However, the Government has made significant improvements since the Task
Force recommendations in 1994, this is highlighted in the results of the findings
in the questionnaire where eight of the firms surveyed found Government
agencies to be either helpful or very helpful, while 38% found them to be very
helpful.
The Task Force report concluded since the 1970’s small businesses have
become the “net creator of jobs”. The government agencies should place greater
emphasis of fostering an entrepreneurial culture. This idea should not be left
until people are already in business, but an enterprise culture should start at a
much earlier stage. The development of innovative programmes in secondary
schools should be emphasised to create a sense of enterprise in the students.
Further development of transition year in secondary schools would be a
significant step in this direction, also many more schools should be encouraged
to participate in The Young Entrepreneurs Competition. This competition is a
regional competition where secondary level students are encouraged to set up
their
own businesses.
By encouraging younger people to
46
foster
an
entrepreneurial culture, we are setting the way to help and promote the Small
Firms sector for the future.
Chapter 4 identified some of the barriers to growth that are synonymous with
small firms. The first issue addressed was finance, previous literature concluded
that small firms find it difficult to obtain loans from lending sources.
While
(Kinsella 1994)) indicated that the problem is not as a pervasive as it once was,
because from Kinsellas finding eighty-five percent of respondents claimed never
to have been refused finance from external institutions. The results of the
questionnaire would agree with these findings that owner/managers do not have
difficulty in obtaining loans, because 50% of respondents received loans from
the banking industry. However, (Hall 1989) contends that small firms are often
charged more than larger firms and a greater level of security is required. The
authors findings back this statement, due to the fact of the respondents who
received a loan a surprisingly 81% were charged a higher rate of interest than
the normal lending rate. In conjunction to this answer 76% needed asset backing
and 23% needed to provide personal guarantees to obtain their loans.
Therefore, it would perhaps be advisable if all small businesses who wished to
secure a loan at the start up stage were charged a one percent lower interest
rate, then all commercial lending rates. The level of asset backing and personal
guarantees needed by small firms to obtain a loan needs to reduced, the level of
backing needed should in every case depend on the individual application. This
will act as an incentive for entrepreneurs who wish to start their own business.
the system of subsidised loans at a lower interest rate should be introduced as an
alternative to grants in most cases.
Chapter 6 took an in-depth look at the improvements that the major Irish banks
are suppose to be implementing, however if the results from the questionnaire
are taken to be conclusive, then small business owners are still being charged a
higher interest rates and larger levels of personal guarantees are still needed to
secure a loan. Then perhaps the banks are not putting theory into practice and
the new schemes/funds are just for public appearance so it appears that the bank
are acting proactive towards small businesses. The Central Bank needs to
investigate if whether or not banks are actually offering these new lending rates
to small firms, or is it just all for public appearance.
The Joint Committee On Small Businesses (April 1997) found that many ^
entrepreneurs consider the business plan as a persuasion to and of no real
importance once a loan had been secured. The findings from the survey back
this statement, the survey examined the use made by respondents of business
planning. While a large number of respondents, 77%, had drawn up a business
plan at the start up stage, a surprising 23% of firms had no business plan. Of the
firms who had a business plan the majority, 70%, had only planned one to three
years ahead and only 30% were for a period of five years and more. Also when
asked had the business kept to their business plan, 52% of firms had not and
22% of the firms did not draw one up because they did not know what one was.
The author recognises there is a need to shift the emphasis away from providing
money to providing skills that stress the importance of planning and control.
The author feels that the best long term results would stem from ensuring that
those enterprises which have been started have a fair chance of survival. This
can be achieved from comprehensive planning. The author states that the
Mentor Programme, where mentors are available to assist small business should
be extended and more awareness of the programme should be created.
The next section of the questionnaire dealt with the staff, the first section set out
to establish information about which sector the firms operated in, the number of
staff they employ and how long the firm has been in existence before. In relation
to the sector that firms operated, 22% operated in the industrial sector, 13% of
firms were in the technical sector , 9% of firms were in both the clothing and
catering industries with the largest proportion, 45% operated in the services
sector. 54% those surveyed were based in urban areas and 46% were rural
based. The survey established 65% of the firms had been in business for fours or
more while 35% had been in business for one to three years, also 22% of firms
had been in business for seven or more years.
In Chapter 3 the issue of peripheral workers was discussed, (Bosworth 1992)
contended that the extent of small businesses growth may be masked by the
tendency o f small firms to employ peripheral workers.
The findings of the
survey support this idea, as three quarters o f those surveyed engaged peripheral
workers. From this result the growth of a company should not be measured by
the number of employees that a firm employs because the true growth size may
49
never be established if the firm employs peripheral workers. Instead a companies
performance should be measured on their financial performance.
El Namaki (1990) stated that small businesses have a selective approach to
training and they are often skeptical of the benefits of training. The results of
the questionnaire relating to this section did not support this statement as 68%
of those surveyed provided additional training for their staff. However, 95%
were of the opinion that the government agencies did not provide adequate
training for small firms. The author sees this as one of the principal areas
needing attention, the benefits of training need to be intensively promoted
amongst small businesses. FAS the agency responsible for training and
development need to organise courses that are specifically tailored to meet the
needs of small businesses in regard to content and timing. This could be
accomplished by the setting up of training courses in local areas at times when
people can attend. This could mean weekend, morning or evening training
depending on the availability of participants.
The large amount of labour legislation may also act as a barrier to growth
(Bannock 1981 & (Kinsella 1994).
Of those surveyed 60% said they found
labor legislation difficult to implement, with 70% of respondents having the
greatest difficulty in implementing Contracts of Employment. Chapter 6 the new
Employment handbook for employees and employers which was launched on
the 1st of November 1999 was discussed. However, the benefits of the Guide
are yet to be seen for the simply reason that the survey for this research was
50
carried out in March 2000 and still 60% of those surveyed still found it difficult
to implement labour legislation. This shows that many employers are still
unaware of the existence of the handbook. It is felt that the Government should
place greater emphasis on creating awareness about any new publications that
are or will be published in the future. It is recognised that even with maximum
simplification of legislation that employers must comply with, it is still a
complex and time consuming process. The author also wishes to emphaise the
need for advance notification to small businesses of the introduction of new
regulations so that they may not be caught unaware and so that they are able to
prepare in advance for whatever adjustments are necessary.
(Kinsella 1994) found that a major problem experienced by Irish small
businesses attempting to grow, was the time constraint experienced when it
came to form filling. The author suggests that a government website where
businesses can conduct all form filling over the Internet would prove beneficial.
Electronic filing of forms would reduce the time constraint imposed on
owners/managers when it came to complying with labour legislation.
The results that have come to light from the this research are that
• Small firms suffer from a lack of knowledge about the different support
mechanisms that are in place to help them.
• Finance will act as a barrier to growth, especially interest rates and asset
backing or personal guarantees that may be needed to secure a loan
• Owners/managers of small firms are not familiar with the importance and
uses of business planning.
51
• The implementation of labour legislation by employers acts as a barrier to
growth.
• Government agencies do not provided adequate training for small firms.
It is acknowledged the improvements and recommendations that
the
Government has made to date. In conclusion, the author hopes that some of
these findings and recommendations that have been discussed in this chapter
may help small businesses to grow and prosper. Government Agencies and
Organisation need to create public awareness about the activities they provided
for small firms. “One Stop Shop” could be established to deal with all state
assistance that is available. Emphasising the importance of an Enterprise
Culture. A 1% lower interest rate for small firms then the normal commercial
lending rate. The situation where the level of asset backing in when applying for
a loan depends on the individual application. Giving the Central Bank the
authority to investigate if the banking industry is actually implementing their
new schemes and loans. Further expansion of the Mentor Programme. FAS
courses that are tailored to suit the times of owners/managers. Public
enhancement of Government literature. Amalgamation of all Government
documentation relating to small firms on to one Government website.
52
Bibliography
• Bailey, D., Method of Social Research, New York, Free Press London: in Collier
Macmillan (1978) Doing your own Research by Eileen Kane.
• Bannock, G. (1981) “The Economics o f Small Firms ”, in Basil Blackwell, Return
from the Wilderness, Oxford.
• Binks, M. (1979) “Finance fo r Expansion in the Small Firm”, Lloyds Bank
Review, October (1979).
• Bosworth, D. (1989) “Barriers to Growth: The Labour M a r k e t, in Barber, J,
Metcalfe, J.J. and Porteous, M, Barriers, Barriers to Growth in Small Firms, (Eds)
(Routledge 1989).
• Churchill, N.C. (1983) “Entrepreneurs and their Enterprises: A Stage Model ’', in
Research Vesper et Al, Frontiers of Entrepreneurship, (Eds) (Babson).
• Churchill, N.C. and Lewis, V. (1983) “The Five Stages o f Small Business
Growth ”, in Harvard Business Review, (May/ June 1983).
• Delaney, P. (1999) “Planning and Finance Guide”, in Running Your Business
Success Strategies for Small Business, Vol 5 No 2.
• Department of Enterprise, Trade and Employment, Annual Report on Small
Business in Ireland (1997), Small Business and Service Forum, pp88.
• Department of Enterprises, Trade and Employment, Annual Report on Small
Business in Ireland (1997), Small Business and Service Forum, pp82-83.
• European Centre for Development of Vocational Training (1992), National
Reports from Ireland, Denmark and the Netherlands, Berlin 1992.
•
“Employment Law Publication ’ (2000), in Running Your Business Success
Strategies For Small Businesses, Vol.5 No.6.
Government of Ireland (1994) Task Force Report on Small Business (1994),
Stationery Office, Dublin.
Hall, G. (1989) “Lack offinance as a Constraint on the expansion o f Innovatory
Small Firm s”, in Barber, J, Metcalfe, J J. and Porteous, M, (Eds) (Routledge
1989).
Hoy, F. and Carland, J.W.Jr (1982) “Differentiating Between Entrepreneurs and
Small Business
Owners”, in New
Venture
Formation
in Frontiers
of
Entrepreneurship Research, (Eds) (Babson 1982).
Irish Independent Newspaper (2000), 19th of January, pp 11.
Kinsella, R.P et A1 (1994) Fast Growth Small Firm: An Irish Perspective, Irish
Management Institute.
McGee, J. (1989) “Barriers to Growth in Small Firms: The Effect o f Market
Structure” in Barber, J., Metcalfe, J.J. and Porteous, M., Barriers to Growth in
Small Firms, (Eds) (Routledge 1989).
Mulrennan F (2000) “How the next ten years will transform Irish Business ”, in the
Irish Independent Business, 19th of January 2000, ppl 1.
National Development Plan (1994-1999), Dublin, pp39.
National, Economic and Social Council (NESC) (Nov 1993), A Strategy for
Competitiveness, Growth and Employment, Dublin,
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Centre for the Development of Vocational Training, pp7.
Storey, D.J. (1983) “The Problems Facing New Firm s”, in the Journal of
Management Studies, 23rd ofMarch 1983.
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Timmons, J. (1994) “A New Venture Creation: Entrepreneurship fo r 21st
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Walsh, D. (2000) “The Business Plan Revisited”, in Running Your Business
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WWW- INTERNET REFERENCES
FAS: (http://www.fas.ieV
Enterprise Ireland: (http:// www.enterprise-ireland.com).
An Bord Trachtala: (http://www.irish.trade.ie).
Small Firms Association: (http://www.smal! firms ass.ieY
Section A: Finance
1. How was the business financed at the start-up stage ?.
Personal Finance □
Loan □
Grant □
Mortgage □
Other □
2. (A) If a Loan was received what rate of interest were you charged ?.
________ %
(B) Was this rate above the normal lending rate ?
Yes □
NoD
3. Was asset backing or personal guarantees needed ?.
Yes □
No □
4. (A) Are you aware of all of the State Agencies and Organisations that offer
support to small firms ?.
Yes □
No □
4. (B) If a grant was received who was it from ?.
Udaras Na Gaeltacha □
Shannon Regional Development programme □
Forbairt □
Other Organisations □
5. On a scale of 1-5 how dependent were you on receiving grants ?. □
(1 not dependent 5 is totally dependent.)
6. Was it difficult to receive the grant ?.
Yes □
NoD
7. (a) Did you have to contact a Government agency for financial advice ?.
Yes □
No □
7. (b) On a scale of 1-5 how helpful were they ?. □
(1 not helpful 5 is very helpful.)
8. When starting up your business did you draw up a business plan ?.
Yes □
No □
9. How far ahead did you plan ?.
1 year □
1-3 years □
5 or more years □
10. (a) If you did not draw up a business plan why did you not draw one up ?.
Not necessary for the type of business.^
Did not know what one was.D
Insufficient time.D
Other □
(b) If you did, did the business grow according to the business plan ?.
Yes □
NoD
Section B : Staff
11.(a). What sector do you operate in ?.
Clothing □
Service □
Industrial □
Technical □
Catering □
11.(b). Location ?.
Urban □
Rural □
12. How long have you been in business for ?.
1-3 years □
4-6 years □
7 or more years □
13 (a). How many staff do you employ ?.
I to 10 □
II to 20 □
21 to 30 □
> 30 □
13 (b). What category best describes the type of staff you employ ?.
Part-time □
Temporary □
Casual □
Home workers □
Full-time □
14. (a) Do staff receive additional training once employed ?.
Yes □
Non
14 (b). If you answer Yes, why do you see training as being necessary ?.
15. Do you think government agencies provide adequate training courses for
small firms?.
Yes □
NoD
16. (a) Do you find labour legislation difficult to implement ?.
Yes □
NoD
16 (b) If you answer Yes, in which area is it most difficult to implement ?.
Maternity □
Recruitment □
Dismissal □
Contracts of employment □
All of the above □
Carole Leamy
2 Brighton Avenue,
Rathgar,
Dublin 6.
Ph: 4964985
Date:
Dear Sir/Madam,
I am student in my final year at the National College of Ireland studying for a B.A in
European Business and Languages. As part of my final year I have to complete a
dissertation and I have decided to investigate what growth problems do small firms
experience.
The questionnaire will be sent to 30 small firms, I would appreciate if you could fill out
the questionnaire to the best of your ability. Any information received will be treated
with the strictest o f confidence. I would be grateful if you could complete it as soon
possible and return it using the stamped addressed envelope that is enclosed. I thank you
for your co-operation.
I look forward to hearing from you
Carole Leamy.