Small Businesses - Big Obstacles

Everyone is talking about small businesses. In 1993, when it was allowed, more than 90,000 new firms were registered by individuals. Now, less than three years later, official figures show that only 40,000 of them still pay their dues and present annual financial statements. These firms are called "active" - but this is a misrepresentation. Only a very small fraction really does business and produces income.

Why this reversal? Why were people so enthusiastic to register companies - and then became too desperate to operate them?

Small businesses is more than a fashion or a buzzword. In the USA, only small businesses create new jobs. The big dinosaur firms (the "blue-chips") create negative employment - they fire people. This trend has a glitzy name: downsizing.

In Israel many small businesses became world class exporters and big companies in world terms. The same goes, to a lesser extent, in Britain and in Germany.

Virtually every Western country has a "Small Business Administration" (SBAs).

These agencies provide many valuable services to small businesses:

They help them organize funding for all their needs: infrastructure, capital goods (machinery and equipment), land, working capital, licence and patent fees and charges, etc.

The SBAs have access to government funds, to local venture capital funds, to international and multilateral investment sources, to the local banking community and to private investors. They act as capital brokers at a fraction of the costs that private brokers and organized markets charge.

They assist the entrepreneur in the preparation of business plans, feasibility studies, application forms, questionnaires - and any other thing which the new start-up venture might need to raise funds to finance its operations.

This saves the new business a lot of money. The costs of preparing such documents in the private sector amount to thousands of DM per document.

They reduce bureaucracy. They mediate between the small business and the various tentacles of this squid called The Government. They become the ONLY address which the new business should approach, a "One Stop Shop".

But why do new (usually small) businesses need special treatment and encouragement at all? And if they do need it - what are the best ways to provide them with this help?

A new businesses goes through phases in business cycle (very similar to the stages in human life).

The first phase - is the formation of an idea. A person - or a limited group of people join forces, centred around one exciting invention, process or service.

These crystallizing ideas have a few hallmarks:

They are oriented to fill the needs of a market niche (a small group of select consumers or customers) , or to provide an innovative solution to a problem which bothers many, or to create a market for a totally new product or service, or to provide a better solution to a problem which is solved in a non-efficient manner.

At this stage what the entrepreneurs need most is expertise. They need a marketing expert to tell them if their idea is marketable and viable. They need a financial expert to tell them if they can get funds in each phase of the business cycle - and wherefrom and also if the product or service can produce enough income to support the business, pay back debts and yield a profit to the investors. They need technical experts to tell them if the idea can or cannot be transformed to reality and what it requires by way of technology transfers, engineering skills, know-how, etc.

Once the idea has been shaped to its final form by the team of entrepreneurs and experts - the proper legal entity should be formed. A bewildering array of possibilities arises:

A partnership? A corporation - and if so a stock or a non-stock company? A research and development (RND) entity? A foreign company or a local entity? And so on.

This decision is of cardinal importance. It has enormous tax implications and in the near future of the firm it greatly influences the firm's ability to raise funds in the foreign capital markets. Thus, a lawyer must be consulted who knows both the local applicable laws and the foreign legislation in markets which could be relevant to the firm.

This costs a lot of money. One thing that entrepreneurs are in short supply of - is money. Free legal advice will be highly appreciated by them.

When the firm is properly legally established, registered with all the necessary authorities and has appointed an accounting firm - it can go on to tackle its main business: developing new products and services. At this stage the firm should adopt Western accounting standards and methodology. The Macedonian accounting system leaves too much room for creative playing with reserves and with amortization. No one in the West will give the firm credits or invest in it based on local financial statements.

A whole host of problems faces the new firm immediately upon its formation.

Good entrepreneurs do not necessarily make good managers. Management techniques are not a genetic heritage. They must be learnt and assimilated. Today's modern management includes many elements: manpower, finances, marketing, investing in the firm's future through the development of new products, services or even whole new business lines. That is quite a lot and very few people are properly trained to do the job successfully.

On top of that, markets do not always react the way entrepreneurs expect them to react. Markets are evolving creatures: they change, they develop, they disappear and re-appear. They are exceedingly hard to predict. The sales projections of the firm could prove to be unfounded. Its contingency funds can evaporate.

Sometimes it is better to create a product mix: manufacture well-recognized products which will sell well for sure - side by side with innovative products.

I gave you a brief - and by no way comprehensive - taste of what awaits the new business and its initiator. You see that a lot of money and effort are needed even in the first phases of creating a business.

How can the Government help?

It could set up an "Entrepreneur's One Stop Shop".

A person wishing to establish a new business will go to a government agency.

In one office, he will find the representatives of all the relevant government offices, authorities, agencies and municipalities. He will present his case and the business that he wishes to develop. In a matter of few weeks he will receive all the necessary permits and licences without having to go to each of the offices separately.

Having finalized the obtaining of licences and permits and the registration with all the appropriate authorities - the entrepreneur will move on to the next room in the same building. Here he will receive a list of all the sources of capital available to him both locally and from foreign sources. The terms and conditions of the financing will be specified near each and every sources. Example: EBRD - loans of up to 10 years - interest between 6.5% to 8% - grace period of up to 3 years - finances mainly industry, financial services, environmental projects, infrastructure and public services.

The entrepreneur will select the sources of funds most suitable for his needs - and proceed to the next room.

The next room will contain all the experts necessary to establish the business, get it going - and, most important, raise funds from both local and international institutions. For a symbolic sum they will prepare all the documents required by the financing institutions as per their instructions.

But entrepreneurs in Macedonia are still fearful and uninformed. They are intimidated by the complexity of the task facing them.

The solution is simple: a tutor or a mentor will be attached to each and every entrepreneur. This tutor will escort the entrepreneur from the first phase to the last.

He will be employed by the "One Stop Shop" and his role will be to ease life for the novice businessman. He will transform the person to a businessman.

And then they will wish the entrepreneur: "Bon Voyage" - and may the best ones win.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

In The News:

Small Business Struggles  NBC4 Washington

11 Things Small Business Owners Can Learn From Punxsutawney Phil

1. Look Over Your Shoulder ? Of course, Punxsutawney Phil... Read More

Canon City, Colorado - Good for Small Business

Canon City, Colorado is known for it's 6 Prisons; State... Read More

Top 7 Small Business Tax Tips

Here are seven ways for owners of small businesses to... Read More

Too Many Lawyers in Franchising Today

Attorneys and Lawyers are ruining the franchise industry. It is... Read More

How to Raise Your Fees and Thrill Your Customers

Think the best way to get more customers is to... Read More

Small Business Opportunities Magazine Business

A Small Business Opportunities Magazine is one of the new... Read More

Reclaim Equipment Detailing Industry and NPDES, EPA, Storm Water Rules

It behooves every professional mobile auto detailer to stay up... Read More

What Help is there for Veterans Starting a Business?

Some of the very qualities that attract people to the... Read More

Dealing With a Crooked on the Take Government Worker

Many government department heads are on the take. Oh they'll... Read More

Self Serve Car Washes in the United States

In the 2003 Auto Laundry News Survey it was determined... Read More

Book Yourself Solid Key #5: Go Forward With Gusto & Articulate What You Do

Want your small business to flip instead of flop?! Statistically... Read More

Professional Car Care Businesses You Can Start

If you are in the professional car care business you... Read More

Starting a Small Business: Balancing Risk and Reward

In a perfect world, starting a small business would be... Read More

Franchise Buyers from Hell

I ran a franchise company for many years, a car... Read More

Is Your Business Property Safe and Secure?

Security Professionals provide the products and services necessary to create... Read More

More Rules for Franchising?

The FTC- Mighty Federal Trade Commission has unilaterally decided to... Read More

Why Small and Medium-Sized Businesses Should

As the owner or an employee of a small-to medium-sized... Read More

Going Public: Now that You Have Successfully Made the Transition, What Do You Do?

Ok, you have successfully accomplished your dream of being the... Read More

Business Development Is Not An Event

Cash flow. To stay in business, you've got to keep... Read More

10 Ways to Start a Business on a Budget

If you've been thinking about starting a business, but are... Read More

Business Relationships Defined

What makes a business relationship?What really makes a business relationship?... Read More

Pressure Washer Companies and Steam Cleaner Maintenance

If you run a pressure washing business it is a... Read More

Starting a New Business in a Small Town

Q. I am a former pastor who left the ministry... Read More

Small Business Secrets: Self-Confidence Can Be Arranged

At first blush this idea might be difficult to wrap... Read More

Common Mistakes When Planning Your Medical Spa

Everything starts with a business plan: If you don't have... Read More