Full Project – Analysis of the causes of business failures in Nigeria and possible solution

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CHAPTER ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

Small and Medium Scale Enterprises (SME’s) are the backbone of virtually all economies of the world because of their role in employment creation and provision of personalized services (Wattanapruttipaisan, 2003). Small and Medium Scale Enterprises have strong influence on the sustainable development process of less develop countries as well as developed countries, because they foster economic growth and alleviate poverty (Ayyagari, Beck and Demirgue-Kunt, 2003).

The definition of business failure is quite complex and broad, but let start by defining failure.

Failure: Failure can result when an individual perform insufficiently with regards to some significant task, or when things in a certain situation do not fallout as they were planned to be (Politis and Gabrielsson, 2009).

Business Failure: From the economic point of view, business failure can generate large fluctuations in interest rate, credit, inflation, profit and business formation (Liu, 2009).

Failure in business is not something people often take calmly even though individuals tend to react to it differently on the entrepreneurs characteristics. This area of research has attracted much attention in recent time given its significance in term of costs associated with business failure.

Business is absolutely a complex activity. This is because it involves a lot of technicalities ranging from the task of planning to control of such plans in order to achieve the desire objectives of profit maximization.

Business can fail as a result of wars, recessions, high taxation, high interest rates, excessive regulations, poor management decisions, insufficient marketing, inability to compete with other similar businesses, or a lack of interest from the public in the business’s offerings. Some businesses may choose to shut down prior to an expected failure. Others may contribute to operate until they are forced out by a court order.

The Small Business Administration (SBA) new statistical findings show two-third of new businesses survive at least two years, and 44 percent survive at least four years. As a general rule of thumb, the SBA states new businesses have about a 40% chance of surviving for five years or more.

According to the National Federation of Independent Business (NFIB) over the lifetime of a business only 39% are profitable. Another 30% of business break even, the other 30% lose money 1% cannot say.

Also a study published in 2014 by Turnaround management Study Society, reveals that most crises are cause by the mistakes of top management. The most prominent causes of a crisis are that they continued with a strategy that was no longer working for the company, and that they lost touch with the market and their customers and did want to adapt to changes occurring around them.

The problem of business failure is now a great concern to managers, entrepreneurs, customers, and workers, and each play an important role in minimizing it. In order to minimize business failure, effects should be made to determine the causes of such failure and appropriate steps to reduce them to an acceptable proportion. This is the concern of this study.

1.2                   STATEMENT OF PROBLEMS

There are a lot of problems which this research work seeks to address, which are;

1. Poor attitude to personnel training and development is one of the problem that determine the failure of an organization.
2. Inadequate capital for expansion of business is another problem the organization under study is facing.
3. The employment of unskilled personnel is another problem faced by the organization under study. This result from the lack of technical know-how of the workers employed in the organization.
4. Poor marketing strategies of the organization is another problem faced by the organization under study. This result from the inability of the organization to market its product effectively to customers.
5. Poor Financial Management is another challenge faced by the organization under study. This is as a result of the firm unable to managed its cash flows effectively.

1.3                   STATEMENT OF OBJECTIVES

The following are the objectives of the study;

1. To determine the causes of small scale business failures.
2. To determine if poor management is the cause of small scale business
3. To educate the organization under study on the various factors responsible for business failure.
4. To proffer solutions to the causes of business failures, through the findings of suitable strategies that will help in reducing the risk of business failures         in Nigeria.
5. To examine the contributions of business organizations in Nigeria.

1.4                   RESEARCH QUESTIONS

In order to address the above stated problems, the following research questions are essential, hence they are reflected in the questionnaire.

1. Does the lack of training and development affect small scale business?
2. Does inadequate capital for expansion of business leads to small scale business failures?
3. Does the employment of unskilled personnel leads to business failures?
4. Does inadequate marketing strategies affect small scale business?
5. Does poor financial management in the organization results to business failure?

1.5                   RESEARCH HYPOTHESIS

1. Ho: Lack of personnel training and development does not affect small scale business.

Hi: Lack of personnel training and development affects small scale                              business.

2. Ho: Inadequate finance does not affect small scale business.

Hi:            Inadequate finance affects small scale business.

3. Ho: Lack of technical know-how does not lead to business failures.

Hi:            Lack of technical know-how leads to business failures.

4. Ho: Inadequate marketing strategies does not results to business failures.

Hi:            Inadequate marketing strategies results to business failures.

1.6                   NEEDS AND SIGNIFICANCE OF THE STUDY

The study is very important to the organization under study on the causes of business failures in Nigeria. Information gathered from the study could be used by managers of small and medium scale enterprise (SME) for planning appropriate measures for business growth and survival as well as the effective allocation of resources.

To students or any other researcher, it will provide them with vital information concerning strategies for small scale business survival and also broaden their knowledge.

Also, it will provide basis for which further research could be conducted.

Finally, it is believed that the research study will be of great use to the general public by expanding their knowledge on small scale business failure and its possible solutions.

1.7                   LIMITATIONS AND DELIMITATION OF THE STUDY

The limitation likely to be encountered while carrying out this research work are as follows;

1. TIME FACTOR: This is one of the limitations encountered by the researcher in the process of carrying out the research work, because the time         allocated for the research work is limited, which often clash with the time when the researcher goes to class for lecture, and also the time used in   preparing for test and examination.
2. LACK OF FINANCE: Lack of finance is also a limitation encountered in the cause of conducting this research work. The researcher has limited      finance in sourcing out for relevant information from the internet, and also             in printing out some documents online.
3. LACK OF RELEVANT MATERIALS: This is also another constraint encountered by the researcher due to the library not well equipped with     recent textbooks, journals and magazines needed or required.
4. LACK OF RESPONSES FROM THE RESPONDENTS: This is another limitation likely to be encountered by the researcher as the respondents     might not want to disclose adequate information, they might want to keep the information to themselves as secrets information that are relevant to this      research work.

DELIMITATION

The purpose of this research work was to cover different small scale business in Nigeria, but due to time factor and other constraints, the study will be limited to a particular small scale business organization (The Directorate of Entrepreneurship Education and Development ‘DEED’ Federal Polytechnic Bida), which serves as the case study of this project, in order to ensure convenience and also the effectiveness of the research.

1.8                   DEFINITION OF TERMS

SME’s: Small and Medium Scale Enterprises

SBA: Small Business Administration

NFIB: National Federation of Independent Business

DEED: Directorate of Entrepreneurship Education and Development

NBCI: Nigeria Bank for Commerce and Industry

SMEDAN: Small and Medium Enterprise Development Agency of Nigeria.

CSR: Corporate Social Responsibility

BOI: Bank of Industry

DEBIT: A sum of money taken out of an account

STANDARDIZATION: The process of complying (or evaluate by comparing) with a standard.

DIAGNOSTIC SKILL: Ability to visualize appropriate responses to a situation

CONCEPTUAL SKILL: Used to analyze complex situations

CASH FLOW: A measure of an organization’s liquidity that usually consist of net income after taxes plus non cash charges against income.

LOW-COST: A small amount for the price of production, or expenditure made to achieve an object.

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Full Project – Analysis of the causes of business failures in Nigeria and possible solution