Entrepreneurial activity is one of the best practices that people can embrace to promote economic development, fight poverty, and increase upward social mobility. Many learning institutions and welfare programs take this issue seriously. The ultimate objective has been to equip the greatest number of people with business competencies and make them successful. Such initiatives have supported the proliferation of small and medium-sized enterprises (SMEs) in different parts of the world. SMEs play a significant role in every economy or society.
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However, there are numerous obstacles that affect new business ventures. This paper gives a detailed discussion of the entrepreneurial challenges that emerging or new family businesses face. It goes further to identify the major sources of funds for such ventures and their respective disadvantages and advantages.
New businesses will encounter specific hurdles or challenges that entrepreneurs should address in a timely manner. Kvedaraite encourages individuals who are planning to start their SMEs to focus on emerging issues if they want to achieve their objectives (4). New family businesses or ventures might be unable to achieve their potential when entrepreneurs fail to make appropriate decisions. A proper understanding of every predicament is something critical since business owners will find it easier to implement appropriate business or mitigation strategies.
The first outstanding challenge is that of funding. Aydın indicates that many startups find it hard to acquire adequate funds that can support various operations and ensure that targeted customers receive timely and superior products or services (20).
Individuals planning to start such businesses might use their personal savings or borrow some money from relatives and banks. However, most of these sources might be unreliable and unpredictable. Eventually, the entrepreneur might decide to start the targeted business without adequate funds, thereby making it possible to achieve the intended objectives. It is, therefore, appropriate for businesspeople to be aware of this potential challenge before starting their ventures.
With the levels of unemployment increasing in different parts of the world, family members tend to view new ventures associated with their relatives as opportunities to get new jobs. This means that pressure to work with family members is a major challenge that can affect the future performance of a given business (Kvedaraite 9). The situation worsens when the individuals planning to work for the entrepreneur lack appropriate competencies or skills to improve performance.
Additionally, many people planning to start their businesses tend to lack adequate training or knowledge. This happens to be the case since many individuals with appropriate entrepreneurial skills find it easier to get formal jobs. Those who are unemployed will eventually decide to start their own businesses (Aydın 20). However, they usually lack adequate competencies, thereby making it impossible for them to apply appropriate managerial, leadership, or entrepreneurial competencies.
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Another challenge many new family-owned businesses encounter is the absence of resources for business growth. Without adequate funds, a given SME might fail and be unable to address the unique needs of the targeted customers or clients (Peris-Ortiz and Sahut 48). This means that entrepreneurs should focus on this issue and make relevant decisions if they are to record positive results and support their stakeholders.
Family businesses bring together many people who are connected by blood. The occurrence of an event that might affect one of the members will have negative impacts on the venture. For example, a person going through a torturous event such as a divorce will be unable to separate his feelings from the business. The main focus of the business might change when such scenarios emerge (Peris-Ortiz and Sahut 62). This challenge can affect the growth pattern and profitability of the targeted venture. Any new business that encounters this issue or problem will eventually collapse.
Role conflict is a major predicament that makes it impossible for small ventures to deliver the intended results in a timely manner. Some family members can come together, share resources, and start a small business successfully. Kvedaraite acknowledges that such a procedure can make it possible for the partners to achieve their goals (11). However, chances are quite high that their relatives or friends will expect to be part of the process and earn a living. Such a development means that most of the individuals will be unaware of their unique roles and responsibilities in the new business. This is something that can result in confusion, thereby making it impossible for the venture to succeed.
A new venture will lack an appropriate organizational culture or business model. The entrepreneur will, therefore, waste time figuring out how to manage the business and record profits within the shortest time possible. The involvement of different family members will complicate the situation since it might be hard for the owner to dictate or control their behaviors, practices, and activities (Aydın 21). The business will lack an effective model that is capable of informing the best procedures and strategies to drive performance.
The absence of defined business processes is an outstanding challenge many small family businesses face. At the very beginning, entrepreneurs lack appropriate ideas and incentives regarding the formulation of effective supply chain procedures, managerial practices, problem-solving and decision-making mechanisms, and customer satisfaction initiatives. This means that the small business will be unable to acquire the required materials or supplies as anticipated. It will also be impossible to make evidence-based decisions that can eventually support the intended objectives (Njegomir et al. 299).
It would, therefore, be appropriate for entrepreneurs to analyze these challenges and implement suitable mechanisms to address them. The ultimate objective should be to pursue all operations diligently. Such an approach will promote performance and make it possible for the small business venture to achieve its aims.
Sources of Funds for Entrepreneurial Start-Ups
Entrepreneurs planning to start new businesses require adequate funds in order to achieve their goals. According to Kvedaraite, selecting the most appropriate funding source is something that can make the business successful and prevent subsequent challenges that might affect performance (12). Investors or businesspeople should identify the major sources of funds and make the most appropriate decisions. Since all options have their unique disadvantages and benefits, entrepreneurs should consider all of them in an attempt to make informed decisions and eventually achieve their intended objectives. The major sources of finance available to individuals planning to start their small enterprises are presented below.
Personal Earnings and Savings
Many people make a choice to save some money for their future business interests. This becomes a reliable source of funds for entrepreneurs planning to start a SME. A person’s assets can be liquidated in order to get enough money for investing in a particular venture. Experts encourage young people to save enough funds depending on the nature and size of the intended business (Njegomir et al. 299). This knowledge is necessary since it empowers entrepreneurs to pursue their goals diligently and make appropriate decisions.
There are several advantages associated with this financial source. The first one is that it is less risky in comparison with the ones presented below. For instance, a person who has adequate assets and savings will not worry about interest rates or wait for legal or procedures associated with loans (Kvedaraite 14). Since this is not a loan, the entrepreneur will not be required to pay interests or returns. Another unique benefit is that personal savings can be acquired much faster or without risks.
For example, individuals can deduct a fraction of their salaries and use the accrued amount to start the intended business. However, there are specific bottlenecks that make this source unreliable. The first one is that the invested amount will be lost when the business collapse. The second one is that personal savings might not be available to all individuals planning to start a small business venture.
The second potential source of finance for starting a family business is that of bank loans. There are numerous financial institutions that provide small loans to individuals intending to start small business ventures. This source empowers individuals who lack adequate income sources and make it easier for them to achieve their potential. It is associated with several advantages. The first one is that any person can get a loan and use the money to start a business (Kvedaraite 14).
The second advantage is that those who borrow loans from banks have reduced chances of being pronounced bankrupt whenever their businesses fail to deliver the intended results. These aspects explain why many investors borrow loans in an attempt to achieve their business objectives.
However, there are specific challenges or disadvantages that all individuals planning to borrow money from financial institutions should consider. The first one is that a form of security is needed before getting the amount. This means that the individual will lose the specific asset if he or she fails to repay (Peris-Ortiz and Sahut 58). Another outstanding challenge associated with bank loans is that every beneficiary will have to pay some interest. This means that the refunded amount will be higher than the one received. The third disadvantage is that those who get loans must repay even if their businesses fail.
Many governments across the world understand that SMEs play a significant role in promoting economic development and minimizing the negative impacts of poverty. This understanding explains why there are agencies or programs whose role is to offer grants or loans to citizens planning to start small businesses. The same applies to entrepreneurs who intend to expand their existing small companies (Njegomir et al. 301). Individuals who manage to acquire such grants will be able to do business and transform their lives.
These government grants present several advantages. The first one is that they are free, thereby making it possible for many citizens to address the challenges arising from poverty or unemployment. It is important to note that government loans are usually available at reduced interest rates (Peris-Ortiz and Sahut 103). This means that those who get them will be required to pay minimal interests in comparison with those who receive loans from financial institutions.
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Those who acquire such grants will find it easier to achieve their potential. On the other hand, there are specific disadvantages that make this financial source unreliable. Firstly, grants might not be available to all business types since numerous policies or laws dictate them. Secondly, those who prefer government loans will eventually have to pay it back plus the accrued interest.
Friends and Members of the Family
Since small startups do not require huge funds to start and manage, entrepreneurs can encourage their fronds and family members to offer financial donations and support the suggested business agenda. It is necessary for those who are planning to have such startups to design appropriate business plans and budgets in order to get adequate money (Peris-Ortiz and Sahut 72). Entrepreneurs who are unable to save enough funds can also consider this source to achieve their aims.
The first advantage is that an entrepreneur will get adequate money more quickly. The second one is that there is no interest required. Another benefit is that the individual will benefit from the investment terms prescribed by those how have offered their donations (Njegomir et al. 301). However, this source presents specific disadvantages. These include immense pressure from relatives to succeed and its unreliability.
The above discussion has presented numerous ideas and insights that all people planning to start a new business should take seriously. They should be aware of the leading challenges that many family-owned startups face and use evidence-based strategies to deliver positive results. It is also appropriate to identify the most appropriate sources of funds, depending on the targeted business objectives. These practices will ensure that more individuals start, manage, and grow their small enterprises successfully.
Aydın, Nurhan. “Startup-State Financing of Innovative Ventures: The Case of UNNADO.com.” International Journal of Education and Social Science, vol. 2, no. 12, 2015, pp. 19-23.
Kvedaraite, Nida. “Reasons and Obstacles to Starting a Business: Experience of Students of Lithuanian Higher Education Institutions.” Management, vol. 19, no. 1, 2014, pp. 1-16.
Njegomir, Vladimir, et al. “Alternative Sources of Financing Entrepreneurial Undertakings in Agriculture.” Alternative Sources of Financing Entrepreneurial Undertakings in Agriculture, vol. 64, no. 1, 2017, pp. 295-306.
Peris-Ortiz, Martha, and Jean-Michel Sahut, editors. New Challenges in Entrepreneurship and Finance: Examining the Prospects for Sustainable Business Development, Performance, Innovation, and Economic Growth. Springer Shop, 2015.