Chapter One 1

March 10, 2019 Philosophy

Chapter One

1.1 Introduction
In this study we are going to explore possible factors leading to failure of Small to Medium businesses. In today’s economic environment Small to Medium enterprises is viewed as a driving for the growth of economies (Wenneckersa and Thurick, 1990). Small firms are defined on the grounds of measure such as the size of the business, amount of turnover and the number of employees, other various basis depending on the context and relative industry that has been used. However it is imperative to note that it is rather difficult to define what really a small business is as this has led to rather conflicting views (ACCA2010). These small to medium businesses consist a larger proportion of the total employment in most economies in the world, especially in developing countries. In Zimbabwe, small to medium enterprise faced many challenges in 2008 because of the rise in inflation which caused to the fall of these businesses. Without access to capital these SME’s may collapse.
According to (Rostow, 1960) promotion of infant industries is one of the major drivers behind the success of industrialization in Europe. . Thus with this notion in mind the giant economies which we are familiar with in today’s business environment have evolved over the years aiding small firms and nurturing those which have just been established. SME’s find it difficult to obtain bank loans as compared to larger firms; instead, all their funds are obtained from internal funds, or borrow cash from family and friends so as to run their business effectively and efficiently. Small firms have less collateral security and hence they find it difficult to obtain formal credit from financial institution and other money lenders. One of the major causes of corporate failure is lack of sufficient funds. Other internal causes include lack of managerial experience, lack of functional skills, lack of capital, poor customer relations, poor location and poor staff training. More over there are some external factors which include competition, poor economies of scale, unfavorable government policies and high cost of production. In Zimbabwe many small to medium firms operate in the informal sector and hence the management does not have that know how on how to manage their resources, for example managing their cash flows. Many profitability businesses find notice that they are insolvent due to uneven cash flow because not all businesses in that sector keep proper accounting records as they find it expensive to employ and accountant to do proper accounting and book keeping.
1.2 Background of the study
This research will look at the causes of failure in small businesses in Zimbabwe. Small to medium businesses are a backbone many economies in the world. Small businesses are still having a major challenge to overcome the failure rate among the small businesses as illustrated by Buckley (1998:87) ; Kinunda-Rutashobya & Olomi (1999). In Zimbabwe small businesses constitute more than 60% of the country’s labor force and the GDP contributed is 50%.
During the 1060s, 70s and 80s there was a growing awareness of the important social and economic rules played by small business sector in Zimbabwe. Most small businesses that were started in the early 1990s no longer exist because they failed to go beyond the survival stage. Failure rate of small to medium enterprises is partially attributed to lack of financial that these businesses experience. In the past, the Zimbabwean government did not give financial support to the small business sector in the economy. However the government gave big companies financial support than SMEs. Many SMEs failed due to extreme high levels of inflation in Zimbabwe in the 2008 to 2010 period. Inflation rate was uncontrollable. However the government of Zimbabwe overcame the problem at hand by launching the Zim-Asset Blueprint which aims at empowering local businesses and prevents the country’s economy to depend upon foreign businesses.
It is evident that from the time the government gained independence the government has been trying to address the inequalities within the economic system through various policies such as the Economic Structural Adjustment Program (ESAP) and also the Indigenisation policy just to mention a few . All these reforms have been implemented for the following reasons noted below:

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• To improve the country’s economic diversity by empowering indigenous Zimbabweans with equal opportunities, be it social, economical and financial.

• Creation of a self sustaining economic structure without much foreign dependence
• Improve chances and opportunities of indigenous participation in investment and business ownership

All the above measures were taken by government in order to encourage entrepreneurship among indigenous Zimbabweans with an aim to ensure more and more individuals are encouraged to venture into business and self employment. All these measures however, taken by the Zimbabwean government clearly endured various degrees of success on the contrary.

The Zimbabwean government’s ultimate recognisation of the key importance of small firms came in the formation of a government agency Small Enterprise Development Corporation (SEDCO).This agency was formed in 1984 and its sole purpose is to ensure that emerging and operational small enterprises are supported in each and every manner possible. In simple terms the agency is tasked with the purpose of nurturing these small and also infant industries. SEDCO’s duties involve providing small firms with loans with flexible terms, provision of consulting services to prospective entrepreneurs and small business owners and also provision of lease agreements. SEDCO was established to promote establishment and growth of small firms in both rural and urban areas through the provision of financial and technical assistance for a reasonable fee that’s affordable. The agency continues its operations to this day and has been working with small firms and prospective entrepreneurs for the past 30 years and looks set to continue its operations into the foreseeable future.

The economy however has undergone serious regression in terms of its performance, and it is safe to say that the economy has slumped into a quagmire in terms of performance over the past three decades. Such a scenario has led to declining formal sector employment which has meant that the small firms have an increased role to play in terms of employment creation. The emphasis of the Zimbabwean economic panacea has shifted from individuals and common citizens being employment seekers to being mandated employment creators.

. Zimbabweans have been eager to start their own businesses as economic conditions continue to decline in order to alleviate themselves from unemployment and poverty as the case may be. According to a comprehensive survey carried out by the World Bank in 2012 5, 7 million people were said to be working in the small and medium enterprises sector in a desperate move to alleviate themselves from poverty. The survey established further that there were 2, 8 million owners of small and medium enterprises and 2, 9 million employees. According to the Zimbabwe Independent (2014) most small to medium enterprises had been in operation for a period of not more than five years at that time the survey was carried out, with sustainability and upward mobility being influenced by a number of factors such as government policies, and economic variables, and also individual characteristics such as risk tolerance and education. However it is vital to note that the growth and progression of SMEs in Zimbabwe is generally restricted by a numerous number of obstacles resulting in a high rate of failure of such businesses (SEDCO, 2004). According to SEDCO (2004), about 60% of SMEs in Zimbabwe fail in the first year of establishment, 25% fail within the first three years and the remaining 15% are likely to survive It is against this background that this study seeks to examine the major causes of SMEs.

Most small businesses in the informal sector, even the formal ones, are not expanding in Zimbabwe and do not survive for a longer reasonable period of time. The overall contribution of these SME to the country’s GDP is very low. There are various factors affecting the growth of small business operations in Zimbabwe. This has there prompted the undertaking of this current study to explore and analyse the nature of problem affecting the funding of small businesses when launching their business in Harare Township.

1.3 Problem statement
The problem under focus relates to the examination of the factors leading to failure of small businesses in Zimbabwe. These problems leading to business failure are diverse depending on a number of circumstances. However the researcher will focus on how a business funds itself when wishing to start up operations. According to the Herald (2013) small businesses are major job creators and they tend to be efficient and innovative and therefore prod large businesses to improve their own operation, making the economy work better overall. Thus this clearly shows that not only does the wellbeing of the economy depend on the continued existence and incidence of these small businesses, but also the overall strength and future prospects of the economy. This is why it is of great importance to perform an examination as to why small businesses have failed in the past instances within the Zimbabwean economic context.

1.5 Research questions
The following question will drive the study in light of the issues discussed above
• What are the factors that have led to failure of small and medium businesses in Zimbabwe?
• What are the major sources of finance to SMEs operations in Harare CBD?

1.6 Research assumptions
• To identify the possible factors that contributes to the failure of SMEs in Zimbabwe.
• Identify challenges being faced by SMEs in raising funds to start up their business

1.7 Significance of the study
The study will be of key importance to discuss the factors that lead to the failure of small businesses in Zimbabwe. It will highlight the contribution of funds to set-up a business and how the funds are attainable in different sectors of the economy. Most importantly the research will also focus on areas that need the special attention of management to attain funds to run their day to day operations in the organization. But this discussion must illustrate some the measures to be implemented that will help the management and employees on how to solve problems associated failure of small firms.
The study will provide theoretical basis of failures of small to medium businesses that will help managers to solve the problems at hand. it will also provide practical guidance on how policies to solve corporate failure are implemented in small to medium business. It will also provide empirical and practical contributions in effectively applying those policies in the economy to increase efficiency, effectiveness and transparency in their operations. The researcher has confidence that the study will have a positive impact to SMEs in Zimbabwe. The problems being faced by small to medium businesses may be solved after this study. But this requires the assistance from the government of Zimbabwe in implementing policies that will solve the problems being faced i.e. shortage of funds, poor management skills, and poor location e.t.c.

1.8 Scope of the study
In terms of the scope the research was based on an empirical study of the small businesses within the CBD of Harare, most notably retail small business enterprises. The research is to be conducted in the Harare Township and is sorely focused on unearthing of the factors leading to failure of small enterprises in Zimbabwe as well as coming up with solutions.

1.9 Limitations of the study
The researcher will face time constraints because the time of the study is limited. This in turn indicates that it maybe be difficult for the researcher to explore all the possible factors that lead to the failure of SMEs. It will be difficult to collect data and analyse the data because Harare is a big city and some of the businesses are widely dispersed and hence it may be costly to the researcher.
Also there are some limitations to this study. All literature reviews in chapter 2 do not help in the Zimbabwean context specifically. In practice economies face different problems which cause failure of small businesses as a result studies which were done for other countries and the solutions put forward may not help Zimbabwe in overcoming the problems which cause failure in SMEs. But however some of the solutions may require professional analyses so as to apply to Zimbabwe context.

Literature review
2.1 Introduction

In this chapter the researcher will critically examine the literature related to small to medium enterprises issues. This chapter is meant to provide the in depth insight to small business success factors and failures through critical analysis and evaluation of work done in this field by other authors.
2.1.1 Context of small to medium business

In recent years there has been a large discussion about how SME’s find it difficult to survive in different economies. In Zimbabwe the failures of small to medium enterprises is caused by main factors which include the shortage of funds, poor management skills, lack of planning and lack of training of the employees. However the discussion might be focusing on finance constraints to start up a business.
The term small business or small to medium enterprise (SME) has no universally agreed definition. In Egypt small business firms are defined as those having more than 5 and few than 50 employees Darlberg (2011). Vietnam on the other hand defines them as those having between 10 and 300 employees and the World Bank has defines SMEs as those businesses with an absolute number of 300 employees. Vietnam on the other hand defines them as those having between 10 and 300 employees and the World Bank has defines SMEs as those businesses with an absolute number of 300 employees. The Inter-American Development Bank has established its own definition of SMEs as those firms or business establishments having a maximum of 100 employees. In Zimbabwe, ZIMRA uses a loose definition that says a small company is one with six to 40 employees, annual turn-over of $50 000 to $500 000 and assets valued at between $50 000 to $1 million. Meanwhile in Zimbabwe the Small and Medium Enterprise Development Corporation (SMEDCO) defines a small business as an enterprise with 50 or less employees. The Zimbabwean definition provided by SMEDCO gives a much clearer picture as compared to the other definitions and is more applicable in the context of a developing country as Zimbabwe. Thus businesses that are regarded as small within the other countries noted above where it in the Zimbabwean context then these will not be regarded as such. This in itself implies that the definition adopted of what a small business is will also depend on the This means that employees are considered a crucial factor in the establishment of the size of a business organisation as employees are viewed as a cost in terms of the wages that require to be paid to them. In other words employees are used to establish whether a business is large or small based on the general notion that manpower or labour is not a cheap resource. Thus due to the size of small firms those that have made an effort to define what small businesses are based on the number of employees all hold the notion that the higher the number of employees the larger the business hence the greater its financial muscle to cope with the labour cost. It is this notion that leads us to the second criterion which is used to define what SMEs are i.e. based on revenue. However the assumption that the more the number of employees the larger the business tends to be rather misleading at times as there are businesses that are capital intensive and require a small number of employees. Thus it is clear to note that defining small firms therefore on the basis of the number of individuals employed does not result in an overall conclusive definition.
Some proponents have defined small firms on the basis of the revenue which the firm makes. According to the World Bank a firm to be regarded as small is one that makes a maximum of US$ 15 million in annual revenue and according to The Inter-American Development Bank less than US$ 3 million. These figures are applicable to European nations and developed countries but when applied as a yardstick to measure firm size in developing countries such as Zimbabwe then this can give a rather misleading picture. SMEDCO however defines small businesses as those having an annual revenue base of less than US$ 1000 000 in annual revenue, with the maximum being pegged at US$800 000 per annum .This definition is more reflective of a characteristic of small firms in the context of developing countries where demand patterns are lower as compared to those in developed countries. The use of revenue as an overall definition of what small businesses are, provides a much better definition as compared to the number of employees as the sore gist of conducting a business is to generate cash inflows also known as revenues. Thus the more revenue an entity earns the larger it is because revenues serve as a useful form of capital when ploughed back to finance purchase of assets, finance improvements in product and service provision and to expand business scale of operations. However this measure also has a drawback as also several arguments exists in establishing what precisely consists revenue. This is so because various definitions of revenue also exist in the same manner as various definitions of what small firms are.
Small firms have also been defined in the context of the assets which they hold or simply their total assets. According to the European Union firms with less that € 10 million in total assets are considered to fall within the small to medium enterprise category. Conversely the World Bank on the other hand defines small firms as a business with a maximum of 15 million in total assets (Darlberg 2011). This notion is based upon t1he belief that assets represent an investment which is reflective of the size of an entity. Thus it is often believed that there is a positive relationship between the size of an entity and the total assets held i.e. the larger the entity then the more its total assets and vis-à-vis.
As stipulated by the Uganda Bureau of Statistics (2008:5), an SME is a business that employs 5 to 50 people (small scale) and 51 to 500 people (medium scale). This means that, in Uganda, SMEs are classified into categories of small scale and medium scale businesses. However, in Botswana, SMEs are categorized into three groups. Nkwe (2012:30) states that more variables are used to determine SMEs, such as employment level, annual turnover and annual balance sheet total. Hestates that, currently, Botswana’s accepted definition of SMEs is based on three categories of enterprises using the annual turnover and the number of employees. Similarly to Botswana, Namibia uses these categories to classify SMEs. According to the Namibia Institute of Public Policy Research (IPPR; 2010:5), the ministry of Trade and Industry in Namibia define SMEs as a sector of business organisations composed of small business enterprises with full time employees ranging from 6 to 100 employees

2.2 Theoretical research

2.2.1 The Technological Capabilities Theory

The theory argues that smallness is dangerous just like in the animal kingdom where younger and smaller animals are easy prey for predators Lall (2001). This theory easily states that small to medium enterprises find it hard to acquire loans form financial institutions because they lack collateral security to pledge and the financial institutions find it risky to lend money. This implies that the only way for small businesses to raise capital is self-financing or to borrow money from friends and family. However these small businesses face high operating costs and this may result in their collapse. Logbook (2012:15) states that access to finance is a severe problem and banks require high security or collateral, financial statements and a business plan, which SMEs are unable to draft on their own (in most cases) unless they have to pay for the service of a consultant. However, According to Nicoma (2010:7-10), more than 40% of Micro, Small and Medium Enterprises (MSMEs) in Namibia identify access to finance as the most serious obstacle to growth and failure of SME’s.

3.2.2 The Production Theory

The Production Theory as in Laidler (1972) indicates that small businesses are inefficient because they do not operate at the minimum efficient scale where economies of scale are enjoyed. This is because their average costs are always falling. The theory further asserts that if firms do not find a way of increasing their scale so as to be able to enjoy economies of scale, they remain uncompetitive and hence have a high likelihood of failing. Since SMEs generally do not enjoy economies of scale, the current study also examines the extent to which failing to attain economies of scale can be a cause of failure. Under production theory once more, according to Mudavanhu (2011) the government should offer securities to the small firms so that they get credit or have access to loans. It is the duty of the government to protect infant industries and give them some funds to fund their projects.

3.2.3 Resource-Dependence theory

Sheppard (1995) came up with the resource-dependence theory. The theory’s basic assumption is that firms survive by acquiring and effectively managing resources obtained from their environments. Thus adopting Sheppard’s notion a small firm is deemed to be successful if it is able to effectively manage its resources. Fernandez (2008) highlighted resource-dependence theory by stating that the majority of organisations dissolved due to resource insufficiency. This therefore implicates that the survival of small firms is dependent upon maintaining a quality and sufficient resource base that they can make use of to ensure continued survival an ensure expansion objectives are realized. According to Townsend, Busenitz & Arthurs (2010) lack of resources is among the factors that shape small business fatality rates as this impact on a firm’s ability to capitalise on opportunities.


A large number of researchers have highlighted a number of reasons why small to medium firms fail as mentioned above.
2.3.1 Emperical studies in Ghana

Studies in Ghana, namely Inkoun (2003) however postulated that the ability of a small firm to survive will depend on the entrepreneurial skills of the proprietor. Thus he outlined that there was a linkage between small firm survival and entrepreneurship in existence. He found out that proprietors with business related qualifications tended to survive by 30% more than non-qualified proprietors. Thus educational background is also being considered as a valuable factor in ensuring continued firm survival. According to Ramis (2002) although training on management issues is of importance to small firm owners, it can only achieve the desired effect only if the business in itself has a high growth potential. Thus a characteristic of a small firm being successful is having the potential to increase in its scale of operations as stagnancy will lead to vulnerability to failure. Jaafer and Abdul- Aziz,(2005) believed that entrepreneurial characteristics of small business proprietors in the form of creativity and the need for achievement are crucial success factors in driving a small firm towards success. However according to Tian (2005) competition which small firms faced from both domestic and foreign firms was more predatory than entrepreneurial skills. In his study small to medium firms that were faced with fierce competition from larger and more established firms were three times running the risk of collapsing than those without competition.

2.3.1 Emperical studies in South Korea

In addition Koush (2008) studies SME failure in South Korea and found out that foreign competition was an attributable factor to the failure of small businesses. He also concluded that the importation of foreign goods and services done in developing countries was a factor to consider in examining the causes of curtailment in operations of some small firms. His study divided competition into domestic and foreign as he tried to highlight the differences in the intensity of competition. Koush established that foreign competition was more intense and stronger that domestic competition various factors such as superiority of foreign goods in terms of the quality and also that they were cheaper due to being made at lower costs of production. Thus an inability to cope with competition can be outlined as a possible cause of small enterprise failure as noted by Koush. Moreover Baggs (2005) studies indicated that the failure of SME’s was caused by trade barriers. Imports duties became expensive for businesses which imported their raw materials leading to the failure of some businesses. In Zimbabwe the government implemented the Zim-Asset blueprint chapter 7.4.1 and indicated that the ministry responsible for Small to Medium Scale industries should strategies in providing building capacity and technical training to traders so as to increase export revenue

3.3.3 Emperical studies in Zimbabwe

Small to Medium enterprises find it difficult to survive in Zimbabwe because there is unavailability of credit from financial institutions Mudavanhu, et al (2011). SME’s do not have much collateral security to offer to financial institutions for them to be given loans to support their businesses day to day operations. Moreover Mudavanhu, Bindu, Chugisiwa ; Muchabaiwa (2011) alluded that corporate failure in Zimbabwe is as a result of lack of knowledge of business management. Managers do not have the no how on how to effectively and efficiently manage its activities for its survival. It has been concluded that small should get assistance from the government for them to sustain their day to day operations.

2.3.4 Emperical studies in Africa

Dinwiddy (1974) believed that African small enterprises failed because apart from management inexperience small business owners did not have external close relationships with suppliers, commercial banks and financial establishments as well as having a close relationship between themselves. This could be of problematic consequence and consequences varied according to the nature and scale of the small business concerned, and according to location of its market. However Kambwale, Chisoro ; Karidia concluded that owners of SME’s should get adequate training. The government should try y all means to implement SME training schools and also provide enough financial support.

3.3.5 Emperical studies in Nigeria

Mbat & Eyo (2013) argued that failure of small businesses in Nigeria is caused by socio-cultural factors, economic instability and management’s ineffectiveness and inefficiency. Hence they suggested that management and employees should attend training programs which may be offered by the government for skills on how to manage their day to day operations of the business. Moreover for small businesses to survive the government should try to create a environment that will protect small firms from fluctuations in the economic environment.

3.3.6 Emperical study on lack of good customer care

As stipulated by an article by The Small Business Advisor (1999: 58), most small businesses fail because they lack good customer relations. Small businesses lack direct contact with the customers, they do not provide promotions, prices are inconsistent, and lack of new product packaging. Customers are one of most important group of stakeholders that a firm must satisfy. However it is difficult to build customer loyalty. According to Scarborough and Zimmerer (2003: 374-6), the following factors influence customer relations: right to safety, right to know, right to be heard, right to education, and right to choice. In terms of right to safety, there will be no trust in small business owners if they do not provide customers with safe, quality products and services. Therefore for a small business to be successful it has to build good customer relations for it t be successful.

3.3.7 Emperical study on the location of small firms

Pickle and Abrahamson (1990:167) argue that it is not unusual for a small business owner to select a location based primarily on convenience or cost. A location may be chosen because of the availability of a vacant building, proximity to the owner’s residence or low rent. One of the reasons why small businesses fail is because they select a site for their business without first making a thorough analysis of the overall location’s potential for the business’s survival and growth. As stipulated by Siropolis (1990: 228), the importance of location is determined by the type of the business, proximity of the business to its customers, i.e. must customers travel to the business or must the business owner travel to the customers. Other factors to be considered are whether the business offers a special product or service with little direct competition, and whether convenience is the key selling point in what the business offers to customers. Siropolis (1990: 229) notes that poor location may be caused by a supermarket or any other competing small business enterprise being located close to the new small business.

Longenecker (2003: 271), argued that the importance of the location decision is underscored by the costs and impracticality of pulling up stakes and moving an established business if the decision on the location proves to be wrong. Based on this, if the choice of location is particularly poor, the business may never be able to get off the ground, even with adequate financing and superior managerial ability. In the article by All Business: Champions of Small Business (2004), the above view is corroborated and mention is made of the fact that even the best restaurant or retail store will fail if it is in the wrong place. It is important to consider factors such as traffic how many potential customers pass the business (during the course of an afternoon or evening) and convenience, (how hard is it for the regular customers to get to the location on a regular basis), when scouting for a location for a business.

3.3.8 Emperical study on the level of technology

As mentioned by Keasey and Watson (1993: 229), small businesses that are contemplating purchasing new technology have great difficulties since they don’t have enough knowledge and the high opportunity cost of scarce management time, in isolating the cash flows pertaining to the project. Jones and Tilley (2003:8) explain that many small firms lack time, resources, technology or expertise to research and develop new business ideas and innovations. This weakness can become a critical factor limiting growth and expansion in small businesses.

3.3.9 Emperical study on the management of working capital

Small to medium businesses should learn how to manage their working capital. Tom (2005) stipulated that for a small firm to be effective and efficient there is no need to undertake basic credit- controls checks and ask for trade reference from firms. It will be expensive for the business to fund qualified accountants to do proper book keeping. Therefore these businesses should try by all means to keep their receipts and payments statements. This does not need a professional accountant to take care of the accounting records therefore this is cost effective to the business. Padachi (2006) using the regression analysis stated that the small firms should ensure a good synchronization of its assets and liabilities. Small firms should extend their credit payments period so as to manage their liquidity well and also reduce the debtor payment periods for the company to receive efficient money to finance their day to day operations. However it may be a good idea for such businesses not to offer credit sales to customers because much cash might be tied up in debts and some debtors may default payments thereby causing losses to the business at large.

3.3.10 Imperical study on lack of capital

Failure of SME’s is due to lack of capital. King (2007:15) states “lack of capital is often the most
critical challenge that a successful SME faces as its very success creates this and it quickly
become a vicious circle.” Without the management looking for money to fund the business operations this may lead to corporate failure. The profit in the business activities may not be sufficient enough to fund the extra working capital required for the operating cycle. This is more often when a business has more inventory or debtors hence the money to fund the day to day operations of the business is not readily available as money will be tiered up in stock. The security system of small business to defend themselves against bad debts is insignificant. According to Vallely (2008) management must be able to analyse the financial statements using ratios to determine the position of the business. By knowing the position of the business management can now make plans and decisions that will solve or attack the problem at hand. By calculating ratios the business can assess the businesses risk and implement such measures to correct or prevent those measures. . Moreover according to Gonzalez, Reyes & Ruth (2011) SME’s fail because they do not have access to loans from financial institutions hence they find it difficult to raise enough capital to fund their operations

2.4) Conclusion

This chapter began by highlighting some of the factors that contribute to the failure of small to medium businesses, namely lack of capital, lack of loans from financial institutions, poor working capital management, poor economies of scale, foreign competition, management inexperience, poor customer relations, lack of employee satisfaction, lack of technology and poor location. The purpose of this literature review was to identify key factors that play a role in the failure of small businesses. An important point that should be kept in mind throughout this discussion is that information about the running of businesses should be made more readily available and that the existing structures of business information need to be revisited. The purpose of this literature review was to identify key factors that play a role in the failure of small businesses. The researcher will focus on failure to raise funds to start up the business.
Chapter 3
Research Methodology

3.1 Introduction
This chapter looks at the activities and procedures that will be used in research during the course of the research. It also points out the research design, research instruments to be used and the data to be collected.
3.2. Research Philosophy
This researcher will pursue the using a pragmatic approach to achieve the objectives of the research. Hence this approach will allow the researcher to collection both qualitative and quantitative data to analyse its findings. There is a balance between the use of qualitative and quantitative data as well as primary and secondary data in previous researches hence the researcher has decided to use this philosophy as it encompasses both to give a better and more comprehensive research.
3.3 Research Strategy
The researcher will employ the use of a case study of small retail firms in Harare CBD. Remenyi et al (2003) propounded that the strategy is imperative because it provides the overall direction of the research including the processes by which the research is conducted. Collis and Hussey, (2003) defined a case study as a research methodology that is used to explore a single phenomenon in a natural setting using a variety of methods to obtain in-depth knowledge. The case study of small retail businesses was chosen carefully because it would offer the researcher with the greatest chance of addressing his research objectives as research questions were answered with given substantiations using survey questionnaires and interviews. Also the ability to integrate various research techniques into the case study was of vital importance to ensuring field flexibility .The CBD was chosen as the area in which the researcher conducted the research on notion that this is an area that the researcher is already familiar with and this would eliminate problems that have to do with area familiarisation. The researcher opted to use explanatory research which will be complimented by descriptive research as being the components of the

3.4 Research Choice
The researcher decided to use more of qualitative approach and less of quantitative approach. This is because the research will use interviews and questionnaires and use excel to present other findings graphically. Using both methods will strengthen the research base and maybe come up with a better conclusion that will help the society at large when the findings are collected analysed and a judgment may be mad.

3.4.1 Population

Martins (1995:46), defines target population as ‘that part of the population or universe to which the study is based’. Target population refers to any group of individuals that have one or more characteristics in common that are of interest to the research. Thus the population in this particular research is all small firms in Zimbabwe and all small firm owners, be it those involved in manufacturing or the retail sector.

3.4.2 Target population

The target population is Zimbabwean small firms, and the following elements were picked as the representative sample of Zimbabwean small firms because of their involvement and knowledge in small businesses and small business issues.
? Small firm owners
? Employees in small firms
? Entrepreneurs that have experienced business failure

3.4.3 The sample
With consideration of time and resource constraints the researcher chose 30 respondents as the sample that he used for research purposes.

3.4.4 Sampling techniques
The sampling methods that were used in this case by the researcher were random sampling techniques. These were chosen by the researcher as most ideal taking into account the various constraints which the researcher encountered and also how efficient and effective it was in the data collection.

3.4.5 Random sampling
Random sampling was implemented by the researcher to obtain better sampling results which will enhance our conclusion for the betterment of preventing failure of small to medium enterprises. Every element in the CBD of Harare that is in the supermarket sector has equal chances of being selected

3.5 Research instruments
3.5.1 Interviews
This is a situation where there is oral questioning of respondents .This can be a face-to-face meeting or a telephone conversation. The research made use of interviews which facilitated in-depth discussion with respondents in regards to the causes and limitations on auditors work. During an interview the interviewer will obtain feedback during the conversation. Moreover, there is room for probing. Facts in an interview are presented as they are and no emphasis will be placed on the researcher’s interpretation. However interviews have got a weakness that interviewees know that they can be identified and as such they may be unwilling to give out sensitive information.

3.5.2 Questionnaires

A questionnaire can be defined as “a document that asks the same question to all the respondents or individuals of a sample” Croft (1983). A questionnaire can either be structured or unstructured. A questionnaire was distributed to the target respondents containing both structured and unstructured questions. The questions were made clear and unambiguous.
A structured questionnaire consists of a set of questions, which leaves several blank spaces for the respondent to fill in. A non structured questionnaire is one which is not open ended. The cost per questionnaire is low, questionnaires are logically structured, and questionnaire can reach out many respondents. However, the reasons for non response may never be known and also once questionnaires have been sent out errors cannot be corrected.

3.6 Data Sources
In order to obtain data on the causes of failure of small businesses the researcher used two types of data sets namely primary and secondary data. However the researcher would like to note that he used primary data to a greater extent and secondary data was used on a complimentary basis.

3.6.1 Primary Data
Primary data is data which is first hand information that is collected during the study through observation, interviews and questionnaires. The primary data is original data specifically for solving the problem at hand and the data collected is ideal for the study. The research made use of interviews and questionnaires on small firm retailers in the CBD of Harare. The use of primary data will enable the researcher to establish a complete set of information on the study. Primary data gives first hand information, which is clear and straight forward. Moreover, Primary data can be collected in changing circumstances because the study can change collection techniques. However, its limitation it that it is cumbersome to sort out the data in order to come up with reasonable ideas or conclusions.

3.6.2 Secondary Data
This is data used for some purpose other than that for which they were originally collected. Secondary methods can also be referred to as data written by someone who did not actually do the research, develop the theories, or express the opinion that they have synthesized in their own research. Some sources include small business journals, periodical, publication. Secondary data is inexpensive because data is already available, it permits examination of past trends, provides the study with the starting point in data collection and it provides information that could not be obtained through interviews or observation. However data is not always easily available and ethical issues concerning confidentiality may arise.
Most of the information was outdated or limited due to stringent policies regarding privacy and confidentiality or the much needed information existed but not suitable for the purposes of the research.

3.7 Validity and Reliability
? To make sure the questionnaires will be completed the researcher will hand deliver the questionnaires.
? To avoid misunderstanding clarifications on how to fill in the questionnaires will be done.
? To avoid ambiguity the questions in the questionnaire will be made relatively short.

3.8 Limitations
The researcher also notes that there are relevant factors that will act as hindrances to him achieving his set forth his research objectives:
• Time will act as a limitations as the research will be conducted within a short period of time which will affect the wideness of coverage which the researcher will have to conduct
• Limited resources will also act as a possible limitation as the researcher lacks the necessary funding to undertake extensive research
• It is also imperative to note that some people will refuse to participate in the research and this may hinder on the amount of research data to be gathered by the researcher.

3.9 Conclusions
This chapter was aimed at highlighting the methodology of research highlighting all the relevant factors that are involved including the research design, the research philosophy, the population, the sample, the data as well as sampling instruments. The researcher also took time to note the relevant expected limitations of the research. The next chapter will be the discussion of research findings


4.0) Introduction
Data gathered from both primary and secondary sources was analysed in order to come up with valuable conclusions and in order to come up with relevant recommendations. Analysis of the data involves both quantitative and qualitative techniques in order to facilitate easiness of understanding. Findings have been presented in the form of diagrams, pie charts, and tables to give a much clearer picture of factors under study.

4.1) Summary of relevant findings from the Literature Review (secondary Data)
• Managerial ineffectiveness
• Lack or absence of record keeping
• Difficulty or inability to raise capital required to finance the startup of the business as well as its ongoing operations
• Having to take care of extended families
• Intense competition
• Poor location
The intense thorough study of the literature also showed that the causes of small firm failures by previous authors. This was due to the fact that these were viewed as factors creating a general phobia among members of the population willing and able to start small businesses. The researcher also identified that intense difficulties which were being encountered especially when small firm owners tried to source finance from financial institutions as they viewed as highly risky.
The study of literature also gave an invaluable account on the factors that are pivotal to success of small firms and these involve government incentives, education, finance and market. These factors were considered to be complimentary to the researcher’s field findings.


The researcher had planned to distribute 20 questionnaires and conduct ten interviews. The questionnaires were all distributed successfully and were completed successfully. Thus a 100% distribution was attained. However 17 were only considered appropriate for use in analysis purposes as the other three were considered either spoilt or incomplete. This therefore represents 85 % of the total questionnaires that were distributed for data gathering purposes.
As for the interviews the researcher had planned for 10 personal interviews in order to solicit further substantiations and information that will be complimentary to that gathered within the questionnaires. However cooperation proved a hindrance as the researcher managed to get only six interviews. This represents 60% of what the researcher had planned in terms of the interviews. Below are the findings of the researcher’s fieldwork.

Data gathered through the use of questionnaires showed that out of the 17 questionnaires considered for data analysis 6 were females and 11 were males. Thus this means 35, 30 %( 2dp) were females and 64, 71 %( 2dp) were males as illustrated in the diagram below:
Figure 1

The diagram above shows that the area of small businesses from the sample data collected is dominated by males as shown in the diagram above.

4.3.2) Education Profiles

The general notion gathered during interviews was that those in business and those willing to venture into business all lamented the pivotal importance of education. This was that a lack of business related education or education in general acted as a hindrance to starting business as it determines an individual’s various business abilities. Such abilities involve the ability to identify business opportunities, flexibility to adapt to changes in the environment and also to come up with new innovations. In simple there is a general lack of business related education among entrepreneurs and this therefore leads to them not having proper strategic business thinking and execution. Some proponents will argue that education is not necessary to pave a way for effective entrepreneurship that allows for creation of a successful business evidenced by the success of individuals such as Henry Ford and William Durant just to name a few. The above mentioned names were high school dropouts, but on the contrary based upon research findings education that is business related provides a crucial background especially in the case of new ventures. This is so because knowledge goes a long way in easing the fears caused by uncertainty and enhances confidence of individuals.
According to the research results out of the six interviews held of respondents that experienced failure one respondent representing 17% had attained education to primary level, 3 respondents representing 50% of the interviewees had attained education up to secondary and two representing 33% had attained education up to university. Only one had attained a commercial degree in marketing among the two who had attained education up to university. This is depicted in the diagram below:
Figure 2

As for data gathered through the 17 questionnaires from those still in operation 3 had attained education up to primary level this representing 18% ,six had gone up the way to secondary which represents 35 %, 5 had attended colleges such polytechnic colleges this representing29% and 3 had attained up to university level representing 18 % of the total respondents. As shown in the diagram below
Figure 3

As for those that indicated that they were not willing to start business at first indicated that a lack of education meant a lack of enlightenment that led to them having a general fear of failure

4.3.3) Management experience

Experience is a pivotal element to all businesses that are successful within the tough ever dynamic business environment. 68 % of respondents who experienced prior business failure had operated the business for less than two years before they experienced failure. This shows there was a general lack of practical business experience to manage their businesses successfully. In the study 75 % of entrepreneurs who were identified as still fully in operation had operated their business for more than five years. Two respondents from interviews identified only as Sheppard and Marondera had been in operation since 2005 citing experience gained through the years leading up to 2017 as being a priceless attribute aiding to their continued success.
4.3.4) Planning

There is a tendency among small entrepreneurs not to plan. Planning is of outmost importance in giving entrepreneurs with a foresight of the future without it uncertainty is prevalent. From the data gathered not even a single respondent highlighted that they operated their business based on a formally setout plan sighting that monthly targets were made as they time went along. What these small firm owners fail to realise is that formalizing their plans and goals is essential for future reference so that evaluations of success or failure can be made
. TABLE (4.0) responses
Question asked Yes No
Do you have a business plan 10 respondents 7 respondents
Is it formally set out on a written document 0 respondents 17 respondents

4.3.5) Record keeping

Data from both questionnaires and interviews shows that 90 % of all respondents combined do not maintain a full set of books of account. Most of the respondents Indicated that they kept a record of items sold and those that they had brought in as purchases. The 10% that keep proper books of accounts such as the cashbook coupled with relevant ledgers sighted that they had experienced better cash management since they started keeping books of account than when they had not kept a record of account. However no respondent indicated that they carried out financial forecasting sighting inability due to lack of financial expertise required.
Table 5

4.3.6) Competition

Not only are the Harare small retail firms competing with outside firms but also they are also competing amongst themselves. This was noted by the researcher through Observation of the CBD area where there is the largest concentration of small retail firms with more than 200 firms located in this area. This was cited by more than 50% of the respondents as a factor limiting their revenue as they have had to share the customer base available in the CBD of Harare. This as a result has led to them not earning enough revenue to finance business expansion as it limited their growth.

4.3.7) Source of Finance

This refers to the source of funds the entrepreneur used be it to start or to finance the day to day operations of the business.71% of respondents highlighted that the funds used had been raised from personal savings, 12% of the respondents highlighted that from a financial institution loan, 12 % had raised their finance from relatives and friends and 5 % of the respondents from questionnaires had raised it from other sources. Those that raised them from personal savings highlighted that there was great difficulty in sourcing finance from financial institutions especially where one is operating his business from a cabin establishment with no collateral security to offer. Those respondents that had sources finance from financial institutions indicated that they were able because they were eligible to obtain bank loans due to the benefit facility of being mine employees. The 12 % that highlighted obtaining from relatives and friends cited the fact that they had failed on their own and friends and family out of compassion had assisted them. Then those that specified others when probed further refused to give on what exactly was the source of their finance and threatened to withdraw from the interview if the researcher kept on insisting on finding out.
4.3.8) Customer base

Data gathered showed that 70 percent of the customers that the small firms served where from the city of Harare, with the remaining 30% from the nearby farms and other areas. This shows that there is a heavy reliance on local residents of Harare for them to be able to make revenues. Due to the problems that have plagued Harare since 2008 small firms owners admitted that their revenues obtained from sales to local residents were continuously on the decline. The companies on which the residents work has struggled to pay employees their owing salaries on time as the company has struggled to increase capacity from the rock bottom level it had reached in the 2008 era and also most of the residents are self employed hence they find it difficult to have excess money to spend rather they purchase necessities only. Thus results obtained from respondents through interviews were indicative that some small firms had failed as a result of having debtors that failed to honor up their debts.

Figure 6

4.3.9) Disasters

It was established through the research that entrepreneurs who had experienced business failure had fallen victim to some foreseen negative event such as fire or employee fraud and these contributed greatly to their businesses failing.
4.3.10) Insurance

In carrying out effective business operations insurance may be an addition to the costs of the business but it is essential for risk reduction. Having cover from unforeseen events is a top priority in many large establishments in order to prevent business from losing its resources permanently. However from the study only four of the respondents from questionnaires indicated that they had obtained business insurance, this represents 24% of the total respondents. This means that 76% of the respondents were not insured against unforeseen events thus in the event a disaster occurred this would mean their businesses would fail automatically due to absence of insurance or a set out disaster recovery plan.
4.3.11) The role or culture and religion

All respondents had at least some religious or cultural affiliation and these had a bearing on the kind of goods they kept as inventory and sold to customers. Of the respondents interviewed 67 percent were Christians and 33% were Muslims. Some Christians claimed that their religious affiliation was a hindrance as they could not stock some goods that were against their religious norms. Further probing as to what these kinds of goods were proved futile as they was refusal to mention them.
4.4) Problems faced by institutions in assisting small firms.

The study also established that no business related education or consultations had been done by SMEDCO or any other institution charged with assisting small firms in the Harare CBD area. An enquiry into secondary data provided on their website it was clear to note that such firms had teething problems that hindered them from offering much needed support and services to small firms. This was so because not only were such institutions understaffed, they also lacked adequate funds to fund the activities of small firms. Also the researcher noted that some entrepreneurs who came up with business ideas failed to secure funding from such institutions as they lacked proper accounting justifications on their viability thus were considered unbankable.
4.5 Factors causing failure

Institutions in Zimbabwe identified on their websites the reasons for small firm failure. These could generally be put forward as;
• The Zimbabwean economy is now volatile and this has led to Zimbabweans fearing to invest because of fear of loosing
• The culture of borrowing although still growing is not that inculcated deeply amongst Zimbabweans
• Hindrances to entrepreneurship in Zimbabwe still existed because of cultural and religious beliefs, individual incompetence’s and also the environment in general
• Zimbabweans lacked effective entrepreneurship expertise
• Lastly a lack of sufficient support from these institutions had frustrated Zimbabwean entrepreneurs. Training in business related issues and accessing finance continues to be a major hindrance to effective entrepreneurship and business expansion. Accessing finance is also a major problem inhibiting firm formation as some entrepreneur ideas have been considered unbankable.
4.6 Conclusion

This chapter was about presenting relevant findings from field research .The notable problems faced by small firms that lead to their failure have all been highlighted. The following chapter is the overall conclusions and recommendations.


5.1 Introduction

The previous chapter reported on and discussed about the results of the study that was conducted. The main purpose of this chapter is to summarise and give conclusions of the findings in the previous chapter. For future studies recommendations should be given in summary to enlighten other researchers on the gap that was left in this project. The aim of the researcher is to find a way on how to solve certain problems associated with the failure of small businesses and determining the ways to solve such constraints.
5.2 Conclusion

In this section issues such as lack of sufficient funds, start-up cost, poor management of resources and competition from rival firms are to be discussed and commented on.

• Lack of sufficient funds is a major contribution to failure of small businesses. From the data that was collected in the city of Harare it is viewed that small to medium businesses fail due to lack of sufficient funds to run their day to day operations in the organization. SME’s find it difficult to obtain loans from financial statements due to shortage of collateral security to pledge. This entails that these institutions will not have confidence with small firms, they find it risky to lend large significant amounts of money to this small firms.

• A lack of knowledge of the benefits of insuring ones business is also apparent amongst Zimbabwean entrepreneurs. Some remain highly skeptical of the idea of insuring their small business and terms such as “kudyirwa mari mahara” which means losing money for no reason where evident within the interviews conducted.

• Other problems which are associated with failures of small businesses as investigated in the previous chapter are crime, infrastructure and technology. Crimes are seen to be high in small businesses because no proper books are being kept and also due to the side of the firm. In terms of infrastructure, these firms find it difficult to choose the right location for their businesses. They do not even research about the area they want to locate whether it is suitable for trading or not. These firms are in hurry to to set up the business and make money quickly.

• Marketing skills are an important tool small firm owners need to acquire if they are to ensure long term survival. A keen eye to observe niches will ensure small firms avoid direct confrontation with larger more established firms and even other small firms. Avoiding competition will go a long way in ensuring making of sufficient revenues thus ensuring survival

• Businesses face serious problems when it comes to management of resources, for example record-keeping and family interest. The researcher concluded that small firm’s managers do not have the knowhow on how to manage their business operations. This is because they are ignorant and do not keep proper accounting records so as to determine its financial position. Starting up a business in Harare is difficult because there are so many businesses in the sector that are well managed and have got a large market share

Secondly, families are seen as one of the other factor that causes failure to small businesses. Money is usually spent on the families. Their desires and wants first before anything else rather they should try and invest that money in something else that will keep the business effective and efficient. In order to manage the business effectively and efficient on should try to separate family issues and business issue.

5.3) Recommendations

Based upon the results of data analysis and presentation and findings from the relevant research the following have been laid out as recommendations:

• Increasing business related education will be beneficial for Zimbabwean small firm owners and those that are willing to start new business. This is so because this creates a strong sense of business ideology within one and will enable better management and better decision making.

• Small firm owners need to make sound location decisions by choosing the location where there is low competition, and that ensures great interaction with their customers. This will ensure earning of revenues without having to struggle to address competition. These decisions on location should not just be based on rentals. Other factors include their target market, transportation access, labour pool and municipal business regulations.

• Entrepreneurs need to prepare books of account so that proper accounting for revenues made, costs incurred and profits made are precise.

• Government although resource constrained needs to ensure that its small scale seminars are expanded in coverage so as to ensure even those that cannot afford business related education will gain such invaluable knowledge.

• The government off Zimbabwe should draft policies and procedures that will support small businesses survival.
The researcher believes that high failure rate of small businesses can be reduced in Harare if all of the above mentioned recommendations are implemented


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1.0) Name of owner ………………………………………………………………
Answer the questions by ticking in the appropriate box and / or writing in the spaces provided where applicable.

2.0) Sex

3.0) Level of Education

Primary (grade1-7)
Secondary (form1-6)
College (polytechnic etc)

4.0) Location of Business……………………………………………………………….

5.0) What is the nature of your business?
6.0) How long has your business been in operation?
7.0) Did you have a formal business plan before starting your business or in operation?
8.0) Have you formally set it out on a written document( if the answer is yes to the above question)

9.0) Have you ever had formal management experience?

10.0) How much rent do you pay per month?
10.) Do you prepare books of accounts?

11) If the answer to the above question is yes indicate who prepares them (either you the owner or your employees if any)?
…………………………………………………………………………………………………..12) what was the source of funds you used to start your business?
Personal savings
Financial institution loan
Relatives and friends
Other ……………………………………………………………………………

14) What challenges where there in starting your business other than financial matters

15) What problems does the Harare CBD environment pose to your business?
16) Are you aware of other small business owners that have seized trading?

17) If the answer to the above question is yes can you note a few of the reasons why they seized trading if you are aware ……………………………………………………………………………………………………………………………………………………………………………………………………

Thank you for aiding in my project, your assistance is of great importance in my dissertation.

Interview Guide

1) What were the factors that have prevented you from starting a business?
2) Why did u choose to locate your business where it is?
3) Did your family members challenge or support your decision to start a new business?
4) Are you aware of consultations concerning business issues?
5) Has the government offered any consulting assistance?
6) Has the government offered any other form of business assistance?
7) Have you insured your business?
8) Have you received and business related education?
9) How has your culture or religion influenced your business operations?


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