Challenges Faced by Small and Medium Enterprises / Reasons For Poor Performance of Small and Medium Enterprises
Unsuitable business location like far away from the market. Even if a business is properly managed, a bad location leads to its failure. For instance locating a business far away from the market or the source of raw materials
Limited market for the business products due to competition and changes in customer’s tastes
Poor business management. Businesses which are poorly managed for example when they are inefficient in the use of resources, do not keep proper records, use wrong costing and pricing methods, inevitably make big losses and in the end fail and close up
Limited market research. This leads to failure to clearly define and understand your market, your customers and your customers’ buying habits
Over expansion. This often happens when business owners confuse success with how fast they can expand their business. It also leads to cause of business failure
Inadequate financing. There is also a challenge of insufficient funds to buy the required technologies to improve their operation
Limited skilled personnel to operate some production technologies which forces businesses to hire expensive foreign experts. Those learning on the job produce poor quality goods and at times damage the machines
Use of inappropriate technology which does not optimize productivity and profitability
High competition from imported manufactured goods, which are produced by well established businesses often producing on large scale and lower prices
Unreliable sources of raw materials, which forces some businesses to operate seasonally especially agro – processing businesses
Unfavorable government policies like charging high taxes
Inadequate support services like banking, insurance etc. which makes it difficult and expensive to operate their businesses
Improper product pricing. Small and medium enterprises at times fail to clearly define their pricing strategy. This results into over pricing of their products, which eventually makes them to fail
Poor handling of business customers. No business can afford to survive with dissatisfied customers. A business, whose owner or employees are rude to customers and do not bother to listen to them and attend to their individual needs, cannot take long before it collapse
Insecurity and hostilities which make it difficult for businesses to operate in some areas for instance Northern and North Eastern Uganda
Industrial unrest. These are in form of strikes at the workplace which makes operations of business difficult
Shortage of storage facilities especially for perishable goods
Mistakes made by the entrepreneurs / founders in ability reduction in commitment in terms of supervision, funding, initiatives and creativity
Unfavorable economic and monetary policies which make credit scarce, keep interest rates very high and make it very expensive for businesses to operate with borrowed capital
Choosing a business that is not very profitable. In this case, even if you generate lots of activity, the profits never materialize to the extent necessary to sustain an on – going business
