Assessment of factors affecting the growth and survival of

SME: in the case of yeka sub city woreda 09

GROUP NAME ID
1. MERON W/YOHANNES 2344/16
2. ASTER MELAKU 2343/16
3. YAKOB GIRMA 1931/16
4. ARSEMA KEFLE 2403/16
5. ACHAMYELEH SHEGAW 2055/16

A Proposal Submitted to Accounting and finance Department of Admas

University in Partial Fulfillment of the requirement of BA Degree in
accounting and finance

Submitted to: Negussie Mulugeta (Ato)

May 2020

Addis Ababa Ethiopia

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Table of content
Chapter one...............................................................................................................................1
Introduction..............................................................................................................................1
1. 1Background of the study....................................................................................................1
1.2 Statement of the Problem......................................................................................................3
1.3. Research Objective............................................................................................................4
1.4. Specific objectives..............................................................................................................4
1.5. Scope/Delimitation of the study.......................................................................................4
1.6. Limitations of the study....................................................................................................4
1.7 organization of the study...................................................................................................4
CHAPTER TWO......................................................................................................................5
RELATED LITERATURE REVIEW....................................................................................5
2.1 Introduction...............................................................................................................................5
Definition of key terms and concepts............................................................................................5
2.2. Theoretical Literature review.................................................................................................6
2.2.1. The Concept of Business Performance......................................................................6
2.2.2. The Nature of Micro and Small Enterprises.............................................................7
2.2.3 Role and Importance of MSMEs................................................................................9
2.2.4 The Contribution of MSMEs' in the Economy........................................................10
2.2.5 National Strategies for the Development of MSEs..................................................10
2.3.1. Micro, Small and Medium Enterprises (MSMEs) in India...................................11
2.3.2 Performance of MSMEs in India..............................................................................11
2.3.3 Micro and Small Enterprise (MSEs) in Ethiopia....................................................11
2.3.4The Nature of Micro and Small Enterprise in Ethiopia..........................................12
2.3.5 Problem faced by SMEs in Ethiopia.........................................................................12
2.3.6 Understanding business aims....................................................................................14
2.3.7 Ethics and social responsibility of business..............................................................14
2.3.8 The influence of government on business................................................................15
CHAPTER THREE...............................................................................................................16
RESEARCH METHODOLOGY AND DESIGN......................................................................16
3.1 Introduction...................................................................................................................16
3.2 Research Design and Approach...................................................................................16
3.3 Population......................................................................................................................16
3.4 Sampling Techniques and Sample Size.......................................................................16
3.5 Data Sources and Data Collection Instruments.........................................................17
3.6 Data Analysis Methods..................................................................................................17
3. 7Work Plan and Cost budget.........................................................................................18
3.7.1 Work Plan...................................................................................................................18
3. 7.2Cost budget.................................................................................................................19
Reference..............................................................................................................................20
Ethiopian Business Development Services Network, retrieved fro................................20
www.bdsethiopia.net/approach-mse-definition.html ......................................................20

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Chapter one

Introduction

1. 1Background of the study

Small and Medium scale Enterprises (SMEs) makeup a large part of many economies. They
are considered as the backbone of an economy given the fact that in some economies SMEs
contribute to more than 50% of Gross Domestic Product (ACCA, 2010). Particularly in the
European Union, SMEs constitute 99.8% of all firms and employ around 76 million people
representing around 67.4% of total employment in 2010 (Ayyagari et al. 2011). In the US,
SMEs constituted more than 50% of the non-farm private GDP and created 75% net new jobs

mhmjin the economy (ACCA, 2010).Therefore, it is clear that SMEs play an important role
in promoting inclusive growth in countries.

The issue of whether small businesses can be considered as beneficial to economic growth
must be examined from several different perspectives. As the theory of scale of economies
emphasizes, large-scale firms enjoy advantages derived from their economies of scale in
production and also from having crossed the threshold of innovative activities, thereby
predicting that the resultant increase in the share of large-scale firms will drive economic
progress. According to this conventional wisdom which originated back in the days of the
industrial revolution, only large firms can meet the requirements of scale efficiency, thus
outperforming small firms. It is therefore hypothesized that there is no room for SMEs in
those economies pursuing growth, and their future role is expected to diminish (ACS, 1996).

Although precise, up-to-date data are difficult to obtain, estimates suggest that more than
95% of enterprises across the world are SMEs, accounting for approximately 60% of private
sector employment (Ayyagari et al. 2011). Japan has the highest proportion of SMEs among
the industrialized countries, accounting for more than 99% of total enterprises (EIU, 2010).
According to the Ministry of Micro, Small and Medium Enterprises of India, 13 million
SMEs were operating in India by 2008, equivalent to 80% of all the country’s businesses
(Ghatak 2010). In SouthAfrica, it is estimated that 91% of the formal business entities are
SMEs (Abor and Quartey, 2010). Estimated data for the 27 countries in the European Union
(the EU-27) for 2012 also illustrate the importance of SMEs.

The contribution made by SMEs does vary widely between countries and regions.
Nevertheless, they play a particularly key role in high-income countries and sometimes even

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in low-income countries, making significant contributions to both GDP and employment
(Dalberg, 2011). They are also major contributors to innovation in economies, partly through
collaboration with the larger corporate sector. SMEs that become embedded in the supply
chains of larger businesses can be spurred on to improve their own human and technological
capital (ACCA, 2010), thus improving their own productivity and performance.

The contribution of SMEs to economic fundamentals nonetheless varies substantially across

countries: from 16% of GDP in low-income countries (where the sector is typically large but
informal) to 51% of GDP in high-income countries. History and legal tradition can also play
a very important role for the development of SMEs. For instance, countries that were in the
former Soviet Union tend to have disproportionately small SME sectors, even when
controlling for per capita income (Ayyagari et al. 2003).

In developing countries, by contrast, over 90% of all firms outside the agricultural sector are
SMEs or microenterprises. These firms produce a considerable part of the GDP. In Morocco,
for example, 93% of industrial firms are SMEs accounting for 38% of the production, 33% of
investment and 30% of exports. The contribution of SMEs is considerably higher in South
Africa. The estimated 91% of the formal business entities in South Africa that are SMEs
contribute 52–57% to the GDP. In Ghana, SMEs are even more prominent in the local
economy, representing about 92% of Ghanaian businesses and contributing about 70% to
Ghana‟s GDP (Abor and Quartey, 2010). Overall, statistics can sometimes mask the
particular contribution made by individual sectors. For example, in 2006/7, the contribution
made by micro and small businesses to India‟s GDP was only around 6%. Even so,
manufacturing SMEs accounted for around 40% of industrial output, and 40% of all exports
(Ghatak, 2010). Similarly, the United States International Trade Commission (2010) reports
that SMEs contributed to roughly 50% of the US private nonagricultural GDP in 2004, a
share that had remained relatively stable from 1998 to 2004. The service sectors are by far the
most important contributors, accounting for 79% of SMEs‟ contribution to GDP .When
compared with larger businesses, SMEs‟ contribution to output tends to be lower per firm
because they tend to be more labour intensive than larger firms and concentrated in service
sectors. They therefore typically achieve lower levels of productivity, though they do
contribute significantly to employment (Wymenga et al. 2011). SMEs‟ greater labour
intensity means that job creation entails lower capital costs than in larger firms(Liedholm and
Mead, 1987)which is particularly important for developing countries and economies with
high unemployment. Moreover, SMEs are generally more common in rural areas than larger
businesses. Especially in developing countries, SMEs thus provide much-needed employment
in rural areas. SMEs can in fact become the engines that sustain growth for long-term

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development in developing countries. When growth becomes stronger, SMEs gradually
assume a key role in industrial development and restructuring. They can satisfy the increasing
local demand for services, which allows increasing specialization, and furthermore, support
larger enterprises with services and inputs (Fjose et al. 2010).

1.2 Statement of the Problem

Practical observation and different studies show that, despite MSEs are recognized as
vehicles for economic growth and reduce poverty and unemployment (Zemenu&
Mohammed, 2014), most of them are facing critical constraints both at the running and
starting level the businesses. Some of these constraints include lack of access to finance, lack
of access to working premise, lack of entrepreneurial training and management skills, lack of
marketing information and the like (Brhane, 2014). Shortage and size of credit, shortage of
working premise and size of sales spaces and stringent licensing requirements are some of the
other key constraints to Ethiopian MSE (Assefa, Zerfu, &Tekle, 2014)

Furthermore, lack of skilled and experienced labor which leads to problems in production,
due to the unfamiliarity of workers with rapid changing demand, and lack of coordination of
production process are critical problems that MSEs are facing since they cannot afford to
employ/hire specialists in the fields of finance, administration, and technically knowledgeable
experts (Richard, 2000; Drucker, 1984). Lack of entrepreneurial skills that nurture the growth
and development of MSEs and marketing their products effectively through acquiring
information on marketing opportunities is the major bottlenecks that MSE entrepreneurs face
all over the country. In addition, lack of marketing skills, weak infrastructural facilities
rendered to small businesses to be uncompetitive.

A great deal of research has been carried out and reviewing small and micro enterprises. Most
of these researches concentrate on their study areas based on their own objectives and did not
focus on sme entrepreneurs and their business enterprises. There is scarcity of literature
touching on micro and small women business enterprises at local level special in Ethiopian
areas like the sub-cities and woredas. Therefore, study built on the local entrepreneurs in
Yeka cub-city worda 09, on factors that affect business performance of micro and small
enterprises.

And similar this studies will focus on what factors affect business performance entrepreneurs
in yeka sub-city in particular and it is also concentrate mainly on the factors that affect the
growth and survival in small and medium enterprises in the Sub-city. The study therefore,
seeks to identify the factors that affect growth and survival in small and medium enterprise
owned by in yeka Sub city in worda 09.
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The following research questions will be addressed in this study

1. What is the level of the growth and survival of sms?

2. What is the effect of each factor on general “sms' growth and survival?

3. What are the currently existing opportunities for MSEs development in the worda?

1.3. Research Objective

The general objective of the study is to investigate the growth and survival level of sms
enrolled in yeka sub city worda 09 sms and its factors.

1.4. Specific objectives

1. To investigate the level of growth and survival of sms in worda 09.

2. To analyze the effect of each factor on general factors.

3. To analyze the existing opportunities for Micro and Small enterprises development in the worda 09

1.5. Scope/Delimitation of the study

Since our topic, assisment of factors affecting the growth and survival of sms are a very wide
and vast in content, which covers the overall factors matter of sms, we forced to limit the
study only on technology effect , financial effect, education level of the owners, purchase of
raw materials,age of the company, computation rivalry, and year of the experience of the
enterprises. The reason we limit our study on the above mentioned area is because of
financial and experience.

1.6. Limitations of the study

The limitations of this study may be financial constraints, lack of infrastructure facility,
inadequate literature on the study area, lack of organized secondary data, lack of willingness
of respondents and inability to give correct answer for the question they will asked with few
non collected questionnaire; and lastly, shortage of time will among some major problems
faces the researcher

1.7 organization of the study

Chapter One will be deals with background of the study, statement of problem, objectives,
research questions, scope of the study, limitations of the study, and the significance of the
study and the organization of the paper. Chapter two will be focuses on the literature review
of the study. The third chapter will be concerned with the research methodology and profiles
the study area, the fourth chapter will be about data analysis and presentation and the last
(fifth) chapter states the conclusion and recommendation of the research.

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CHAPTER TWO

RELATED LITERATURE REVIEW

2.1 Introduction

Definition of key terms and concepts

There are different ways of defining the term small and micro enterprises in different
countries. The base for defining is deepened on the number of employees hired, the capital
invested and the total balance sheet (asset, liability and capital). So, according to European
Union, small enterprise is defined as an enterprise which employs fewer than 50 persons and
whose annual turnover and/or annual balance sheet total does not exceed EURO 10 million. A
micro enterprise is defined as an enterprise which employs fewer than 10 persons and whose
annual turnover and/or annual balance sheet total does not exceed EURO 2 million
(Kayanula et al.,2000). According to Ethiopia, The actual by the Ministry of Trade and
Industry adopted official definition of Micro and Small enterprises in Ethiopia are as follow:
 Micro enterprises are business enterprises found in all sectors of the Ethiopian
economy with a paid-up capital (fixed assets) of not more than Birr 20,000, but
excluding high-tech consultancy firms and other high-tech establishments.

 Small Enterprises are business enterprises with a paid-up capital of more than Birr
20,000 ($2,500) but not more than Birr 500,000 ($62,500) but excluding high-tech
consultancy firms and other high-tech establishments.

According to CSA (2004) definition of enterprises:

 "Large and medium scale manufacturing enterprises have been classified as

establishments with more than ten employees using automated machinery.

 Small and medium enterprises are establishments that engage less than 10 persons
using power driven machinery.

 Cottage/handicrafts are household type enterprises located in households or

workshops normally using own or family labor and mostly manual rather than
automated/mechanical machinery (www.bds-ethiopia-net).

Micro, small, and medium enterprises (MSMEs) are defined as any business
activity/enterprise engaged in industry, agri-business/services, whether single proprietorship,
cooperative, partnership, or corporation whose total assets, inclusive of those arising from

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loans but exclusive of the land on which the particular business entity's office, plant and
equipment are situated, must have value falling under the following categories: (DTI, 2008)
By Asset Size*

Micro: Up to Br 20,000
Small: Br20,000-500,000
Medium: 500,000 up to Birr 1 million
Large: above1million

Alternatively, according to European Commission MSMEs may also be categorized based on the
numberofemployees:
Micro: 1-9 employees
Small: 10 -99 employees
Medium: 100 -199 employees
Large: More than 200 employees
Secondary data obtained from woreta MSEs office, was written by Amhara national regional
government on 25/7/2003 E.C MSEs development council establishment performance rules
document decided that:-

Micro enterprise: means including enterprise owners & their family, dis clude premise’s up
to 5 employees & their capital by service delivery part, 50,000 or by industry part not more
than 100,000.

Small enterprise: means including enterprise owners &their family dis clued premises from
6 up to 30 employees & their capital by service delivery part, 50,001 up to 500,000 or by
industry part not more than 100,001up to 1,500,000 is called enterprise.

2.2. Theoretical Literature review

2.2.1. The Concept of Business Performance

According to Martin (2010:67) performance is defined simply in terms of output terms such
as quantified objectives or profitability. Performance has been the subject of extensive and
increasing empirical and conceptual investigation in the small business literature (Bidzakin
K.J., 2009:31). The issues that remain unresolved are the goals against which performance
should be assessed and from whose perspective the goals should be established (Etzioni,
n.d:128).

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According to Rami & Ahmed (2007:6-13) the most commonly adopted definition of success
good performance is financial growth with adequate profits. This is purely based on financial
issues. However, there are also other non-financial definitions of success good performance
that are equally applicable. For example, some entrepreneurs regard success good
performance as the job satisfaction they derive from achieving desired goals. Global
Entrepreneurship Monitor (GEM) also defined Performance non-financially as the act of
performing; of doing something successfully; using knowledge as distinguished from merely
possessing it (GEM, 2004:10). However, performance seems to be conceptualized,
operationalized and measured in different ways thus; making cross-comparison is difficult
(Srinivasan et al., 1994:22) and among the most frequently used operationalization are
survival, growth in employees and profitability. Thus, both the financial and non-financial
definition of performance has own limitations in the modern business. That is why H Gin
Chong (2008), states that a business enterprise could measure its performance using a hybrid
of both the financial and non-financial measures. The financial measures include profit before
tax and turnover while the non-financial measures focus on issues pertaining to customer’s
satisfaction and customer’s referral rates, delivery time, waiting time and employee’s
turnover. However, financial growth due to increasing profits has been widely adopted by
most researchers and practitioners in business performance models.

2.2.2. The Nature of Micro and Small Enterprises

According to Barton (1997), micro and small enterprises provide jobs, alleviate poverty and
supply essential goods and services to ensure enough living standards and sustain
fundamental human dignity during the past decade because of human needs development.
First, In MSEs have been examined in a large variety of countries in both developing and
developed countries, the importance of the MSEs inter ms of the level of employment and the
number of enterprises ,has been documented like the united states, Italy, and Germany. In
addition industrialized countries and developing countries studied shown that small business
play vital role in source of nonfarm employment since 1980s.

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Second, the significance of the MSEs introduce additional factors of new technologies and
macro competition during 1990s.Throughout the world, downsizing macro efforts, resulting
reducing in the work force, for small firms the extensive new favorable conditions have
created including micro enterprises which contain 1 to 10 persons because of large
corporations have pushed their business operation and macro competition have familiarize
additional factors (Barton, 1990).
Third, in countries there were transitions of changes from socialism to market oriented
economies. Socialist countries have produced alteration for workers similar to those brought
by corporate rearrangement for workers in market economies. Perception of future
employment in state run enterprises have been crash, leaving workers scrambling to find
other methods to sustain their livelihoods. For workers in these economies and countries in
market economy, employments in MSEs have become importance, not means of economic
recovery. In the contemporary world economies and globalization arena and development
programs the nature and significance of small enterprises have be got to attention or
emphasize on ways of promoting MSE as the expression of growing array of proof
documenting(Ibid)

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2.2.3 Role and Importance of MSMEs

The role of micro and small enterprises (MSEs) in employment and income generation is
increasingly recognized and has become a major playing field for policy makers and donors
with dual objective of enhancing growth and alleviating poverty.
 MSMEs play a major role in the country's economic development through their
contribution in the following: rural industrialization; rural development and
decentralization of industries; creation of employment opportunities and more
equitable income distribution; use of indigenous resources; earning of foreign
exchange resources; creation of backward and forward linkages with existing
industries; and entrepreneurial development.
 They are vital in dispersing new industries to the countryside and stimulating gainful
employment. A country like the Philippines where labor is abundant has much to gain
from entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus,
they generate jobs in the locality where they are situated. In this sense, they bring
about a more balanced economic growth and equity in income distribution.
 MSMEs are quick in assimilating new design trends, developing contemporary
products, and bringing them to the marketplace ahead of the competition. MSMEs
tend to be far more innovative in developing indigenous or appropriate technology,
which may be grown later into pioneering technological breakthroughs.

 They are able to effectively increase the local content or the value added in final
goods that are processed and marketed by large manufacturing firms (DTI, 2008).

 MSMEs are notably skillful in maximizing the use of scarce capital resources and are
able to partner with large firms by supplying locally available raw materials in
unprocessed or semi-processed forms.

 Also, MSMEs can act as the seedbed for the development of entrepreneurial skills and
innovation. They play an important part in the provision of services in the community.
They can make an important contribution to regional development programs. (DTI,
2008)
In short; MSEs play a role in a country economic development through; their labor incentive
mechanism by dispersing new technologies or industries that absorbs labor forces, tapping
indigenous knowledge from the entire community, able to add value to manufactured
producers, maximize the use of scarce capital resources and make available raw materials to
large firms and contribute the development of entrepreneurial skill in addition to enhancing
service provision in a community.

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2.2.4 The Contribution of MSMEs' in the Economy
MSMEs contribute to the creation of wealth, employment, and income generation, both in
rural and urban areas, thus, ensuring a more equitable income distribution. They also provide
the economy with a continuous supply of ideas, skills, and innovations necessary to promote
competition and the efficient allocation of scarce resources. To explain clearly, equitable
distribution of income in both rural and urban areas can be achieved with the involvement of
MSMEs in the economy, through supplying ideas, skill and innovations. For instance,
according to the Department of Trade and Industry (Philippines), in the past five years these
sectors fall shoulders for about 99.6percent of the recorded business,63percent of labor job
opportunities and 35.7percent of the total sale & value added in the manufacturing brings
from MSMEs as well in the country.(DTI, 2008)

2.2.5 National Strategies for the Development of MSEs

The contribution of the informal sector for the economic development of countries has been
recognized by governments and thus due attention has been given to the promotion and
development of MSEs for they are important vehicles to address the challenges of
unemployment, economic growth and equity in a country.
For instance, the government of Ethiopia has formulated a National MSE Development and
Promotion Strategy in 1997 Ethiopian calendar, which enlightens a systematic approach to
alleviate the problems and promote the growth of MSEs. The general objective of the strategy
is to create conducive environment for the benefit and growth of MSEs, with specific
objectives to facilitate economic growth; bring equitable development; create long-term jobs;
strengthen cooperation between MSEs; provide the basis for medium and large-scale
enterprises; promote export; balance preferential treatment between MSEs & bigger
enterprises (Ibid).
Among the MSE support framework, the strategy focuses on the facilitation of access to
finance; incentive schemes; encouraging partnerships, training in entrepreneurship, skills and
management; facilitating access to appropriate technology, access to market, access to
information and advice, access to physical infrastructure and the institutional strengthening of
private sector associations and chambers for the various types of business activities like
manufacturing, agro-business, small scale farming and fishing, etc. (Commission on Legal
Empowerment of the Poor, 2006). Thus, the strategy creates legal frame work to enable
MSEs in standard and regulatory situations, and includes legal registrations and support
systems and programs, like Finance, infrastructural development and institutional
strengthening systems.

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2.3 Empirical Literature review

2.3.1. Micro, Small and Medium Enterprises (MSMEs) in India

The MSMEs plays a significant role in the Indian economy. According to Nallabala &
Gugloth (2011), the share of small scale sector in the country contributes to more than
50percent of the industrial output value accumulation, one third of the export revenue and in
terms of employment the largest man power has been covered by this sector next to
agriculture. The major share of the industrial production and exports fall on the shoulder of
MSMEs and over 90percent of the total enterprises in most of the economy is constituted by
this sector. The sector takes also share of about 39percent of the value of manufacturing
production around 33percent of the value of the total export of the economy. Moreover,
currently the MSMEs sector has continuously brought higher growth rate than industrial
sector.

2.3.2 Performance of MSMEs in India

The MSMEs sector contributes significantly to the manufacturing output, employment and
exports of the country. According to Ruddar, & Sundharam, in terms of value, the sector
accounts for about 45 Percent of the manufacturing output and 40 percent of the total exports
of the country. The sector is also anticipated to employ about 60 million persons in over 26
million events throughout the country. Further, this sector has consistently registered higher
growth rate than the rest of the industrial segment. There are 6000 products ranging from
conventional to high-tech items, which are being manufactured by the MSMEs in India. This
sector has time after time registered a higher growth rate than the rest of the industrial
segment. The MSME sector provides the maximum opportunities for both self-employment
and jobs after agriculture sector. (Ruddar Datt, & Sundharam, K.P.M. 2010)

2.3.3 Micro and Small Enterprise (MSEs) in Ethiopia

In successful developing countries, MSEs by virtue of their size, location, Capital, investment
and their capacity to generate greater employment have demonstrated their powerful
propellant effect for rapid economic growth.
The MSE sector has also been instrumental in providing goods and services that are of
adequate quality with affordable price to large number of people particularly in rural areas. It
also makes use of the skill and talents of the large number of people without requiring high
level training large sum of capital or sophisticated technology.

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2.3.4The Nature of Micro and Small Enterprise in Ethiopia

With regard to diverse nature of activity of micro and small enterprise (MSEs) in Ethiopia,
the majority of activities are concerned in three main broad sectors manufacturing, trade and
service. The sample server of the central statically authority (CSA2003) indicated that 43% of
the informal sector operators are engaged in manufacturing 38% are in trade, hotels and
restaurants, and 14/% in community and personal service. The remaining5% are engaged in
construction 2% inagriculture,hunting, fishing, mining and quarrying. The report on the
survey of small scale manufacturing industries conducted by CSA indicated that, there are
31,863 small scale manufacturing industries all over the country, of which 19,996 /68%/of
them are located in urban areas. The small manufacturing industries are mainly engaged in
the manufacturing apparel. In addition, the report on the survey of cotton/Handicraft
manufacturing industries dated November 2002, indicated that there are about 974,676
establishment in Ethiopia of which 616,696/63%/are found in rural areas. The total number of
person engaged in the SME sector at country level was 1,306,865.00 of which
1,230,846/94%/ were employees.According to CSA, cottage/Handicraft manufacturing
industries refer to those manufacturing establishment producing goods primarily for sale and
which do not use power driven machines in performing their main manufacturingactivities.In
urban areas about 99% of the small scale operators run their business under individual
ownership.

2.3.5 Problem faced by SMEs in Ethiopia

It is believed that the problems resulted to lack of adequate working premises,raw material
shortages, in sufficient working capital and ineffective marketing encountered by small
industries resulted in the failure of the expansion of these businesses. Whereas the same set of
problem, when experienced by the informal sector operators, have effect of preventing their
expansion almost from the beginning of their operations.For instance,the results of the survey
studies conducted on
the "urban informal sector" indicate that most of the informal business operators(about30%)
expressed that their first major difficulty when starting their operation was lack of sufficient
initial capital. Thesituation according to their responses becomes even more critical when
they intend to expand their business.
As the findings of the study indicate limited market, health problems, lack of premises, lack
of raw materials and limited capacity are also encountered. It is, therefore, necessary to assist
MSEs to overcome the mentioned problem through various support measure in addition to
external support, MSEs themselves are expected to play their part to words improving their
situation. (St, Mary's module; 2005)

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Why do Small Firms Fall?
In the million of new business born each year in the developed world only half live as long as
eighteen month and only one in five live as long as ten years. These dramatic figures are
often quoted, but are nevertheless open to question in fact no one really has defined failure
many proprietors shout down because they are bored, can make more money elsewhere, have
sold out to the competition, or have retired. New start-up businesses fail for the following
eleven business reason.
1. Lack of expertise: starting a business from scratch calls forremarkable versatility. The
owner manger types the invoices with one finger in the evenings, does the books at
the weekend, sells on Monday, makes the goods from Tuesday and delivers when he
or she can. People with a history in large firms sometimes find it difficult to be came a
jack of all trades.
- Incompetence: Lack of fitness to run the business physical, moral or
intellectual.
- Lack of managerial experience: little, if any, experiences managing employee
and other resources before going in to business.
- Unbalanced experience: not well rounded in marketing finance, purchasing and
production.
- Inexperience in line: little, if any, experience in the product or servicebefore
going in to business.
- Neglect: too little attention to the business due to bad habits, poor health, or
material difficulties.

2. Fraud or disaster: fraud misleading name, else finical statements or irregular disposal
assets. Disaster fire, food, burglary employee fraud or strike.
3. No product marketing strategy: until you have defined who will buy your product or
service, and why you shouldn't begin in to offer it.
4. Over-optimism about market size it is a fundamental misconception to believe that
people are simply sitting waiting to be sold to new business need to conduct research I
the market they are aiming at, tosee who the competitors are and make some reasoned
estimate of what their anticipated sales will be.
5. Understanding the start up time: there's often a greater deal to do before the customers
come a long premises to be found and fitted out, equipment and stock to be bought.
Estimate how long you think it willtake, double it and add on a bit more.
6. Lack of working capital: if you haven't calculated correctly you could easily run out

13
 of money. Scarce cash is tied up, and money is flowing in one direction only until
customers start buying in reasonable numbers. Assess your capital requirements with
a good safety margin at the outset a well-prepared cash flow fore cast will help you
decide how much is needed and when.
7. Start-up cost too high: new business should be loan andmean don't spend too much on
fixtures, fitting and equipment too soon people with a background in big business
often start with extravagantly high standards.
8. Consequence of early growth: many people think their problem are over once
customers start to roll in but they may have only just began a business changes its
shape and size very rapidly in its early days as sales grow, ever increasing sum of cash
are needed to fuel that growth and the danger is over trading.
9. Mistaking Cash for Profit: the cash that flow in to the business hasn't had any of the
automatic deduction Knocked off it as has a pay check from all employer too often
entrepreneurs yield to the temptation to use this cash to maintain their living
standards, and when the one, for VAT- they can't pay them the inland revenue and
custom and exciseput more business in to liquidation them anyone else.
10. Wrong location: where you conduct your business and how much rent you pay is
vital. Don't be tempted to take premises just because the rent is cheap no customers
may pass that way. Equally, don't take on an expansive high street site if your business
turnover is unlikely to cover the costs. Your initial market research should help you
identify a suitable location.
11. Selecting and Managing people: by companies can afford to make the odd mistake
when selecting state small business can't afford to get it wrong.
No management accounts new business people often see regular accounting as a bureaucratic
non sense carried out for the benefit of the Inland Revenue alone for them the end of the first
year is often the end of the business. (Colin; 1993)

2.3.6 Understanding business aims

Broadly speaking, profit is the difference between what a business has earned and what it has
spent over a given period profit is extremely important for all business asno business can
survive for very long if it is not profitable. (HelnemannGnvq)

2.3.7 Ethics and social responsibility of business

Business ethics is the study of the principles and values which guide us in marketing
responsible choice in relation to the possibilities, set out by economies and business. In
simple expression, business ethics is about honesty, trust, respects and fairness in all business
dealing. (BantleWorkle)
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2.3.8 The influence of government on business

To use a botanical analogy, government and business are two general of social and economic
system of a country each of these genera contain species, such as federal, state, and local
political bodies in the case of government, and corporation, partnership in the case of
business. (Martinc.Sohnitzer)

CHAPTER THREE

RESEARCH METHODOLOGY AND DESIGN

3.1 Introduction
This part include research design and approach, population, sampling techniques and sample
size, data source and collection instruments, beside to that also included data analyses
methods and work plan and cost budget.

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3.2 Research Design and Approach
The study will use both qualitative and quantitative research in integration. The research is
descriptive research type. The approach of the research will be mixed type approach and this
will applied through direct contact with the MSEs and distributing questionnaires. The other
respondents (the woreda MSEs workers and the sector workers) will address in the same way.

3.3 Population
Therefore, the study will focus on clients Accordingly, all MSEs in woredas 09 of the sub
city will be target population. Thus, the sample will take out of the mentioned population.

The population is all small and medium enterprises in yeka sub city worda o9. These worda is
expected to have around 667 sme according to worda 09sme office. The study focused on 5
areas the sample frame (list) is small and medium enterprise of worda 09(yeka sub city worda
09 administration).

3.4 Sampling Techniques and Sample Size

According to Naresh M. (2007), the sample size for targeted population will be determined
by using the following table.

Table 3.1 Sample determination table

No. Population size Low sample size Medium sample High sample
size size
1 51-90 5 13 20
2 91-151 8 20 32
3 151-280 13 32 50
4 281-500 20 50 80
5 501-1200 32 80 125
6 1201-3200 50 125 200
7 3201-1900 80 200 315
8 19001-35000 125 315 500
9 35,001-150,000 200 500 800

Considering the concentration of the clients of the MSEs, the study will be applied to woreda
09 namely. In these woredas, 667 clients of the branch are found.

Depending on the above table, the sample size of the study will be determined. Since the
target population size ranged from 501-1200, and then it will be safe to take sample size of 80
and above. Therefore, the sample size of the study is 125 individuals from clients in the
woreda.
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 Table 3.2 Sources and size of samples

No. Item Sources Size sampling techniques

1 Clients One worda clines selected 125 Simple random sampling

In this study, the random sampling techniques will be used.125 individual clients were
selected by random sampling technique.

3.5 Data Sources and Data Collection Instruments

In this study both Primary and secondary data sources will be used. The primary data will be
collected through designed and structured questionnaires from sample clients to the
concerned enterprises, woreda 09 MSEs office and other interrelated government offices in
the woreda. The secondary data was collected from yeka sub city woreda 09 Mses Office and
worda 09 Administrative office.

3.6 Data Analysis Methods

After the data has been collected, it will be coded and fed to excel sheet so as to simplify
further tasks. The respondents’ scores will summarized from the sheet and made ready for
analysis. After that, it will analyze using both descriptive statistical techniques and
descriptive narrations. The demographic profiles and items related to characteristics of
entrepreneurs will analyze using simple statistical tools such as tables and percentages.
Descriptive statistics (mean and standard deviations) of the respondent scores will compute
for the Likert statements and analyzed by comparing these mean scores and deviations among
respondents. The reason for using descriptive statistics is to compare the different factors that
affect the performance of entrepreneurs in MSEs by the means and standard deviations of
scores. The interview questions will analyze using descriptive narrations.

3. 7Work Plan and Cost budget

3.7.1 Work Plan

No. Activity MAR APR MA JUN JUL AU

CH EL Y E Y G
1 Advisor contact
2 Literature review
3 Topic relation
4 Design data collection instrument
5 Distribution and collection of questionnaires

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6 Analysis and interpretation of data
7 Conclusion and recommendation
8 First draft of the research report
9 Final editing and reporting
10 Submission and presentation

3. 7.2Cost budget
As a research proposal it is essential to dot down adequate financial resources necessary to
conduct the study. Cost budget schedule is summarized as follow.

Qua. Unit of Unit Total cost

No. Description measurement cost
1 Stationary material expense
- Paper A4 size 1 Pad 180 Br. 180
- Pen 5 Pecs 5.00 25
- notebook 1 Pecs 12 12
2 Transportation expense - Birr - 200
3 Telephone expense 4 Card 25 100
4 Secretarial service expense
Typing service 200
Printing 700

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 Photo copy 50
Binding and design 50
5 Contingent expense 500
Total cost Br.2,017

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