FACTORS THAT AFFECTS PERFORMANCE OF SMALL SCALE

BUSINESS ENTERPRISE IN CASE OF DENSA TOWN

A RESEARCH SUBMITTED TO THE DEPARTMENT OF

MANAGEMENT IN PARTIAL FULFILLEMENT OF BACHELOR OF
DEGREE IN MANAGEMENT

PREPARED BY: - YETSEDAW BOGALE BELETE

ID; D/D MGMT/479/10/C
PHONE NO. 0921813850

JIGDAN COLLEGE
COLLEGE OF BISSUNESS AND ECONOMICS
DEPARTEMENT OF MANAGEMENT

Denssa, Ethiopia
April 2021 G,C
ACKNOWLEDGEMENT

First of all I would like to express my wish thanks to “GOD” for helping me and saving me from
many problems up to now hope to keep me for rest of my life.
My special thanks go to my family to help me by supporting financially and morally to finish my
BA degree in management.
Last not the least my appreciation and gratitude goes to my friends for their morale assistance
and all the member of my dormitory number who encourage me in my study.

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 ABSTRACT
This study focuses on factor that affect the performance of small scale business enterprise in
Denssa town such as managerial skill of the employees in small business ,lack of adequate
capital to run the business, taxation system impose by government own small business and lack
of awareness about product modification.
The nature of study was descriptive survey type; where primary data was collected through
questionnaire. Probability i.e. stratified technique of sampling was used to study.

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Table of Contents
ACKNOWLEDGEMENT ............................................................................................................................. i

ABSTRACT.................................................................................................................................................. ii

ACRONYM ................................................................................................................................................ vii

CHAPTER ONE ........................................................................................................................................... 1

Background of the study ........................................................................................................................... 1

1.2 Statement of the Problem .................................................................................................................... 1

1.3 OBJECTIVE OF THE STUDY .......................................................................................................... 2

1.3.1 General objective of the study ..................................................................................................... 2

1.3.2 Specific objective ......................................................................................................................... 2
1.4 Research question/Hypothesis ............................................................................................................ 3

1.5 Significance of the study ..................................................................................................................... 3

1.6 The scope of the study ........................................................................................................................ 3

1.7 Methodology of the study ................................................................................................................ 3

1.7.1 Target group/Study population .................................................................................................... 3

1.7.2 Source of the data......................................................................................................................... 3
1.7.3. Data Collection ........................................................................................................................... 4
1.7.4. Sampling techniques ................................................................................................................... 4
1.7.5 Sample size .................................................................................................................................. 4
1.7.6 Data Processing and Data Analysis ............................................................................................. 5
1.8 Limitation............................................................................................................................................ 5

CHAPTER TWO .......................................................................................................................................... 6

2. Literature review ................................................................................................................................... 6

2.1 The size of small business................................................................................................................... 6

2.2 The impact of tax on performance of small business .......................................................................... 6

2.3 The operation of small business .......................................................................................................... 7

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 2.4 Source of financial diversity ............................................................................................................... 7

2.5 Tax as a source of revenue for government ........................................................................................ 7

2.6 Definition of small business................................................................................................................ 8

2.7 Special Contribution of Small Business........................................................................................... 9

2.8 Advantage of going in to small business ............................................................................................ 9

2.9 Disadvantage of going to small business ............................................................................................ 9

2.10 Strength of small business .............................................................................................................. 11

2.11 weakness of small business ............................................................................................................. 11

2.12 Small Business failure factors ......................................................................................................... 11

2.13 Reason for failure of small business ............................................................................................... 12

2.15 Global change and small business .................................................................................................. 12

2.16 Small business venture .................................................................................................................... 12

2.17 Entrepreneur owner venture ............................................................................................................ 12

2.18 Marketing research and marketing channel .................................................................................... 13

2.19 Need for marketing ......................................................................................................................... 13

2.20 The constitute of small business ..................................................................................................... 14

2.21 Impact of small business ................................................................................................................. 14

2.22 Characteristics of small scale industries ......................................................................................... 15

2.23 The challenges of the SME strategy ............................................................................................... 16

CHAPTER THREE .................................................................................................................................... 18

3. Data Presentation and Analysis........................................................................................................... 18

3.1 Demographic profile ..................................................................................................................... 18

CHAPTER FOUR....................................................................................................................................... 28

4.1 CONCLUSION ................................................................................................................................. 28

4.2 RECOMMENDATION .................................................................................................................... 29

REFERENCES ........................................................................................................................................... 30

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APPENDIX ................................................................................................................................................. 31

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List of table page
TABLE 3.1 SEX DISTRIBUTION ..............................................................................................................................................18
TABLE 3.2 AGE GROUP ................................................................................................................................................19
TABLE 3.3 EDUCATION STATUS ....................................................................................................................................19
TABLE 3.4 MARRIAGE STATUS .....................................................................................................................................20
TABLE 3.5 TYPES OF SMALL BUSINESS .........................................................................................................................20
TABLE 3.6 STARTING OF BUSINESS ...............................................................................................................................21
TABLE 3.7 INITIATION OF START BUSINESS ...................................................................................................................21
TABLE 3.8 TRAINING OF MANAGERIAL SKILL TO RUN THE BUSINESS ............................................................................22
TABLE 3.9 NECESSARY MANAGERIAL SKILL TO RUN THE BUSINESS .............................................................................22
TABLE 3.10 CAUSE OF TAKE TRAINING ON MANAGERIAL SKILL TO RUN THE BUSINESS ................................................23
TABLE 3.11 CUSTOMERS RELATION SHIP ......................................................................................................................23
TABLE 3.12 SYSTEM USED TO BE SUCCESSFUL COMPETITORS ......................................................................................23
TABLE 3.13 COOPERATION WITH FELLOW SALE PERSON ..............................................................................................24
TABLE 3.14 PURPOSE OF COOPERATION WITH FELLOW.................................................................................................24
TABLE 3.15 INITIAL CAPITAL TO RUN THE BUSINESS ....................................................................................................25
TABLE 3.16 CAPITAL ENOUGH TO RUN THE BUSINESS ..................................................................................................25
TABLE 3.17 THE TWO BORROWED FROM CREDIT ASSOCIATION ....................................................................................26
TABLE 3.18 FAIRNESS OF GOVERNMENT TAX ...............................................................................................................26
TABLE 3.19 FACTORS INFLUENCE PRODUCT MODIFICATION .........................................................................................26

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 ACRONYM
SBA Small Business administration
AMA America marketing association
MSEs Micro and small enterprise
IBM International business machines
E.C Ethiopian Calendar
G.C Gregorian Calendar

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 CHAPTER ONE

Background of the study

Small business some time called micro business on the other hand is any business that is
independently owned and operated and not dominant in its field. It may never grow large, and
the owner may not want it to, as they prefer a more relaxed and less aggressive approach to
running the business (MARY JANE, BYRD, LEONC, MEGGLNSON)

. Small business can be service rendering firms, manufacturing organization, sale and small scale
industries. Several factors affect performance of small scale business enterprise, such us
production technology, availability of raw materials, managerial skills of owners, taxation
system imposed by the government, availability of infrastructure. However this study focuses on
problem faced by small business in Denssa town with respect to managerial skills of owner’s
taxation system imposed by the government on small business and owner’s awareness about
product modification (Gebretinsae, 2007).
The factors that motivates researcher to do this research was that start from researcher coming to
Jigdan university ,researcher observe in Denssa town that small business of town was affect by
several factors and researcher select this related topic to do this research in (2013 E .C).

1.2 Statement of the Problem

It is true that small business enterprises have vital part to play in the economy of a country. A
small business is an individual or groups who establish and manage for the principal purpose of
furthering personal good. Most small firm is unlikely to be able to exert much influence on their
market. They are price taker in classic sense and are likely to face significant competition with
flexible organization they are more sensitive and response to market change (Burns and Hurt
,1998).
The employees of small business should -gather information regarding product, market condition
as well as change take place in environment and act accordingly (Hodgetas, 2007).
The employees also understood his customer and treats politely and respectively. If the
employees has managerial and his business activities perform smoothly and leads profit if
business not lead to bankrupt.

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As the finance may the bases for sum business activities lack of sufficient finance usually major
problem of small business in our country. Firms are not public companies this means they offer
have problem of raising capital. The tax collect from operating business has a great important for
raising revenues for the government. But payment for the government is among the most factors
that discourage the development of small business. Most small business employees are
characterized by lack of awareness for the product modification. Based on the above ideas and
factors that affect the performance of small scale business enterprise the researcher raise the
following basic question to be answer in this part of study.
 What are the major factors that influence performance of small business in Denssa town?
 What is the influence of lack of sufficient managerial skill on performance of small
business?
 What are the factors that influence each firm to make product modification?
 How the amount of the tax imposed by the government affect the performance of small
business?
 How capitals affect the performance of small business

1.3 OBJECTIVE OF THE STUDY

1.3.1 General objective of the study

The overall objective of the study was to examine the factors that influence the performance of
small business in Denssa town.

1.3.2 Specific objective

 To examine the impact of management on performance of small business.
 To assess the effect of capital on performance of small business and the capital seeking
power of each small business
 To investigate government imposed of tax on each small business and how affect their
business activities.
 To determine factor that affect each firm to make product modification.
 To identify any problems, that affect business activities take place in this area

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1.4 Research question/Hypothesis
 What are the factors that affect each firm to make product modification?
 What are the major factors that affect performance of small business in Denssa stown?
 What is the effect of lack of sufficient managerial skill on the performance of small
business?

1.5 Significance of the study

o The study focus on performance of small scale business enterprise. The outcome of this
Useful for the employees of small business in identified area. Generally the study has the
following importance.
o It will provide useful information for employees of small scale business concerning
problem facing small business and to develop strategies to minimize those problems.
o To suggest some possible solution with the factor inference small scale business.
o It will help researcher to know more about factor that influence of small scale business.

1.6 The scope of the study

The scope of this research paper has covered assessment of the problem that affect performance
of small scale business enterprise especially in the manufacturing, service and sale division of
those business enterprise in Denssa town.

1.7 Methodology of the study

1.7.1 Target group/Study population

The employees of small scale enterprise in Denssa town would be the target
population of the study that means the permanent employees who will be as target
population of the study not include daily workers in the sample from the total
population of the town 588 male and 1302 female participated in the three sectors.

1.7.2 Source of the data

They require information was gathered from two sources of data. Primary and secondary sources
of data, primary data was obtained direct from the employees of the organization through

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questionnaires and secondary sources of data was obtained from document report magazine
published to support primary source of data.

1.7.3. Data Collection

As data collection instrument the research was questionnaires. A questionnaire was both open
end and closed end question. More information in greater come resistance. If any of the
respondents the questionnaires which was structured and distributed to employees at different
level the organization.

1.7.4. Sampling techniques

The most appropriate techniques that research would be used stratified sampling techniques. This
sampling techniques would be selected because of population from which the sample to be
drown does not constitute a homogenous group. In order to obtain representative sample the
potential employees of small business will be divided in to sub group like barbers, restaurant,
wholesaler, woodwork, metal work and etc.

1.7.5 Sample size

From the total population of 1890 the researcher would divide 3 categories of manufacturing,
service, sale business and select sample using stratified sampling. Out of the total population
983, 24 and 883for manufacturing, service and sale division respectively.
Sample size determination formula
n=z²×p×q×N/E²× (N_1) +Z²×p×q
Description
N =IS THE POPULATION SIZE
n= sample size
Z =Confidence level at95%
E = Margin of error
P= population proportion
Q =1_p
n= (1.96)²×0.5×0.5×1890/ (0.1)²(1890-1) + (1.96) ×0.5×0.5
1815.156/19.8504
n=91

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p1=n×p1/N 91×983/1890 =47 for manufacturing
P2=n×p2/N 91×24/1890=1 for services
P3=n×p3/N 91×883/1890=43 for sales

1.7.6 Data Processing and Data Analysis

Data process
In the study process different types of raw data was collected. This raw data was processed,
analyzed and interpreted. The intended outcome was obtained. The collected data was edited,
classified and errors was omitted, examined and corrected.

Data analysis
Data analysis was further transformation of processed data to look for pattern by using
descriptive analysis where further processed, analyzed and interpreted by using different tables
and interpreted data were leads to conclusion and recommendation of the study.

1.8 Limitation
The researcher would face certain problems at the time of conducting the research. Some of them
are given below.
 One the most necessary limitation of stratified sampling method was that the most
complicated and expensive due to if passes through first homogenous group was determined in
the entire population and after that it divided in two set of strata (sub population groups).

 Unwillingness of respondents on filling questionnaires since most of them was busy with
work.
 Difficulty in getting secondary source from the organization which would create fear of
top manager give the information of the organization
 In adequate of budget and transportation cost
 The absence of recent literature in the research topic.

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 CHAPTER TWO

2. Literature review
This chapter deals with the literature review, which includes the size of small business, operation
of small business, definitions of small business and etc.
Small business fail because management not prepared to handled increase demands on skill and
knowledge. Small business person generally have a visual control over everything under them.
Once their business grow too small business person must rely on more sophisticated ways to plan
and control their business. Unfortunately they often lack managerial skill to recognize, hire and
tap the talent they need to survive and grow. (Hailey, 2007)

o Innovation should be the ground base for the operational activities of small business
entrepreneurial and managerial skill of the employees of such firm are essential to promote the
business to growth profitability. If the employees have adequate knowledge of managerial skill
and entrepreneurs, the dynamism of the operation of the business with change in the external
environment can be insured poor managerial and entrepreneurial skill of the employees will lead
to loss. If it is operation remain static while the external environment is changing and the
computation is becoming fierceness (Burn and Hurst, 1998).

2.1 The size of small business

In economic terms, a small business is one that has relatively small there of it market and is
managed by its owner or part of owner in personalized way and no over it is independent in that
it does not form part large enterprise and the owner shouter should be free from outside control
in taking principal decision (Hodgetts2007).

2.2 The impact of tax on performance of small business

Evening taxation is the main source of revenue generation for the government. It is most and
visible way that affects the performance of small business. The tax system for small business is
amount the most factor that discourage the development and growth of small businesses the
amount of tax imposition has need a due care before it determination in most case select
existence of tax rate. Administration procedure and collection enforcement are the major
problem that shorten the life business in Ethiopia (yosef, 2006)

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 2.3 The operation of small business
The small business that owned and operated by relatively few people and has relatively small
scale revenues and possesses relatively little capital (, 1984).

2.4 Source of financial diversity

The small firms sector highly diverse with respect to both structure characteristics (age, growth
rate, industrial sector) and financing condition and retirements. They are numerous source of
financial diversity in addition to those with many a rise as consequence differing managerial
ability.
Example the extent to internal equity which is business varies widely according to the process of
accumulation, the age of firm and its profitability, external equity significant for small firms.
The growth rate of operational activities of the firm, its life and the industrial sector as well as
the market which it operates will have implication for financial on the demand side the nature of
the customer base varies sector and variation effectors such as trade, credit payment forms,
delayed payment, market power, and many other factors affect the revenue following into the
business.
Not only have to do those many characteristics of financing condition varied between business,
sector and markets. But, that also vary through time as core finance of changes in both the
internal and they environment of the business (Hailey, 2007).

2.5 Tax as a source of revenue for government

The tax collected from operating business has a great importance in rising of revenue for federal
governments and providing incentives for certain type of economic areas. In addition the tax
collected from the business has also importance in the enhance of saving and investment of
economic growth and in the improvement of relation between gross domestic and government
revenue. The determination of tax rise on any operating business is either presentation of income
statement of the internal revenue authority or depends on capital business estimating the amount
of tax to be played by tax payer. Depend on the regulation of tax exempted from tax payment.
These are rending of financial service, the the supply of national or foreign currency the supply
of prescription drugs specified in directive issue by the relevant government and rendering
medical service.(proclamation No 2002)

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2.6 Definition of small business
Small business easy definition typically use apply the term small business to same called mom
and pop stored such as neighborhood groceries and restaurant and the term big business to such
grant as IBM and General motors. But yearly all U.S.A business fall such between whose
extremes. They all viewed as big or small depending on the grand stick and out of point used.
And there are number of commoner yardsticks, these are total assets, owner equity, yearly sale,
revenues, number of employees, proof transparent, compactable and available.
Other definition of small business, namely those made by us small business administration
business to help small business thrive.
To meet this goal, small business administration (S.B.A) offers program to help small business
up grade there managerial skill and money.
For business seeking loans, the SBA has drowned us definition of skill business to virtually
every industry. Each deification depends on industry (Hirsh Robert fifth edition)
It difficult to formulate a universal definition of a small business because the economics of
countries differ and people adopt particular standard for particular purpose. Secondary research
(Bowler, 2006).
Indicated that there is no universal accepted small business definition. What is regarded in the
USA as small business by definition would often be regarded as medium size business, which is
independently owned and operated, and which is not dominant in its operation elsewhere in the
world .The small business sector is an essential factor in promoting and achieving economic
growth and development the wide spread creation .
and Vander Merwe,2008) indicate that small business development should be an essential
component of all reconstruction and development initiatives and this has the potential
empowerment the majority of the courtiers’ people. According to recommendation of Bolton
committee (1997), there are two approaches to define small business. These are:-
A. Size criteria
B .Economic or control criteria
When we refer to the Ethiopian context, a standard definition to both micro and small enterprise
has been sent by the ministry of trade and industries study on “Mses. Development strategy”
which took place on August1997.

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Accordingly, small enterprise is defined as those ventures with less than ten work forces and
with paid up capital not exceeding birr five hundred thousand. While micro enterprises are those
firms with less than ten work force and with paid up capital of not exceeding birr ten
thousand(Wolde Amaha,1997).

2.7 Special Contribution of Small Business

As the part of the business community, small firms unquestionable contribute to our nation’s
economic well [Link] produce a substantial [portion of our total goods and services. Thus,
there general economic contribution is similar to that of big business small firms: however,
possess some qualities which make them more than miniature versions of big business
corporations. They provide new jobs, introduce innovation, stimulate competition, aid big
business, and produce goods and services efficiently (Broom Moore, 1978).

2.8 Advantage of going in to small business

When we see from the individual point of view, going in to small business has certain
advantages. As a result, the desire for individuals to own and to operate their own small business
firm is growing. The following are some of the benefits that individuals pursuing a career in
business owner ship (Donald [Link] fourth edition,).
A. Opportunity to gain control over own density.
B. opportunity to reach full potential.
Opportunity to reap unlimited profits.
D. Opportunity to contribute to society.
On the other hand as indicated by Hailey (2007), some authorities classify the advantage of
owning small business in to six, namely independency, financial opportunities, community
service, job security, family employment and challenge.

2.9 Disadvantage of going to small business

Although owning a business has money benefits and provide money opportunities, anyone
planning to enter the world of entrepreneurship should be aware of its potential drawbacks. The
point is that, without proper preparation, an individual may find the career path of business
owner ship frustrating. The major disadvantage of going to small business includes the
following;

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  Sales fluctuation
 Financial loss
 Laws and regulation
 Risk of failure
Competition and completer responsibility (Hailey, 2007)
Factors contributing to the success of small business
Business owner or managers are required to take certain step for the success of their
enterprise includes the following;

1. Determination of objective; objective/ goals usually given purpose and direction to the
management process. Thus, determinations of objective are a very essential and important
prerequisite for the success of a business firm.
2. Sound organization; the existence of sound organization is a vital for achievement of the firms
objectives. The firm should be equipped with sufficient number of personnel with the required
talent and skills.
3. Research; As research is a systematic search for new knowledge, it has a significant
contribution in helping the firm to find out new method of production, improve the quality of
products, introduce new products,etc.
4. Proper location, layout and size; Business location, layout and size have great impact on the
success of firms. Hence, the business owners/managers must give due attention to the suitability
and appropriateness of the business location, layout and size at initial stage.
5. Adequate finance; the success of any business greatly depend on the availability of adequate
finance for both-term and long-term activities designed.
6. Effective and efficient management; a business firm need to have effective and efficient in
order to successfully achieve its objective (Hailey, 2007).

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2.10 Strength of small business

Return to our earlier simpler definition of small business as one that employee fever than 500
people. Let as place this number in focus. How many businesses are that small? How a person
does as small business employee? A better measure total number of full time business is a
number of businesses with full time employees.

2.11 weakness of small business

Small business data base lacked the record if small business, on that never make into any data
base. There is no way to tell how long these businesses which tend to high risk survive. Health
debate about small business once that never make into any data base will always be incompletes
and imprecise.

2.12 Small Business failure factors

The factors- one knowsthat start up rate or failure rate. Infect don’t we know failure means many
people so out business without declaring bank repay.
According to Hailey Gebertinsae/2007 there are some specific causes of failure for small
business. These are:-
 Lack of information about customer
 Failure to diversify the market with the existing products
 Lack of market research
 Despotism/favoritism
 Unbalanced managerial experience
 Lack of technical competence
 Disaster/frauds
 Lack of record keeping system
 Lack of strategic issues.

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2.13 Reason for failure of small business
Why small businesses fail? Perhaps the chief reason case of entry, infects its easier for man and
women to business for themselves that to find employees. Now how to stops them from choosing
to be their own bosses and they can choose almost any line of business they like.
2.14 Lack of managerial expertise
Often small business fail because management is not prepared to handle increased demand on it
is skills and knowledge small business person generally have visual control over everything
under them one their business grow for, small business must rely on more sophisticated ways to
plan and control their business (Hirsh Robert fifth edition,1999)

2.15 Global change and small business

As the world moves however, hopingly, toward a global economy:
The barrier among nation will gradually dissolve small business is likely to play a pivot role in
that scenario culture diversity, globally and home:- culture can be defined as the arts likely
beliefs costumers, in nations and all other product of human work and through created by a
people and lore group at particular.
Small business man: small business rather born is accepted, experience must also would nature
of entrepreneurial division and types of business eventually created. Research erected in terms of
job classification of motivation, not all who choose to leave employment do so in order to create
the IBM of tomorrow many indeed most, have much more modest aims various model have been
supported(Burns and Hurst, 1998)

2.16 Small business venture

Is any business that independent owned operated not dominate in its field and does not endpaper
in any new marketing or innovative practice.

2.17 Entrepreneur owner venture

Estate in at least one of behavior that is principal goal of all entrepreneurial venture are
profitability and growth and business is character erased by innovative strategies practices. Small
business owner is an individual who establishes and manages a business for principal purpose of
furthering personal goals.

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The business must be the primary source of income and will consume the majority of one time
and resources. The owner perceives the business as extension of this cheer personality,
intricately bound with family needs and desire enterers is an individual who establishes and
manage business for the principal purpose of profit [Link] characterized
principal by innovative behavior and will employee strategies management practice in the
business (Gebretinse,2007)

2.18 Marketing research and marketing channel

The American marketing association (AMA) defines marketing as follows:
Marketing is the process of planning and executing the conception pricing, promotion, and
distribution of ideas, goods and services to create executing that safety individual and
organizational goal.

2.19 Need for marketing

Marketing research is collecting, recording and interpreting of information about market.
Use of marketing:-A subsisted earlier ,marketing ,research replaces opinion with tact helping in
entrepreneurship offset the risk of doing business in today’s fast changing market. Market
channel is the path that products and service may take as they passed from producers to
customers. It is to make products or service available to consumers at the right time, at the right
place and at the right quality. Producers and consumers are always the beginning and ending
each channel path producers and consumers.

Agents Whole sellers Retailer

consumer

(Hirsh Robert, fifth edition)

Characteristics of small firms as different from large firms are:-
 Most small firms are UN likely to be able exerts much influence on market. They are
price taker in classic since and are likely to face significance competition.
 Small firms are likely to operate in single market or limited range of product or services.
Unlike large firms, they food it more difficult to diversify their risk.

13
 Small firms are likely to be over reliant on small number of customer. This means they
are particularly venerable to choosing any one customer and they effect of such loss on the firms
is disproportion lately is another reason Why they are riskier or than large firm.
 One person the owner (managers has an over whiling influence on the small firms. their
views and value will influence all aspects its activates. there is also a risk of over dependence up
on one individual for well-being of firm.
 Small firms are not public companies. This means they often have problems in raising
capital and this significant constraints their of strategies. Indeed for many small firms seeking to
grow raising, ranging can become major strategies issue and relationship with financing
institution such as banks can become major resource issue(Burns and Hurts,1998)

2.20 The constitute of small business

Characteristics of small business share of market are not large enough to enable it influence price
or national quantities of goods sold to any significant extent.
Personalized management is implies that the owner actively participant in all aspect of
management of small business and in major decision making process.
There is little delegation of authority; one person is involved when anything material is
concerned.
Interdependency from outside control rules out that small business subsides which, through in
many ways fairly autonomous; never less have to refer major decision.
Diversity and entrepreneurship successfully women can such diversity background that is
impossible to explain exactly what it takes to create as successful business.
Entrepreneurship suggested sprit real idea diversity .but we tend to apply the world closely to
describe any one to the business (Hailey, 2007)

2.21 Impact of small business

Most small business is unlikely to able to exert much influence their markets are price taker is in
the classic economic sense and is to face significant composition. They make the risk of failure
high and means that competitive strategy of all amount importance are likely to operate in single
market or limited range of market, probably offering a limited range of product or service this
means the scope of firms operation is limited and loss strategy issue. They likely to be over

14
reliant on a small number of customers. They after have problems raising capital and this can
significantly constrain their choose of strategies (Burn and Hurst, 1998)

2.22 Characteristics of small scale industries

The following are some of the important characteristics of small scale industrial sector/unit.
1. Closely held: - the unit is generally a one-man show. Even if a mainly carried out by one
of the partners/directors and the other are merely sleeping partners/directors who
generally assist in providing finance.
2. Personal character: - there is close personal contract/supervision of all activates, say
purchase, production, labor, and scale of products. The owner himself is generally the
manager. Therefore, these firms are generally managed in a personalized manager. The
owner has firsthand knowledge of whatever is going on in the business. He actively
participates in all aspects of business decision making.
3. Limited scale of operations: - a small scale industrial unit has a lesser gestation period. A
small scale unit has a limited share of a given market. The size of the firm in the industry
is small.
4. Indigenous resources: - small-scale industries can be easily located anywhere subject to
availability of raw materials, labor, finance, etc. small scale units use local resources.
Therefore, they have decentralized or dispersed location.
5. Labor intensive: - they are generally more labor oriented with comparatively smaller
capital investment then the larger units. The capital investment is limited due to the use of
simple technology. They require large amount of working capital to meet their day-to-day
expenses.
6. Local area of operation: - the operations of a small scale unit are generally localized.
However, market for its products need not be local. It may cater to local and regional
demands or its products may even be exported.
7. Simple organization: - a small business unit has few or no layers of management.
Division of labor or specialization is low and the resources are limited.

15
2.23 The challenges of the SME strategy
The SMEs program faces numerous challenges that need to be surmounted in order to ensure
smooth functioning and sustainability. The challenges come from the nature and adequacy of the
support services, the status of the business in terms of expansion and competition, the attitudes of
the beneficiaries towards entrepreneurship, etc.
Nature and adequacy of the support services
It was previously highlighted that there are a range of support service provided to the SME sector
in order to ensure sustainability and growth in the economy. These include finance, premise,
training market linkages, etc. Tegegne G and Meheret A (2010).

In terms of finance, it has been found out that it is one of the most pressing constraints of the
micro-enterprise industry. Financial availability, however, in the form of loan is not enough.
There is a serious demand and supply gap. This is manifested in the form of backlogs of financial
requests that roll over to other years indifferent regions. Indeed, it was found out that many
SMEs are registered and licensed but cannot start operations because of lack or shortage of micro
credit. It was realized that this problem has been a serious brake in the cities.

The availability of business premises in adequate quantity and at convenient location is a serious
challenge in the implementation of the SME development strategy. According to the policy
documents there is an intention of allocating 4900 hectares of land for the development of the
sector in different cities and town of the country. The provision of land for expansion has been
implemented and the study showed that a sizeable land has already been allotted indifferent
regions. The competing use of land in urban area and its scarcity in cities constitute significant
constraints for SME development. As a result, a policy shift towards availing buildings on rent
basis is noted. The demand, however, still lags behind the supply and there is a challenge of
getting land at the required locations. (2010)

The provision of market linkage and training has its own limitations. In terms of training, the
nature, relevance and adequacy are not well thought out and coordinated. In many cases, training
programs are for a short period of time which may not be adequate to impart skills. The
relevance of training for the specific type of job also needs to be evaluated.

16
SMEs need markets in order to survive and sustain. The effort indifferent part of the study cities
to provide market linkage, particularly with government institutions, has helped these businesses
to gain continuous demand for their products. Two problems crop up from this arrangement;
however, first, not all of the enterprises are beneficiaries of this market linkage policy. It is only
those businesses whose products are demanded by government institution, such as prisons,
universities and housing agencies, which are able to gain from such arrangements. Second,
through regional governments try to convince institutions to form market linkages, the latter have
options to invite private sector participants as well. Under this circumstance, MSEs which were
dependent on government institutions will find it increasingly difficult to sustain themselves.
Tegegne G and Meheret A

17
 CHAPTER THREE

3. Data Presentation and Analysis

The presentation and analysis of the research is based on the response obtained fromthe
respondents.
From the total sample the number of employees in sale, service, and manufacturing are 43, 1 and
47 respectively. 91 questionnaires were distributed to the respondents in the three sectors which
are selected by using stratified sampling technique. Out of 91 questionnaires that have been
distributed, 70 of them was returned and the remaining 21 questioners are uncollected by
different reason.

3.1 Demographic profile

Sex distribution is one among the demographic charactrristic which indicate the number of both
female and male who engage in small scale business enterprise activities in Denssa.
Table 3. 1 Sex distribution

Sex
No Percent
Male 45 64.29
Female 25 35.71
Total 70 100
source questionnaire, 2015
The above table shows that 45 ( 64.29% )of the respondent are male and 25 (35.71%) of the
respondant are femal [Link] indicates majority of the respondent are male employees in
the enterprises.
Age is also another demographic characteristic that indicate the portion of people by dividing
them into different portion or selection as youth,adultery and old age [Link] it described on
below: -

18
Table 3.2 Age Group

Age
Respondent
Percent
No
10-20 15 21.43%
21-30 40 57.14%
31-45 10 14.29%
>46 5 7.14

Total 70 100

From the above tables ,40 (57.14%) of the répondantes are Under the Age of 21-30 and
15(21.43%) of the répondantes are Under the Age of 10-20 and 10(14.29%) of the répondantes
are Under the Age of 31-45 And the remain 5(7.14%) of the répondantes are Under the Age of
>[Link] of the répondantes are Under the Age of 21-30.

Education statuts
As it is already known that education is the key determinant for development of one country and
also education is necessary for running the small business of the town. The education status
presented as follow: -
Table 3. 3 Education status

Education level Respondent

No Percent
0-6 - 0
7-8 12 17.15
9-12 47 67.14
Above 12 11 15.71

Total 70 100

Source questionnaire, 2021

19
Table3.3 indiçâtes 47(67.14%) of the répondantes are 9-12 .Where as 12(17.15%) of the
répondantes are 7-8 and 11(15.71%) are above 12. From This we Can Under stand That more of
the répondantes are Wells educated and more awareness about the importance Small scale
business entreprise.
Table 3. 4 Marriage status

Marital status Respondent

No Percent
Married 28 40
Unmarried 30 42.86
Divorced 7 10
Widowed 5 7.14
Total 70 100
Source questionnaire, 2021

Unmarried is another element of demographic characteristics variable which we can use to

describe small business number in the town.
As indicated in the above table 30 (42.86%) of respondent of small business in the town is
unmarried, 28 or 40% of them were married, 7 (10 %) of them where divorced and 5 (7.14 %) of
them where widowed.
Types of small business
Table 3.5 Types of small business

small business Respondent

No Percent
Sale 30 42.86
Service 1 1.43
Manufacturing 39 55.71
Total 70 100
Source questionnaire, 2021
There are several small business activities in Denssa Town. Among these three types of small
business sectors were selected. As indicated on the above table 39(55.71%) of small business in

20
the city were manufacturing, 30(42.86%) are sales and 1(1.43%) were service sector. According
to the table, small business in the city is dominated by manufacturing.

Table 3.6 Starting of business

Start of business Respondent

No Percent
Less than one year 32 45.72
Between one and two years 18 25.71
Three and above three years 20 28.57
Total 70 100
Table 3.6 source questionnaire, 2021
The starting of small business activities in Denssa town were not so far long as giving
employment opportunity for the lively hood of the town. As indicated on the above table
32(45.72%) of the respondents of small business in the town start performing the activity less
than years, 20(28.57%) were start three and above three years, and 18(25.71%)are between one
and two years.
We can understand from this table most of small business respondents has less than one year’s
experience.
Table 3.7 Initiation of start business

What are your initiation to start the business Respondent

No Percent
Willingness to earn profit 52 74.29
Desire for creating job 18 25.71
Total 70 100
source questionnaire, 2021
There are several reasons that indicate people to start business in their life. Among to earn profit
and desire for creating job is the major one. From the table 52(74.29)% of respondent were
willingness to earn profit and 18(25.71%) of respondent were desire for creating job.

21
Table 3.8 Training of managerial skill to run the business

Have you learned or take Respondents

managerial skill to run your
No Percent
business
Yes 15 21.43
No 55 78.57
Total 70 100
Source questionnaire 2021
Lack of managerial skill in small business enterprises is the key factors that affects the
performance of small business in our country. It indicated above table 55(78.57%) small
business enterprises in the town respond have no managerial skill and 15(21.43%) respond have
managerial skill. This show more people lack of managerial knowledge.

Table 3.9 Necessary managerial skill to run the business

Do you see you have the Respondents

necessary managerial skill to
No Percent
run your business

Yes 61 87.14

No 9 12.86

Total 70 100

Source questionnaire 2021

From the above table indicate 61(87.14%) of the respondent are see the necessary managerial
skill to run the business and 9(12.86%) are not see. Generally most of the respondents are see the
necessary managerial skill to run the business.

22
Table 3.10 Cause of take training on managerial skill to run the business

If the answer for question Respondents

No 8 is no what cause it No Percent
Lack of education 15 27.27%
Lack of awareness about 40 72.73%
importance
Total 55 100%
Source questionnaire 2021

From the above table indicates 40(72.73%) of the respondents does not take managerial skills
because of lack of awareness about the importance and the other 15(27.27%) are lack of
education.
Table 3.11 Customers relation ship

Have you good relationship with customer Respondent

No Percent
Yes 70 100

No 0 0
Total 70 100
As indicated in above table, all respondents have good relation with customers.
Table 3.12 System used to be successful competitors

What system you use to be successful Respondent

competitors in the market? No Percent
Produce high quality product 30 42.86
Treat customer in good manner in selling and 32 45.71
buying
Sale at low price 8 11.43
Total 70 100

source questionnaire, 2021

23
Becoming successful in market is one characteristics of good market on the table 32(45.71%) of
them were use system of treat customer in good manner in selling and buying, 30(42.86%) were
use system of produce high quality product, and 8(11.43) % were used system of sale at low
price to be successful in the market.

Table 3.13 Cooperation with fellow sale person

Do you have cooperation with Respondent

fellow sale person No Percent
Yes 47 67.14
No 23 32.86
Total 70 100
Source questionnaire, 2021
As indicate the above table 47(67.14%) of the respondent are cooperation with fellow sale
person and 23(32.86) said that no cooperation with fellow sale person. This indicates most of the
respondents are closely contact with customers.

Table 3.14 Purpose of cooperation with fellow

For what purpose you cooperate? Respondent

No Percent
For exchange experience 25 35.71
For borrowing birr for each other 45 64.29
Total 70 100
source questionnaire, 2021
As indicated in the above table the purpose of cooperation of owners of small business with their
fellow sales person, 25(35.71%) of respondent for experience exchange and 45(64.29%) were for
borrowing birr for each other.

24
Table 3.15 Initial capital to run the business

What is your initial capital to run the business?

No Percent
5000-10000 20 28.57
10000-20000 15 21.43
20000-30000 25 35.71
Above 30000 10 14.29
Total 70 100
source questionnaire, 2021
As indicated in the above table, 25(35.71%) of respondent were have initial capital of between
20000-300000, 20(28.57%) of them were have initial capital between 5000-10000,15(21.43%) of
them were have initial capital between 10000-20000, and 10(14.29%) of them have initial capital
above 30000.

Table 3.16 Capital enough to run the business

Is your capital is enough to Respondent

run the business No Percent
Yes 3 4.29
No 67 95.71
Total 70 100
Source questionnaire, 2021
As indicated in the above table 67(95.71%) of the respondent said there capital is not enough to
run the business and the last 3(4.29%) of respondents have enough capital to run the business.
Generally most of the respondents have shortage of capital to run the business.

25
Table 3.17 The two borrowed from credit association

Why do you borrowed from credit association? Respondent

No Percent
High interest rate 30 44.78
No credit association around 37 55.22
Total 67 100
source questionnaire, 2021
There are many factors hindering borrowing from credit association. As indicated in above table
30(44.78%) of respondent were put the reason was high interest rate, 37(55.22%) of them
respond the lack of credit association around them.
Table 3.18 Fairness of government tax

Is tax imposed by government is fair? Respondent

No Percent
Yes 10 14.29
No 60 85.71
Total 70 100
source questionnaire, 2021
As indicated in the above table most respondent’s unfairness of the government tax.
Table 3.19 Factors influence product modification

What factors influence you to make product Respondent

modification? No Percent
Climate condition 26 37.15
Low level of education 32 45.71
Use habit about the product 12 17.14
Total 70 100
source questionnaire, 2021
As indicated in the above table, 32(45.71%) of respondent were respond for factor influence the
product modification the low level of education, 26(37.15%) of them respond climate condition,
and 12(17.14%) of them respond, use habit about the product.

26
Generally we can understand from the table the factors that most influence the product
modification was low level of education.

27
 CHAPTER FOUR
[Link] AND RECOMMENDATION

4.1 CONCLUSION
The conclusions of this research depend on data analyzed and interpretation according to this
research small business divided in to three which include:-
i. Sale
ii. Service
iii. Small scale industries
The sale further contains activities such as retailers shop and wholesaler. Service which include,
cafeteria and barbers and that of small scale industries are metal work and wood work. As it has
been discussed in this research paper, the size of the distribution of small scale business
enterprise in the town engaged are manufacturing followed by sale and service occupies the
smallest percent. .
The study gave emphasize to assess the factors that affect performance of small scale business
enterprise in Denssa town. It aims at identifying problem small business in the town such as
managerial skill of the employees in small business, financial problems taxation system imposed
by government and lack of awareness about product modification. Small business employees are
lack abilities and skill of managing their business. They do not make controlling over resource.
They simply exploit their resource without plan. Factor that affect this is mostly lack education
so, most of small business in the town lack ability and skill of managing their activities.
Financial problem is the most problems that affect performance of small scale business
enterprise in the town. If there is no enough capital producing quality product or service and
completing with competitors and becoming the winner is impossible. Again most of small
businesses in the town have lack of ability and skill to manage their finance and perform
activities effectively.
The tax government impose on small business employees in the town also affect performance of
small business enterprise in the town. Most of small business in the town raises the issue of tax
and how the tax they pay does not equipped with the activities them running. Due to this tax
most of them respond how they were on the way of stopping the activity introducing the idea of

28
how to engage in any business activities and gain profit is the base point for starting business
activities. To do the employees of small business ability and skill play an important role.

4.2 RECOMMENDATION
The following recommendations were designed by researcher to solve problem faced small
business in Denssa town.
 Training should be given for employees of small business in order to improve their
performance.
 Government should establish well enough credit association in the town and lend
money for society with few interest rates.
 Training should be giving for the employees of small business regarding how they
manage their recourses and how they plan what activities they should perform to
improve work style.
 Training should be gives for the employees of small business in the town how they
react to product modification, its importance to become successful competitors.
 To earn profit all employees of small business in the town should have to form good
relationship with their customers.
 The employees of small business in the town should have treated their customers in
good manner.
 The employee’s small business in the town should have corporations with their
fellow sales person.
 Training should be given for employees of small business regarding how to manage
finance and how they borrow money from credit association exist around them.
 The government should put the tax payment in the consideration and balance it with
the activity of employees in small business.
 To improve problem of infrastructure, government raising funds and improving the
quality of insisting infrastructure and establish new one in area where there is
inadequate them.

29
 REFERENCES
1 .Bowler and Do wood, (2006), entrepreneurship small business management.
2. Broom Moore, (1978), Entrepreneurship and small business management 2 edition.
3. Burns and Hurst, (1998), Small business management and Entrepreneur, hound millisim
McMillan.
4. Hailey Gebretinsea, (2007) Entrepreneurships and small business management 2ndedition.
5. Denssa small business enterprise bureau, (2007)
6. Hodges’s, (2007), Entrepreneurship 7th edition.
7. Kotler and Armstrong, (2004), Principle of marketing 3rd edition.
8Donalde F kutatko [Link] approach 4th Edition
9. Hirsh Robert .entrepreneurship Fifth Edition.
10. Wolda Amah, (1997), Small scale enterprise, Development in Ethiopia preceding of the 6th
annual conference the Ethiopian economy.
11. Yosef Alemu, (2006), Taxation in Ethiopia.

30
 APPENDIX
Jigdan UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT

Dear respondents, the main objective of this questionnaire is to collect data for conducting
research on the tittle of factors that affect the performance of small scale business enterprises
for the partial fulfillment of bachelor degree in management from Jigdan University. The
information collected from this questionnaire will be kept confidentially. Please mark “√” for
your answer or choice.
PART: 1personal information
1. Sex A, male B. female
2. Age A, 10-20 B,20-30 C, 30-45 D, above 45
3. Educational status A, 0-6 B, 7-8 C,9-12 D, above 12
4. Marital status A, married B, unmarried C, divorced D,
widowed
Part two: detail information
5. What types of business you are running? A, merchandise B, service C,
small scale D, industry
6. When did you start the business? A, less than one, year B, one year C, two
year D ,above three year
7. What did you initiation to start the business? A, willingness to earn profit B, a desire
for creating job for survival C, if any other specifies………….
8. Have you learned or take training on managerial skills to run business?
A, yes B, no
9. Do you see you have the necessary managerial skill to run your business?
A, yes B, no
10. If the answer for question number 8 is no what cause it?
A, lack of education
B, lack of awareness about important

31
 C, other specify----------------------------------------------------------------------------------------
------------------------------------------------------------------
11. Do you have a good relation with your customer?
A, yes B, No
12. What system you use to be successful competitors in market? A, product high quality or
service B, treat customer in good manner C, sales at low price
13. Do you have cooperation with your fellow sales person? A, yes B, no
14. If yes for question number 13 for what purpose you cooperate? A, for exchange
experience B, for borrowing money for each other C, other specify-------------------------
------------
15. What as you initial capital to run the business? A,500-10000 B,10000-20000 C,20000-
30000 D, above 30000
16. Is your capital enough to run the business? A, yes B, no
17. If your answer for question number 16 “no” why do not you borrowed from credit
association? A, high interest rate B, no credit association around

18. Is the tax government imposing on your business fair? A, yes B ,no
19. What factor influences you to make product modification? A ,climate condition B, low level of
education c, user habit D, others specify---------------------------------------------------------------

32