Abstract
Managing small businesses is a complex undertaking that requires skills and perseverance. This is based on the understanding the small businesses face some challenges that are unique. Some of the key issues include limited access to funds, limited access to professional skills, and overdependence on the family. The small business managers also complain of long working hours and the need to be present in the running of the business. They also lack perpetual existence, which further complicates the succession politics. The owner has to constantly worry about how the business will perform if he or she dies. This paper presents the analysis of G&R Restaurant, which is a small business in the hotel industry. The organization has annual revenues less than $2 million and the number of employees is only 32. The founding manager is currently concerned about the continuity of the business in case he dies or suffers permanent disability. The organization has the opportunity to hire professional managers.
Managing a Small Business
Starting a small business can be an exciting but a complex engagement. However, managing and even sustaining the business proves to be even more complex for the organization (Kozak and Rimmington 1998). Statistics indicate that small businesses contribute about 46% of the non-farm gross domestic product. The small businesses provide employment to about 64% of all employees in the private sector. Additionally, the statistics also indicate that in the developing world, the small businesses account for more than 70% of all employment in the country with some countries in Africa and in South America having the employment from the small businesses contributing about 90% of all employment opportunities (Kosová, Lafontaine and Perrigot 2013). Considering the undeniable importance of the small businesses in any given economy, there has been many studies focusing on the management of small businesses (Wiklund and Shepherd 2005: Walker 2013). Similarly, a wide body of theoretical frameworks has been developed in order to explain the life cycle of the small business form the point of idea generation to the point where the business either grows into a large organization or to the point where the business ceases to exist.
There are a lot of challenges that the manager of a small business faces in a bid to start or even grow the small business. This starts from the difficulties in funding the business idea, getting the clients, managing the organization and the employees, managing data and information about the organization, and even planning for the succession of the business after the founder is gone. As a matter of fact, the small businesses often face complex problems, at times more complex than the large organization, and this makes the study of the management of small businesses an important idea (Thomas 1998; Tarí et al. 2014).
This paper deals with the study of a selected small business organization. The objective of the study is to find out more about the small business managements challenges. However, the study will also briefly look into the advantages of operating and managing a small business. The study will draw a link between the management of a small business and the theoretical frameworks explaining the operations and management practices of small businesses. All the data applied in this study is based on working experience and the interviews conducted with the organization’s founding manager.
Introduction to the Small Business
This paper uses the G&R Restaurant for the case study. G&R restaurant is a small business in the hotel industry. The restaurant has sitting capacity of 54 patrons. It prepares and offers healthy and exotic meals with the main objective of ensuring that it serves organic foods. The restaurant has been in operation since the year 2003. It does not have any permanent employees. However, during any single day the restaurant has about 32 casual laborers working in two shifts. The first shift begins at 6 AM in the morning and ends at 6 PM in the evening when the second shift comes and handing over takes place. It operates as a 24 hours dining location with only four hours cleaning and times between 1 AM and 5 AM.
The definition of a small business varies with constitutional jurisdictions. However, in this context the small business determination is based on the sales revenue, which is below the $2 million cap (Becerra, Santaló and Silva 2013). The business is unincorporated and has a loan acquisition capacity of less than $1 million (Kimes and Wirtz 2016). The number of employees is supposed to be less than 50 and the loans taken by the business are underwritten in the name of the business owners and not in the name of the business since it is not a legal entity meaning that the business must be either a sole proprietorship or a partnership within the legal context (Bates 1990).
I had an opportunity to work with the organization for a period of three months in the last summer. I worked as a part time employee in the organization. My advantage was that I had the founding manager of G&R as a mentor in business. When I first joined G&R Restaurant, the founding manager who is always present in the organization told me that he would want me to learn about the operations of the business and it was for this reason that he commissioned me to work as the cashier and the supervisor of the organization.
As the cashier, I managed the cash assets of the organizations with the management including the receipt of cash, payment of cash to vendors and suppliers, and the banking of the cash. Notably, this implies that the organization still operates on a cash based platform. As the supervisors, I was responsible for the management of the inventory with this role involving stocktaking and replenishment. It is important to note that the inventory management function is one of the most important function in the hotel industry especially when we consider the perishability of the inventory and the need to operate the just in time inventory management system (Petersen and Rajan 1994). Of particular importance is the need to understand that the success of the management of the inventories may determine the success of the failure of the business. Other than inventory management, I also managed the payroll with the remittances and payment of the wages taking place on a weekly basis and more particularly on every Wednesday. The roles and responsibilities at the organization were accorded to me based on the relationship that I had with the founding manager of the G&R restaurant. However, further analysis of the responsibilities, power, and authority in the organization.
Other than the operating the G&R restaurant, the founder of this business who is in his late 50’s also operates a farm where he rears chicken and keeps cattle. The founder also grow various vegetables. The reason why noting this is important, the founding manager of the G&R restaurant sells eggs, milk, and vegetables all sourced from his farm. From time to time the chicken served in his restaurant comes from the restaurant and the same case applies other products that are not mentioned herein. In return, the leftovers from the hotel are used to feed the farm animals hence creating a self-sustaining business system. This business model attract many people to the founding manager’s business with the intention of understanding how easy of difficult it is to create and manage such a business model (Sin et al., 2005; Prud'homme and Raymond 2016). This model also makes one of the reasons as to why I considered analysis of the G&R restaurant in the completion of this project. The following section provides a deeper analysis of the business to the theoretical frameworks explaining the operations and management of small businesses.
Analysis of G&R Restaurant
Most small business are either owned by a sole proprietor or by partners which is why they are said to be synonymous with family owned businesses. In the case of G&R Restaurant, the business started as a partnership between two people whore initials make the name G&R Restaurant. The G in this name refers to George while the R refers to Richard. The restaurant first opened its doors in 2003. However after 3 years in operations, the founders split up to operate independently and it was at this point that G&R Restaurant and G&R Annex were formed. Bothe businesses are located on the same building. They still retained the same color themes and they still operate under close or similar names as indicated above. However, they are currently operated as sole proprietorships (Berger and Udell 2002).
The founders raised the money for the business through making equal contributions from their savings. The analysis of information from an interview with Mr. R indicates that the founding partners raised $50,000 from their savings. The two partners had experience in the hotel and tourism industry having working in different capacities in a leading hotel operating under the Hilton Hotels brand. Mr. R worked as a cashier during his employment and from the cashier’s desk. He learnt about the operations of the hotel business and it was this experience that pushed his desire to begin his own business. On the other hand, Mr. G worked as a chef in the same Hilton Hotel franchise. Consequently, the two had a well-founded relationship and their experience in the operations of the hotel industry provided synergy and also a competitive edge over their competitors in the industry. According to research, most small business managers and founders operate through replication of available business models and the founding of G&R Restaurant confirms this assertion. Additionally, this observation also confirms that prior experience contributes to the success of a business though it is not compulsory to have prior experience to succeed in business.
The most important asset for a business in the hotel industry is the availability of working capital particularly in the early stages of development. Mr. R indicated this in an interview when he was based about the most important lesson in his tenure at G&R. According to Mr. R, for a restaurant to succeed and remain in business one has to invest in the working capital. This is because on many occasions, a new hotel incurs higher costs of inventory due to the high possibility of perishability of the foods. Notably, most of the organic foods cannot be stored for long without going bad. This means that if the hotel does not sell, then it has throw away this food and it is at this point that many small businesses in the hotel industry. Research indicates that most of the small businesses that fail do so in the early stages of operations. The assertions of the founding manager of G&R support the observation that most small businesses are likely to fail in their first year of operations especially if those businesses require huge working capital requirements. In a bid to meet the working capital requirements, the founding manager of G&R Restaurant indicated that together with his partner they had to approach the bank for a loan of $10,000 to finance the working capital. This brought the initial capital outlay for the business to $110,000 raised through owner’s savings and a bank loan.
Starting a business is a taxing engagement, however keeping the business running is one of the most complex engagements that the small business managers have to deal with. The interview with the founding manager of G&R restaurant indicated that when the restaurant started, both Mr. G and MR. R had to do most of the work. They only had three employees with two helping Mr. G in the Kitchen and the other helping Mr. R in the sitting area. They had to be in the business throughout the period over which it was operational. Within a year, the workforce in the combined business grew to 50 employees and both Mr. G and Mr. R were only left with the management roles. However, with the growing of the business came the management wrangles that made it difficult for the two founding partners to continue working together. Three years after the business started operations the founders divided the entity’s assets into two and started operating as sole proprietors. Research indicates that half of all partnerships fail because of disagreements between or among the founders and the experience of Mr. R confirms the findings. At the beginning of 2006 the business was divided among the two founders and who agreed that they would still continue operating under the same name and in buildings next to each other. The splitting of the business caused problems to the business and Mr. R brought in his wife to work with him in the organization.
Through the years, the business has been in the hands of the family. Mr. R has spent his time everyday either at the G&R Restaurant or in his farm to the extent that he has a bed in the restaurant’s small office. Mr. R indicated that long working hours and extreme hard work are some of issues that small business managers have to deal. Further communication with Mr. R indicated that he has never had another person managing the business and this has been so because he fears that employees can be dishonest and this would lead to financial losses. Consequently, he consistently monitors the operations of the business by ensuring that he is in the business on a daily basis without fail. Mr. R has not opened any other business and has not even grown the sitting capacity of the business since the beginning. The reason why he has not expanded the business over the years is simply because of the fear that he will not be able to manage the businesses by himself. When asked about the reason why he did not consider having professional management for the business, Mr. R indicated that he feared that he could not find trustworthy individuals to manage the business. He cited various instances in which employees of the organization had stolen from the company saying that if the employees could not be trusted with petty cash, it would be difficult to trust the employees with the entire business (Li, Ye and Law, 2013).
There is a lot of theory explaining why small business managers find it difficult to entrust their businesses to professional managers. One particular is the reason that most small business managers believe in doing it all by themselves. Some tend to believe that the business would fail in their absence and consequently, these small business owners do not allow professional managers to run the business. Other than that, some small business owners may be willing to have professional managers running their business. However, these businesses often lack the financial muscle to enable them to hire professional managers and this makes it difficult for the small businesses to have professional business managers. Other than the factors provided above, some founders of small businesses fail to employ the professional managers due to the lack of proper knowledge on the importance of having such managers in the business. The implications of this is that the small business managers overly rely on the founders of the business and in some instances, the family members (Kosová, Lafontaine and Perrigot 2013; Storey, 1994).
While hiring professional employees and business managers proves difficult for the business entity herein analyzed, the founder of G&R Restaurant indicated that one of his major headaches regards the succession politics. He fears that the business would collapse as soon as his condition changes making him unable to run the business. He has one daughter and two sons. The daughter is trained in finance while one of the sons is trained in information technology. The second son is trained in hotel management. Mr. R indicated that it was his resolve to have one of his sons training in a related field. This is to prepare him for the role of managing the restaurant in case anything happened to him. However, Mr. R indicated that none of his children had indicated interests in running the business and this got him worried. The daughter is already married and works with a mutual fund firm. The son who is trained in information technology has already started operating his own start-up while the last son is pursuing a career in art. This indicates that unless the organization considers other ways of succession, it is highly likely that the business will collapse as soon as he passes on (Kang, Stein, Heo and Lee 2012: Zhang et al. 2013). The concerns raised by Mr. R with regard to the perpetual existence of G&R Restaurant confirmed the views of theorists regarding the continued existence of sole proprietorships. Ideally, the sole proprietorships fail as soon as their owners die, get permanent disability or become of unsound mind (Brotherton 2012: Lewis and Churchill 1983).
The other major concern for G&R Restaurant relates to the issue of competition. G&R Restaurant is located next to G&R Annex. The fact that these restaurants have the same name complicates matters for the founders. For G&R Restaurant, the management complains that they invest a lot in dealing with the competition. This involves having to employ a person at the door to invite the clients into the restaurant. According to the management of G&R Restaurant, the other restaurant also has employed a person at the door to invite clients into the restaurant and this creates high level of competition in the organization (Carland, Hoy, Boulton and Carland 1984). The two restaurants provide the same types of food and this increases the level of competition between the two firms. Other than this competition, the restaurant is not concerned about any other form of competition (Haber and Reichel 2005: Torres and Kline 2013). This is because there are no other restaurants on the street offering the same service. Consequently, the G&R Restaurant is not required to conduct mass advertisements about its business. Ideally, the G&R restaurant has developed a unique model that allow sit to cut its own niche in the market especially when considering the fact that the restaurants provides healthy foods in the market (Chin and Tsai 2013). All other restaurants on the street are fast food joints hence not on the same level of competition (Buhalis and Main 1998; Peiró-Signes et al 2012).
In concluding, we conducted a SWOT analysis of the restaurant. The strengths of the restaurant include the production of healthy foods that attract many customers who are conscious about their health. The other strength is the fact that the founding manager has wide experience in the management of the restaurant coupled with working experience in the hotel industry. On the weaknesses, the restaurant faces a lot of competition from the G&R annex. The restaurant also lacks professional managers. The threats to the organization include the lack of perpetual continuity. The other threat relates to the risk that the organization will not be able to continue into the future simply because of the high dependence on family succession. The opportunities include the fact that the organization can hire professional managers to run the restaurant. Secondly, the organization can expand by opening up restaurants away from the G&R annex, which is the main competitor and located in the same building (Berger and Udell 1998). This will ensure that the organizations avoids competing unfairly with the neighboring restaurant yet there are other opportunities.
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