The Financial Challenges Facing Small Businesses

Essay by butterbabyUniversity, Master'sA+, August 2006

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Small Business Financing

America's economic stability is based largely upon small business. Without mom-and- pop operations, the economy would face financial hardship. Although small businesses comprise a large sector of the economy, they are faced with a unique set of problems that continually challenge their ability to be successful. Most frequently, poor management is cited as the integral reason businesses fail; inadequate or ill-timed financing is a close second. Whether an entity is starting a business or expanding one, sufficient ready capital is essential (U.S. Small Business, 2005). "But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it, well" (U.S. Small Business, 2005). Therefore, this paper will address the major financial pitfalls that most small businesses experience. These challenges include, but are not limited to, the inability of capitalists to obtain startup costs from funding sources, the failure of small business owners to secure the capital needed to sustain and grow the business, the lack of credit-worthiness of prospective entrepreneurs, and the lack of knowledge and understanding of various accounting principles and practices.

There are so many facets to small business financing that one must consider. What does it cost to start a business? How much money is needed? These are all questions that should be asked before taking concrete steps toward launching a company. One key to a successful startup is the ability to obtain and secure appropriate financing. Raising capital for startup cost is the most basic of all the business activities. But, as many new entrepreneurs quickly discover, raising capital may not be as simple as they originally thought. In fact, it is a very challenging and frustrating process. However, it can be less painstaking if the entrepreneur knows which avenues to explore. There are several sources from which...