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Liquidity Problem Is An Important Strategic Issue To Run BUSINESSES Economics Essay

Liquidity problem is an important strategic concern to run business enterprises. Small businesses are realising the importance of such problems to lessen losses comes from this. Liquidity problems come up from shortage of working capital that require to maintain daily functions of the venture. If this problem continues for long-time, business people are bound to avoid their business. But it is problematic for small businesses to get right support at the right time from finance institutions and insurance firms anticipated to certain conditions and conditions enforced by them. So a report in this field will be helpful for both internet marketers and finance institutions to learn current scenario of enterprise level management of liquidity problems and the role of financial institutions to solve this issue. Intelligent forecasting into the future style in market conditions is a precautionary measure to resolve liquidity problem whereas, bank support through different financial loans is a curative measure in general management of liquidity problem.

This research has been initiated to recognize and analyse entrepreneur's view towards liquidity problems of small companies and role of lender to solve this problem. Categorically the major targets of the present study are:

To identify various reasons of liquidity problems of small companies;

To uncover the views of business people about the research theme in light of their age, education, spent amount of capital, enterprise life, location and character of business;

To assess the risks discovered by the business people arises from liquidity problems of these enterprises;

To identify and evaluate the role of bank or investment company in conditions of available financial loans to control liquidity problems;

To suggest possible answers to solve liquidity problems of small enterprises.


H 1: There is no impact of small businesses amount of life on the size of liquidity problems.

H 2: Amount of investment does not have any effect on liquidity problems.

H 3: Dynamics of business does not have any impact on liquidity problems.

H 4: Banks facilities are enough to resolve liquidity problems of small enterprises.

7. Sources:

Broad Subject matter Area: Business Finance

Books and Publications:

Alsbury, A. (2001), Quick Answers to Small Business Questions, Series Editor Jay, Prentice Hall, London.

Allen, F. and Gale, D. (2007) Understanding FINANCIAL MELTDOWN. Oxford: Oxford College or university Press.

Bygrave, W. D. (1994), "The entrepreneurship paradigm 1: a philosophical look at it's research methodologies", Entrepreneurship theory and practice, Vol. 14, No. 1, pp 1- 26.

Bhaduri, R. , G. Meissner and J. Youn (2007). Hedging Liquidity Risk. Journal of Solution Investment funds, Winter 2007.

Cecchetti, S. (2008), Monetary Insurance policy and the Financial Crisis of 2007 - 2008. Available at: http://fmwww. bc. edu/ec-j/sems2008/Cecchetti. pdf [Accessed: 11 November 2008].

Cohen, W. (2005), The business owner and small company problem solver, 3rd model, Posted by John Wiley and Sons.

Dawson, J. , Findlay, A. and Sparks, L. (2006) The Retailing Reader. London: Routledge.

John L. Knight, Stephen Satchell (2003). Forecasting Volatility in the Financial Marketplaces. Butterworth-Heinemann.

Dorfman, Draw S. (2007). Advantages to Risk Management and Insurance (9th Release). Englewood Cliffs, N. J: Prentice Hall.

Douglas Hubbard (2009) "The Inability of Risk Management: Why It's Damaged and How to Fix It" John Wiley & Sons.

Hisrich D. R. & Peters P. M. , (2002) Entrepreneurship, 5th model, Pub. , Tata McGraw-Hill.

Hawkins, M. (2008) How exactly to Benefit From Consumer Behaviour During a FINANCIAL MELTDOWN. EzineArticles. Offered by: http://ezinearticles. com/How-to-Benefit-From.

Hannon, P. D. and Atherton, A. (1998), "Small strong success and the artwork of orienteering: the worthiness of programs, planning and strategic understanding in the competitive small firm", Journal of Small Business and Organization Development, Vol. 5 No. 2, pp. 102-19.

Islam N. & Mamun Z. M. , (2002) Entrepreneurship Development, An Operational Approach, Pub. , The University Press Limited, .

Leaf, W. and Sykes, E. (2009), Banking, 3rd model, T butterworth Ltd.

McConnell I. (2009), 'Monetary output articles biggest quarterly decline since 1980', The Herald (Glasgow), January 24th Issue, Final Edition, p. 26.

Simpson, M et al. (2006), "marketing in small and medium size enterprises", International Journal of entrepreneurial behavior and research, Vol. 12, Issue-6, pp 361-387. Offered by:www. emeraldinsight. com [Accessed: 15 November 2009]

Stoltz A, Viljoen M (2007) Financial Management: Fresh Perspectives, Published by Pearson South Africa.


Small business banking, (2009) offered by http://www. bytestart. co. uk/content/banking/banking-guides/business-banking-the-basics. shtml, [Accessed: 15 th November 2009]

Office for Country wide Statistics (2008), Unemployment rates rises to 5, 7%. . Available at: www. statistics. gov. uk [Accessed 14th November 2009].

Number of companies, career and turnover by number of employees and industry section, UK, start 2004, Offered by www. statistics. gov. uk [Accessed: 14th November 2009]

HSBC and Barclays information, , 10th November 2009, Offered by: www. news. bbc. co. uk, [Accessed 12th November 2009]

SME Academy London [online] Offered by: http://www. smeacademy. co. uk/, [Accessed 13 November 2009]

Banks Websites:

www. barclays. co. uk

www. hsbc. co. uk

www. natwest. com

www. lloydstsbbusiness. com

8. Books Review:

The economic recession that hit the UK in the second half of 2008 caused the retail industry to see certain difficulties (McConnell, 2009; Kollewe, 2009). The market meltdown and growing unemployment reduced consumer income and spending levels and causes uncertain stream of cash for businesses. In such conditions, small enterprises are experiencing irregular cash flows, go through the cost reducing strategy, unnecessary burden of debts, reduction of clients and uncertain profit margins or losses. As a result shortage of short-term capital creates liquidity problems to small businesses. In business, liquidity identifies the financial capacity of an enterprise to meet it's short term obligations to bear day to day expenditures.

The liquidity of retail sector specially small companies are greatly damaged by macroeconomic factors. These factors are divided into two: immediate and indirect factors. The immediate factors can be recognised as the decreasing throw-away income, job insecurity and credit funding hurdles (Office for Country wide Statistics, 2008). The indirect factors are troubles of credit financing and investment ability which commercial organisations face and which will make these organisations struggling to continue with producing high quality products and customer support (The Economist, 2008). Other macroeconomic factors that are related to small enterprises financial meltdown are house price, house rent, and job rate, and inflation rate, availability of bank loan, rates of interest and changes of consumer's behavior.

Storey [1994] records that small businesses, nonetheless they are identified, constitute the majority of enterprises in all economies on the globe. In the latter half of the last century the increasing important functions of small organizations and entrepreneurship cannot be in any way understated [Bygrave 1994; Timmons 1994;]. Small companies are now a complex subject material of research because of it's huge number of limits. These top features of small companies are recognized by Robinson and Pearce [1984] who focused on the issue of resource limitations of small businesses. These constraints are best summarised by Carson and Cromie [1989] who claim that small firm is actually characterised by three types of limits, those of:

their effect on markets;


physical resources;

It is evident that among these three constraints, financing is one of the most crucial one what's equally very important to promoting products and services of small corporations in the markets and acquiring physical resources. But certainly these three limitations are in a cycle and interdependent. Liquidity problem isn't only the consequence of shortage of finance, this issue is the results of other two restrictions too. Classification of small businesses of European Commission payment Organization and Industry [europa. eu] refers to maximum amount of employees are 49 and maximum gross annual turnover is 7million Euro for small businesses. As per European union meaning, there are 4, 267, 555 small companies in UK where 11, 441, 000 employments exist [UK Bureau of Reports: Start 2004]. It really is undoubtedly important to learn immediately the problems of such a big sector and solutions of the problems.

As known by Hill and McGowan (1999), there is absolutely no agreed classification or clear understanding, in view of the large literature that is out there, of who the business owner is or what it is they do. Entrepreneurship is probably best understood as an activity, the constituents which are the businessperson, their persistent search of opportunities, usually grounded in the market place, and work to marshal the resources needed to exploit these opportunities; hence the concept of the entrepreneurial SME (Hill and Wright, 2001). How entrepreneurship is vital and important for small companies? Hill and McGowan (1999) answer this question with the addition of that, without entrepreneurial dedication, determination, perspective, energy, tolerance of risk, and ambition, the entrepreneurial process in small and medium businesses would not happen. Entrepreneurs making decision in a variety of circumstances must be sure to learn whenever you can about the situation, and approach the decision from a rational and rational perspectives' (Ricky W. Griffin, 2002).

The financial crisis, which sent internationally and brought on disturbances in an array of powerful economies, many countries are seen to be on the brink of downturn if not already plunged involved with it (Deutche Welle, 2008). Today's financial crisis what can cause liquidity problems of businesses could be accepted as a significant concern for the success of an incredible number of small enterprises. The wide range of the problems triggered a downturn in many market sectors, the individual bankruptcy of leading organisations and overall financial recession to countries like the UK, Germany and France (Deutche Welle, 2008; Hopkins, 2008; Office for Country wide Figures, 2008). Many European union countries including UK experienced the impact in their banking areas as the provision of credit financing became a great task. Banks were experiencing insufficient liquidity, which triggered both business and non-business consumers' financial hardships (The Economist, 2008). Though few banks like HSBC and Barclays [BBC, November 2009] stated that they are now in earnings with enough liquidity to lend, the majority of the banking institutions are in problem. Loan company has short term and long-term loan facilities, mortgage loan facilities, interest free loan provider overdraft facilities for small business companies [Small business bank, 2009]. There's a well-known idea that such facilities for small companies are very limited and process is highly complex. Though various researchers completed so many research to determine various factors that have immediate and indirect effect on functions of small corporations, romantic relationship between entrepreneurship and small enterprises, potential buyers behaviour, marketing strategies, family and non-family business tendencies in this sector, there continues to be distance in research regarding liquidity problems and role of bank or investment company to solve this problem in conditions of entrepreneurs point of view. Specially during current financial down town there's a necessity of new research in the mentioned field.

9. Intended Ways of Data Collection:

Assumptions of the study:

Small enterprise: This study considers EU [maximum employee: 49] explanation to choose small corporations.

Scope and constraints of the Study: The analysis will give attention to randomly selected 40 small corporations of different sectors like hospitality, grocery, fashion and fixed from UK (London Area: Area 1-4). Since the study will cover only the mentioned area, you won't reflect the exact UK scenario all together about the study.

Data Collection Types of procedures: The proposed study is an empirical one. Both key and secondary data will be used during the review. For collection of key data self completed questionnaire will be utilized to accumulate information from internet marketers and professionals of business enterprises. Observations and interview will be conducted in several cases to confirm more authentic information from the business owners. Extra data will be gathered from available literatures in form of catalogs, journal, magazines, posted materials, research articles, and online materials. To recognize available financial loans of banks to resolve liquidity problems of small corporations, bankers websites will be utilized as a source of data and information. The researcher will also call the respondent to ensure well-timed opinions about questionnaire. In case of necessity, personal contacts will be used to support the research process.

Methods of Data Research: Some parametric and non-parametric tools and techniques of reports (like average, percentage, test of hypothesis, sampling distribution, etc); will be used to investigate data and information related to the analysis.

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