COLLEGE OF AGRICULTURE

FACTOR THAT AFFECT PERFORMANCE OF SMALL BUSINESSES IN CASE OF

Tula town

A SENIOR RESEARCH PROJECT REPORT SUBMITTED TO DEPARTMENT OF

AGRICULTURAL ECONOMICS: IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR B.SC. DEGREE IN AGRICULTURAL ECONOMICS

BY: - Asfaw shote

ID NO: 801/09

ADVISOR: Silesh Fantu(MSC)

January, 2019
HAWASSA, ETHIOPIA

Table of Contents
ACKNOWLEDGEMENT...................................................................................................................iv
ABBREVIATIONS AND ACRONYMS................................................................................................. v
ABSTRACT......................................................................................................................................vi
LISTS OF TABLE.............................................................................................................................. vi
LISTS OF FIGURES........................................................................................................................ viii

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1. INTRODUCTION..........................................................................................................................1
1.1. Background of the Study.....................................................................................................1
1.2. Statement of the Problem...................................................................................................2
1.3 Objectives of the Study........................................................................................................ 3
1.3.1 General Objective..........................................................................................................3
1.3.2. Specific objectives.........................................................................................................3
1.4 Research Questions..............................................................................................................3
1.5 Significance of the Study......................................................................................................3
1.6 Scope of the Study and Limitations of the Study..................................................................3
2. LITERATURE REVIEW..................................................................................................................4
2.1 Theoretical Review...............................................................................................................4
2.1.1 An over view and definition of small business...............................................................4
2.1.2 Definition of small business...........................................................................................4
2.1.3 Importance of small business........................................................................................4
2.2 Empirical Review.................................................................................................................. 5
2. 3 Factors that Affecting Small Business Activities...................................................................6
2.3.1 Lack of management..................................................................................................... 6
2.3.2 Lack of capital................................................................................................................ 6
2.3.3 Taxation system imposed by government.....................................................................7
2.3.4 Ability to create own business.......................................................................................7
3. METHODOLOGY......................................................................................................................... 8
3.1 Location and Description of the Study Area.........................................................................8
3.2 Sources of Data.................................................................................................................... 8
3.3 Method of Data Collection...................................................................................................9
3.4 Sampling Techniques and Sample Size.................................................................................9
3.5 Method of Data Analysis......................................................................................................9
4. RESULT AND DISCUSION..........................................................................................................10

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 4.1. Demographic Factors Which Affect Performance of Small Business.................................10
4.2. Kinds of Activity that Affect Performance of Small Business.............................................14
4.3. Effects of Engaging In Small Business................................................................................16
4.4. Methods Used by Respondents to Improve Business.......................................................18
4.5. Effect of Administrative on Performance of Small Business..............................................20
4.6. Effect of Government Intervention on Performance of Small Business............................21
5. CONCLUSION AND RECOMMENDATIONS................................................................................25
5.1. Conclusion.........................................................................................................................25
5.2. Recommendations............................................................................................................ 27
6. REFERENCES.............................................................................................................................28

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ACKNOWLEDGEMENT
First and for most all,I would like to thank GOD, who makes everything possible and for the
opportunity and capacity given to me to realize my aspiration; then I would like to extend my
gratitude to Agricultural Economics Department, my indebtedness and gratitude to my advisor
Silesh F. for his advice, suggestion, guidance, encouragement and over all assistance cannot
adequately be conveyed in few sentences.
The last but not least, I would like give special gratitude for all friends who gave me an
important and very crucial suggestion, helps and ideas through my campus life.

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ABBREVIATIONS AND ACRONYMS

EC Ethiopian Calendar
HHs Households
IC Industrialization Capacity
MoTI Ministry of Trade and Industry
MSEs Micro and Small Enterprises
SB Small Business
SSE Small Scale Enterprise
TTZ Traditional Terminal Zone

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ABSTRACT
Creativity should be the ground base for operational activities of small business. Small business
can respond more quickly and at less cost than big business to the quickness rate of change in
products and services processed and markets. Small business has the potential to create or
capture on entire industry.it try that small business enjoys a traditional of infinite variety and
solid achievement. This study also identity factors affecting influencing the performance of small
business in Hawella tula sub city objective inclusion with contribution of MSc in employment
creation and income generation. Dispute these; there are barriers for development of small
business as general. These includes, age of business owners, sex of business owners,
infrastructure, inadequate finance, low level of education, poor managerial skills, and inability
to convert part of their profit to investment. To asses these study, both primary and secondary
data were collected from the respondents by interviewing them and from other sources. By using
questionnaires, the collected data were edited and examined by using Descriptive statistics
which help one to have clear picture of scio-economic and so cool demographic situations of the
respondents. The study was intended to the factors that influence the performance of small
businesses in Hawella tula sub city. The study was focused on by small business such as
production technology, availability of raw material ,managerial skills of the owners, taxation
system imposed by government and availability of infrastructural facilities in the town’s a result
of the study, it is analyzed about 36.67% of individuals (respondents) were pushed to the small
business were get profit. One thing that should keep in the mind is that the profitability of
business is not determining through financial statement. It was indicated in the findings that
most of the respondents had restricted by government regulations on the business activities such
as taxation and fees on licensing.

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LISTS OF TABLE
Table 4.1 Age distribution
Table 4.2 Types of activity respondents participate before inter into small business
Table 4.3 where the respondents get idea to change life standard
Table 4.4 Number of respondents tries to improve product by quality and design as business
become profitable
Table 4.5 Interest that push to run small business
Table 4.6 Factors that affects performance of small business activities
Table 4.7Administrative effect on households business
Table 4.8 The way of government affect owners of small business
Table 4.9 about existence of government impact on running the business
Table 4.10 The way government helps the owner of small business
Table 4.11 whether government order respondents as plan on running the business or not
Table 4.12 Actions that taken to attract customers

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LISTS OF FIGURES
Fig 4.1 Sex distribution of respondents
Fig 4.2 Education status of respondents
Fig 4.3 Change of life after inter small business activities
Fig 4.4Profitability of small business
Fig 4.5 Source to impose of tax
Fig 4.6 Types of business government order households as high performance on the business was
gained
Fig 4.7 Ways of business managed government order households
Fig 4.8 Habit of receiving suggestion from customer

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1. INTRODUCTION

1.1. Background of the Study

In overall economic development, a critically important role is played by small business in the
developing world. The majority of the countries rely on the dynamism, resourcefulness and risk-
taking of private enterprises to which; most small business belong to sustain the process and
form the base for private sector led economic growth. Expansion and development of the sector
increases agricultural productivity enterprises through providing agricultural inputs and creating
demand for agricultural outputs. Thus, small business play a key role in stimulating other sectors
of the economy such as trade, construction, services and agriculture as well as in reducing
unemployment (ILO, 2006; Assefa, 2004).
In Ethiopia various development strategies were designed to pull country out of their problems of
poverty and unemployment. One of the important strategies adopted was the small business
development strategy. The Ethiopian government recognized the significance of this sector and
showed its dedication to promote the micro and small enterprises development by the issuance of
National micro and small enterprises Strategy in 1997 and the establishment of the Federal Micro
and Small Enterprises Development Agency. The promotion of this sector is justified on the
grounds of enhancing growth with equity, creating long-term jobs, providing the basis for
medium and large enterprises and promoting exports. The strategy puts a means to support the
micro and small enterprises through the provision of infrastructure, financial facilities, and
supply of raw materials and training (Taye, 2008).
Small business pre-dominantly prevails in small towns while medium and large-scale enterprises
dominate bigger towns and cities. The micro enterprise sector is particularly important for low-
income, poor and women groups. In Ethiopia, like in any other developing countries, medium
and large-scale manufacturing or service giving sectors due to state bureaucracies could not
create enough jobs to absorb the ever increasing labor force, especially in urban areas. In such
situations, micro enterprises may be reported to be source of livelihood for poor and unemployed
people in both urban and rural areas (Fantahun, 2004).

Consequently, many people have been forced into marginal activities in the informal sector as
subsistence farmers, petty traders, and tiny handicraft producers with limited market scope. This
conglomeration of informal and micro-enterprises is in need of significant upgrading if the
Government of Ethiopia is to be successful in its efforts to reduce poverty and to strengthen the
private sector as a creator of employment and economic growth(Adnan et al, 2011 ).

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Small business a special focus of the government, given that they comprise the large share of
employment and economic growth. Micro enterprises, therefore, have a critical potential role in
poverty reduction and economic recovery of the country. The efficacy of such interventions,
however, depends on identifying the key problems and targeting the potentially successful
entrepreneurs. The assessment of the performance of microenterprises and determinant factors
affecting the performance of micro enterprises is therefore essential. This study was carried out
to assess the performance of small business and factors affecting the performance of
Small business in Haramaya Town. Ethiopia is implementing various strategies to reduce
poverty and unemployment. One of the poverty reduction strategies in least developing countries
is micro and small enterprises development strategy. Micro and small enterprises were
components of plan for accelerated and sustained development to end poverty (MoFED, 2006).

The current Growth and Transformation Plan (GTP) has also given due attention to enterprises
and states that micro and small enterprise development is the key industrial policy direction
contributing to envisaged structural transformation of the economy. Furthermore, GTP states that
overall objective and key government policy direction for micro and small enterprises is to
expand the quality and quantity of micro and small enterprises (MoFED, 2010).

However, it is possible to think that all micro enterprises are successful in serving the purpose
they are intended for. This is largely true that their performance is dependent on a number of
factors, such as lack of training, lack of entrepreneurial skills, lack of security, lack of promotion,
insufficient amount of startup finance, high cost of input, education, gender and managerial
incompetence (Mukras, 2003; Mukras and Seemule, 2005).
The challenges further include unfavorable legal and regulatory environments, in some cases,
discriminatory regulatory practices, lack of access to markets, finance, business information, lack
of business premises at appropriate rent, low ability to acquire skills and managerial expertise,
low access to appropriate technology and poor access to quality business infrastructure (Assefa,
2004).

1.2. Statement of the Problem

It is true that small business have a vital role to play in the economy of the country. Small
business owner is an individual who establishes and manages business for the principal purpose
of furthering personal goals. Most small firms are unlikely to be able to exert much influence on
the market. They are price taker in classic sense and are likely to face significance competition.
With that flexible organization they are more sensitive and responsive to market change.

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Introducing of new method through which business activities takes place was the basis for
starting small business.
For doing on this managerial skills of the business owner play an important role. As finance is
the base point for any business activities, it is one problem of Ethiopian small business. Since
small business do not have easy access to the capital market because of small business are mostly
organized on pointedly basis and very small in size and their surplus with can be utilized to repay
loan are legible, and small business firms are not public companies. This means they often have
problem of rising capital and this significantly constrain the choice of strategies indeed for many
small firms seeking to grow, raising finance is major issue (zikmund, 1997).
The research seeks to investigate whether economic factors, human resources and management
factors affect the performance of small businesses

1.3 Objectives of the Study

1.3.1 General Objective
 The general objective of this study was to assess or evaluate the performance and
determinant factors affecting the performance of small business in Hawella tula sub city

1.3.2. Specific objectives

 To assess the performance of small business in the study area
 To identify factors affecting the performance of small business in the Hawella tula sub
city
 To assess the financial effect on the performance of small business.

1.4 Research Questions

i. What are the major factors that influence performance of small businesses?
ii. How the amounts of tax imposed by government affect performance of small businesses
iii. How small business affected by lack of proper management?
iv. For what cases government intervention affect successfulness of small business?
v. What is the impact of capital on performance of small business?

1.5 Significance of the Study

The study focuses on factors that influence performance of small business. The outcome of this
study is useful for the owner of small business identified area as well as the trade and transport
department of Haramaya town. Generally the study is believed to have the following importance.

3
It provides useful information for small scale business bureau and transport department of the
Haramaya town on what factors influence performance of small business; it provides useful
information for the owner of small business concerning problem facing small business and
develop strategies to minimize those problems; to suggest some possible solution with the factors
influence small business, it may help as a great importance for the further researcher who like
study on similar factor that affect performance of small business in the town in depth. As well as
it teach the households as they know the factors which influence small business performance and
as they try to solve the problem.

1.6 Scope of the Study and Limitations of the Study

The study was limited to Haramaya town. The town was selected because, it was one of the
towns in which small scale business enterprises are exist and given due consideration by current
government organization. The study uses only the performance of small scale business
enterprises registered in the Haramaya town. The small scale business enterprises such as wood
works, shops, tailors, and small scale industries are found in the study area.
The researchers have been faced difficulties with regard to the collection data from secondary
sources. The cause of lack of records in office and even the data obtained with this respect have
been not sufficient for the pertinence of the paper. The other factors had been the unwillingness
of respondents to give relevant information relate to factors that influence performance of small
business. A same case there was be subjectivity of the respondents on the questions during the
collection of primarily data.

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2. LITERATURE REVIEW

2.1 Theoretical Review

2.1.1 An over view and definition of small business
Small business enjoys a tradition of infinite variety and solid achievement. So, vital is small
business that few, if any parts of the global economy could go on without its products and
services. Small business is also civilizing influence, raising above dollars and cents to enrich the
likes of men and women the world over (small business management “siroplis”sized, 1997).
Small business has played a role in history since practically the beginning of recorded time small
business flourished in almost all ancient cultures. At a recent time; during 1980s and 1990, a
small business began to enjoy more esteem and prestige than ever before, no small thanks to its
ability to invent new products and to create new jobs (Siropolis, 6thed 1997).

2.1.2 Definition of small business

Typically, the term small business is so called mom-and –pop stores, such as neighbor-hood
groceries and restaurants, and terms big business to such giants and general motors. Small
business is also defined as a business owned and operated with small number of employees and
relatively low volume. As Ethiopian context, the term “Micro enterprises” (or together, micro
and small enterprise M.S.E’s) are used to refer to small business. Micro enterprise: are those
small business enterprises with paid capital of not exceeding Br 20.000 and excluding high
technical consultancy firms and other high technology establishments. Small enterprises: are
those business enterprises with a paid –up capital of above 20,000 and not exceeding Br. 50,000
and excluding high technical consultancy firms and other high tech establishments (ministry of
trade and Industry definition) Carl lied Holm and Danid, 1998).

2.1.3 Importance of small business

There are many importance of small business few of them are listed below:
 Can serve as homes of entrepreneurship development
 Job creation
 Serve as a base for the establishment of medium level enterprises
 Major source of income
 Fertile ground for technology
 Serve as a viable option for people who cannot otherwise get employment in the
traditional employment sectors.

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 Generally small businesses serve as instruments for poverty alleviation and economic
empowerment of women and men and a like.

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2.2 Empirical Review
According to research Conducted by Rajan (2013) states that the definition of small Scale
Industry may vary from country to country, year to year, from period to period and from time to
time and according to the level of economic development reached in a country. Despite of this,
small scale enterprise when established varies in its mode of formation, its sizes, its
organizational step, and in its activity. The reason for this is because the type chosen by each
individual operator will depend on the financial capability to manage such enterprise, (Rajan,
2015).

Small scale enterprise forms the bedrock of the economic growth of every action. This is because
no nation can achieve a viable economic growth and development without the establishment of
small scale enterprise. Small Scale Enterprise has always been in the forefront of development
strategies of every nation. Thus the quest or trust of any nation's development must be centered
around small scale enterprise; because of its great role in terms of production activities,
employment generation and the overall improvement in the qualities of the life of people.
Furthermore, the study made by wolfenson (2001), the small business sector is recognized as an
integral component of economic development and a crucial element in the effort to life countries
out of small-scale business are driving force for economic growth, job creation, and poverty
reduction in developing countries. They have been the means through which accelerated
economic growth and rapid industrialization have been achieved, (Saucer, 2005).

According to the study conducted by BahrmanJ.R. And Deolalikar.A.B, (1989); Khan and
Manopichetwattana, (1989), with rapid growth in population, African countries have been
experiencing the problem of large size of unemployment through its economic history since
indeterminate time in the past. Because of this fact, the Problem of unemployment and poverty
have been the prime challenges that many governments have tried their best to alleviate these
challenges at all levels ;( Chrisman and Leslie, 1989).

In addition of the above, the challenges and the problem of small scale enterprises are tied to
some economic variables and the challenges that generally characterized the nation's economy.
Some of the challenges and problems include high level of unemployment, high poverty
incidence, lack of managerial skills, and low industrialization capacity(IC), lack of finance,
inconsistent government policies and inadequate infrastructures and insecurity of the business
climate among others. Nevertheless, the internal characteristics of small scale enterprises too
have also interact with some economic variables to undermine the capacity of the economy.

7
Issues of low level entrepreneur skills, poor management practice, inadequate equity capital and
lack of information among other problems, (Chrisman and Leslie, 1989).

In spite of this problems and challenges the current economic reform process on going in
Ethiopia aimed at reducing poverty, unemployment and strengthening of basic institutions and
sub-sectors of the economy target at improving to show a new optimism on small scale
enterprises as instrument of economic growth and development. The aims and objectives of this
study are to realize the immense contribution of small scale enterprises-subsector in the
economy. This Research also aim to high and make critical study of the problems of small scale
enterprises and offer useful recommendation that would enhance the implementation of the best
solution so to prevent the recurrence of such problem,(Mohammad Getahun,2016).

2. 3 Factors that Affecting Small Business Activities

There are a number of factors that can affect small business activities. Some of them are listed
below:

2.3.1 Lack of management

If the owner /manager /has adequate knowledge of managerial skills and entrepreneurial, the
dynamism of the operation of the business with change in external environment can be ensured.
Poor managerial and entrepreneurial skills of the owner /managerial/ will lead the businesses to
loss and more severely to death if its operations remain static while the external environment is
changing and the completion is becoming fierce (Paul burns and Jim dew Hurst, 1996, 23) in
management type, the small businesses are faced with problems and challenges of development.
By and large, created to promote speedy and development in their own enterprises are
themselves be-set with problems of their own development. The most cause to lock of
managerial skills of education and lack of awareness about importance. The systematic
development of managerial talent is one of the primary tasks of any business sectors, for its
survival in an increasing changing his business. Management development is an attempt to
improve managerial effectiveness through a planned and deliberate learning process. So the
critical determinants of factors that affect small business is the efficiency and effectiveness of its
managerial cadres in operating the enterprises (Esyclopidea of small businesses management)

2.3.2 Lack of capital

Since, for successful implementation of the chosen strategy availability of capital is a major
precondition for running small business. Small business owner have a great problem regarding
the availability of capital because it is very constraint to facilitate the enterprise (Esyclopidea of
small businesses management)

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To do so, financial (capital) problem is the problem that hinders the development and growth of
small business in our country as a whole (Woldy Ahmed, 1997).

2.3.3 Taxation system imposed by government

Even if taxation is the principal sources of revenue for government, most small business
influenced by a tax government imposed on them and the activities they performed were not
balanced each other. The determination of tax rise on any operating business is either by
presentation of income statements of the business to the internal revenue authority or depends on
the capital of business estimating the amount of tax to be paid by tax payer. Depend on the
regulation of taxes exempted from tax payment. These are the rendering of financial service, the
supply of national or foreign occurrence, the supply of prescription day drugs specified in
directive issues by the relevant governments and the rendering of medical services(Ethiopian
proclamation of small business No,304/2003)

2.3.4 Ability to create own business

The words ability, creativity, innovation and invention are the core concepts of small that gives
deep interpretation for business owners (or entrepreneur).The term reactivity and innovation are
often used to mean the same thing, but each has a unique connection. Entrepreneur is a person
who habitually creates and innovates to build something of recognized value around perceived
opportunities. Small businesses fair because of the owner allow themselves to be destroyed,
slowly but surely, by the action of their own ability and creativity. This small business fail also
because more often than not, these people never make decisions, more often than not, these
people needed to ensure the vitally of their companies in an over changing over more complex is
exit. Small business typically fails to recognize the needs the future in managing their business
(Donald.F.Kurak to Richard. M. Hedge TTS, 1998).

Innovation is a key function in the entrepreneurial process, small business and managerial skills
of the owner of such firms are essential to promote the business to growth and profitability.
Innovation is also the specific function of entrepreneurship. It is the means by which the
entrepreneur either creates new wealth producing resources or endows existing resources with
enhanced potential for creating wealth (Donald.F.Kurak to Richard. M. Hodgetts, 1998).

Factors that influence small business activities are not only the listed because there are a number
of factors such as production technology, availability of raw material, availability of
infrastructure in this town. Small business have great role in economy. They need strong support
on socio economic and political grounds (Haile Gebretinsae Beyene 2nd, 2007).

9
In economic terms a small business is also, that has relatively small there of its market and is
managed by its owner in personalized way and not through the medium of formalized
management structure more over it is independent in the sense that it does not form part of a
large enterprise and the owner should be free from outside control in taking their principal
decisions (Paul burns and Jim dew furst, 1998).

The small business man has the choice of three main forms of business organization. Those are:-
Sole proprietorship partnership limited company (corporation).
The form adopted affects the taxes the small business person will pay. As a sole proprietor, the
small business is treated as a self-employed liable to income tax on the profit of the business
assessed under the rules of the country. As a partnership, business profits are taxed under the
same rule and joint assessment to income tax is raised on the partnership. As a corporation, the
small business person has to account monthly to the in land revenue for the pay as your earn
income tax do not only on his employee’s salary; but also on his remuneration (Hailey
G/tinsaeBeyene, 2007).
In general the tax collected from the operating business has a great importance in the raising of
revenue for federal governments and in providing incentives for certain types of economic area
(pualburns and Jim dew first, 1998)

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3. METHODOLOGY

3.1 Location and Description of the Study Area

Haramaya is a town in east-central Ethiopia. Located in the east hararghe Zone of the Oromia
Region, the town has a latitude and longitude of 9°24′N 42°01′E / 9.400°N 42.017°E / 9.400;
42.017Coordinates: 9°24′N 42°01′E / 9.400°N 42.017°E / 9.400; 42.017 with an elevation of
2047 meters above sea level. Haramaya is 10km west of Harar, on the road to Dire Dawa. It is
located on Lake Haramaya, a seasonal freshwater lake which supports a population of flamingo,
as well as other birds. Haramaya is home to Haramaya University. The University was originally
established as an agricultural technical college, with assistance from Oklahoma State University.
Although classes started 5 November 1956, the University was formally inaugurated by Emperor
Haile Selassie 16 January 1958. By 1967 Haramaya had telephone service. Based on figures
from the Central Statistical Agency in 2005, Haramaya has an estimated total population of
15,317 of whom 7,796 are men and 7,521 are women. The 1994 national census reported this
town had a total population of 8,560 of whom 4,228 were males and 4,332 were females. It is the
largest of three towns in Haramaya woreda.

3.2 Sources of Data

Both primary and secondary data will be collect from different sources. Primary data will be
collected from the respondents by interviewing them using the questionnaires which will be
prepared for the respondents, and primary sources include beneficiaries/participant and non-
beneficiaries/ non-participant. The secondary data will be collected from official document and
records of related to the case under the study as well as unpublished sources, and observations
will be sources of data.

3.3 Method of Data Collection

Different types of data collection methods will be used in the study. By questionnaire data will
be collected by interviewing respondents who will be sampled from the total population under
study. Formal sample survey will be conducted to collect primary data. The gathered data in the
informal survey will be, group discussion and key informant interview will be held using
questionnaires. In the formal sample survey structured and semi-structured questionnaire are
prepared. Then the questionnaire will be administered to collect pertinent data.

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3.4 Sampling Techniques and Sample Size
As the number of population of the study area large, it will be difficult to collect data from each
owner of small business. So, the study adopts a multi-stage random sampling technique used
which will be combination of researcher judgment and probability to select sample respondents.
In the first stage HawellaTula sub-city administration office will be selected purposively due to
shortage of budget and the shortage of time. Secondly three types of small businesses that found
in the study area will be identified with merchandise, service provide and small scale industries.
A total of 40 sample respondents will be selected random sampling techniques using
proportional sample size methods. The study considers 40 respondents; from this sample 16 of
them are service providers, 14 are merchandise and 10 of them from small scale industry.

3.5 Method of Data Analysis

The relevant data to the study are collected; the subsequent task is data processing that involves;
analyzing and interpretation. The collected data will be edited, examined. By using
questionnaires data will be processed and analyzed by using Descriptive statistics techniques that
will be used to describe the collected data include percentage. Since descriptive statistics help
one to have clear picture of socio-economic and socio-demographic situations of the
respondents, it will be used wherever it is appropriate.

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4. RESULT AND DISCUSION

4.1. Demographic Factors Which Affect Performance of Small Business

First of all having an understanding about the respondents might helps to estimate the accuracy
of the information forward and it may give us an idea of how much the respondents were able to
answer the questions with acceptable degree of reliability. Next, the result of data collection and
analysis was presented in the following way. Things that should be kept in mind here that the
researcher used the data obtained through questionnaire, interview, observation and the
secondary data from reports of business owners in the office.

The total number of the house holds in the kebele was10, 131. The sample drawn was 40
business men. Fourty of the respondents were filed the researcher questionnaires as researcher
ask them. The interviews used in this study were the officials of kebele's .The numbers
respondents interviewed in the office were two, and two of them was responded the interview
without any defect. The sampling technique used was purposively random sampling method
which was combination of researcher judgment and probability of collection with owners of
small business for primary data collection in the kebeles. All of the data have been passed
through certain statistical process and presented using statistical tools such as table, charts, and
graphs, and then interpretation was given.

The following are some factors which affect the performance of small business in the Haramaya
town. these are; age, sex, capital, and education level of small business owner, customer, design
and quality of product, existence of governmental impact, managerial affect, and ways of
performing business were some of them which researcher analyze in senior research.
Researchers analyze them as the following.

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Sex distribution of respondents
Fig.4.1. Sex distribution of respondents

Source: own survey (2018)

As one can see from above pie chart, 23 (57.5 %) of the scale size conducted for the study were
male and the rest were 17 (42.5%) were females. This implies that, the participation of the males
in small business operation exceeds that of females. This also implies that for small business
always males were more participants. Culturally sex affects the performance of small business by
taking idea of female married early than males. This implies that lower age female does not give
attention for performance small business, and socially female cannot give attention to business.
This was looking by if wife and husbands became widow that business was left for their
husband.
Age distribution of the respondents
Table 4.1 Age distribution

Age Frequency Percentage (%)

18-25 18 45%

26-32 14 35%

33-39 8 20%

Total 40 100%

Source: own survey (2018)

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 As one can see from the results of the data analysis on the above table revealed that the age of
18 numbers of respondents or 45 % of the respondents lie 18 to 25 years, 14 (35%) lie between
26 to 32 years and the remaining 8 (20%) lie between 33 to 39 years, the most of the respondents
were enough by age to operate business. This implies that most respondents were working age.
Age affects the performance of small business by considering that lower age (less than 18 years)
was careless on small business. Respondents did not work efficiently to get equivalent amount of
profit. This shows that performance of small business was low. The other also higher age
(greater than 65 years) cannot manage small business in appropriate manner like recording and
planning. This reflect that owner of the business does not get good profit. So the profit was less
performance of small business also less.

Education status of respondents

Fig 4.2 Education status of respondents

FREQUENCY
25

20

15
FREQUENCY

10

0
No education 1_8 9_12 ABOVE 12

Source: own survey (2018)

15
The above bar graph show for else that, the education status of the 12(30%) respondents were
surveyed was from 1 to 8, 21 (52.5 %) of the respondents were grade 9 to 12, 4(10%)
respondents were above grade 12 and the remaining 3(7.5 %) of the respondents were illiterate.
About 33 of the respondents education status was found between grade one and 12, this means
that about 82.5% of the business owners included in this study was not illiterate. Educated
person have power for different things. Among this one was performing small business well.
Since a respondent knows different way of performing small business like risk aversion, and risk
prefer, and time of commodities have high demand. So, when everyone compare illiterate and
learned person, learned one could manage, his/her business well. But illiterate could not do this.
Generally education level and illiteracy can affect business performance.

16
4.2. Kinds of Activity that Affect Performance of Small Business
Types of activity respondents participate before inter into small business
Table 4.2 Types of activity respondents participate before inter into small business

Responses Frequency Percentage (%)

Learning 13 32.5%

Hiring labor 12 30%

Serve family 15 37.5%

Total 40 100%

Source: own survey (2018)

The above table implies that individuals that participate in different activity before inter into
small business activity. From this anyone can see that 13 (32.5 %) were engaged in learning, 12
(30 %) were engaged in hiring labor, and remaining 15 (37.5 %) were participate in servicing
family. So the above table concludes that individual participate in serving family, learning and
hiring labor are 37.5%, 32.5% and 30% respectively.

When we compare individual who hire his labor, serve family with learning one, we know that
individual who engage in learning before in entering small business activity might be learn
different systematic performing of small business like how someone record its cost of operation
and its benefit. This indicates that what someone did before inter into small business activity has
effect on performance of small business. This show for us that after someone learn, if he/she start
small business activity, he/she can perform small business well.

17
18
Sources of capital to start business

Fig 4.3 source of capital

Source: Own survey (2018)
As we know capital is the base for any business activities. To start one business activity the first
requirement is capital. As indicated on the above figure businesses men can get capital from
different source, 22(55%) of respondents get capital by sharing, 12 (30%) respondents from
their families and relatives and the remaining 6 (15%) respondents were get credit from
government. Many respondents would not take credit from government and start the business,
because of interest charged and short duration of repayment. Due to shortage of capital, the
owners of small business do not meet their objectives. Shortage of source of capital in small
business is the factors that influence the performance of small business.

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4.3. Effects of Engaging In Small Business
Change of life after inter small business activities
Fig 4.4 Change of life after inter small business activities

LIFE CHANGE AFTER INTER TO BUSINESS

YES
NO

Source: own survey (2018)

The above table implies that 34 (85 %) of the respondents were, that the standard of life was
changed, and 6(15 %) of the respondents standard life was not changed, because of some
reasons. These are: paying high tax for governments, tax imposes was not fare, have not many
customers, and when respondents could not improve the quality of commodity because of lack of
budget. 30 (75 %) respondents standard life of the respondents changed in some ways like
household consumption, teaching children, meeting in different social organization.

The way changing the life standards were by improving quality of the products, decrease the
price by getting small profit from the product to increase the circulation of the work or to attract
many customers. Participating in small business activity can change the life standard of the lively
hood of the community in different ways. So concerning body have to advice and encourage
households as individual open small business enterprise around their home steed. As well as
from small commodities the respondents can get medium profit and can do other works in

20
addition to small business work. Generally small businesses have many advantages for
community, society as well as for country.

Source idea respondents get to change their life standard

Table 4.3 where the respondents get idea to change life standard

Responses Frequency Percentage (%)

Getting advice from other 5 12.5%

By looking other persons who start before them 25 62.5%

From the government 10 25%

Total 40 100.0

Source: own survey (2018)

As one can see from above table that 12.5% of the respondents were getting advice from other
person, 62.5 % of the respondents were by looking other persons who start before them, and the
remaining 25% get from the government. Generally, 75 % of the respondents were changed the
life standard by getting advice from other and looking other person who start before them and the
remaining 25% were from the governments give advice for them on different meeting. This
implies that the respondents start small business work by looking other person rather than get
advice from other or government

21
Profitability of small business
Fig. 4.5 Profitability of small business

Source: own survey (2018)

In business concept, starting from small industry to large industry making profit is primary
objectives, centralizing this idea, the above pie chart show that 72.5 % of the respondents were
profitable in business and 27.5 % non profitable. This was because of lack of manage the
business property, lack of recording cost and benefit and did not consider small business activity
as main work but engaged in this work to sustain for the life or to transfer from today to
tomorrow. From the above pie chart the respondents who are profitable in their business were
use that profit for partially reinvest and partially for consumption by households and from this
survey there was no individuals who use the profit for establishing other business to expand / to
increase the profit from other business.

Also from the above pie chart 27.25 % of the respondents whose business were not profitable
were try to change the business form as become profitable but because of some things like lack
of finance, lack of managerial who learn about business management give advice were some
obstacles to change the business as become profitable. One thing that should keep in our mind
(we remember) is that, the profitability of business is not determining through financial
statement. So lack of above obstacles respondents did not know profit and loss of the business.
Profitability was considered on the basis of owner’s experience, there was no book of record.

22
4.4. Methods Used by Respondents to Improve Business
Number of respondents tries to improve product by quality and design as business become
profitable
Table 4.4 Number of respondents tries to improve product by quality and design as business
become profitable

Responses Number Percentage

Yes 8 72.73%

No 3 27.27%

Total 11 100.0

Source: own survey (2018)

For any business forum successful operation in a competitive business market and to become a
strong competitor in the market, keeping the quality and design of the product and service in
unique way from those profits competitors is essential. The quality of the product and service
should match to the needs of the customers or it should fulfill the want as much as possible. As
indicated above table 72.73% of respondents try to improve quality and design of the product
and service, where as 27.27 % of the respondent believed that higher product and service quality
has not try to improve.

As respondents responded, and information gained from owners, most of the small business
owners were done the best to improve the product or service quality over time. However, the
remaining of the owners did not try to improve the product and service quality as a result of lack
of knowledge and a financial problem. There were products that already exist in market place but
which were presented in a more attractive and effective way. So, customers did not buy
commodities which were not improved. Lacks of improving quality of product also affect
performance of small business indirectly.

23
Interests that push to run small business
Table 4.5 Interests that push to run small business

O b j e c t i v e F r e q u e n c y P e r c e n t a g e

Establishing profit 2 2 5 5 %

Accumulation of wealth 1 3 3 2 . 5 %

S e r v i n g s o c i e t y 5 1 2 . 5 %

T o t a l 4 0 1 0 0

Source: own survey (2018)

As the above table indicate that 55 %of the business owners in the sample confirmed that the
primary objective of establishing business was just to generate profit, 32.5 % were established
for accumulate wealthy and the remaining 12.5 % of the business owners were established to
serve the society but, the main objective of establishment of small business should be to serve
the society because other gains come from serving the society. From serving society what we
want can get like profit, experience of performing small business, comment from society, and
obstacles for performing the jobs.
 Factors that affects performance of the business owners
Table 4.6 Indicates Factors that affects performance of business owners

F a c t o r s F r e q u e n c y P e r c e n t a g e

Lack of management 1 4 3 5 %

L a c k o f c a p i t a l 1 0 2 5 %

Tax imposed by government 8 2 0 %

Lack of ability to create own business 8 2 0 %

T o t a l 4 0 1 0 0 . 0

Source: Own survey, (2018)

From the above table, anyone can consider that 35% households were influenced by lack of
management to perform well their business activity, 25% were influenced due to lack of capital,

24
and 20% were influenced by tax imposed by government. It is the one of influences the business
activity performance; that means when there is high tax; the small business owners cannot get
more profit; and the remaining 20% were affected due to the lack of the ability to create own
business. As the result, the most factor influences the business activities was lack of good
management. That means, if there is no powerful (or skilled manager); the business cannot be
run as much as possible and it may be fail into different risks. Therefore good management and
skilled manager is an essential for the successful of small business activities.

4.5. Effect of Administrative on Performance of Small Business

Managerial effect on households business
Table 4.7 Administrative effect on households business

Response Frequency Percentage

YES 18 45%

NO 22 55%

Total 40 100.0

Source: own survey (2018)

From above table one can concludes that about 45 % households were affected by administration
body to perform well the small business, and the remaining 55 % owners of small business
households were not affected by administrational body. Because paying tax on time and price
was adjusted by government manager did not influence performance of business activity. This
was explained by following table.
Ways of Administrational affect owner of small business

Responses Number Percentage

Enforce to pay tax 10 55.56%

Control price 8 44.44%

Total 18 100.0

Table 4.8 Ways of Administrative affect owner of small business

25
Source: own survey (2018)

From above table any one can consider that 55.56 % of households were forced to pay tax on
time and things that were obstacles to respondents as they us as did not pay tax on time were:
lack of having enough cash, the amount of tax paid was increased from year to year and time of
tax paying was not regular were the main one. And 44.44 % were affected by managerial body
on controlling the price. If managerial skill did not control the price, when there was high
demand (high number of customer) by increasing the price and sell commodities. After that the
profit gained by such condition (by increasing price of commodities) performance of small
business can increase. Managerial skill can affect performance of small business by another way
such as did not give advice for the societies who want to establish small business and did not
teach how recording cost of performing and benefits.

4.6. Effect of Government Intervention on Performance of Small Business

About existence of government impact on running business

Response Frequency Percentage

Yes 11 27.5%

No 29 72.5%

Total 40 100.0

Table 4.9 about existence of government impact on running business

Source: own survey (2018)
Government is a body of public society who intervene by declaring or imposing rule and
regulation for implementing many business sectors. This is true for small business and just
government intervention is applicable for the need purposes. The result analyzed in the study
show that most of the respondents 72.5 % had no impact (restriction) by the government on their
business operation (running) and the remaining 27.5 % had impact (restriction) on their running
the business. This happens (showed) by the following ideas. The government bodies affect
business operation and running business by imposing high taxation and fees for licensing.
Taxation is the most sources of government revenue collected from business owners and it is a
great problem for running small business. So many small business owners fear because there is
lack of financial problem that may perform the small business well as well as tax imposing is

26
not fare since the of impose tax depend on different sources. This shown by the following bar
graph

Source of income to impose of tax

Fig.4.6 Source to impose of tax

Source: own survey (2018)

From above pie chart somebody understand that 50 % that government impose tax based on
startup capital, 20 % based on monthly income, 15 % based on year income and the remaining
15 % based on number of customer. Generally based on the above bar graph four methods
government imposes tax on household fluctuates from time to time and season to season because
of this fluctuations tax imposing was not fare. Mostly depending on number of customer was far
from real, because customer depends on income, time of the commodity was needed. So
depending on above methods government can affect the performance of small business. Since, it
did not depend on real method of imposing tax. The other way government can affect
performance of small business was that did not give license as society did not start small
business, increase tax paid for license at the beginning, and did not encourage the society who
need to operate small business. There is away the government help the owner of small business
as they perform their business. This was presented by following table

27
The way government helps the owner of small business

Responses Frequency Percentage

By reducing tax 4 10%

By grouping them 14 35%

By giving credit 6 15%

By giving land 16 40%

Total 40 100.0

Table 4.10 The way government helps the owner of small business
Source: own survey (2018)

From the above table some else can understand that government help the owner of small
business by different ways. Those were by: 16 (40 %) by giving land, 14 (35 %) by grouping
them, 6 (15 %) by giving credit and the rest of 4 (10%) by reducing taxes. Society can do
business in partnership kinds of business. From above giving credit was the main action attention
must be given and as owner of small business perform small business well and credit term is a
base for all business operation

Whether government order respondents as plan on running the business or not

Responses Frequency Percentage

YES 37 92.5%

NO 3 7.5%

Total 40 100.0

Table 4.11 whether government order respondents as plan on running the business or not
Source: own survey (2018)

28
From the above table some body can understand that 92.5 % government advice owner as they
plan on their business because plan on business have some advantages like to know the way the
business can be develop, to know future demand on the commodity, and 7.5 % of respondents
were not ordered by government. The frequency of government order households as to plan
business was by quarterly, by looking different criteria like amount of commodity in the storage
house ,length of time one commodity take to be prepared and time of commodity stay on the
storage house to sell (turnover time). Basically, business plan is the most and good necessarily
process that used in any business sectors as aground point for the successful operation, growth
development and for overall profitability of the business as it enables the business owners to set
the objectives or goals along with the strategies ,procedures and programs required for achieving
those objectives through efficiency and effective utilization of the available materials ,financials
and human resources to perform well small business. Ordering by government is good for
performing small business for households.

Actions that taken to attract customers

Responses Frequency Percentage

improve product quality 20 50%

proper customer service 12 30%

reducing selling price 8 20%

Total 40 100.0

Table 4.12 Actions that taken to attract customers

Source: own survey (2018)
As one understand from above table there was a method how one can attract customer. These
methods were: 50 % of the respondents by improving products and 30 % of the respondents by
improving proper customer service for the customer like politely asking the want of customer, by
giving small price commodity for incentive for the customer and the remaining 20 % of the
respondents were sale the products/service at lower price. Close contact with customers and
commitment about quality of the product/service is essential to the successful operation of
business. Higher profit margin is achieved by competing on service quality rather than price or
perhaps more surprisingly uniqueness of product /service.

29
Habit of receiving suggestion from customer

Fig 4.7 Habit of receiving suggestion from customer

Source: own survey, (2018)
Receiving suggestion from customer or feedback customer about quality of product/service is
useful to any business, because it show that want and need of the customer is satisfied or not. If
the customer want, was not satisfied, customer service should change design of product and way
of giving services for customer. As indicated above table, all the sampled respondents indicated
that they have adoption habit of receiving suggestions of customers. From all of the respondents,
there was no respondent who reject the receiving suggestion from the customer.
Generally, taking customer suggestion on small business it have great role on performance of
small business. That means taking suggestion from customer helps everyone to change goods
design and its quality. If this was done enough amount of customer as well as enough profit from
customer were gained. Then performance of small business increased. But if this was not done
performance of small business cannot increased

30
5. CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion
Globally, there is an increased recognition of the important role played by micro and small
enterprises in the economic development of a country. The role of micro and small enterprises in
employment and income generation was increasingly recognized and has become a major
playing field for policy makers and donors with dual objective of enhancing growth and
development, food security and alleviating poverty.
However, their performances to realize the intended goals are not as expected due to variety of
factors which hinder their activities in the business. The good performance of micro and small
enterprises in their filled of business was the result of generation of higher benefits from their
business than costs incurred. As the findings of this study showed, more than one fourth of the
enterprises found in the study area had bad performance when their performance were measured
based on benefit cost ratio values of the enterprises
Business planning is a continual process of making entrepreneurial decision with the objective of
the future and systematically organizing and coordinating the effort needed to execute these
decisions. As to the findings that the researcher obtained with this respect most of the business
owners do not follow business planning in carryout of their operational of activities because of
the lack of ability and skill of constructing business planning. However, 92.5% of small business
owners are ordered by government as they plan on running the business using substandard plan
to move the business. Basically business plan is the most and proper necessary process that used
in any business sectors.
The findings in this research work indicated that the concepts that push to run small business
were to generate profit starting from small industry to large industry. As it is analyzed, about
36.67% of individuals (respondents) were pushed to the small business were get profit. One thing
that should keep in mind is that the profitability of business is not determining through financial
statement. As indicated in this research report, small business has good relationship with the
customer and most of the respondents indicated that the customers visit them and by buying
commodity regularly. However, most of the business owners do not pay attention to provision of
new and unique product service to the customers. This indicates that the customers were not
visiting them regularly. The other also, indicated by in the findings that most business have the
problem of insufficient finance and limited or no potential to deal with financing institutions. It
was indicated in the findings that most of the respondents had restricted by government
regulations on the business activities such as taxation and fees on licensing. Even the tax levied
by tax authority was depending on rule was difficult to pay by comparing to the profit gained
from the small business work. These had great affect on performance of small business.

31
The study was intended to the factors that influence the performance of small business in
Hamaya Town. It aims at identifying different implication of the factors that affect performance
of small business. Such as, customers, quality and design of commodity customer need, capital,
and ways of business were managed and government impacts such as taxation and fees on
licensing system on the operation and performance of small business in the town.
In this research report, creativity was studied as ground base for operational activities of small
business owners in addition to these entrepreneurial and managerial skills of the business owners
of firms for essential to promote the business to growth and professionalism. However, this study
which focused on problems faced on by small business such as production technology,
availability of raw material, managerial skills of the owners, taxation system imposed by
government and availability of infrastructural facilities in the town.

5.2. Recommendations
To tackle the challenges of the above mentioned difficulties and to improve the performance of
enterprises all enterprises and concerned bodies;
 Financial institutions should provide sufficient loan prepared on the business plan of
enterprises with effective and efficient repayment rate.
 Moreover, financial institutions should establish suitable alternative systems of saving
with attractive interest rate to invite enterprises to follow the principle of save to invest in
near future.
 Micro and small enterprises should take different trainings to initiate and upgrade their
entrepreneurial and managerial skills.
 They should convert part of their profit into investment capital to expand business and
should not withdraw working capital to pay for their debt to the lending institutions.
 Therefore, concerned government authorities should strengthen their efforts in such a
manner that a continuous follow ups and backstopping of enterprises is ensured until they
can stand by their own and grow to the next level.
 For solving the problem raised behind managerial body to run business the owners should
get training and advice because they have a low knowledge about making business plan
and low skills to create new things to become entrepreneurial person. The owners should
be educated on marketing concepts so that they can get clear view of role of proper
customer service, customer treatment and product quality in maintaining the existing
customers and by the attracting new customers to their product.
 The greatest problem in performing any business activities is lack of capital. This
problem can recommend by using many methods. Those are; the government should
provide them the means to get loans on secured way rather they seek fund on their own

32
 because of lack of capacity to pay interest charged by financial institution. This idea is
well designed if government establishes different credit association, micro finance around
their business area. The other method that can be solving this problem is giving training
how they manage their capital and use it wisely without extravagancy.
 The trade and investments office should work hand in hand with others concerned body
or official so as to minimize the impact of partnership or making cooperation. Because
working together is a ground base for generating business profit.
 The owners of small business have the ability to record their business and must have plan
to run their business successfully and to get enough amount of profit to facilitate their
things which is needed to perform their small business.
 The owners of small business have to consider its age, education level, ability to have
managed his business, to start business which is profitable individual or partnership way
of management.
 The owners of small business consider what governments consider to impose tax and
which type business governments impose high tax.
 The owners of small business should consider what type of business he/she engage,
he/she can get high amount of profit, and what type of service community need

33
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