Small Business

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In the United Kingdom itself, there was a 1,46,000 increase in several small businesses. This led to a record of 5.4 million private sector SMEs by the start of 2015 (Statistics, 2015). The private sector comprises 99.3% of small businesses and 62% of sole proprietors (BDO Hospitality Consulting, 2014, p. 6). Small enterprises generated 25.2 million jobs and produced a turnover of £3,500 billion. Since 2010, Wales has taken a lead initiative in the development of small and medium-sized businesses. This has radically increased their growth. 400,000-500,000 small businesses are encouraged by individuals who want to become entrepreneurs or businessmen (BDO Hospitality Consulting, 2014, p. 6). In the next five years, the small business sector is estimated to grow more in numbers. There are currently various factors that are helping small business entrepreneurs to grow and flourish in the economy. Furthermore, as more financial funding will be available to these businesses, it is expected that they will increase their operational capabilities, thus generating more earnings and revenues. Internet will also help them to groom and grow. As the government is providing financial assistance, it is evident that support from various institutions will help SMEs to expand.

Background of UK Hospitality Industry

UK's hospitality industry is inclusive of tourism, travel, and leisure-oriented enterprises that were affected by the economic recession. This economic crisis was over but has deeply affected the economy of the United Kingdom. Although the recession of 2008 is over, the effects are still visible, especially in the hospitality industry (BDO Hospitality Consulting, 2014, p. 7). This is evident from the lower tourist traffic, which has been shown by a low return to the business. Already the country is facing unemployment problems such as a low number of available jobs to individuals, etc. A rise in competition due to an increase in small enterprises and entrepreneurship is also apparent. The main issue in the hospitality industry is to increase the employment level up to 208,000 by the end of 2017. This is a challenge, as only those individuals will be recruited who have good customer service skills and are qualified up to the norms of the hospitality industry. Thus, the individual with only high qualifications and better skills has greater scope in this industry. Around 30 million tourists visited the UK and generated £16 billion in earnings for the economy. Recently, the UK industry has generated 1.7 million people, helping around 6% of the population to receive employment (Hemmington, 2012, p. 1). The total worth of the hospitality industry is £60 billion. The major contribution to the amount is from hotels, spas, resorts, restaurants, camping sites, pubs, entertainment, venues, and convention centers. The tourism industry has generated great growth opportunities for the locals of the United Kingdom. Residents of the country were able to spend around £59 billion on an average of 75 million holidays.

The number of small and medium-sized entrepreneurs is higher as compared to the large companies. On average, 75% of SMEs have appointed less than 10 young individuals to promote employment (Hemmington 2012, p. 3). Although the financial crisis created numerous problems for the economy, this business has tried to overcome them and has successfully grown. Sectors like catering, leisure, tourism, language mediators, and the food industry are attracting students as it is a reliable source of career. Individuals are drawn in as they have identified scope in the hospitality industry. BHA, i.e. British Hospitality Association, manages all responsibility of the hospitality industry. The organization's main aim is to increase the potential of the UK hospitality industry to become the leader (Hemmington 2012, p. 4). BHA is achieving its objective by indulging all industry players along with the government to attain its main goals. Increasing growth prospects, generating competitive advantage, and securing valuable jobs for the people. This is the best time for the UK's hospitality industry in terms of business growth and expansion. Although the industry is still facing difficulties, it is admirable that it can generate up to 25% of jobs for individuals as compared to the last two years (Hemmington 2012, p. 4). Another objective of the organization is to stimulate job opportunities and help the tourism industry in terms of growth for the betterment of the economy.

Problem Statement

Small and medium-sized enterprises are playing an important role in the economy as well as the hospitality industry of the United Kingdom. On the contrary, it is still facing financial problems. This industry is struck with the problem of low tourist traffic as fewer customers are coming, which is reducing the income prospects of the industry. Thus, it is getting very difficult for the hospitality industry to manage growth and generate employment opportunities (Cole, R.A., 2013). This is considered a negative factor for the economy as a whole. On the contrary, these SMEs are available to create a good number of earnings through their business activity. They can improve their present condition with the help of financial support. This is the fact that adequate finance will help them to bring innovation in their products and services at a fair price, which will in turn attract potential customers towards the same. This will prove fruitful for the growth of the economy in return. Grants, funds, and loans are considered to be good sources of finance for these SMEs.

Rationale/Reason for the Study

This research is based on the study of market trends to identify the factors that will help SMEs in creating growth opportunities. The study also helps in finding financial resources to provide support to small and medium-sized enterprises. Another theme that the research studies is the sources that are currently used by the small business. Thus, the research can discover the source of finances being utilized by the SMEs.

Research Questions

1. In the hospitality industry, which financial sources are accessible to the small business?
2. What are the sources that are only accessible to the small business of the hospitality industry?
3. What sources are being used by small businesses in the hospitality industry?

Research Objectives

1. To identify the financial sources that are accessible to the SMEs in the hospitality industry.
2. To determine which sources are only accessible to small enterprises.
3. To find out which financial sources are used by the small business enterprises in the hospitality industry.

Thesis Statement

Personal savings, loans from friends and family, angel investors, and specialty loans are the main sources of financial funding accessed by small business enterprises in the United Kingdom (Lee and Drever, 2014). These are easily available, do not require any security, and do not levy any restrictions like government agencies and banks.

Sources of Finance Accessible to Small Businesses

All around the world, many people or individuals dream of starting their own small business or to become entrepreneurs. When deciding to start a new venture, many other significant decisions have to be taken by the SME, like funding the business, identifying the needs of the operations, etc. (Melia 2011, p. 5). Business plans play a vital role in identifying sources for funding the business. Business demonstrates how the business will be able to generate revenue for the entrepreneur. In the process of making a business plan, the plan demonstrates how the business will be making money for profitability. There are numerous sources of financial funding available to the business, and many sources are being currently used by the hospitality industry as well. Every type of business can access these sources of finances working in the hospitality industry. Among them, personal savings are the major source of finance. This source is easily available and does not require the entrepreneur to waste his/her time and effort. The business is only accountable for the borrowed money and does not have to bother with any debt or interest, which increases the principal amount. On the other hand, the main disadvantage of using personal savings is that the person is at high risk of losing his/her life savings in the form of personal savings (Jenkins 2013, p. 35). The major risk probability lies if the business is not able to succeed in the market; in this case, the entire money is lost. It is advisable for entrepreneurs who are starting their business through sources of personal savings to get a bank account dedicated to their savings only. The person can invest the amount of savings in this account and thus may be able to reduce the risk of losing the money.

Another source of financial funding is taking loans or borrowing money from close family members or friends (Jenkins 2013, p. 40). Few entrepreneurs prefer to borrow more from their friends and family, as they might not be in a sound financial position to accept a loan. Many a time, friends and family members are also not in a state to provide money to the borrower. Although many individuals prefer this option, funds in this are easily available as compared to borrowing a loan from a bank or financial institution. One disadvantage of this source is that it discourages people, as they are not certain whether they will be able to pay back the borrowed amount to the respective person or not. The risk is that they might fail to succeed and thus will have to bear the problem of debt. The one thing that can be applied while borrowing loans from friends and family is to agree with the lender to avoid any sort of conflict between the two parties. This way, the borrower will be able to eliminate the factors that may force him/her to face the issue of a huge debt.

The third source of funding is applying for a business loan in a financial institution, a bank. Several institutions are providing loans to support small business enterprises in their initial phase (Rana 2009, p. 25). The loan is given based on the amount exactly required by the business to start their business. The loan can be used for promotional activities, the purchasing of raw materials, paying for the salaries of the employees, paying rent for the office, or maintenance of the management. A loan for the business is recommended as it will boost the business in starting up all the business activity of the business as a whole. The personal loan can be taken from independent financial institutions other than banks. This institution may or may not have toes with the entrepreneur and can help him/her in starting the business. It is recommended that the vendor understand all the terms and conditions levied by the banker or the lender of the loan before signing any contract with either of the parties. These conditions may be regarding payment of the interest and principal amount of the loan or any sort of penalties or default that may be levied by the bank in the absence of any accurate knowledge of the entrepreneur. In the current situation, several financial institutions are offering business loans to new and emerging business enterprises and start-ups. This lets the banker or the financial institution attract more customers who need to purchase loan services. The banker or the financial institution will be able to achieve their target customers by encouraging more start-ups and SMEs to buy personal loans, further helping the economy grow.

Sources of Finance Only Accessible to Small Businesses

There are numerous sources available for entrepreneurs to fund their businesses. However, specific sources are available to only the hospitality industry. Banks have rejected proposals from the hospitality industry; thus, this method has evolved for them. More than 47% of hotels, restaurants, and investors were rejected for a loan (Jenkins 2013, p.44). Thus, lenders offering specialized loans have increased with a subsequent number. Boost capital and Ashley business cash offer loans for specific business activities like purchasing new equipment, etc. These specialty lenders understand the market trends and issues that new businesses face at the time of starting. They provide help to the business in resolving these issues (Jenkins 2013, p.44).

These specialty lenders offer lump-sum cash, which has to be paid daily. They also do not charge extra fees or any late penalty. As the demand for these loans is high, it is expected that specialty lenders will also increase. Thus, small and medium business enterprises can generate earnings through acquiring specialized loans for establishing their business.

Sources of Finance Being Used by Small Businesses.

There are many sources of funding available to the entrepreneurs but all of them are not accessible by them. All the hotel owners may prefer different forms of sources for funding (Jenkins 2013, p.50). As bank loans are very expensive, they are not preferred by small business enterprises in the hospitality industry. For example, bank loans can only be used for the reason they are assigned. If funds were borrowed in horde to expand, the businessman can not use them for reasons other than this. As bank loans have high interest rates, they discourage the entrepreneur from choosing them. Personal savings, loans from family and friespecialtyality loans, and angel investments are only preferred by SMEs (Jenkins 2013, p.54).

Discussion And Analysis

The findings of the literature review have reflected that most of the small business enterprises (SMEs) of the UK that are operating their business in the hospitality industry require funds for different purposes. These organizations have tried to use different sources of finance for raising their capital but only a few firms have had success in getting appropriate funds for running their business operations (Martin and Gardiner, 2007). Lots of SMEs fail to obtain funds from various resources because of their financial position, low growth rate, termination of operation and production for some specific time, etc. Due to all these reasons, most of the banks do not provide funds to small business enterprises in the hospitality industry of the UK. In this situation, SMEs move towards family and friends who are ready to give a specific amount of credit (Jenkins, 2013, p.35). There are different reasons why small business enterprises require funding, such as SMEs wanting to expand their business at a large level as well as also wishing to increase their number of customers by augmenting marketing activities. Organizations require funds to satisfy the demands of their customers by producing appropriate goods as per their needs for funds. Along with this, literature has also disclosed that most SMEs want to enter into other markets of different locations to raise the number of customers for their organization. Geographical expansion of the business augments the demand for funds (Jenkins, 2013, p.36).

At the time of expansion, small businesses need to focus on the development of the company's office at the new location, selection of new staff members, an increment in several operations and production, etc. All these functions need to increase the investment demand. Along with this, small businesses require funds if they want to start any new venture into the market. Any business that has the appropriate amount of funds and retained earnings can easily and effectively manage the different operations. However, all those organizations that want to start new ventures require an appropriate amount of money to purchase the necessary equipment and machinery to start production. Along with this, the promotion of new ventures also raises the demand for money (Hemmington, 2011). In addition, funds are also helpful in reflecting the cash flow as well as helping in remaining business in a running manner. Including this, money is also required for paying salaries to employees and payments to suppliers for raw materials in operation and production. Along with this, payment of utility business also increases the demand for capital for small business enterprises. Findings of the literature have also reflected that funds are required for different other activities of the business, such as renovation and any other renovations due to the disaster in the organization (Jani and Han, 2013).

As per the literature review, financial resources have positive as well as negative impacts on the financial performance of an organization. Most of the sources of funds are linked with the high amount of interest payment and security volume, which augment the total cost of the financial resource. Along with this, it also raises the cost burden on small business enterprises, which can increase the financial expenses and reduce the new profitability of the organization. Therefore, the cost of financial resources can decrease the overall performance of the company. But, on the other hand, small business enterprises get the appropriate amount of funds from these resources, which helps in purchasing equipment, machinery, and other assets. All these things help in improving the performance and proficiency of the operation and production departments of a company. It will help in improving the quality of the organization. Customers can easily satisfy their needs with the products and services of the funds, which leads to high sales and demand for the products and services. Overall, it will lead to a strong hike in the performance of the company. Therefore, the current study has reflected that Small business enterprise can easily improve their performance by using the most appropriate and suitable sources of funds for raising the financial capital of the organization.

Conclusion

The report can conclude that the major sources of funding for small businesses are personal savings, specialty loans, as well as angel investors. These are mainly used by small hotels that are operating in the UK hospitality industry. The sources are mainly preferred by hotel owners on account of their easy access, non-requirement of any collateral, as well as lack of restrictions related to bank loans and government grants. It has further been concluded that there has been a substantial increase in small and medium hotels. This has been on account of improvisations observed in economic conditions and the presence of many domestic and foreign investors who are looking for profit-making. If these conditions remain persistent, then they may promote the growth of business in the best possible manner.

There is a presence of huge competition in the market, which is making it difficult for enterprises to enjoy profitability. As a result, it is very difficult for small businesses to operate in such a market. This is because the markets may not be able to attract consumers on account of decreased innovation, low production, declined service quality, as well as poor facility. There is further a presence of lower morale that may impact the overall operators of small businesses. It is further concluded that the need is to acquire funds to optimize the performance. However, it may not seem to be an easy option on account of risks associated with poor managerial expertise, no collateral, and high leverage. This may result in hindered or slow growth.

References

• BDO Hospitality Consulting, 2014. Trends in the UK Hotel Industry. International Journal of Contemporary Hospitality Management.
• Creswell, J., 2013. Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. 4th ed. California: SAGE Publications, Inc.
• Green, C.H., 2014. Banker's Guide to New Small Business Finance: Venture Deals, Crowdfunding, Private Equity, and Technology. John Wiley & Sons.
• Hemmington, N., 2012. From Service to Experience: Understanding and Defining the Hospitality Business. The Services Industry Journal.
• Jenkins, L., 2013. Creative Financing: How to Get a Small Business Loan without a Banker. 1st ed. New York: Gold Alliance Group, Inc.

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