The most critical obstacle, management, is also

The PCA discovered that the most crucial
obstacle for business start-up of new SMEs in NWP is largely internal to the
firm (Financial issues). Surprisingly, the second most critical obstacle,
management, is also an internal factor to the business environment.

Small and Medium
Enterprises is a vast developing sector and is the mainstay of Sri Lankan
economy. Starting
up a business in Sri Lanka is not a frightening task. A
recent report gathered by the World Bank Group indicates an improvement in Sri
Lanka’s ranking as a potential destination to do , having risen to the 111th spot
out of 190 countries in the ‘Doing Business Index’ for the year 2018. Accordingly, the
start-up process in Sri Lanka now features only eight relevant steps, all of
which take ten days (on average) to complete. The
first eight steps are: (1) reserving a name; (2) appointing directors and a
company secretary; (3) registering with the Registrar of Companies; (4) giving
public notice of incorporation; (5) registering with the tax authorities; (6)
registering for VAT; (7) payment of stamp duties; and (8) registering with the labor
department (World Bank Group, 2018). Most of the respondents in the survey (55%)
have not obtained their business registration under government authorities.
This is mainly because they find that business registration is a costly, time
consuming and unimportant activity.

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SME owners do not have a plan for their
business. However, they start the business and get stuck at the middle without
being able to grow to the next stage of its life cycle. Hence, most of the
enterprises get shut down and do not grow into large scale businesses. Many
SMEs are of first time entrepreneurs, and they do not have sufficient bandwidth
in all the functional areas. They are not able to estimate their own short-term
and long-term needs accurately with all the uncertainties they encounter. Sri
Lankan SMEs have not made great progress in the past. They still struggle with
tapping financial management. In most cases, SMEs are founded by entrepreneurs
who are not managers themselves but they struggle to manage them due to the
sole fact that they are the founders. Care must be taken often to study,
organize, plan and control all activities of business operations. Most SMEs
rely more on mental records and therefore, unable to prepare proper or
up-to-date financial statements that can be used as evidence of profit and loss
earned/occurred and wealth of the business including the working capital. This problem
is even made worse where the entrepreneur, as the founder, manages without the
required managerial skills.

Therefore, the study
suggests that it is needed to provide up to date training programs to SME
owners, government SME supporting agencies (such as National Enterprise
Development Authority) should be vigorously marketed to create awareness among
the public, introduce lower interest rate plans for loans, introduce new
technology, improve infrastructure facilities and  revisit the micro finance accessibility of
SMEs and formulate effective financial management plans through closely
monitoring and supporting SMEs in NWP within their early years from the
inception to avoid failures.