JEDDAH, 21 August 2005 — An economic analysis study showed that 61 percent of small and medium enterprises (SMEs) were founded without feasibility studies, Al-Eqtisadiah newspaper reported. Two thirds of the businesses that did a feasibility study did not employ a professional for the study, but instead relied on personal efforts which affected the results.
The economic experts who conducted the survey found that as a consequence this affected the business’s performance negatively.
The study estimated that a total of ten thousand each year fail and leave the Kingdom’s marketplace.
There are several reasons these businesses do not succeed, according to the economic expert, Dr. Aref Muhammad. He said that the main reason is that the owners of SMEs do not seek the advice of official legal consultants, and this exposes them to many legal and financial problems leading to bankruptcy.
In a recent questionnaire by Riyadh Chamber of Commerce, 46 percent of the reasons why business owners do not prepare feasibility study is because they do not realize how important it is. Thirty five percent of the people questioned do not know how to prepare one. Nineteen percent said that they lack finance. Only 24 percent of new businesses are based on feasibility studies.
Most of the businesses that do not follow any planning are commercial businesses. The survey found that only seven percent of commercial businesses prepare an annual business plan and none of them estimate a budget.
However, construction work businesses are the most planned with 57 percent of them preparing an annual plan and a budget estimate.
One of the reasons for this lack of planning is lack of know-how. Other problems include lack of a management system, organizational structure and hands-on management where many depend on unqualified but cheap foreign labor.