ferred. Only 12 percent (192 cases) were reported transferred to employees. The chief customer took over the business in 176 cases or 10 percent of the total reported. TABLE 8.-Transfers of small-business enterprises 1

1

1 This question was answered by 2,739 members of which 1,175 or 43 percent had knowledge of such transfers and reported on 1,661 cases.

The data show that 1,218 (of the 1,661 cases) or 73 percent of the businesses were transferred by purchase and sale.22 One hundred and eighty-three businesses, or 11 percent, were obtained through inheritance. Only 178 or nearly 11 percent were disposed of by court sale. Of the total number of businesses purchased 606 or approximately one-half were purchased by competitors. Nearly 12 percent (141 cases) were purchased by the chief customer of the business.

IV. THE PROBLEMS OF FINANCING SMALL BUSINESS

All types of businesses are faced with numerous operational, managerial, and financial problems. The specific problems vary considerably from one industry or business to another. Despite the importance of management to small business, the financial problem is generally considered the top problem facing small business today. Both the financial and managerial problems of small business differ in some important respects from those of large corporations. This survey is concerned primarily with the financial problems of small business.

Management and technical guidance

One of the foremost problems facing the small business generally is that of management. The importance of capable and thoroughly trained management cannot be overestimated. To establish, operate, and maintain a business of any kind is a complex and difficult process. The problem is especially complicated for small concerns since their limited income and resources do not always permit them to pay the salaries necessary to attract specialists and experienced management which are essential. The management must have a broad knowledge of the problems of production, buying, selling, cost accounting, advertising, markets, and many other aspects of business in order to compete successfully with other business units. The large firm may, because of the larger volume of business, be able not only to employ a larger and more diversified personnel but they may also pay higher salaries and hence tend to attract the more experienced and highly trained executives. The small firm on the other hand may have to rely on one or two executives who may or may not be trained in all phases of a business. Small businesses, in turn, possess certain advantages over large business organizations. They are generally more flexible-changes in production may be easily made to meet changing demands. Small business units can move faster

22 Those who are interested in the causes underlying the sale and liquidation of businesses will find the results of a study covering 1,650 small businesses made by the Deportment of Commerce most interesting. The main difficulties reported by the firms which sold or liquidated (other than failures), were scarcity of merchandise or materials and difficulties in getting competent employees. "Only 2 percent considered lack of capital or difficulty in securing customers as a major business problem." The principal motives for disposal of sold and liquidated firms were (1) avoid loss, (2) dispose of at a profit, (3) alternative opportunity, (4) lost lease, and (5) retirement, illness, and others. "Desire to retire, illness, or similar reasons" accounted for "38 percent of the businesses sold and 16 percent of those liquidated." Twelve percent of the failures were said to be due to a lack of capital as compared with 47 percent for scarcity of merchandise or materials and 28 percent to difficulty in getting competent employees.-Factors Affecting Stability of Private Investment, ibid, pp. 124-126.

and are restrained less by red tape. The opportunities for establishing and operating small businesses gives the individual with initiative a chance to become self-employed. They give the hired man an opportunity to become his own boss. The opportunity to establish new enterprises is a strong weapon against the development of monopolies. Small business tends to make for a more competitive economy. In fact, big business depends extensively on the existence of strong small business organizations. In a truly democratic country, it is to be expected that large, medium-sized, and small business will exist and prosper side by side. This becomes especially hard for one-man business organizations of which there are so many. New conditions arise, new methods of production and distribution are being developed, methods of financing tend to change to meet the new problems confronting small business. Many people who open a small store, shop or other small business have had no experience in such business. They do not have access to the services of outside experts. Industrial management, expert marketing surveys, and other types of economic services are not within the financial reach of many small business organizations. All too frequently the small firm must rely for advice upon its own organization or its suppliers or others who do not specialize in providing expert engineering, management, research and marketing services.

The financial problem

While the task of obtaining adequate financial assistance is not easy for the large business units, it is especially difficult with respect to small enterprises. Funds are needed by many individuals and firms in all size groups of business enterprise. In this respect small business is in the same boat as all other groups. Since there are so many more small businesses than medium-sized or large businesses, the needs of small business are more widely publicized. There are always large numbers of individuals who want to start a business and existing small concerns that want to expand. Many of these individuals and small concerns have few if any assets or business experience to back up their ideas. Mere wish to open a new business or expand an old one can hardly be a safe criterion for others to trust their life savings to such management. If individual investors are not in a position to assume such risks, who should do so?

Despite the fact that many demands for credit and equity funds by small business go begging, it seems unlikely that the shortage was as serious as many critics would have us believe. The extent to which funds are actually needed varies from industry to industry. Many small businesses obtain all the funds needed, others do not. To ascertain to what extent manufacturers were in need of funds, they were specifically asked, "Are you in immediate need of additional funds for financing your business?"

Need for additional funds

The replies were definite. Only 12 percent of those who answered this question were in need of additoinal funds. Eighty-eight percent said they were not in immediate need of funds. (See table 9, chart V.) Frequently the condition of a business or the character of its management accounts for the failure to obtain funds rather than the scarcity of bank credit or venture capital. There is a strong probability that a considerable portion of the 12 percent who need additional funds will be able to obtain them. The failure to obtain equity funds has driven many small firms to seek help through credit. Some concerns have sought credit for fear of losing control of the business.

TABLE 9.-Need for additional funds, by size of business

13,234 replied to the question. Of these 398 said they were in immediate need of additional funds. 13 replies have been excluded in the above table because they did not state the number of employees.

Tobeyed ging at matita nerer are rough to provide all businesses, wind all the Finds vaniet snce wime usinesses must go unIN ALL, KO Kde mai inaness a at some tisartrantage relatively to large inits, it i* * * * #y non from a act of sanirai than the larger inite.

Is one to wear the past financial serience of industralists in braining the surrant an iarion, manufacturers vere asked. "Eave you, during Called to obtain additional Finds when you needed

The car writing faer mvealed by the replies to his question see rabie 10 and la that on the average only 7 Dement 325 out of 3.221 replies wid they can fried to obtain the finds needed furing the past decade. This is a we than for those who need finds immediately. It is also interwing were that the mailer the concern the greater the percentage that falet to ze bid when they were needed Vine erent of those with 50 or fewer enclosses failed to tegure finds as compared with 4 percent for those with more than 20 sanciomasa This would seem to indicate that the smaller the size the greater the diffenly encountered in obtaining the funds It is quite mgnificant that 33 percent of all manufacturers who replied to the a leationnaire, vaid they did not fall to obtain the finds during the period 1976-4 when they were needed.

TABLE 10-Araiabdity of funds in 1939-17, by size of business

To what extent are those who need funds currently the same businesses which failed to get funds in 1939-49? Of the 225 who needed funds during the past decade, 142, or 63 percent, are still in need of funds. While it is not possible to give a specific figure, there is certainly no doubt that a number of those who need funds are cases whose needs are either continuous or arise periodically. The striking fact is revealed that 2,750, or 85 percent, of reporting members neither need funds now nor did they fail to obtain funds during 1939-49. These facts are brought out more fully in table 11.

TABLE 11-Respondents who needed funds both during 1939 to 1949 and at present

1 Of the 225 respondents who failed to obtain needed funds during the decade 1939-49, there were 142 who stated that they now need additional funds.