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Successfully starting a business in Jamaica

Published:Tuesday | August 25, 2015 | 12:00 AM

With gross domestic product (GDP) growth averaging less than one per cent per annum for the last 50 years and a corresponding unemployment rate of more than 12 per cent per annum, Jamaica is making a strong push towards improving the doing business environment for micro and small enterprises as a means to increase the country's aggregate output and employment level.

Jamaica moved up 14 places, from 34 to 20, in terms of starting a business in the World Bank's Doing Business Report 2015.

It is very easy to start a business in Jamaica, but very difficult to sustain, as businesses close quickly. On average, approximately 16,000 micro and small business are established each year. Of this, more than 80 per cent of them fail and close business operations during their first year. This has been an ongoing trend and must be addressed thoroughly to save time and money and to reduce the percentage of failed micro and small businesses in Jamaica per annum. Some of these challenges are discussed below:


No business plan, management or operations training


Many small businesses are established based on the owner's entrepreneurial instincts and enterprising ability. Most of these entrepreneurs have no formal training or education related to starting, managing or operating a business. Young entrepreneurs are usually so excited about their business that they delve straight into operations without preparing a detailed business plan. It is very important for a business to have a plan. It helps the operators to focus on the goals and mission of the business.


Poor management


It is very difficult to find the people with the right passion and enthusiasm to dedicate enough time and energy to help a micro and small business grow. Each micro and small business owner must take the time out to study what motivates each staff member and implement such. A motivated workforce can ease some of the day-to-day operation burden so that owner can focus on business-survival objectives.


Lack of knowledge


Knowledge about the financing of the business, current industry trends, your competitors' strategy, your target market and advertising and marketing techniques is important. If you do not possess the skills and expertise required, please seek assistance. No business can survive if its owners and operators have little or no knowledge of the industry as well as no education or skills.


Data collection


Poor data collection and inadequate or no records keeping has been highlighted as a contributing factor to quick failure of many micro and small enterprises in Jamaica. Without data, one's knowledge of the operations cannot improve.


Poor marketing


Along with a business plan, successful micro and small businesses need a detailed marketing plan. This will detail how you plan to penetrate the market, guided by information about your competitors. With thorough understanding of your market aspirations, you can better allocate resources to improve your market position. A budget for advertising and promotion is necessary.


Production issues


Many businesses in Jamaica are trapped by production issues including inadequate factory space and increasing cost of production. Electricity has been, and remains, one of the most expensive inputs. This year Jamaica moved down a further three places in terms of access to electricity, from 108 to 111, in the World Bank's Doing Business Index 2015. Lack of capacity to benefit from economies of scale, individually, is also a concern as everyone tries to operate independent of each other.

Jamaican-originated micro and small business must learn business expansion and economies-scale strategies in order to assist in their production issues.


Inadequate funding and weak access to credit


Access to credit and business financing are highlighted as major issues hindering the survival of micro and medium enterprises in Jamaica. In terms of access to credit, Jamaica moved up 12 places on the Global Doing Business Index. The total value of loans granted by Jamaica Micro Financing Association (JaMFA) members in 2014 was approximately J$9.3 billion to about 45,000 customers.

However, the majority of the credit granted by local intuitions are for consumption rather than business-investment purposes. Personal/consumer loans account for approximately 75 per cent of total loans granted by JaMFA, while business loans account for the remaining 25 per cent.


Cash-flow problems


Many Jamaicans start a business as an avenue to gain financial independence, but many find it difficult to locate enough cash to cover expenses and bills on a weekly basis. Those who are able to do so consistently are either heavily capitalised or have other income sources to sustain their business. In a low-income country, many small businesses start out with their owners working a second job to provide cash support for the enterprise they are passionate about. Although many may argue that persons who own a business and work elsewhere are not giving their all, so their business have a higher probability of failing, on the flip side, it is virtually impossible to sustain a business without cash flow.

- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email