BONGA UNIVERSITY

COLLEGE OF AGRICULTURE AND NATURAL RESOURCES

DEPARTMENT OF AGRICULTURAL ECONOMICS

RESEARCH PROPOSAL: ON FACTORS AFFECTING

PERFORMANCE OF SMALL BUSINESS, IN BONGA TOWN

Prepared by

1 Bethelehem Bageru RU/1139/12

Hewan Neguse.................. RU/1728/12

Senaite Eshetu.................. RU/1452/12

Wako Salo......................... RU/1458/12

Yonathan Zele.................. RU/2178/12

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT

OF AGRICULTURAL ECONOMICS IN PARTIAL FULFILMENT
OF THE REQUIREMENT FOR THE DEGREE OF BACHELOR
SCIENCE IN AGRICULTURAL ECONOMICS

JUNE,2022

BONGA,ETHIOPIA

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 ABBRIVATION /ACRONYM

BDS…………………………………Business Development Services

ECSA………………………….….….Ethiopian Central Statistical Agency

ETB..............................................Ethiopian Bbirr

MSEsS ..........................................Micro and Small Enterprises

UNIDO.........................................United Nations Industrial Development

Organizations

PRSs............................................Poverty Reduction Strategies

ICT...............................................Information Communication Technology

ILO ............................................International Labor Organization

PPS.............................................Population Pproportion Sselection

IV
SMEs...............................................Small and Mmedium Eenterprises

OLS.................................................Ordinary Least Square

Table of contents

Contents pages

ABBRIVATION /ACRONYM..................................................................................................................I
LIST OF TABLES..................................................................................................................................IV
List of Figures...........................................................................................................................................V
Executive summery.................................................................................................................................VI
1. INTRODUCTION.................................................................................................................................1
1.1 Back Ground of the Study...............................................................................................................1
1.2. Statement of the Problem...............................................................................................................2
1.3. Objectives of the Study..................................................................................................................3
1.3.1. General Objective....................................................................................................................3
1.3.2. Specific objectives...................................................................................................................3
1.4 Research Questions and Hypothesis...............................................................................................3
1.4.1 Research questions...................................................................................................................3

V
 1.4.2 Hypothesis................................................................................................................................4
1.6Significance of the study..................................................................................................................4
1.7 Scope of the study...........................................................................................................................4
2. LITERATURE REVIEW......................................................................................................................5
2.1. Theoretical Review of Small Business..........................................................................................5
2.1.1. An over view and definition of small business.......................................................................5
2.1.2 Importance of small business...................................................................................................6
2.1.3. The Role of small business in Poverty Reduction..................................................................7
2.1.4 Factors That Affecting Small Business Activities...................................................................8
2.1.4.1 Business area/operation location...........................................................................................8
2.1.5 Ways that improve small business sustainability and growth..............................................10
2.2 Empirical studies...........................................................................................................................12
2.3 Conceptual framework..................................................................................................................14
3. METHODS AND MATERIALS........................................................................................................16
3.1 Description of the Study Area.......................................................................................................16
3.1.1 Research design......................................................................................................................17
3.1.2 Sampling Techniques.............................................................................................................17
3.1.3 Sampling Methods..................................................................................................................17
3.1.4 Data Collection.......................................................................................................................18
3.1.5 Data analysis...........................................................................................................................18
3.1.6 Goodness of Fit of The model................................................................................................19
3.1.7 Expected Outcomes...............................................................................................................19
4. WORK PLAN.....................................................................................................................................20
5. BUDGET PLAN.................................................................................................................................21
6. REFERENCES....................................................................................................................................23
7. Apendex...............................................................................................................................................28

VI
 LIST OF TABLES
Table 1 classification of micro and small enterprise.................................................................................6
Table 2: work plan...................................................................................................................................20
Table 3: Budght plan...............................................................................................................................21
Table 4: Personal cost..............................................................................................................................21
Table 5: Transportation cost....................................................................................................................21
Table 6: Budget summery.......................................................................................................................22

VII
 List of Figures
Figure 1: Conceptual framework.............................................................................................................15

Executive summery

Small business are the back bone of many economies across the global.It is one of
the important segment of the economic growth.It initiates changes and worker for
the goods of people.The general objective of the study is to determine the factors
affecting the performance of small business in Bonga town. The outcome of this
study is useful in providing useful information for the owner of small business
concerning problem facing small business and to develop strategies to minimize
those problems and suggest some possible solution with the factors influence
small business, it may help researcher who study further on the issues. The
findings of this study will also help the policy makers and financial institutions
how to encourage establishing or expanding small business.Both qualitative and
quantitative data will be collected from primary and secondary sources to identify
factor affecting performance of small business. In this study both descriptive and
econometric analyses will be used to conduct factors affecting performance of
small business. To analyze the factors affecting the performance of small business
multiple linear regression models of OLS(ordinary least square) estimation will
be used.The equation of regressions on this study will be generally built around
two sets of variables, namely dependent variable (performance of small business)
and independent variables (Business area or operation location, Gender of
owner, Taxation system imposed by government, Inflation rate, Lack access to
credit).The expected outcomes are the roles of small business in the study area
will be identified,the major problems that influence performance of small business
will be assessed,the ways that improv small business sustainability and growth.

Key words: SMEs write full name Small and medium , Factots, Performance,
Business

VIII
 1. INTRODUCTION
1.1 Back Ground of the Study

Small business are the back bone of many economies across the global.It is one of the
important segment of the economic growth.It initiates changes and worker for the goods
of people.Micro and small enterprise (MSEs) make important contribution to the
development of many countries economy. The growth healthy competitive MSEs sector
will be maximised when there is a strong enterprise culture in the society at all leves; a
continuous growth in the quality stock of independent business; maximum potential for
growth of existing small business; and a highly supportive economic, social and
stakeholder environment (Sharmilee Sitharam and Muhammad Hoque 2016).
The small business sector is recognized as an integral component of economic
development and a crucial element in the effort to lift countries out of poverty
(Wolfenson, 2015). Small businesses are driving force for economic growth, job creation,
and poverty reduction in developing countries. They have been the means through which
accelerated economic growth and rapid industrialization have been achieved (Harris et al,
2016).
Small business can respond more quickly and at less cost than big business to the
quickness rate of change in products and services processed and markets. It has become
more attractive to flaunted, individualistic the men and women. Small business has the
potential to create or capture on entire industry. The incentives to innovate are greater
than motivation to in movie small business supply products and seizes more cheaply
whose sales volume is small those that demand close personal contact with customers and
those that must meet each customer unique the needs they are major creators of new jobs
(Wolday Ahmed , 2016).
Micro and small enterprise are the best solution for the country's gross domestic
development,reduction of unemployment,and creating smooth economic environments.
In fast growing countries, MSEs create more jobs for young graduates,because these
enterprise do not require,space/size, training, capital, and sophisticated
technologies(saleem, 2017).The governments incorporate the issues of micro and small

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enterprise in their policies to get more share for their country's economy. According to
world bank report(2014), micro and small enterprise played a significant role by
alleviating poverty in developing countries especially Egypt(Ndege and Park,2015).
The government of Ethiopia gives more emphasis for the enterprise to generate income,
to create job opportunities, to generate foreign currency,to transfrr technologies, and to
transfer micro and small enterprise to medium-sized enterprises. In 1997,national micro
and small scale enterprise strategy was formulated by the government to support the
enterprises. This strategy is helpful to have a legal framework, institutionalize, and create
supportive environment (Degefu, 2018).

1.2. Statement of the Problem

Small businesses play a vital role in poverty reduction, employment generation as well as
economic development of both developed and developing countries like Ethiopia.
However, it appears that considering the enormous potentials of the small enterprises
sector, and despite the acknowledgement of its immense contribution to sustainable
economic development, its performance still falls below expectation in many developing
countries (Perumal K. & Prasad V. N. (2016). This is because the sector in these
developing countries has been bedeviled by several factors militating against its
performance, and leading to an increase in the rate of small business failure. These
factors include the unfavorable and very harsh economic conditions resulting from
unstable government policies; gross under capitalization, strained by the difficulty in
accessing credits from banks and other financial institutions; inadequacies resulting from
the highly dilapidated state of infrastructural facilities; astronomically high operating
costs; lack of transparency and corruption; and the lack of interest and lasting support for
the small business by government authorities, to mention a few (Oboh 2014, Wale-Awe
2013).
The study conducted by Ethiopian (CSA, 2017) discloses that the contribution of small
enterprises in creating job opportunities and in the development of our economy is vital.
However, their contribution is very low in compared with that of other countries due to
financial problem, lack of qualified employees, lack of proper financial records,
marketing problems, lack of working premises and raw materials. Lack of information

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about market opportunities and standards and regulations is one of the underlying factors
that hinder their performance (Mulu Gebreeyesus, 2012).
In Ethiopia specifically, small business have been confronted by many of these problems.
According to the CSA Report (2016), the major obstacles experienced by small business
enterprises were lack of access to finance, working premises (at affordable rent), lack of
skills and managerial expertise, infrastructure, information and technology. This
problems result in failure of these businesses to expand and have the effect of preventing
their expansion almost from the beginning of their operations.
In reality, literature on small business in Ethiopia, particularly in Bonga town, is
scanty and most of the available studies were not conducted adequately in line with
performance aspects of the enterprises. Therefore, this research tries to assess factors
affecting the performance of small business in a holistic way by targeting and deeply
investigating those small business owners/operators in Bonga town to fill the
mentioned research gap.

1.3. Objectives of the Study

1.3.1. General Objective

The general objective of the study is to determine the factors affecting the performance of
small business in Bonga Ttown.

1.3.2. Specific objectives

The Specific objectives of this study are:

 The importance of small business

 To identify the roles of small business in the study area.
 To assess major problems that influence performance of small business.
 To identify ways that improv the problem of small business


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1.4 Research Questions and Hypothesis
1.4.1 Research questions
The researcher will be conducted the following basic questions to be answered in this
research study
 What is the importance of the small business?
 What are the roles of small business in the study area?
 What are major problems that influence performance of small business?
What could be the way that improve small business?

1.4.2 Hypothesis
Null Hypothesis(H0): The independent variable doesnot affect the performance of small
business enterprise.

Alternative Hypothesis(H1):All the independent variable affect the performance of small

business enterprise.

1.6.Significance of the study

The study focuses on factors that influence performance of small business in Bonga
Ttown. The outcome of this study is useful in providing useful information for the owner
of small business concerning problem facing small business and to develop strategies to
minimize those problems and suggest some possible solution with the factors influence
small business, it may help researcher who study further on the issues. The findings of
this study will also help the policy makers and financial institutions how to encourage
establishing or expanding small business. It also enables them to know what kind(s) of
policies should be followed. It will serve as starting point for institutions and/or
individuals who are interested to make further research.

1.7 Scope of the study

Though, there are several areas to be covered by the study, the study is limits to Bonga
Ttown only due to certain constraints. Even, the study does not deal with all small
business in the Bonga town. Instead it focuses only on some group of small business of

4
the town. By taking the problem of time, budget/finance and other related materials take
in to consideration, the study is give more emphasis on factor affecting the performance
of small business in the study area.

2. LITERATURE REVIEW
2.1. Theoretical Review of Small Business
2.1.1. An over view and definition of small business

There is no universally agreed definition about the micro and small enterprise. Scholars
defined micro and small enterprises based on their respective countries' situation.
According to Ardjouman and Asman(2015),SMEs has no standard definition. SMEs have
been identified differently by various individuals and organisations, such that an
enterprise that is considered small and medium in one country is viewed differently in
another country. According to Poutziouris (2013) it is possible to segment small
businesses into four distinct strategic orientation generic groups as; growth oriented,
survival oriented, control oriented, and exit oriented. He also mentioned that the growth
oriented business enterprises are the main contributors to job generation and therefore to
the economy. Governments need to focus on encouraging the growth oriented businesses
as a good source of job creation.

According to Ethiopian business Administration, small business enterprises are

businesses with 6 to 30 employees (including the owner or family) and total asset is not
less than 50,001 ETB and not exceeding from ETB 500,000 for service sectors other than
high technology consultancy service institutions and not less than 100,001 ETB and not
exceeding 1,500,000 ETB for industrial sectors. Currently, small businesses are identified
as one of the main economic activities contributing massively in terms of capital, profit
and employment generation in Ethiopia. In bold definition, small businesses are business
that are independently owned and operated. The term „‟small business‟‟ varies from
country to country, as well as by sectors, and types of the business. But in this case, we

5
are using the Ethiopian perspective the case of local business activities that are common
in Ethiopia.

Table 1 classification of micro and small enterprise

Enterprise size Sector An asset in birr Number of workers

Micro Service < or = 50000birr Not more than 5

individuals

Industry < or = 100000birr

Small Service < or = 500000birr 6-30 individuals

Industry < or = 1.5 million

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Source: MSEs' development support scheme and implementation strategies FDRE

2.1.2 Importance of small business

SMEs can contribute to addressing the employment problems(Liang et al.,2017).The

small businesses have great roles in improving economy, especially in creating
employment opportunity, improving the income level, empowering women capacity,
making people intends to save money, developing the operators‟ skills and knowledge,
improving people’s living conditions and social issues, and contributing to integrating
different business levels, establishment of larger businesses and partnership for the
people in the study area (Shiferaw, 2013)

As Habtamu, et al, (2013) noted, small businesses do serve as a means of bringing

economic transition by using the skill and the talent of people without requiring high
level training, much capital and sophisticated technology. This makes the sector more
preferable to business entry, unemployment reduction, income generation, and poverty
alleviation.

2.1.3. The Role of small business in Poverty Reduction

By now, it is clear and agreeable that poverty, both in urban and/or rural areas, is all
about lack of basic needs, low or inadequate level of income and consumption, poor
command over resources, and high level of social exclusion, inequality and vulnerability.
The role played by small business, through the various socio-economic benefits
emanating from the sector was found to be eminent in the overall development effort and
process of nations. In other words, by generating larger volumes of employment as well
as higher levels of income, the small business will not only have contributed towards
poverty reduction, but they will also have enhanced the welfare and standard of living of
the many in the society (Mukras,2014).
The movement to support small business development internationally reflects a return to
promoting poverty reduction by investing in private sector-driven strategies by all of the
major multilateral agencies. Poverty Reduction Strategies (PRSs) currently being
formulated in many developing countries places a more pronounced emphasis on the

7
contribution that the private sector will have to make compared to the over-reliance on
the social agenda that characterized earlier PRSs (Perumal K. & Prasad, 2015 ).
In conformity with the above view advanced by UNIDO and as an organization
concerned to the condition of labor, the ILO’s approach to poverty reduction is through
small enterprise development. This strategy focuses on the needs of poor people who are
part of the small business economy, as owners/operators and workers, as their
dependants, as the unemployed who may benefit from job creation and as customers.
While further strengthening the above shown approach, Vandenberg (2014) suggests
that:the ILO’s existing strategy for poverty reduction through small business must
emphasize the fact that small business make a positive contribution to poverty reduction
when they provide employment, adequate levels of job quality, and low-cost goods and
services used by the poor; entrepreneurship, combined with productivity increase, is a
key ingredient for poverty reduction through small business development; and vibrant
enterprises, competitive markets and a fair globalization can make a significant impact on
poverty reduction.
Growth of small business production creates the necessary condition for development of
a country economy,as a competitive environment develops, additional jobs are created,
structural changes are intensified, and the consumer sector expand. In addition, the
development of small business has led to filling the market with good and , increase
export potential, efficient use of local raw materials.(G.Sh.shakirova, 2022)

2.1.4 Factors That Affecting Small Business Activities

Growth of SMEs will be negatively or positevely influenced by changes in the business
environment(Leeflang,2014).

2.1.4.1 Business area/operation location

The location of micro and small enterprise can be a major factor for the overall success of
the business. When the operation area of MESs is near the main road, they can display
easily the products for the consumers and increase sales volumes; the reverse is true for
enterprise not near the main road. Location is curcial for the success or survival of
business(Giday, 2017).

8
The enterprise's location, if there is proximity to banks and micro and financial
institutions, credit access may be simple, and if nearby universities, hotels, government
offices, and bus stations, the growth of enterprise will be more effective(Mersha and
Ayenew, 2017a,b).

2.1.4.2 Gender of owner

In Ethiopian context, being male and female has a significant effect on the success of
enterprise. Women are overburdened when they became housewives by caring for the
children, cooking the meals, and managing the family allotted for her; when they are free
from the above cultural problem, they are smart enough to be risk takers and hard
workers, enhancing the saving of the business and increasing welfare of the
business(Alemu and Dame, 2017).when business owners are female, sales volume
increases, but not profitability(Prijadi and Desiana, 2017).

2.1.4.3 Taxation system imposed by government

Taxes imposed on SMEs impact their growth in terms of profits in diffrent ways.change
in tax rate leads to the changes in prices of various goods and services. Increase in tax
rate leads to higher production,distribution and selling costs which lead to higher price
and as a result consumer change their buying behaviour. People react to higher price by
buying less of the product whenever price increase due to increase in tax rates;price of
good service increase and there is a drop in the consumption rate and a decrease in sales
volumes reducing profitability which leads to retarded growth of SMEs. Tax payment is
among the outflows of cash from the business which reduce the purchasing power of an
enterprise. This is due to the fact that a large amount of cash collected is used to pay
rather than to expand the business(Opoku Takyi,Evans Tee,2016).

High tax rates decrease firm's internal source of finance. The high tax rate becomes a cost
for the enterprises. With the tax levied by the government by guess or by asking the
owners of daily income, the officer will project the amount of tax that will be paid by the
enterprise owner. During projection of the tax, the amount of tax becomes high for the

9
microenterprises and has an impact on the performance of micro and small enterprises.
Study indicate that in Algeria,SMEs experience heavy tax rates that discourage them
from expanding their operations(Bouazza et al.,2015). The tax policy of the countries
affects the overall performance of micro and small enterprise (Tee et al.,2016). In
general,the tax rate hurts the growth of micro and small enterprises.

2.1.4.4 Inflation rate

In Ethiopian context, the double-digit inflation rate affectes the growth of micro and
small enterprise. Due to inflation, workplace rent increased and the purchasing power of
citizens diminished; this may affect the growth of the micro and small enterprise. The
small scale manufacturers input price may rise, and they may be affected by raising the
inflation rate(Meresa, 2018).

2.1.4.5 Lack access to credit

Financial access is the base for the success of microenterprises growth and sustainability.
The financial provision must be incurred at a reasonable cost (interest rate). The
government of Ethiopia tries to provide credit for young enterprise and creative
entrepreneurs. The service provided is based on the requirements of start-up,growing, and
matured micro and small enterprise (Mulugeta and Getaendale, 2017). Access to finace
creates a strong competition to implement technologies, skills, and innovation(Kamunge
et al.2014). To access loan from credit institutions, collateral obligation, amount of
money, and the high interest rate are challenging for young entrepreneurs (Meresa,2018).
SMEs still face external barriers interms of financial problems due to bad access to
formal financial sources(Yosgino and Taghizadah-Hesary,2017).A firm located far from
a bank might have less access to finance than a firm located nearby(Ghanja et al;2018;
Lee and Brown,2017; Nguyen,2019).Not only will transportation costs be higher, but also
the bank might have less information regarding the quality of the enterepre,local business
opportunities,the regional supply of labou,etc,which in turn suggest that firms in more
peripheral regions should be more credit constrained than those in urban areas.(kämä and
stephan, 2022).

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Generally SMEs play a vital role in the nation's economy and wellbeing. But SMEs still
face many challenges, which could hinder their resilience and competitiveness(Ali
Babiker Eltahir 2018). They include:

Ongoing difficulties in obtaining funds from financial institutions, banks and the
government agencies

A lack of human capital

SMEs face a high level of competition

A weak technology and ICT which hinders more efficient and productive business
operation

A high level of bureaucracy in government agencies hinders efficient SMEs business

development operation.

A low level of research (Ali Babiker Eltahir, 2018)

2.1.5 Ways that improve small business sustainability and growth

2.1.5.1 Personal characteristics

Personal attributes that could contributes to small business sustainability and growth
include stronge negotiation skill, creativity, hard work, and self-discipline(Surdez-
pérez,Aguilar-Morales, Sandoval-Caraveo, López-parra, and Corral-Coronado, 2014)

2.1.5.2 Networking

Networking is critical to knowledge exchange, and an increase in small business owner's

knowledge led to a higher sustainability rate in their business operations.(O'Donnell,
2014).

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2.1.5.3 Leadership styles

Transformational leadership addresses creating changes in the values and goals of

employees. Small business owners typically have a passion that is contagious to their
employees. Goal alignment is a fundamental characteristic of a transformational leader.
Goal alignment is crucial, as most business leaders have to expand their influence among
many areas of the organisational environment and the people within each area to ensure
an appropriate span of control(Kao, Pai, Lin, and Zhong, 2015)

2.1.5.4 Setting Goals

Setting goals and objective is an essential part of your business success. Use the goals
you set as an ongoing planning tool to ensure that you continue to move forward with
your small business(Darrell Zahorsky, 2020).

2.1.5.5 Keep Financial Score

Few small business have an accurate idea of the daily, weekly, and monthly numbers and
financial trends taking place within the organization. It's vital that you spend the
necessary time keeping current on cash flow. If they lack the financial skill, hire an
accountant(Darrell Zahorsky, 2020).

2.1.5.6 Introduction and use of new technology

The internation and use of new technology can help streamline processes and increase
worker productivity of small enterprise if managed properly. The ability of using
technology to the business advantage requires the skill to identify possible uses for each
technological advance. Some technological advances may prove cost prohibitive for
some small business. This evaluation should shine some light on the possible benefits it
will provide to both employees and the company (Nicol long.demand media, 2016).

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2.2 Empirical studies
According to Wondmagegn Biru Mamo(2022) on the study of Growth determinants of
micro and small enterprise(MsSEs) which is mainly aimed at studying the growth
determinants of MSEs in Eastern Ethiopia, using capital accumulation as a proxy
measure of growth. The study will help the government in general, and the enterprises
development agency; in particular, improve the working environment for the growth of
MSEs. A total of 354 questionnaires were collected using a cross-sectional survey.Both
descriptive and econometric analyses were employed, with a linear regression model
estimated using the OLS technique.To get the parameters to be estimated with higher
precision and unbiasedness,they conducted standard tests of homoscedasticity,
multicollinearity,normality,autocorrelation,and overall model significance.The researcher
found out that initial capital, the export of products, the existence of formal accounting
records, MSEs loan from the government, and the provision of training for MSEs are
positive and statistically significant. On the contrary, prior experience, type of customer,
and tax incentive by the government are negative and statistically significant.
According to Abriham Ebabu Engidaw on the study of The effect of external factors on
industry performance: the case pf Lalibela city micro and small enterprise in Ethiopian
(2022) The purpose of his study was to examine the effect of external factors on industry
performance: in micro and small-scale enterprises. To achieve its objectives, the study
employed a descriptive and explanatory research design and used quantitative research
approach. The target population of the study was 395 MSEs owners working in
manufacturing, trade, and service sectors. It used stratified and simple random sampling
techniques and the required data have been collected from a sample size of 199 MSEs
through standardized 5-point Likert-scale questionnaire.The study used both primary and
secondary sources of data. For data analysis purpose, it employed descriptive and
inferential statistical data analysis methods like correlation and multiple linear regression
analysis. The finding of the study discovered the agreement of respondents to the
positively significant relationship between external factors and industry performance in
the study area. Specifically, marketing factors, financial factors, infrastructure, work
premises factors, trade fair factors, and political-legal factors all have a positive effect on
enterprises’ performance in the study area. In addition, the study result shows that

13
financial factors, marketing factors, infrastructure, work premises factors, and trade fair
factors have a positive significant effect on industry performance but political-legal
factors do not significantly affect the dependent variable industry performance. From the
predicting variables, infrastructure has more effect on industry performance than the rest
of variables in the study area. The study recommends that the government/micro and
small enterprises development offices should maintain different supportive trainings,
decrease infrastructural problems, facilitate credit services, and create attractive
environment to entice or create productive MSEs. In addition, the MSEs owners should
design adoptive plans and programs with the external as well as internal environment to
increase their performance.

According to Tomas Cherkos,Muluken Zegeye,Shimelies Tilahun,Muralidhar Avvari on

the work of Examining significant factors in micro and small enterprise performance in
Amhara region Ethiopia (june 2018) with aim on improving the performance and
contribution of MSEs by analyzing impact of significant internal and external factors.
Data was collected via a questionnaire, group discussion with experts and interviewing
process. Randomly selected eight representative main cities of Amhara region with 120
furniture manufacturing enterprises are considered. Data analysis and presentation was
made using SPSS tools (correlation, proximity, and T test) and impact-effort analysis
matrix tool. The correlation analysis shows that politico-legal with infrastructure,
leadership with entrepreneurship skills and finance and credit with marketing factors are
those factors, which result in high correlation with Pearson correlation values of r =
0.988, 0.983, and 0.939, respectively. The study investigates that the most critical factors
faced by MSEs are work premises, access to finance, infrastructure, entrepreneurship and
business managerial problems. The impact of these factors is found to be high and is
confirmed by the 50% drop-out rate in 2014/2015. Furthermore, more than 25% work
time losses due to power interruption daily and around 65% work premises problems
challenged MSEs. Further, an impact-effort matrix was developed to help the MSEs to
prioritize the affecting factors.

14
According to Uju on the study of Environmental factors for survival and growth of small
and medium scale business in Nigeria(2019), examined impact of the environmental
factors on the performance of small and medium scale businesses (SMEs) in Nigeria with
special emphasis on three selected Construction Company (PaChuks, Setraco and Triple
C Manufacturing Company) all situated at Awka metropolis of Anambra State. The study
aimed to find out the extent to which environmental factors affect organizational growth,
the relationship between various Federal Government macroeconomic policy variables
and performance of SMEs and how they can be effectively managed. The underlying
SME theory in this study is Network Approach model. The study adopted the descriptive
survey research design, making use of one hundred respondents randomly selected from
the three selected SMEs. However, a sample size of eighty respondents was determined
using the Taro Yamane formula. The Questionnaire was used as primary source of data
collection for this research work. The findings of this study reveal that SMEs are faced
with several challenges which are; difficulty in obtaining capital, inadequate competent
personnel, shortage of raw materials etc. the researcher recommends that Government
strengthens SMIEIS, BOI and other financing windows, lower interest rates and other
cost of funds, expand Industrial Development Centres and enhance sources of finance
available to the industries

2.3 Conceptual framework

The study will guided by the following conceptual framework

15
 Figure 1: Conceptual framework

Independent variable Dependent variable

Business area or operation location

Gender of owner

The performance of small business

Taxation system imposed by

government

Inflation rate

Lack access to credit

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3. METHODS AND MATERIALS

3.1 Description of the Study Area

The study will be conducted in Bonga town woreda and capital of the South West
Ethiopia Peoples' Region in Ethiopia. Located in the Keffa Zone upon a hill in the upper
Barta valley, it has a latitude and longitude of 7°16′N 36°14′E with an elevation of 1,714
meters above sea level and it is located 449 km from Addis Abeba. And the population of
Bonga town is about 20858.In Bonga, the wet season is overcast, the dry season is partly
cloudy, and it is warm year round. Over the course of the year, the temperature typically
varies from 49°F to 80°F and is rarely below 43°F or above 86°F.Rain falls throughout
the year in Bonga (Kaffa Biosphere ).
The month with the most rain in Bonga is May, with an average rainfall of 10.7
inches.The perceived humidity level in Bonga, as measured by the percentage of time in
which the humidity comfort level is muggy, oppressive, or miserable, does not vary
significantly over the course of the year, staying within 1% of 1% throughout.The
perceived humidity level in Bonga, as measured by the percentage of time in which the
humidity comfort level is muggy, oppressive, or miserable, does not vary significantly
over the course of the year, staying within 1% of 1% throughout (Kaffa Biosphere).

17
3.2 Research design
A research design is the program that guides the researchers in the process of
collecting, analyzing and interpreting the data. Researcher will use the descriptive
form of research design to provide solutions to the research problemsSince this study will
involves the collection of views, perspecteives or opinions of respondents regarding a
particular issue, the study will employ a survey research method which involves
questionnaire, personal interview with respondents and publications. This choice will be
made due to the fact that survey method is effective when it comes to getting opinions,
attitudes and description as well as getting cause and effect relationship. The study will
use both qualitative and quantitative methods. The selection of small and medium
enterprise will be done by random sampling.

Descriptive research involves gathering data that describe events and then organizes,
tabulates, depicts, and describes the data collection and researcher will use across
sectional study design, because researcher will us

3.3 type and source of data

In this study both qualitative and quantitative data will be collected from primary and
secondary sources to identify factor affecting performance of small business.

3.4 Method of Data Collection

Quantitative primary data will be collected using small business survey and the
respondents will be asked by administrating questionnaires about factor affecting
performance of small business and relate issues.
Qualitative primary data will be collected using key informants where elderly and
knowledgeable people will be asked about the area on various issues relevant to the
study. On the other hand, secondary data will be obtained from published and
unpublished sources.

3.4 Sample size and Sampling Techniques

Small and medium enterprise in Bonga Town is the target population of the study.In this
study the sampling technique will be done by using stratified random sampling to get
information from diffrent sizes of the small and medium enterprise in Bonga Town. We
randomly select two kebele out of ???kebele. The target population of the two kebele is
110 from this target population???? sample respondents will be selected

18
The target population for the study will be small businesses operated in Bonga town in
kayakela kebele. The sampling technique of this study will be stratified random sampling
to get information from diffrent size of SME in Bonga town in kayakela kebele. With this
technique, the sampling frame will organized into homogenous groups(strata) before
selecting elements from theThe samples will selected based on population proportion by
using Yamane's(1967) which is formulated to calculate sample size:

A 95% confidence level, and e=+ or - 5%

n=N/1+N(e)2

Where:

n= the sample size

N= the population size

e= the level of precision(sampling error)

n= N/1+N(e)2 = 110/1+100(0.05)2 =86

n = 86

3.5 Methods Data analysis

In this study both descriptive and econometric analyses will be used to conduct factors
affecting performance of small business. An econometric model will be used to identify
factors affecting the performance of small business for data collected from a cross-section
of samples.Descriptive statistics describe the main features of a collection of data
quantitatively. It aims to summarize a data set quantitatively. Descriptive statistical will
be used to describe coefficient of variation, standard deviation, etc.

19
We will try to use the descriptive statistical analysis simply to describe what is going on
in our data and to present the quantitative description of the households. For descriptive
statistical analysis, it will be used percentage, average, minimum and maximum values to
the quantitative data numerically.
To analyze the factors affecting the performance of small business multiple linear
regression models will be used. The equation of regressions on this study will be
generally built around two sets of variables, namely dependent variable (performance of
small business) and independent variables (Business area or operation location, Gender of
owner, Taxation system imposed by government, Inflation rate, Lack access to
credit).The basic objective of using regression equation on this study will be to make the
study more effective at describing, understanding and predicting the stated variables.
So to examine the factors affecting business performance, the multiple linear regression
model will be used to establish relationship between the independent variables and the
dependent variable by use of the following regression formula

Y=B0+B1X1+B2X2+B3X3+B4X4+B5X5+.......+BpXp

Where, Y = business performance (Dependent Variable)

X 1 – X 5 = Independent Variables
X 1=Business area/ operation location
X2=Gender of owner
X 3=Taxation system imposed by government
X4 =Inflation rate
X 5 = lack access to credit
B0 = Coefficient of the model
B1-B5= Beta Coefficients of Determination
є = Error Term

3.6 Diagnosis tests Goodness of Fit of The model

Goodness of fit measures for linear regression is attempts to understand how well a model
fits a given set of data. To check the modeling assumptions of linear regression:
Checking the linearity assumption

20
Checking for outliers
Checking the normality assumption
Checking the distribution of the residuals does not depend on the predictors. these are
essential qualitative checks of goodness of fit

3.7 Expected Outcomes

The roles of small business in the study area will be identified.

The major problems that influence performance of small business will be assessed.

The ways that improv small business sustainability and growth.

21
 

4. WORK PLAN

Table 2: work plan

Activities March April May June

Proposal writing and 

defence

Literature review 

Selection of sample 
respondents

Data collection 

22
Data procesing and 
analysis

Research writing 

Research presentation 

5. BUDGET PLAN

Table 3:
Budght plan
Stationary cost
Items Amount Unit cost Total cost
Paper 1pack 120 120
Pen 3 15 45

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Marker 2 30 60
Printing 34 3 102
Copy 34 2 68
Total 395 Birr

Table 4: Personal cost

Items Amount Unit cost Total cost

Food 4 30 120
Mobile card 4 15 60
Quessionnare 4 20 80
Data collection 30 5 150
Total 410 birr

Table 5: Transportation cost

Items Amount Unit cost Total cost

Transportation 4 round 20 80
Total 80 birr

Table 6: Budget summery

Items Total cost

Stationary cost 395
Personal cost 410
Transportation cost 80
Total 885 Birr

24
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 7. Apendex

Bonga university
College of Agriculture and Natural resource
Department of Agricultural Economic
Questionnaire to be filled by individuals who operate small business
The questionnaire is designed to assess the factor that affect the performance of small
business in Bonga town in kayakela kebele.

For the choice questions choose the appropriate answer.

Personnel information

I. Sex a, male b, female

II. Age a,18-30 b,31-40

c,41-50 d, Above

III. Education level a, literate b, illiterate

Answer the following

1, Is there bank or micro financial institution near to your business area?

a, yes b, no

2, If your answer is yes for the above question, does it have positive effect on your small
business?

a, yes b, no

3, If you are female do you face difficulties to manage your small business properly due
to overburdene?

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 a, yes b, no

4, What are the activity that makes you overburdened?

a, caring for children

b, cooking the meals
c, managing the family
d, all

5, Does taxation system imposed by government has adverse effects on your small
business?

a, yes it has b, no it hasn't

6, Does the price of the product that you are producing increase due to the increase in
tax?

a, yes b, no

7, When the price of the product rise what is the buying behaviour of consumer?

a, buy less product

b, buy more product

8, Does inflation rate affect the growth of your small business?

a, yes b, no

9, If your answer is yes, how?

a, workplace rent increase
b, purchasing power of citizens diminished
c, manufacture input price rise
d, all

10, What are the challenges for your small business to access loan from credit
institutions?
a, collateral obligation
b, amount of money
c, high interest rate
d, all

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