Challenges of Small and Medium Sized Companies at Early Stage of Development: Insights from Bosnia and Herzegovina

The purpose of this paper is to discover and understand factors that lead to small and medium-sized enterprises (SMEs) shutdown in transitional economies, such as the economy of Bosnia and Herzegovina (B&H). The paper provides some findings about main influencing factors that lead to SMEs shut down in the first years of operation from entrepreneurs’ and managers’ perspective and suggests certain measures that should be taken to secure their survival, development and growth. For the purpose of this paper, empirical research was conducted, using stratified sampling of 110 SMEs from Republic of Srpska (49% of B&H territory). The section on methodology explains the entry criteria for the study population and methods of data analysis. Respondents from the research sample identified the following factors as the main obstacles to successful development of their businesses: difficulties in the collection of receivables from debtors, complicated legal procedures that regulate the work and business operations of enterprises, high rates of taxes and contributions on wages, the negative impact of the global economic crisis and expensive and complicated procedures for obtaining loans from commercial banks. Respondents didn’t evaluate their personal traits, level of formal and informal knowledge from business management field or lack of entrepreneurial spirit and readiness for being proactive, innovative or risk acceptance as potential causes of business failure. With its limitation, the paper contains novel information and insights about SMEs business obstacles and