‘ABC’ Strategies to Sustain Growth of Small Businesses in The Least Developing Countries (LDC)

As the World economic forum kicks off in Cape Town, South Africa, this article suggests simple ways that small businesses in the poor countries of the world could keep their businesses above water.

I. Keeping Proper financial records.

The figures that a business generates are an index of its health and growth. However, many managers in small businesses tend to be positively scared of them and therefore do not keep control or update them on regular basis.

It is not good enough to monitor the state of health of the business by using the Annual accounts. This is normally not available until the following year which in terms of knowing the financial position of a business is quite a long time away.

There are good reasons why the Owner should make sure that good business records are kept, providing information for example to, the Inland Revenue, Customs and Excise (for VAT), and the Bank Manager. However, the most important reason above all is that properly kept accounts, summarised at the end of each month and combined with a stock take or an estimate of the value of the stock, will provide the Owner-Manager with an up-to-date information about the business. By doing so, this would enable the Owner-Manager to spot danger signs and to react whilst there is still sufficient time to take corrective action and to plan ahead for future.

II. The Development of Modern Financial Management Practices.

This is necessary in order to evaluate the working capital requirements of the business. Discounted cash flow analysis could be used to support investments decisions (i. e. importing and exporting of goods). Financial management practices like discounting cash flow analysis could be added to Ghanaian primary school curriculum at an early school years since most small businesses or small medium enterprises(SMEs) employ many drop outs from school. In the event where majority of products are imported from suppliers overseas, managing currency properly is very vital. As mentioned previously, foreign currency hedging could be used to reduce or lower the cost of purchasing imported products. This is not to say that the Small business should grow overnight but it is to let small businesses identify with the practices of modern financial management in its early stages of development if it is sustain any growth gained.

III. Appropriate Financial management strategy

This is how to utilise the funds available to achieve the desired goals. In other words, the setting of goals so that the various financial obligations are met with the best available financial practices involving working capital and current asset management. This would involve keeping good records of the assets owned by individuals which are used by the business. Periodic estimates of the market value of these assets would be more appropriate. This is to know the real value of the business at any point in time.

The introduction of an appropriate financial and investment strategy would provide steady and sustainable growth for the company in the future. The dependence on overdrafts as a form of working capital could be eased by the Owner-manager making arrangements with his Bankers to have a fixed term loan agreement. Other sources of finance like having business relationship with more than one bank and engaging business angels should be explored. It should have a strategy.

The company should seek take advantage of some of the Government schemes in existence, like Business Assistance Fund (BAF) and ask for financial management consultant to assist it in the formulation and implementation of strategic financial management plan. Following on from the above, it is imperative that professional Managers become involved in managing the organisation. This provides the company with the opportunity to achieve its objective of entering the wider economy and the ability to sustain its gains.

IV. Negotiations and dealings with Bankers

There should be negotiations with Bankers, not only to discuss rates and loan maturities, but also to protect the personal wealth of the Owner-manager. -i. e. by persuading the bank to agree to new terms so that he no longer acts personally as a guarantor for the business. Also, the Owner could agree to pay a percentage point or higher interest in order to make it possible to separate those assets which belong to him and to the business. V. Set up appropriate Management Information System (MIS)

The use and introduction of information technology within the business to facilitate accurate information or data gathering, and the keeping of business records, could act as a powerful competitive weapon. i. e. the introduction of computer hardware and relevant financial management software, EPOS (Electronic Point of Sales) machines, accounting software and so on. This should be based on financial planning and forecast.

VI. Developing a financial management benchmark for SME

The growth of the company, however, is to some extent hindered by the structural weaknesses inherent in the particular industry. These include for example, fragmentation, limited distribution channels, lack of a concerted effort and co-ordination and most importantly no standard financial policy. By standard financial policy, it is meant a benchmark for a financial management discipline to be embedded somehow in the small business owner-managers. For example, a strict code of avoidance in over trading, overstocking and understocking must be outlined and enforced.

VII. Introduce more differentiated products and be cost effective

Since the market is young and still growing, a policy of increasing market share should be continuously pursued so that stock turnover is increased and slower moving items are reduced. Market share in export markets could be gained through a more pro-active and targeted-marketing orientation. This system would be far more efficient than the current shot-run approach of random selection of clients.

Being a small company, it is at an advantage as it can become more flexible to meet the demand of its customers. Areas in which this could be exploited include, for example, delivery times, quality, order processing and new product launches and customer service. It can also sustain the business by reinforcing quality and maintaining it at a high level. If people find out the quality in the product, the business will be able to generate more sales through product knowledge, training and development programmes.

A very rare tactics in the Ghanaian business circles, the company could maintain market share and increase it by providing its distribution channels with an efficient after-sales-service. This can be done by improved customer service to differentiate products via speedy delivery, order taking and processing, quick response to enquiries, product availability.

VIII. The creation of new organisational structure.

Some financial institutions consider the calibre of personnel they are dealing with in order to broker a deal in a transaction. The employment of skilled workers outside of the family, or a motivated workforce. For example, a Finance Manager, Accounts Clerk, Financial Administrator who could double as a Secretary. The limited financial resources of small companies usually make it difficult for them to attract top-quality people in the early years. However, as the company grows, its managerial requirements will often increase beyond the capabilities of the original staff. The added workload is normally transferred to the Owner who may simply not be able to handle all the tasks at hand. If a company’s survival and growth depends on mature judgment, then having the best possible decision-makers with adequate financial background is vital.

IX. Development of new management style to fit the company’s vision.

In small companies, it is often the Owner who has a vision for the company and to take care of every detail. Unfortunately, this 100% hands-on style of management does not usually permit staff to develop their talents and skills. Staffs are not encouraged to think the boss has not got all the answers. Inadvertently, an Owner usurps employee’s responsibilities. There is a danger that Staff may not be able to use their initiative when the Owner is away. To this end, it is proposed that the Owner develops an organisational style of leadership. This would enable employees to fulfill their potential and his expectation of them. This can be achieved through training so that they can carry out their roles and responsibilities effectively.

X. Development of a financial plan to address the following:

Sales and Distribution This mechanism is used to get the products and services to customers, – i. e. the company’s own sales force should be used for direct marketing. Alternatively, other distributors and retailers could be used or set-up own retail outlets. This is envisaged to boost distribution which was found to be a problem for most SMEs.

Pricing & discounting strategy- The current practice within the business is for the Owner and Staff to charge different prices to different customers based on their judgment of the client’s ability to pay. This creates some confusion amongst some customers. Whilst an actual price list is not critical, the general pricing structure and the rationale behind this structure should be provided. Policy regarding discounting and price changes should be addressed as well as the impact of a pricing strategy as a whole on gross profit (revenue less cost of goods sold). Homestretch Venture for instance proposed to indirectly recover the charge from hairdressing services by providing free drinks to clients on very busy days including Sundays when the competition is keen in the hairdressing business.

Future Marketing Activities and Related Budget This is meant to show how the overall marketing effort will be organised and how the resources within the business will be allocated amongst the various marketing tools. Sales strategies should be formulated in each market to perpetuate future growth. Eg. the setting up of agencies in other parts of the country and extending links with suppliers and so on. This strategy would be a copy-cat of large retail and manufacturing firms in Ghana which have been successful using such a strategy. Advertising, public relations and promotions-This will play an important role in the company’s attempts to generate sales. The business’s intentions in this regard should be conveyed in concise basic terms. One way of accomplishing this is to focus on the concept and creative content of the communications campaign. For example the equipments to be used, and the vehicles to be utilised, such as electronic media, print media, or direct mail.

The services of an outside agency should be explored to assist in promotion and advertising. Though the FM stations are popular, other means must be sought to build the corporate image of the SME. Contacts should also be made with the local media who write or broadcast information on businesses within the Community – i. e. newspapers, radio, and television. This is believed to cut down cost but generate required sales and returns, thereby providing needed cash flow.

Small Business – SBA Loans Made Easy

Starting a new business or upgrading an existing one can be very exciting. Often ideas for this are plentiful, but when it comes down to actually obtaining the money to do it people are not sure where to look. Instinctively they ask family or friends for loans, or they look to take out home equity loans or a 2nd mortgage on their homes. One of the first things that any entrepreneur should consider is the Small Business Loan. This is a government sponsored loan that has many benefits. Although the Small Business Administration does not come directly to the aid of small business, it does give a hand to people who want to run small businesses but do not have enough start up capital or seed financing to do it.

SBA Loans come in a variety of programs. However, every program is unique and has its own set of prerequisites. To be informed is to be forewarned. When one is informed of what every program entails, they can be in a position to choose the program that is best suited to their needs.

The Small Business Association can help facilitate loans for business owners through third party lenders, guarantee a bond, or help one raise venture capital. The SBA does this to help small businesses grow. Every business owner can choose the program that meets his needs. There are varied programs but they are all geared towards helping businesses meet key financing needs like debt financing, surety bonds and even equity financing. Do your research because being informed is the first step of obtaining a loan.

SBA loans have just been made easier now that one can choose the program that best suits them. If one is in need of capital to start a small business, then the Small Business Investment Company Program is the best for them. This program helps them raise initial capital for their business venture. Although this program is privately funded, owned and managed; it is licensed and regulated by the SBA. Business owners can access funds in terms of equity financing or debts. For one to qualify, they have to meet a short list of criteria provided by the SBA. Most people without bankruptcies can qualify.

Anyone can apply for the guaranteed loans program from SBA. The SBA guarantees about 85% of payment to the lenders thus eliminating some of the risk. When one applies for a SBA loan, it just means that they are applying for a loan from a commercial bank according to SBA requirements. Most, but not all applications are successful. Usually people who can access other forms of financing are not granted the SBA loan.

The 2009 Stimulus Package – What’s in it For My Small Business?

We’ve all heard about it: the American Recovery and Reinvestment Act of 2009, also known as the ARRA. But what exactly is it, and how can it help your small business? To begin with, the ARRA is essentially a $787 billion dollar bill passed in February 2009 by President Obama in order to provide for various tax relief and investment opportunities. More specifically, the full title text of the ARRA is as follows:

An act making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization, for the fiscal year ending September 30, 2009, and for other purposes.

While many of the benefits of the ARRA are readily available for small businesses and individuals to utilize, it is important to note that the advantages are not automatic; in other words, they require that you as a small business or individual be proactive in applying the benefits and fully utilizing them to assist in putting more money in your pocket (or at least having to shell out less!) With that said, let’s take a look at a small sampling of the benefits that the 2009 ARRA has to offer for small businesses:

1. Utilization of Current Losses to Offset Profits: Typically, as a business incurs losses, these can be used to offset taxes on profits for the past two years. However, this ARRA provision allows companies to use losses to offset profits for three, four, or even five years, depending upon circumstance. Given the financial hardship that the current economic situation has inflicted on many small businesses, this provision may provide much-needed financial assistance to small businesses in need.

2. Increased Depreciation: You may recall the Economic Stimulus Act of 2008 as the Act which provided individual taxpayers with a one-time tax rebate of anywhere between $300 and $1,200. Another aspect of this Act included a “50% bonus depreciation provision for ‘qualified’ property purchased, manufactured, constructed or produced in 2008″. The 2009 ARRA provision essentially provides for a carryover of this depreciation benefit for 2009, fundamentally providing an accelerated depreciation schedule for fixed asset purchases. Thus, this provides an incentive for businesses to make purchases of necessary or desired assets, such as equipment and computers, as businesses are now able to utilize this benefit into 2009.

3. Credit for Work Opportunity: Employers will have the opportunity to take advantage of a credit in the amount of up to 40% of the first $6,000 in wages paid to certain new hires. The catch is that these hires must come from one of nine specific “target groups,” including ex-felons, disabled veterans, “disconnected” youths, and food stamp recipients. The great part of this is that the benefit is available in 2009 and 2010.

Another area of opportunity for business is partially included in the “Credit for Work Opportunity” discussed above and is a program I’ve had the privilege of utilizing recently. My local county (San Bernardino) has been appropriated ARRA funds for providing youths to work for businesses of all types and in various capacities. As long as your company has room for an entry-level employee where honing a skill or learning a general business practice is afforded, this program covers both wages and worker’s comp insurance for youths ages 18-21 for up to 180 hours. This is a summer program, but is going to be carried over into a year-round opportunity as well. While the details of this program may vary by county or municipality, please visit the Career Institute at http://www.careerinstitute1.org/ for information on this program in San Bernardino County. The helpful staff there will be able to assist you in either locating youths for hire (for free!) or in locating a similarly appropriate organization for your company.

While there are many areas of assistance for small business, the ARRA is also focused on assisting individuals with some very interesting programs as well. Even though the focus of this article is on small business, since we are all individuals, let’s also quickly take a look at a few of these benefits as well:

1. Payroll Tax Credit (the “Making Work Pay” Credit): Similar to the Economic Stimulus Act described above, this credit will provide $800 for joint filers and $400 for individuals. This credit will phase out for individuals earning an AGI of over $75,000 and for couples with an AGI of over $150,000. Unlike last year’s payout by check, however, this credit will be given in the form of a reduction of tax withholdings.

2. New Homebuyer Credit: This credit will provide first-time homebuyers an $8,000 credit for home purchases made between January 1 and December 1, 2009.

3. Home Energy Credit: Homeowners who make financial outlays to increase the energy efficiency of their homes in 2009 and 2010 could receive up to a 30 percent (or up to $1,500) credit for such purchases.

Clearly, there are numerous other areas of benefit that the American Recovery and Reinvestment Act of 2009 has in store, benefits for both small businesses and individuals. A great place to begin to further explore these opportunities is at the official ARRA site, www.recovery.gov. From there, you can investigate various aspects of the ARRA, including information on the unprecedented level of accountability and transparency included in the Act. Furthermore, as a great deal of the funding from the ARRA is going directly to individual states, you can use the site’s State, Local, Tribal and Territorial Information portal to locate more detailed information on programs available in your area. I personally encourage you to explore the Wikipedia entry pertaining to the ARRA, and more specifically a breakdown of the provisions of the Act, by clicking here. While Wikipedia is by no means a scholarly source of information, this page does give an excellent (read: simple) breakdown of the Act and where its monies will be focused and spent, giving you a great springboard for further conducting your own research and for areas of benefit to discuss with both your business and personal accountants.

Overall, however, one of the best ways you can prepare yourself to take full advantage of the ARRA is to arm yourself with knowledge of the benefits that the Act has to offer, and take this information with you as you consult with your accountant or financial planner. As he/she is intimately familiar with you and your business, press this individual on the topic of the ARRA, and encourage them to do their due diligence in discovering how the numerous ARRA benefits can help both you and your organization!