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‘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 small businesses in the world’s poorest countries can keep their businesses afloat.
I. Keeping proper financial records.
The statistics a business generates are an indicator of its health and growth. However, many managers in small businesses are positively afraid of them and therefore do not control or update them regularly.
Monitoring the health of a business using annual accounts is not enough. This is usually not available until next year which is too long away to know the financial position of the business.
There are good reasons why the owner should ensure that good business records are kept, for example providing information to the Inland Revenue, Customs and Excise (for VAT), and bank managers. However, the most important reason above all is that properly kept accounts, summarized at the end of each month and combined with a stock take or stock price estimate, provide the owner-manager up-to-date. Information about business. By doing so, it enables the owner-manager to detect danger signs and react when there is sufficient time to take corrective action and plan for the future.
II. Development of modern financial management practices.
It is necessary to assess the working capital requirements of the business. Discounted cash flow analysis can be used to support investment decisions (eg import and export of goods). Financial management practices such as discounted cash flow analysis can be added to the Ghanaian primary school curriculum in the early school years as most small businesses or small medium enterprises (SMEs) employ many school leavers. In the event where most of the products are imported from foreign suppliers, proper management of currency is very important. As mentioned above, foreign exchange hedging can be used to reduce or reduce the cost of purchasing imported products. This is not to say that small businesses should grow overnight, but to allow small businesses to identify modern financial management practices in the early stages of its development if it is to sustain any growth it has achieved.
III. Appropriate financial management strategy
How to use available funds to achieve desired goals. In other words, setting goals for meeting various financial obligations with the best available financial practices that include working capital and current asset management. This includes keeping good records of assets owned by individuals used by the business. A periodic estimate of the market value of these assets would be more appropriate. Know the real value of the business at any time.
Introduction of appropriate financial and investment strategy will provide stable and sustainable growth for the company in the future. Reliance on overdrafts as working capital can be facilitated by arranging for the owner-manager to enter into fixed-term loan agreements with his bankers. Other sources of finance should be explored, such as having business relationships with more than one bank and engaging business angels. It should have a strategy.
Companies should seek to take advantage of existing government schemes such as the Business Assistance Fund (BAF) and request a financial management consultant to assist in formulating and implementing a strategic financial management plan. Following from the above, it is imperative that professional managers be involved in the management of the organization. This provides the company with the opportunity to achieve its objective of entering the wider economy and the ability to maintain its profitability.
IV. Negotiating and dealing with bankers
Bankers should negotiate, not only to discuss rates and loan maturities, but also to protect the owner-manager’s personal assets. -ie persuading the bank to agree to new terms so that he no longer acts as a personal guarantor for the business. Also, the owner may agree to pay a percentage point or higher interest to make it possible to separate his and business-related assets. V. Set up an appropriate Management Information System (MIS).
The use and introduction of information technology within a business to collect accurate information or data, and keep business records can act as a powerful competitive weapon. ie introduction to computer hardware and relevant financial management software, EPOS (Electronic Point of Sales) machines, accounting software and so on. It should be based on financial planning and forecasting.
VI. Developing financial management benchmarks for SMEs
The company’s growth, however, has been somewhat hampered by structural weaknesses inherent in the particular industry. These include, for example, fragmentation, limited distribution channels, lack of concerted efforts and coordination and most importantly no standard financial policies. By standard financial policy, it is meant to be a benchmark for financial management discipline to be instilled in small business owner-managers. For example, strict codes of avoidance of over-trading, overstocking and understocking should 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 pursued continuously to increase share turnover and reduce slow-moving items. Market share in export markets can be gained through a more proactive and targeted marketing orientation. This system will be more efficient than the current shot-run approach of random selection of customers.
Being a small company, it is at an advantage because it can be more flexible to meet the demands of its customers. Areas in which this can be exploited are, for example, delivery time, quality, order processing and new product launches and customer service. It can also sustain the business by strengthening the quality and maintaining it at a high level. If people discover quality in the product, the business will be able to generate more sales through product knowledge, training and development programs.
A very rare strategy in Ghanaian business circles, the company can maintain market share and increase it by providing efficient after-sales service to its distribution channels. This can be done through improved customer service to differentiate products through faster delivery, order taking and processing, faster response to inquiries, product availability.
VIII. Creation of a new organizational structure.
Some financial institutions consider the ability of the staff they are dealing with to broker a deal in a transaction. Employment of skilled workers outside the family, or a motivated workforce. For example, a finance manager, accounting clerk, financial administrator who can double as a secretary. Small companies’ limited financial resources usually make it difficult for them to attract high-quality people in the early years. However, as a company grows, its managerial needs often outgrow the capabilities of the original staff. The added workload is usually transferred to the owner who may not be able to handle all the tasks at hand. If a company’s survival and growth depends on sound judgment, it is important to have the best possible decision makers with adequate financial backgrounds.
IX. Development of a new management style to fit the company’s vision.
In small companies, it is often the owner who sets the vision for the company and takes care of every detail. Unfortunately, this 100% hands-on style of management usually does not allow employees to develop their talents and skills. Don’t encourage employees to think that the boss doesn’t have all the answers. Unknowingly, the boss usurps the employee’s responsibilities. There is a danger that employees may not be able to use their initiative when the boss is away. To this end, it is proposed that the boss develops an organizational style of leadership. It enables employees to fulfill their potential and their expectations. 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 products and services to customers, ie the company’s own sales force should be used for direct marketing. Alternatively, other distributors and retailers can be used or one can set up their own retail outlets. It is envisaged to promote distribution which has been found to be a problem for many SMEs.
Pricing and Discount Strategy – Current practice within businesses is for owners and employees to charge different prices to different customers based on the customers’ ability to pay. This creates some confusion among some customers. While the actual price list is not critical, the general pricing structure and rationale behind this structure should be provided. Policies regarding discounts and price changes should be addressed as well as the impact of the pricing strategy on overall profitability (revenue less cost of goods sold). Homestretch Ventures, for example, has proposed indirectly charging for hairdressing services by offering free drinks to customers on busy days, including Sundays, when competition in the hairdressing business is high.
Future Marketing Activities and Related Budget This is intended to show how the overall marketing effort will be managed and how resources within the business will be allocated between the various marketing tools. Sales strategies must be tailored to each market to sustain future growth. Like Establishing agencies in other parts of the country and expanding contacts with suppliers etc. This strategy will be a copy-cat of large retail and manufacturing firms in Ghana that have been successful using such a strategy. Advertising, public relations and promotion – these will play an important role in the company’s efforts to generate sales. In this regard the intention of the business should be conveyed in brief basic terms. One way to accomplish this is to focus on the concept and creative content of the communication campaign. For example the tools used, and the vehicles used, such as electronic media, print media, or direct mail.
The services of an outside agency should be sought to assist in promotion and advertising. Although FM stations are popular, other means should be found to build the corporate image of SMEs. Businesses within the community – such as writing or broadcasting information in newspapers, radio and television – should also liaise with local media. This is believed to reduce costs but generate the necessary sales and returns, thereby providing the necessary cash flow.
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