MGT601 SME MANAGEMENT

Problems Faced by Newly Established Company Lesson 18 Problems Faced by Newly Established Company

Chapter Learning Objectives This lecture will continue with the previous lecture problem and then chapter deals with the teething problem that a newly established company faces.

Cash Flow Analysis Cash flow is essentially the movement of money into and out of your business; it's the cycle of cash inflows and cash outflows that determine your business' solvency.

Cash Flow Analysis…. Cash flow analysis is the study of the cycle of your business' cash inflows and outflows, with the purpose of maintaining an adequate cash flow for your business, and to provide the basis for cash flow management.

Source of Funds 1. Short Term Loans Net trade credit Commercial loans 2. Intermediate loans 3. Long term loans 4. Equity

Anticipated return on investment Financial feasibility is adjudged on the basis of satisfactory yield on investment. It can be calculated by relating the average earnings expected over a given period to either the total amount of investment or net worth of organization (Return on equity). Both are compared with potential yield from alternative investment opportunities to ascertain the acceptability or otherwise of a new venture.

Assessment of Personal Requirements and Organizational Capabilities Human beings provide the motive force to an enterprise. For this purpose, it is necessary to consider the available talent and skills consonants with the organization structure. An inventory must be made of the skills needed for effective implementation of new venture.

Assessment of Personal Requirements and Organizational Capabilities……. The steps in undertaking the exercise relating to determination of personal requirements and designing the initial organizational structure are described below: a) Ascertaining the anticipated workflow and the various activities (called activity analysis). At this stage, the total range of activities and level of skills are identified.

Assessment of Personal Requirements and Organizational Capabilities……. b) Grouping the activities into set of tasks that individuals can handle effectively. c) Categorization of various tasks to form the basis of structure of organization. d) Determination of interrelationship between different positions and designing of organizational hierarchy.

Analysis of Competition In order to ensure the survival and growth of enterprise, it is essential to make competition analysis. Generally, every organization to face two types of competition: Direct competition from similar products. b) Indirect competition from substitutes.

Analysis of Competition…. Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.

Problems faced by Small Business Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy (lack of resources) is undercapitalization. This is often a result of poor planning rather than economic conditions.

Problems faced by Small Business…. It is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses.

Problems faced by Small Business…. Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly.

Problems faced by Small Business…. Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.

Field Problems of Starting a New Enterprise Identification of a venture after a thorough analysis of the five major aspects described earlier should not be regarded as the end of all problems. Rather the real problems have been summarized in the following paragraphs. 1. Pre-Operator Problems 2. Problems during the construction phase

1. Pre-Operator Problems a. Problem of selecting an appropriate form of business organization. b. Problems related with the acquisition of basic facilities such as sources of raw materials, power, transport etc.

2. Problems during the construction phase These would be connected with: Acquisition of land; Construction of building and other aspect of civil works; Acquisition of machinery and its installation;

2. Problems during the construction phase……. IV. Preliminary work about the sources of supply of raw materials , labor and managerial inputs; V. Prospecting about marketing; VI. Preliminary work regarding sources of working capital; VII. Coordination problem connected with the acquisition of different kinds of assets or completion of jobs;

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