Financial Management Report

Financial Management
FINAL TERM REPORT

A comparative study of the application of core financial management practices
among three different SMEs
Submitted to
[Sir Kamran Rabbani]
By
Anum Hanif 17505
Fahad Mohiduddin Ahmed - 16666
Habiba Qasmi 17900
[9thDecember 2015]
ACHNOWLEDGEMENT
We would like to express our thanks to our Teacher Sir Kamran Rabbani whose support and
continuous guidance enabled us to accomplish this task. Without his constant check and immense
determination, we would not have been able to complete our term report. THANK YOU SIR,
Institute of Business Management
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for your continuous mentoring and for enlightening our morals and intellect for good. We are
also indebted to Institute of Business Management for providing us with an opportunity to
augment our skills and rationale through such projects.
Lastly, we extend our appreciation for our group members for their cooperation; collaboration
without which we could not have consummated the task.
Chapter 1: INTRODUCTION
Objectives of SMEs
The objectives of SMEs are as follows:
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to reduce unemployment through generation of new employment opportunities,
especially for the rural people;

to increase the income of poor people by self-employment through indigenous resources
and technology
to generate employment through entrepreneurship development
to encourage geographical dispersal of industries and ensure balanced regional
development
to promote sub-contracting linkages among the various types of large, medium and small
enterprises
to encourage production of export oriented and import substitute products through
promotion of small industries

To increase the contribution of SMEs sector to GDP of the country.
Definition of SME
Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which
employ less than a given number of employees. This number varies across countries. The most
frequent upper limit designating an SME is 250 employees. SMEs are also said to be responsible
for driving innovation and competition in many economic sectors.
Background of SME
In the industrial age, it was assumed that economies of scale would enable vertically integrated
large enterprises to emerge as permanent winners in the competitive marketplace of globalized
economies. As the 20th century progressed with the emergence of the knowledge economy, it
became increasingly evident that not only were the small and medium enterprises were not going
to disappear but worldwide, in most countries the enterprise sector would be largely comprised
of small and medium enterprises and even smaller enterprises.
In the second half of the 20th century, slowly but surely the innovative and creative SMEs have
played and in the 21st century, with increasingly play a more central role in sustainable economic
development as SMEs are major contributors to employment generation and sustainable wealth
creation.
In the emerge era of open innovation, enterprise enter into multiple collaborations. That is they
operate in networks of corporation in which competitors also are partners. this is becoming
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necessary for creating newer, better and cheaper products and that too at a faster pace in an ICT
enable environment which encourages cross border partnerships in the framework of networks,.
While the initiative for open innovation has come mostly from multinational and large
enterprises which have sought access to cutting edge innovations from outside, especially from
startups and SMEs, SMEs policy makers and the SMEs themselves are bargaining to engage in
open innovation by proactively seeking solutions to their challenges in partnership with research
universities and larger enterprises including multinationals.
Issues Faced by SMEs

Small and Medium Enterprises (SMEs) are often confronted with problems that is uncommon to
the larger companies and multi-national corporations. These problems include the following:
Lack of IT Support
IT personnel are in high demand and are often attracted to bigger companies and MNCs. It is
very difficult for SMEs to attract good IT personnel. It is even more difficult to retain
them. Moreover, good IT personnel are expensive and may not be affordable by most SMEs.
Lack of IT Literacy
Many of the employees in SMEs started from the ground up after working with the company for
many years. Some of them are often holding supervisory and managerial positions. These
employees may not be IT literate and often have high resistance to the changes in the working
process that they are comfortable with after many years.
Lack of Formal Procedure and Discipline
Most SMEs do not have formal procedure or often these are not documented. Furthermore, there
is tendency for these procedures to change frequently. This makes it difficult for third party and
newcomer to understand the existing business practices and match them with the IT process.
Uneven IT Awareness and Management Skill
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As company grows, new managers are often introduced into the company. There will also be old
managers who are promoted from the rank and file. Some of these managers may not been
trained in the leadership and management skill. These uneven skill among the managers often
caused conflicts during the implementation.
Lack of Financial Resources
As a SME, financial resources are often limited. This often forces company to select a solution,
which appear to be cheap initially. However, the hidden costs will start to emerge during
implementation. This sometime causes the project to be abandoned or sometime sent the
company into further financial crisis.
Lack of Human Resources
Implementations of some bigger scale IT project especially those that involve business process
across different departments or require large amount of initial data entries require human
resource during the implementation. Some SMEs are often in the stage of frequent firefighting
and shortage of manpower. This makes it very difficult for them to allocate time to carry out
implementation. Furthermore, there is always a conflict between getting the daily routing work
going and to do the Extra IT implementation.
Lack of Experience of Using Consultants
A good consultant often save time and effort, and help to prevent pitfalls during the IT
projects. However, most SMEs are lacked of experience in working with consultants. The lack
of knowledge in the field of IT makes them difficult in identifying good consultant for the
projects. They often feel that the consultant costs are too high and they can handle it with their
own staff. If the company has no staff that are experience and knowledgeable in the IT project,
avoiding external help often costs more to the company eventually.
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Chapter 2: FINANCIAL CHARACTERSTICS OF SMEs

Limited Financial Resources
Since SMEs are small sized organization, therefore the availability of the financial resources of
these companies is very limited, because of which it gets difficult for such enterprises to grow
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and prosper. This is one of the most common characteristic of having limited resources seen in
all the SMEs all over the world.
Education
Another common financial characteristic which is seen in all the SMEs are that the employees
working in such companies are not highly educated and it has been commonly observed that
such companies hire people are below post graduate degrees. The reason for this characteristic is
that since the company has limited resources and sales, therefore such companies cannot afford
to hire the employees with high base pay, which are demanded by educated candidates.
Therefore, low educated people are the part of such companies.
Dependence on Few Employees
Many SME companies are quite small and have only a very few employees. This limited staff is
required to complete all necessary tasks including innovation, production, marketing, sales and
accounting for the entire business; for example, the owner of the business may also be the
manager who oversees all the areas of the company. This can be a disadvantage if employees do
not have the required skill sets to perform multiple tasks well; however, this type of business
structure promotes long-term stability rather than focusing on short-term results.
Simplicity
The SME is a simple business structure, which allows the company to be very flexible and make
necessary changes quickly without such requirements as addressing board members or
stockholders for approval. This flexibility, however, does not necessarily mean the company is
observing local or national regulations that a board or legal team of a larger organization would
review prior to putting such changes into place.
Size
The small size of the business can be an advantage when it comes to specialization and filling
niche markets with products. However, size can be a disadvantage when it comes to obtaining
financing for the business. Many SMEs rely on personal assets of owners and management to
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finance the company. Limited funds also affect marketing and the ability to reach new markets
with their products due to budget limitations.
Relationships
Most SMEs focus on a small number of products and services; this limited focus lets such
companies establish strong relationships with their business partners, which in turn provides
stability for the SME. An SME typically makes necessary changes to its services or products to
suit clients' needs; the downside of this is that the SME relies very heavily on existing
partnerships and may suffer financially if a relationship is terminated.
BUSINESS CHARACTERSTICS of SMEs
Business
Small-Medium Enterprise (SME)
Large Enterprise (LE)
Characteristics
Holding Pattern
Usually privately held (even family Usually

owned at times)
public
limited
with
defined
company,
shareholding patterns
Location
Restricted to a limited geography Typically,
multi-national
(typically within a country)
presence
Organization Structure
Flat and small
Large, hierarchical, and matrix
Business Units
Limited or no separate business units Multiple business units or

LOBs according to business
Support functions, mostly integrated
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with each other
domains
Supported
by
individual
support divisions or business

enablers
Information
Dependence on IT is low and is Dependence on IT is huge,
Technology*
treated as an enabler
Requirements
which is viewed as a key

business driver
Business might not suffer hugely

even if IT is unavailable for an Business impacts are huge in
elongated time period
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absence of IT
Chapter 3: OPTIMAL BEST PRACTICES

The term Small medium enterprise (SME) stands for businesses with a smaller number of
employees around 10-250, and a smaller turnover and balance sheet compared to large
Corporations and lately there is a growing trend of these organizations in developing countries.
Many countries establish SME Development agencies to coordinate and watch over all
Government interventions for the development of this sector. In fact in Pakistan, a special policy
advisory body called SMEDA has been set up for the government which also aids other
stakeholders in SME development. However smaller firms primarily finance a larger share of
investment with informal sources of finance, such as moneylenders or family and friends. Banks
provide for only 7-8% of the total funding requirement of SMEs locally, the smaller a firm the
lesser funds it receives.
In India, the SME have grown in number as private banks are willing to provide lending to the
firms and a large number of private banks has created a competition for private banks to lend to
fruitful customers. The capital market also offers a large variety of options, letting banks take
more risk by lending to SMEs. The increased lending to SMEs is boosted by the rapid expansion
of these companies. The lending to the SME sector in India grew by 69% between the years
2000-2006. However institutions are less willing to share large amounts like those offered to
large corporations due to insufficient credit information on MSMEs, low market creditability of
SMEs. Also there is a limit to how much these firms can borrow and raise capital. They are
compelled to keep prices close to market mechanism and also absorb high costs of input.
Since Indian SME cannot dictate terms to their customers they face a collection risk in their
receivable portfolio. This affects their liquidity directly, even while default rate is low. Also bank
lending is the primary source of external finance to them only hence their inflows are limited to
this external factor only other than internal sources. From past trends in the year 2006, 43% of
SMEs in Bangladesh, and 95% in India, had a bank account, while a 32% in Bangladesh and
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33% in India, had taken a loan from a bank. The Indian and Bangladeshi SMEs also take finance
their business from financial institution and companies like for example an MFI. Few SMEs in
Pakistan borrow from banks, as compared with SMEs in other countries like India and
Bangladesh as shown in the graph below, they depend more on family and friends.
The small firms standard method for protection against errors or fraud in India and Bangladesh
is to have two or more individuals involved in the recording function. There is a huge gap on
theory and practice of financial management methods in small firms. Retained earnings are the
most preferred source of finance followed by debt and then equity. Very few firms use hybrid
securities as a source of finance. Debt is preferred more by the low growth firms than the high
growth firms. Most of the firms have target dividend payout ratio and dividend changes follow
shift in the long-term sustainable earnings.
As far as awareness of financial practices is concerned, In India a survey of companies of India
was conducted with focus on corporate finance practices with respect to capital budgeting
decisions, cost of capital, capital structure, and dividend policy decisions. The result of a study
shows only 12 techniques are known and level of knowledge is also very limited in SMEs. The
graph below shows the results. Most firms have a tailor made book keeping system and those
which started following the bookkeeping methods saw increase in sales. 90 per cent of small
industrial units, with turnover in the range of a few thousand, function are an unprofessional way.
The following graph illustrates the awareness level of small firms in India.
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Chapter 4: ACTUAL PRACTICES IN PAKISTAN BY SMES

The comparison between the three different small scale enterprises as per their practices, their
accounting policies are as follows:
1) United Catering It is an event management company which came into being 8 years
back. The questionnaire has been filled out by the chief accountant of the company under
the supervision of the CEO of the company who is Muhammad Junaid Hanif Hamidya.
The chief accountant has a Masters degree, has never attended any training program, and
has a background of financial management. It is a service based company of providing
decoration and catering services which is run by a single owner. It consists of 70 part
time and 25 full time employees. The total asset lies between 5.1 to 10 million with the
total annual sale of 10 million. It is a profitable company.
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2) Qasmia Jewellers:
Its a trading company owned by single person (sole proprietorship). Its been established for
more than 10 years. Its an SME with 12 full time employees. Total assets of the company
amounts more than 50 million and the total annual sale ranges between 10.1 to 50 million. Its a
profitable business.
3) CSS Mineral Water Co.

It is a mineral water selling company which came into being 3 years back. The questionnaire has
been filled out by the general manager, M. Farooq, who also happens to be the chief accountant
of the company. He has a B.Com degree, he has a background of working in an audit firm as a
trainee auditor. It is a service based company of providing decoration and catering services
which is run by a two partners. It consists of 15 part time and 5 full time employees. The total
asset lies between less than a million.
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FINANCIAL MANAGEMENT PRACTICES

1) United Catering:
In financial management at United Catering the duty of recording business transactions is of an
accountant. The reports are prepared by the manager and the data is interpreted and analyzed
based on the accounting information is done by the owner himself. It always utilizes computers
in accounting process.
All the applications are closely followed by United Catering such as recording business
transactions, preparing accounting reports, managing assets, controlling payroll, controlling cash
flows etc.
It has an average accounting information system. Prepares the accounting report frequently and
keeps the data updated. The owner has low involvement in preparing the accounting reports and
the accounting reports are useful in making decisions with the help of a computerized accounting
system.
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2) Qasmia Jewelers:
The accounting information system of this SME is really simple. Employed
accountant records business transactions and accounting reports are
prepared by chief accountant then the accounting information is used and
analyzed by manager finance.
They rarely use computer to record their
transactions and the popularly applicable method is managing assets as this

SME deals in gold. This business highly regards its accounting information
system they quarterly prepare their accounting reports. Owner is highly
involved in interpreting and using accounting information. This organization
says that business accounting info is very useful.
3) CSS Mineral Water:
In financial management at CSS Mineral water Company the duty of
recording business transactions and preparation of reports are done by the
manager and the data is interpreted and analyzed based on the accounting
information is done by the owner and manager. It partially uses computers in
accounting process.
Low Regard
1 2
3 4
High Regard
5
7 8
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FINANCIAL REPORTING AND ANALYSIS PRACTICES

1) United Catering:
The kinds of financial statement prepared regularly by United Catering are balance sheet, income
statement, statement of cash flows, statement of fund flows etc. the financial statements are
prepared by the chief accountant and the analysis of those financial statements are done by the
owner himself. And both the things are prepared to monthly basis.
Company is not following any kind of financial analysis types such as ratio analysis etc. but for
the other analysis computers are always used, specifically for financial reporting.
2) Qasmia Jewelers:
Financial Statement of cash flow is regularly prepared in their statements are being prepared by
employed accountant and then analyzed by chief accountant. Financial statements are being
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prepared quarterly and are being analyzed annually. Ratio analysis from past years are being
used by the SME and they never use computer for financial reporting analysis
3)
CSS Mineral Water:
The kinds of financial statement prepared regularly by CSS Mineral water Company are balance
sheet, income statement, statement of cash flows and all are prepared by general manager and the
analysis of those financial statements are done by himself and owner. And both the things are
prepared to monthly basis. All the discussed reports are prepared with the help of QuickBooks
except balance sheet which is prepared with the help of excel. Company is not following any
kind of financial analysis types such as ratio analysis etc.
Financial practices
United Catering
Qasmia Jewelers
9
7
5
CSS Mineral Water Co.
7
5
9
7
9
6
CASH MANAGEMENT PRACTICES

1) United Catering:
United Catering always prepare a cash budget but computers are not always used for this
purpose, usually used for reporting the cash transactions. It doesnt invest its temporary cash
surplus anywhere.
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According to United Catering the cash management practice are very good and are regularly
prepared. The owner has high involvement in it, specifically for analysis of the data. But the cash
theories are very poorly applied by this company.
The target cash balance is somewhat acceptable by the company and these practices are
somewhat computerized.
2) Qasmia Jewelers:
They never prepare cash budget and they often invest the temporary cash surplus in bank deposit.
CSS Mineral water Company always prepare a cash budget but computers are not always used
for this purpose, usually used for reporting the cash transactions. It doesnt invest its temporary
cash surplus anywhere. According to CSS Mineral Water Company the cash management
practice are very good and are regularly prepared. The owner has high involvement in it,
specifically for analysis of the data. But the cash theories are somewhat applied by this company
but not to an optimum extent. Talking about regardless, frequency to prepare,
involvement, interpretation, usefulness applications or targets, then CSS
Mineral Water Co. completely fulfills all the requirements for a being an
efficient follower of cash management practices . As their business is based
on providing and delivering fresh drinking water services and when they
receive any of the cash they immediately update as well as interpret it.
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cash management
9
8
7
6
5
4
3
2
1
0
8
6
4
2
United Catering
Qasmia Jewelers
RECEIVEABLE MANAGEMENT PRACTICES

1) United Catering:
United Catering always sell their products on credit and sometimes set a credit policy for the
customers. And for this computers are always used.
The review of receivables and bad debts are both done on weekly basis. The 3percentage of the
United Caterings bad debt are around 5 to 10% for which computers are applied by United
Catering.
According to United Catering the receivable management is good which is done regularly. The
credit period from creditors is somewhat reasonable. And similar is the case with debtors
account. The discount policy is also reasonable. But for reviewing all the bad debts, it is done
very regularly for receivable management, United Catering does not follow any theories but
computers are well equipped for this management.
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2) Qasmia Jewelers:
They rarely sell products on credit and they never setup their policy according to the customers,
they never use computer in receivable management. They review their level of receivable
quarterly and even review the bad debts. The bad debts are less than 5% in this business.
CSS Mineral water Company sometimes (10-20%) sell their products on credit and sometimes
set a credit policy for the customers with the help of computers that why they dont invest
temporary cash surplus to increase their retained earnings and use this cash in need. The review
of receivables and bad debts are both done on weekly basis.
Recievables Management Practices

10
9
8
7
6
5
4
3
2
1
0
5
3
8
5
5
3
United Catering
4 4
5
3
Qasmia Jewelers
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4
2
7
5
4
2
CSS Mineral Water
INVENTORY MANAGEMENT PRACTICES

1) United Catering:
United Catering reviews the inventory levels not so often but the budgets for inventory are
prepared often and for this purpose computers are used always. The inventory level at United
Catering is obtained through historical data and rarely used EOQ for this.
The inventory management practices are average and the turnover for inventory is not reviewed
often but the inventory turnover is very fast. The inventory level is very much acceptable by
United Catering on the basis of which decisions are made. No theory is applicable in this
management practices but computers are used for all kind of management practices.
2) Qasmia Jewelers:
They often review their inventory level and never prepare inventory budget and never use
computer while managing inventory. Inventory level is determined on the basis of
owner/managers experience. They know about the EOQ model but never used it. Inventory
management is highly practiced in this SME. They dont review their inventory turnover so
regularly but their inventory turnover is more inclined towards fast. Inventory budgets are very
useful in providing information for making decision. They do not apply inventory management
theories. They dont use computer while managing inventory.
3) CSS Mineral Water

CSS Mineral water Co reviews the inventory levels often that are why budgets for inventory are
prepared often and for this purpose computers are used always. The inventory level at CSS
Mineral Water Company is obtained through historical data and never uses EOQ for this.
The inventory management practices are average and the turnover for inventory is strictly
reviewed and the inventory turnover is very fast. The inventory level is very much acceptable by
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CSS Mineral water Co on the basis of which decisions are made. No theory is applicable in this
management practices but MS Excel are used for all kind of management practices.
INVENTORY MANAGEMENT
United Catering
Qasmia Jewelers
8
6

9
4 4
4 4
FIXED ASSET MANAGEMENT PRACTICES

1) United Catering:
United Catering always evaluates its projects before making capital investment and so as it is
reviewed and the computers are always used for this purpose.
For capital management the company used IRR for which computers are again used. The fixed
asset management practices at United Catering are not so good but still are always considered for
the decision making process. Even the capital is not reviewed often and therefore the capital
budgeting is not acceptable by the company. The fixed assets are very much useful for the
business at United Catering and for this computers are always used.
2) Qasmia Jewelers
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They never evaluate its projects before making capital investment decisions. Never review
efficiency of fixed assets after investing and they never use computers in managing fixed assets.
They use net present value for assessing capital projects. Computer isnt used in managing fixed
assets. They have very low regards concerning fixed asset management. Even low regard for
assessing capital project before making decisions. Their business review capital projects at an
average regular level. They dont apply advance techniques of capital budgeting at all. Fixed
asset of their business are being utilized averagely. Fixed assets are not so useful those are
acquired by the business. They dont use computers in their fixed assets management.
CSS Mineral water Company always evaluates its projects before making capital investment and
so as it is reviewed and the computers are always used for this purpose.
For capital management the company used NPV for which computers are again used. The fixed
asset management practices at CSS Mineral water Co. Are not so used regularly but still are
always considered for the decision making process regarding transportation and deliveries. Even
the capital is not reviewed often and therefore the capital budgeting is not acceptable by the
company.
Fixed Asset Management

10
9
8
7
6
5
4
3
2
1
0
4
1
4
2
United Catering
3 3
Qasmia Jewelers
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5
3
9
4
2
FINANCIAL PLANNING PRACTICES

1) United Catering:
United Catering often prepares financial budgets which are always compared with the actual
rests with the help of computers. The objectives of financial planning of United Catering are
sales maximization, cost maximization and profit maximization.
United Catering prepares sales budget, purchase budge, selling and administrative budget and
cash budget. And the owner is responsible for preparing all these budgets. And these budgets are
monthly compared by the owner.
2) Qasmia Jewelers:
This SME sometimes prepare financial budget. Never compare budget and actual results and
never use computer in financial planning. The objective of financial planning is to maximize
profit. Their business regularly prepares sales budget. Financial managers prepare budgets. Their
business averagely regards their financial planning and they prepare their financial budget more
than average. Owner/manager has very low involvement in preparing financial budget.
Owner/manager is averagely involved in interpreting and using financial budgets.
CSS Mineral Water Company often prepares financial budgets which are
always compared with the actual rests with the help of computers. The
objectives of financial planning of CSS Mineral Water Company are sales
maximization, cost minimization, growth profit maximization and quality
service/product.
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CSS Mineral water Co. Prepares sales budget, purchase budge, selling and
administrative budget budgeted balance sheet and cash budget at quarterly
basis. And the owner plus manager is responsible for preparing all these
budgets. And these budgets are monthly compared by the owner and
manager both.
Financial planning
United Catering
7
6
2
Qasmia Jewelers
8
8
5

9
8
4
6
4
3
1
Chapter 5: SUGGESSTIONS FOR IMPROVEMENT

Conclusion:
By comparing all three of the small scale enterprises one thing is common is that they all the
companies does not follow any pertinent rule or regulation, though they fulfill industry norms
according to their product or service but the power of the owner is rights off all other power in
the industry. All three companies have the owner, who is in charge of all the activities directly or
indirectly. All companies prepare their accounting computerized but no accurate data is
maintained.
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Moreover, it has also been analyzed that no SME is having educated pool of employees, and has
the assets less than 5 million which again relates all the SMEs together.
No theory is adopted by any of the SME regarding cash management practices, receivable
management practices and inventory management practices.
Suggestions for Improvement:
The following are the points that need to be correct in order to maintain accounting and financial
data accuracy.
Proper software for preparing, analyzing and reporting should be used.

Employed accountant should be provided with the training sessions in order to make the
accounting system efficient.

Proper theories of inventory management should be applied unlike owners experience.
Furthermore, there are few recommended strategies which shall be adopted by all the SMEs for
their betterment, which are as follows:
Clear Vision and Purpose
Set clear vision for the company. Decide what you want the company to be in the predetermined future. With that, set the vision for the IT project. Define the purposes of the IT
project, what it intends to solve or what it intends to improve.
Build up Strong Management Team
This is easier saying then done. The definition of a strong management team differs from one
CEO to another among the SMEs. This is very much dependent on the background, preference
and management knowledge of the CEO will determine what the management team will be.
It is important to specify the company vision, the business objective, define the business plan and
then determine what type of management skill will be required in the management team to
achieve the company vision. A strong management team with leadership skill and ability to
appreciate technology will make the implementation of IT much easier.
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Culture of Learning and Sharing

Keeping up with knowledge and seeing the world mattered less in the days of lifetime
employment and when technology changed relatively slower. However, due to the rapid changes
of technologies, even companies are trying hard to remain successful for more than two to three
decades. The job nature of each employee also changes more rapidly. In 1990, Digital
Equipment Corp. was the second largest company in the computer industry; a decade later it no
longer exists as an independent company. In the early 1980s nothing could stop IBM; in the
1990s it shed more than 100,000 jobs. The once great British motorcycle industry in nonexistence nowadays.
To survive and to be successful, organization must continue to improve and learn. A culture of
willingness to learn and share knowledge will make the organization transformation much
easier. This will reduce the resistance to change.
Investments in training of management team and staff are necessary. This will open the windows
to the other alternatives of operating the business in more efficient and profitable way.
Resistance to changes is one of the biggest obstacles in any IT implementation or organization
improvement. Having a culture of learning and sharing of knowledge will help to minimize that
effect. The culture of the company can only be molded by the leadership of the top
management. The top management has to lead by example and show willingness to change.
Communicate, Communicate, Communicate
By the way, common sense is not so common. If you want your staff to know what you intend to
do, you have to communicate to them. Never assume that they can read your mind. The fact is
that technology has not advanced to the stage of mind reading.
It is quite common for some top management to ignore communicating their plan or intention to
their staff. This may be due to the usual busy work schedule of the top management or the
intention to keep their plan confidential. There happen more frequently for top management of
SMEs. If the staff do not know the long-term plan and objectives of doing certain tasks, it is
Page 28
very difficult for them to exercise initiative. This in turn, put additional work on the top
management to provide closer supervision and guidance. Staff will be less motivated in carrying
out the task due to the lack of ownership of the task. If the top management cannot have the
basic trust on their staff, it is also very unlikely that their staff will trust them. This distrust will
create obstacles to any organization improvement.
Get External Help
Good external advisors or consultants can induce different way of looking at the business and
expertise in some specific areas.
It is normally not affordable for SMEs to employ high quality management and technical
staff. Besides the salary, experienced management and technical staff are less willing to work in
SME due to the limited career advance prospect. Yet, expertise and experience staffs are
essential for the growth of the company. How can we overcome this? One of the more common
ways is to engage external advisors and consultants on term contract basis to guide and improve
specific business issue. This will also offer the existing staff a chance to learn during the
process. Once the company grow to a larger size, higher quality staffs will then be easier to
attract. Another advantage of engaging external consultants is to take advantage of the
government financial assistance on management consulting project for SMEs.
External Financial Assistance
There are many financial assistance schemes available. Some are from the government agencies
and some are from hardware and software vendors. SMEs can take advantage of these schemes
to minimize their cash flow issues due to the IT project implementation.
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Business Cards
Page 30
References:
Anand Manoj, Corporate finance Practices in India: a Survey. Vikalpa, Vol.27, No.4pp.29-56
December 2002.
Konstans, C. and R.P. Martin (1982). Financial Analysis for Small Business: A Model for
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Financial Management

FINAL TERM REPORT

to reduce unemployment through generation of new employment opportunities,

especially for the rural people;

promotion of small industries

Issues Faced by SMEs

Institute of Business Management

Chapter 2: FINANCIAL CHARACTERSTICS OF SMEs

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BUSINESS CHARACTERSTICS of SMEs

Small-Medium Enterprise (SME)

Large Enterprise (LE)

Usually privately held (even family Usually

Restricted to a limited geography Typically,

(typically within a country)

Flat and small

Large, hierarchical, and matrix

Limited or no separate business units Multiple business units or

Institute of Business Management

with each other

support divisions or business

Dependence on IT is low and is Dependence on IT is huge,

which is viewed as a key

Business might not suffer hugely

Institute of Business Management

Chapter 3: OPTIMAL BEST PRACTICES

Institute of Business Management

Institute of Business Management

Chapter 4: ACTUAL PRACTICES IN PAKISTAN BY SMES

Institute of Business Management

3) CSS Mineral Water Co.

Institute of Business Management

FINANCIAL MANAGEMENT PRACTICES

Institute of Business Management

They rarely use computer to record their

transactions and the popularly applicable method is managing assets as this

Institute of Business Management

FINANCIAL REPORTING AND ANALYSIS PRACTICES

CSS Mineral Water:

CSS Mineral Water Co.

CASH MANAGEMENT PRACTICES

Institute of Business Management

Institute of Business Management

CSS Mineral Water Co.

RECEIVEABLE MANAGEMENT PRACTICES

Institute of Business Management

Recievables Management Practices

Institute of Business Management

CSS Mineral Water

INVENTORY MANAGEMENT PRACTICES

3) CSS Mineral Water

Institute of Business Management

CSS Mineral Water Co.

FIXED ASSET MANAGEMENT PRACTICES

Institute of Business Management

Fixed Asset Management

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CSS Mineral Water Co.

FINANCIAL PLANNING PRACTICES

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CSS Mineral Water Co.

Chapter 5: SUGGESSTIONS FOR IMPROVEMENT

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Proper software for preparing, analyzing and reporting should be used.