Investing With Impact: Why Finance Is A Force For Good ‘ABC’ Strategies to Sustain Growth of Small Businesses in The Least Developing Countries (LDC)

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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 that small businesses in the world’s poorest countries can keep their business above water.

I. Keep proper financial records.

The numbers that businesses generate are indices of their health and growth. However, many managers in small businesses tend to positively fear them and therefore do not control or update them regularly.

It is not enough to monitor the health condition of a business using an Annual account. This usually doesn’t exist until the following year which in terms of knowing the financial position of a business is still quite a long time.

There are good reasons why Owners should ensure that good business records are kept, providing information for example to 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 stock taking or stock value estimates, will provide the Owner-Manager with up-to-date information. information about the business. As such, this will allow the Owner-Manager to spot any red flags and react while there is sufficient time to take corrective action and plan for the future.

II. Development of Modern Financial Management Practices.

This is necessary to evaluate the working capital needs of the business. Discounted cash flow analysis can be used to support investment decisions (ie importing and exporting goods). Financial management practices such as discounting cash flow analysis can be added to the Ghanaian primary school curriculum in the early school years as most small or medium enterprises (SMEs) employ a large number of out-of-school children. In the case that most products are imported from overseas suppliers, proper currency management is essential. As previously mentioned, foreign currency hedging can be used to reduce or lower the cost of purchasing imported products. This is not to say that a small business must grow overnight but to allow a small business to identify with modern financial management practices in the early stages of its development if the growth gained is to be sustained.

I, I, I. The right financial management strategy

This is how to utilize the available funds to achieve the desired goals. In other words, setting goals for various financial obligations to be met by best available financial practices involving working capital and current asset management. This will involve proper record keeping of assets owned by individuals used by the business. Periodic estimates of the market value of these assets will be more precise. This is to know the true value of the business at any point in time.

The introduction of the right financial and investment strategy will provide a stable and sustainable growth for the company in the future. Reliance on overdrafts as a form of working capital can be reduced by an Owner-manager arrangement with his Banker to have a fixed term loan agreement. Other sources of finance such as having business relationships with more than one bank and involving business angels should be explored. It must have a strategy.

Companies must take advantage of several existing government schemes, such as the Business Assistance Fund (BAF) and ask a financial management consultant to assist them in the formulation and implementation of a financial management strategic plan. Following on from the above, it is very important that professional Managers are involved in managing the organization. This gives the company the opportunity to achieve its goals of entering the wider economy and the ability to maintain its profits.

IV. Negotiation and dealing with Bankers

There must be negotiation with the Banker, not only to discuss loan rates and maturity, but also to protect the Owner-manager’s personal wealth. -namely by persuading the bank to agree to new terms so that he no longer acts personally as guarantor for the business. In addition, the Owner may agree to pay a higher percentage point or interest to allow for the separation of his or her assets and those of the business. V. Setting up a suitable Management Information System (MIS).

The use and introduction of information technology in business to facilitate the collection of accurate information or data, and the retention of business records, can act as a powerful competitive weapon. namely the introduction of relevant computer hardware and financial management software, EPOS (Electronic Point of Sales) machines, accounting software and so on. This should be based on financial planning and estimates.

VI. Develop financial management benchmarks for SMEs

The company’s growth, however, is to some extent hindered by the inherent structural weaknesses of certain industries. These include, for example, fragmentation, limited distribution channels, lack of concerted effort and coordination, and most importantly no standard financial policy. By standard financial policies, it is intended as a benchmark for the financial management discipline that is somehow ingrained in small business owner-managers. For example, strict avoidance codes on over trading, overstocking and understocking should be outlined and enforced.

VII. Introducing more differentiated and cost-effective products

Because the market is still young and still developing, the policy of increasing market share must be continuously pursued so that stock turnover increases and slow-moving goods decrease. Market share in the export market can be obtained through a more proactive and targeted marketing orientation. This system will be much more efficient than the current client random selection approach.

Being a small company, this is advantageous because it can be more flexible to meet the demands of its customers. Areas where this could be exploited include, for example, delivery times, quality, order processing and new product launches and customer service. It can also sustain business by strengthening quality and keeping it at a high level. If people know the quality of the product, the business will be able to generate more sales through product knowledge, training and development programs.

A very rare tactic among Ghanaian businesses, a company can maintain its market share and increase it by providing its distribution channels with efficient after-sales services. This can be done by improving customer service to differentiate products through fast delivery, order picking and processing, quick responses to inquiries, product availability.

VIII. Creation of a new organizational structure.

Some financial institutions consider the quality of the personnel they deal with to broker deals in a transaction. Hiring skilled workers outside the family, or a motivated workforce. For example Finance Manager, Account Clerk, Financial Administrator who can double as Secretary. The limited financial resources of small companies usually make it difficult for them to attract high quality people in the early years. However, as a company grows, its managerial requirements often increase beyond the capabilities of its original staff. The additional workload is usually shifted to the Owner who may not be able to handle all the tasks at hand. If a company’s survival and growth depend on sound judgment, then having the best decision makers with adequate financial background is essential.

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

In small companies, it is often the Owner who has the vision for the company and pays attention to every detail. Unfortunately, this 100% hands-on style of management usually doesn’t allow staff to develop their talents and skills. Staff are not encouraged to think that the boss doesn’t get all the answers. Inadvertently, the Owner usurps the employee’s responsibility. There is a danger that the Staff may not be able to use the initiative while the Owner is away. For this purpose, it is proposed that the Owner develop an organizational leadership style. This will enable employees to fulfill their potential and expectations 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 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 set up their own retail outlets. This is expected to increase distribution which is found to be a problem for most of the SMEs.

Pricing & discounting strategies – Current practice in business is for Owners and Staff to charge different customers different prices based on their assessment of the client’s ability to pay. This created some confusion among some customers. While the actual price list is not essential, the general pricing structure and the rationale behind this structure should be provided. Policies regarding discounts and price changes should be addressed as well as the impact of the overall pricing strategy on gross profit (revenue less cost of goods sold). Homestretch Venture for example proposes to indirectly recover costs from hairdressing services by giving free drinks to clients on particularly busy days including Sundays when competition for the hairdressing business is intense.

Future Marketing Activities and Associated Budgets This is intended to show how the overall marketing effort will be organized and how the resources in the business will be allocated among the various marketing tools. A sales strategy must be formulated in each market to sustain future growth. For example. setting up institutions in other parts of the country and expanding relationships with suppliers and so on. This strategy will be a replica of the large retail and manufacturing companies in Ghana that have successfully used the strategy. Advertising, public relations, and promotion-These will play a significant role in the company’s efforts to generate sales. Business intent in this case should be conveyed in concise basic terms. One way to achieve this is to focus on the concept and creative content of the communications campaign. For example the equipment to be used, and the vehicles to be used, such as electronic media, print media, or direct mail.

Outside agency services should be explored to assist with promotion and advertising. Although FM stations are popular, other ways must be sought to build the SME’s corporate image. Contact should also be made with local media that write or broadcast information about businesses in the Community – ie newspapers, radio and television. This is believed to reduce costs but generate the required sales and returns, thereby providing the required cash flow.

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