‘ABC’ strategies to sustain small business growth in Least Developing Countries (LDCs)
As the World Economic Forum kicks off in Cape Town, South Africa, this article suggests simple ways small businesses in poor countries around the world can keep their businesses afloat.
I. Maintaining Adequate Financial Records.
The numbers a business generates are an indicator of its health and growth. However, many managers in small businesses tend to fear them and therefore do not maintain control or update them regularly.
It is not good enough to monitor the health of the business with the help of annual reports. This is usually not available until next year, which in terms of knowing the financial health of a business is quite a long time.
There are legitimate reasons why the Owner should ensure that good business records are maintained by providing information to, for example, Inland Revenue, Customs and Excise (for VAT) and the Bank Manager. However, the most important reason above all is that properly kept accounts, summarized at the end of each month and combined with an inventory or inventory valuation, will provide the owner-manager with up-to-date business information. Thus, it would allow the owner-manager to spot danger signs and react while there is still enough time to take corrective action and plan for the future.
II. The development of modern financial management practices.
This is necessary to assess the working capital requirements of the business. Discounted cash flow analysis can be used to support investment decisions (ie 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 dropouts. In the event that most of the products are imported from overseas suppliers, proper currency management is very vital. As mentioned earlier, foreign currency hedging can be used to reduce or reduce the cost of purchasing imported products. This does not mean that small businesses should grow overnight, but it should allow small businesses to identify with modern financial management practices in the early stages of development if they are to sustain the growth achieved.
III. Appropriate financial management strategy
Here’s how to use the available funds to achieve your desired goals. In other words, setting goals so that various financial obligations are met with the best available financial practices, including working capital and current asset management. This would include keeping good records of assets owned by individuals that are used by the business. Periodic assessments of the market value of these assets would be more appropriate. It’s knowing the real value of a business at any given moment.
Introducing a suitable financial and investment strategy would ensure stable and sustainable growth of the company in the future. Reliance on overdrafts as a form of working capital can be alleviated by the owner-manager arranging a fixed-term loan agreement with his bankers. Other sources of financing should be explored, such as business relationships with more than one bank and engagement of business angels. There must be a strategy.
The company should try to take advantage of some of the existing government schemes such as the Business Assistance Fund (BAF) and seek a financial management consultant to help it formulate and implement a strategic financial management plan. Following the above, it is imperative that professional managers participate in the management of the organization. This provides the company with an opportunity to achieve its goal of tapping into the wider economy and the ability to maintain its earnings.
IV. Negotiations and transactions with bankers
There must be negotiations with bankers not only to discuss interest rates and loan maturities, but also to protect the owner-manager’s personal wealth. – i.e. by persuading the bank to agree to new terms so that he would no longer act personally as a guarantor for the business. Also, the owner may agree to pay a percentage point or higher interest to make it possible to separate those assets that belong to him and the business. V. Establish an appropriate Management Information System (MIS)
The use and implementation of information technology in business to facilitate the collection of accurate information or data and the maintenance of business records can act as a powerful competitive weapon. i.e. the introduction of computer hardware and related software for financial management, EPOS (Electronic Point of Sales) machines, accounting software, etc. This should be based on financial planning and forecasting.
VI. Development of a financial management indicator for SMEs
However, the company’s growth has been hampered to some extent by the structural weaknesses inherent in the particular industry. These include, for example, fragmentation, limited distribution channels, lack of concerted effort and coordination, and most importantly, lack of a standard financial policy. Standard financial policy refers to a standard of financial management discipline to be somehow embedded in small business owner-managers. For example, a strict code should be drawn up and enforced to avoid over-trading, over-availability and shortages.
VII. Introduce more differentiated products and be cost effective
Since the market is young and still growing, a policy of increasing market share must be pursued continuously so as to increase inventory turnover and reduce slower moving items. Market share in export markets can be gained through a more proactive and targeted marketing orientation. This system would be much more efficient than the current approach of randomly selecting customers.
Being a small company gives it an advantage as it can become more flexible to meet the demand of its customers. Areas where this can be used include, 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 keeping it high. If people discover the quality of the product, the business will be able to generate more sales through product awareness, training and development programs.
A very rare tactic in Ghanaian business circles, the company is able to maintain market share and increase it by providing its distribution channels with effective after-sales service. This can be done through improved customer service to differentiate products through fast delivery, order acceptance and processing, quick response to inquiries, product availability.
VIII. Creation of a new organizational structure.
Some financial institutions consider the caliber of staff they work with to broker a deal. Hiring skilled workers from outside the family or a motivated workforce. For example, a financial manager, accountant, financial administrator who can double as a secretary. The limited financial resources of small companies usually make it difficult to attract high-quality people in the early years. However, as the company grows, its management demands often increase beyond the capabilities of the original staff. The added workload is usually transferred to the owner, who may simply not be able to handle all the tasks. If the survival and growth of a company depends on mature judgment, then having the best possible decision makers with the right financial background is vital.
IX. Developing a new management style to match the company’s vision.
In small companies, it is often the owner who has the vision for the company and takes care of every detail. Unfortunately, this 100% hands-on management style usually does not allow staff to develop their talents and skills. Staff are not encouraged to think that the boss has not got all the answers. The owner inadvertently usurps the employee’s responsibilities. There is a danger that the staff will not be able to use their initiative when the owner is away. To this end, it is suggested that the owner develop an organizational leadership style. This would enable employees to realize their potential and his expectations of them. This can be achieved through training so that they can perform their roles and responsibilities effectively.
X. Develop a financial plan to address the following:
Sales and Distribution This mechanism is used to deliver the products and services to the customers ie. the company’s own sales force should be used for direct marketing. Alternatively, other distributors and retailers can be used or one’s own outlets can be established. This is expected to boost distribution, which has proven to be a problem for most SMEs.
Pricing and Discount Strategy – Current practice within the business is for the owner and staff to charge different prices to different customers based on their judgment of the customer’s ability to pay. This creates some confusion among some customers. Although the actual price list is not critical, the general price structure and the rationale behind that structure should be provided. Consideration should be given to the policy regarding discounts and price changes, as well as the impact of a pricing strategy as a whole on gross profit (revenue minus cost of goods sold). Homestretch Venture, for example, offered indirect hairdressing fee reimbursement by providing free drinks to customers on very busy days, including Sundays, when competition in the hairdressing business is high.
Future marketing activities and the corresponding budget This is intended to show how the overall marketing efforts will be organized and how the resources in the business will be allocated between the different marketing tools. Sales strategies must be formulated in each market to perpetuate future growth. e.g. establishing agencies in other parts of the country and expanding relationships with suppliers, etc. This strategy would be replicated by large retail and manufacturing firms in Ghana that have been successful in 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 short, basic terms. One way to achieve this is to focus on the concept and creative content of the communication campaign. For example, the equipment to be used and the vehicles to be used, such as electronic media, print media or direct mail.
The services of an outside agency to assist with promotion and advertising should be explored. Although FM stations are popular, other means should be sought to build the corporate image of SMEs. Contacts should also be made with local media outlets that write or broadcast information about businesses in the Community – ie. newspapers, radio and television. This is believed to reduce costs but generate the necessary sales and returns, thereby providing the necessary cash flow.
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