Sunday, April 25, 2010

Consulting in Small & Medium Business Sector in India - Part 3 of 3

Seven M’s of Small and Medium Business Enterprises

1. Managerial (Lack of experience
2. Monetary (Lack of capital, Poor cost control)
3. Material (Poor location, too much stock)
4. Machines (Excessive purchase of fixed assets)
5. Marketing (Inappropriate products for insufficient markets)
6. Mental (Lack of planning for expansion)
7. Motivation (Wrong attitudes to work and responsibility)

Managerial (Lack of Experience)
Being manager is not an easy task due to the work with the people. From all production factors people are the most intricate to manage. Not everybody feels at ease in managing people. Nonetheless, there are certain personal abilities, which can predict the future efficiency and success of manager. Scholars from Faculty of management in Slovakia tried to identify necessary abilities, roles and skills managers should possessed:

• creativity – ability to search and find new solutions
• intuition – be able to predict future development from own experience without analysis
• goal-oriented – be able to set real goals and respect the goal’s hierarchy
• responsibility – sense for achieving set goals and objectives
• self-confidence – belief in own strength and ability to achieve goals
• initiative – an effort to look for new possibilities and solutions for reaching set goals
• independence – the courage to make decision based on own judgment
• cautiousness – be able to make decision under stress and unsure conditions
• scrupulosity - support social values and norms
• discipline – self-control and regulation of own behavior
• persistence – tenacity needed to overcome barrier when achieving goals
• optimism – orientation towards positive goals and things in connection with faith in success
• fantasy – creation of visions and imaginations about future

Monetary (Lack of capital, poor cost control)
There is one simple reason to understand and observe financial planning in your business - to avoid failure. Eight of ten new businesses fail primarily because of the lack of good financial planning.

Financial planning affects how and on what terms you will be able to attract the funding required to establish, maintain, and expand your business. Financial planning determines the raw materials you can afford to buy, the products you will be able to produce, and whether or not you will be able to market them efficiently. It affects the human and physical resources you will be able to acquire to operate your business. It will be a major determinant of whether or not you will be able to make your hard work profitable.

A clearly conceived, well documented financial plan, establishing goals and including the use of Pro Forma Statements and Budgets to ensure financial control, will demonstrate not only that you know what you want to do, but that you know how to accomplish it. This demonstration is essential to attract the capital required by your business from creditors and investors.

Very simply stated, financial management is the use of financial statements that reflect the financial condition of a business to identify its relative strengths and weaknesses. It enables you to plan, using projections, future financial performance for capital, asset, and personnel requirements to maximize the return on shareholders' investment.

Tools of Financial Planning
The tools required to prepare a financial plan for your business's development, including the following:
• Basic Financial Statements - the Balance Sheet and Statement of Income
• Ratio Analysis - a means by which individual business performance is compared to similar businesses in the same category
• The Pro Forma Statement of Income - a method used to forecast future profitability
• Break-Even Analysis - a method allowing the small business person to calculate the sales level at which a business recovers all its costs or expenses
• The Cash Flow Statement - also known as the Budget identifies the flow of cash into and out of the business
• Pricing formulas and policies - used to calculate profitable selling prices for products and services
• Types and sources of capital available to finance business operations
• Short- and long-term planning considerations necessary to maximize profits

Material (Poor location and too much stock)
Material requirements planning (MRP) is a inventory management system designed to assist production managers in scheduling and placing orders for dependent demand items. Dependent demand items are components of finished goods—such as raw materials, component parts, and subassemblies—for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactured bicycles, dependent demand inventory items might include aluminum, tires, seats, and derailleur.

MRP works backward from a production plan for finished goods to develop requirements for components and raw materials. "MRP begins with a schedule for finished goods that is converted into a schedule of requirements for the subassemblies, component parts, and raw materials needed to produce the finished items in the specified time frame.

MRP breaks down inventory requirements into planning periods so that production can be completed in a timely manner while inventory levels—and related carrying costs—are kept to a minimum. Implemented and used properly, it can help managers plan for capacity needs and allocate production time. But MRP systems can be time consuming and costly to implement, which may put them out of range for some small businesses. In addition, the information that comes out of an MRP system is only as good as the information that goes into it. Companies must maintain current and accurate bills of materials, part numbers, and inventory records if they are to realize the potential benefits of MRP.

Machines (Excessive purchase of fixed assets)
Capital budgeting is the process by which you allocate your resources to produce outputs out of inputs. Thus, capital budgeting is the way you create product and by doing so, increase revenue.

There may be only a few projects that your company can undertake when they first start up. This is why budgeting your money in the most efficient way is so important. If you choose unprofitable or sub-optimal projects, it will be harder to get your company off the ground. However, a few good projects and your cash flows will be streaming. This will also attract investors who see how well you allot your scarce assets.

Allocating your capital in the best way is one of the most important things a company can do. There are a few steps in the capital budgeting process that you need to go through when deciding which projects to undertake.

Marketing (inappropriate products for insufficient markets)
Too many entrepreneurs get wrapped up in what they plan to sell before discovering what their customers want to buy. In this recession economy, that can mean the difference between losing a fortune and making one. Time and again, I get requests for marketing guidance from business owners who’ve invested years perfecting a product or service without knowing the answers to three critical questions:
Exactly who will want to buy this product and why?
How much are they willing to pay?
What will it take to convince prospects to buy from you instead of anyone else?

Pinpoint the Ideal Customer
Imagine you’re starting out with a clean slate. Set aside any preconceived notions of what your current product or service offering must be. In this economy, consumers are emphasizing needs over wants. So ask yourself: What is truly needed in your product or service category? It might be anything, from a machine with fewer moving parts to longer customer service hours. The ideal customer knows what she needs--or at least she knows it when she sees it--so you must craft your product or service accordingly.

Next, decide which prospect group has demonstrated a willingness to pay to fill this need. Don’t spin your wheels developing a product or service before you know there’s a target market that wants to buy it. Better to discover a market searching for a product than to have a product groping to find its niche

Get Pricing in Line
Suppose you’ve spent the last year developing this awesome widget that fills a strong need within an established widget-buying target market. You’re ready to bring your new widget to market, but it will cost $6 while all other similar widgets sell for $2. Assume your widget does something that the others don’t and your prospects know they need this new, advanced product. What should you do?

A few years ago you might have thrown a major advertising campaign behind this advanced product and captured sales from deep-pocketed customers who were willing to pay significantly more for added features. But today your smartest move would be to find a way to introduce your superior widget at close to parity pricing with the old-fashioned widgets. Then, after the market had embraced your new product, you could gradually increase your prices, although probably not as high as three times more than the competing products.

Bottom line, never enter a market unless you know you can produce and sell your product or service for what your targeted prospects are willing to pay.

Factor in Credibility
This is where reality hits. The hard truth is that the merits of the product or service you offer are probably not enough on their own to close sales. When money’s tight, prospects scrutinize every purchase more carefully. Part of bringing a product or service to even the most willing audience is factoring in the time, energy and money it will take to build the credibility required to convince prospects to purchase from you instead of your competition. That means developing an advertising plan, a content-rich website and online marketing that includes PR and social networking. You should market aggressively to sustain sales through the life of the product or service offer, including prior to and during rollout.

Marketing exists to support sales. Once you’ve identified a target market with a clear need and decided how you will fill it, a great marketing campaign will convince these qualified prospects to buy from you.

Mental (Lack of planning for expansion)
We know that passion is a strong feeling or emotion -- something that we desire intensely. As an essential entrepreneurial attitude, passion is the mental and emotional vigor that comes from a soulful place within us. It is our entrepreneurial heartbeat -- the vitality that keeps our work alive and vibrant. As entrepreneurs, we need passion to propel us through the many challenges that can come our way. Passion for our work and our businesses will keep us going through the tough times. As you set out to discover your entrepreneurial passion, take the time to uncover your true interests and skills as well as think through the small business scenarios that best fit your visual impairment. Solicit the support of family, friends, and professionals. Keep your entrepreneurial passion alive by networking with small business owners in your field and carrying out your commitment to lifelong learning.

Motivation (Wrong attitudes to work and responsibility)
Motivation is one of the most powerful driving forces in the workplace. It can mean the difference between tremendous success and failure.

Motivation stems from two sources. The first part of motivation is external or extrinsic (outside the person) sources. Other motivating factors come from internal forces, which are mainly your thoughts, patterns and collective experiences.

However, humans are unique, so what motivates Jack will not necessarily motivate Jill. You -- and only you -- will be able to determine what works.

Take the time to examine what internal and external factors are motivating you as a business owner. What can you do to enhance and refine your motivation to make yourself more productive and more fulfilled?

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