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MGT601 - SME Management - Lecture Handout 17

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FINANCIAL FEASIBILITY OF SMES

This lecture deals with the financial feasibility, flow sheets, short term and long term loans, cash flow analysis and financial cost.

Financial Feasibility

It covers the following:

Determination of total financial requirements

It can be done by preparing a financial statement in the following way:

Financial Requirement Statement:

Initial Expense Period 1 Period 2
Expense in product development ------- -------
Legal expense ------- -------
Product testing expenditure ------- -------
Marketing and technical feasibility Expenditure ------- -------
Miscellaneous expense ------- -------
Sub Total(1) ------- -------
Fixed investments ------- -------
Building ------- -------
Equipment and machinery ------- -------
Patents ------- -------
Other equipments ------- -------
Sub Total(2) ------- -------
Operational expenditure ------- -------
Material ------- -------
Wages ------- -------
Sales promotion, distribution ------- -------
Rent, interest, insurance, taxes ------- -------
Contingency ------- -------
Sub Total(3)    
Total 1+2+3 1+2+3

In making the above estimation, provision must be made for cost escalation that is inevitable due to price changes. Besides, appropriate sales forecasts should also be made to have a clear picture of expenditure. The projection could be weekly or monthly.

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MGT601 - SME Management - Lecture Handout 08

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The ROLE Of NGOs

The NGOs are working on socio-economic sector in the development of SMEs. They are privately owned organization registered under the social welfare act. They normally work through grants, aids or donation based finances. They are having a very constructive role in the SME development. The special property of this sector is gender development. They at some places tried to replicate Grameen banks model.

NGO Non-governmental Organization, a non-for-profit agency not affiliated with any government or private sector entity, devoted to managing resources and implementing projects with the goal of addressing social problems. May receive some public funding. NGO is a community based organization with its own management structure. The organization may receive some or all of its operating funds through a government department known as the funder, however it is accountable or answerable to its stakeholders - the people who stand to benefit or lose by its actions. The funder is one of those stakeholders. NGOs play a vital role in development of SME. NGOs helps to reduce poverty, NGOs create awareness in women of rural areas to develop small business in their own premises.

The NGO Business

Non-governmental Organizations (NGOs) have become involved in international trade in recent years in two different ways. The first is to establish fair trade cooperatives to facilitate the export of goods from developing to industrialized countries directly from the producers. Their underlying operating principle is to ensure that more of the profits from the sales of diverse products go to the producer and less to middlemen. Often these products are slightly more expensive than similar goods in the market and these businesses rely on the social conscience of its customers to ensure a steady market for their products.

Another less well-known NGO business strategy is for the NGO itself to take on the role of designer, marketer and distributor of specific products and to work with particularly disadvantaged groups, primarily women, as sub-contractors who are taught to produce the goods that the NGO sells. Thus the NGO, in effect becomes a private sector actor. How they differ from standard private sector producers is in their selection of subcontractors and the fact that all profits are invested back into the organization to ensure organizational sustainability and to expand their base of sub-contractors. Their subcontracting role also serves to empower their sub-contractors as opposed to setting up an exploitative piecework arrangement. It provides a viable means of poor women to set up their own home-based enterprises. The key to the success of this particular strategy is the fact that the NGO takes on the responsibility for the development of the international market for the product produced.

Read more: MGT601 - SME Management - Lecture Handout 08