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MGT601 - SME Management - Lecture Handout 05

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SMALL ENTREPRENEUR IN PAKISTAN AND ROLE OF SME IN GLOBAL AND REGIONAL LEVEL

This lecture will introduce the small entrepreneur in Pakistan the activities of SMEs in global and regional level. It will also reveal the role of SMEs in a developing economy.

Salient Features of Small Entrepreneurs in Pakistan

  1. Single Owner Entrepreneur
    He works with his own hands, combines the entrepreneur function of initiating the business making investments, taking decisions and performing managerial functions.
  2. Age Pattern
    The mean age of entrepreneur was found to be 42 years and of their enterprises 12 years. It is comparable to the Korean age pattern (46).
  3. Educational Level
    Differing from industry to industry 60% have school education and 30% have college or better education only 10% have professional or graduation level.
  4. Social Background
    Caste played an important role in certain industries and on the other hand heritage is dominant. But overall it is much diversified.
  5. Sizes and Investment
    Majority started in a small way with less than 10 workers and 1/2 to 2/3 of the firms started with less than 50,000 investments.
  6. Growth
    The growth was fast in case of small firms than in large firms.
  7. Profitability
    Rate of profit is higher in case of small industries in comparison with the large industries.

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MGT602 - Entrepreneurship - Lecture Handout 41

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PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT
DECISIONS (Continued….)

LONG-TERM VS SHORT-TERM DEBT

The entrepreneur may need to borrow funds to finance assets and meet cash needs. Fixed assets are usually financed by long-term debt borrowed from a bank. Alternatives include borrowing from family members, having partners contribute more funds or selling corporate stock. Many of these options require the entrepreneur to give up some equity.

MANAGING COSTS AND PROFITS

An interim income statement helps to compare the actual with the budgeted amount for that period. The most effective use of the interim income statement is to establish cost standards and compare the actual with the budgeted amount for that time period. Costs are budgeted based on percentages of net sales. These percentages can be compared with actual percentages to see where tighter cost controls may be necessary. This lets the entrepreneur manage and control costs before it is too late. In later years, it is also helpful to look back on the first year of operation and make comparisons month-to-month. When expenses or costs are much higher than budgeted, the entrepreneur may need to determine the exact cause. Comparison of actual and budgeted expenses can be misleading for ventures with multiple products or services. For financial reporting purposes, the income statement summarizes expenses across all products and services.
This does not indicate the marketing cost for each product nor should the most profitable product. Allocating expenses over product lines be done as effectively as possible to avoid arbitrary allocation of costs.

Read more: MGT602 - Entrepreneurship - Lecture Handout 41