Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1904 |P a g e

RECENT TRENDS IN FINANCIAL MANAGEMENT

IN DEVELOPING SMALL BUSINESS ENTERPRISES

Manmohan Tiwari23 Dr. K. Sirisha24

ABSTRACT

Business concern needs finance to meet their requirements in the economic world. Any kind of business activity depends on

the finance. Hence, it is called as lifeblood of business organization. Whether the business concerns are big or small, they

need finance to fulfill their business activities. In the modern world, all the activities are concerned with the economic

activities and very particular to earning profit through any venture or activities. The entire business activities are directly

related with making profit. Finance may be defined as the art and science of managing money. It includes financial service

and financial instruments. Finance also is referred as the provision of money at the time when it is needed. Finance function is

the procurement of funds and their effective utilization in business concerns. Main aim of any kind of economic activity is

earning profit. A business concern is also functioning mainly for earning profit. Profit is the measuring techniques to

understand the business efficiency of the concern. Profit maximization is also the traditional and narrow approach, which

aims at, maximizes the profit of the concern. Being an entrepreneur and managing your business finances is not an easy

combination of roles to take on. Yet, the earlier you start, the better it is.

They say everything comes at a price, and this is so true in the case of businesses where you need investments to earn your

profits. Getting your investment capital together is perhaps the most daunting task while starting a new venture. In addition,

this is where venture capitalists can come to your rescue. You must optimize your plans of attracting professional investment

in accordance with your business structure and practice. Presently, venture capital is one of the simplest routes of putting

your investment together.

KEYWORDS

Financial Management, Challenges, Small Business Enterprises, Venture Capitalists etc.

INTRODUCTION

Business concern needs finance to meet their requirements in the economic world. Any kind of business activity depends on the

finance. Hence, it is called as lifeblood of business organization. Whether the business concerns are big or small, they need

finance to fulfill their business activities. In the modern world, all the activities are concerned with the economic activities and

very particular to earning profit through any venture or activities. The entire business activities are directly related with making

profit. (According to the economics concept of factors of production, rent given to landlord, wage given to labour, interest given

to capital and profit given to shareholders or proprietors), a business concern needs finance to meet all the requirements. Hence,

finance may be called as capital, investment, fund etc., but each term is having different meanings and unique characters.

Increasing the profit is the main aim of any kind of economic activity.

Finance may be defined as the art and science of managing money. It includes financial service and financial instruments. Finance

also is referred as the provision of money at the time when it is needed. Finance function is the procurement of funds and their

effective utilization in business concerns.

The concept of finance includes capital, funds, money, and amount. However, each word is having unique meaning. Studying and

understanding the concept of finance become an important part of the business concern.

According to Oxford dictionary, the word „finance‟ connotes „management of money‟. Webster’s Ninth New Collegiate

Dictionary defines finance as “the Science on study of the management of funds‟ and the management of fund as the system that

includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.

According to the Encyclopedia of Social Sciences, “Corporation finance deals with the financial problems of corporate

enterprises. These problems include the financial aspects of the promotion of new enterprises and their administration during early

development, the accounting problems connected with the distinction between capital and income, the administrative questions

23 Assistant Professor, Department of MBA, Swarna Bharathi Institute of Science and Technology, Telangana, India,

manus.tiwari@gmail.com 24 Assistant Professor, Department of MBA, Swarna Bharathi Institute of Science and Technology, Telangana, India,

kandirajusirisha@gmail.com

Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1905 |P a g e

created by growth and expansion, and finally, the financial adjustments required for the bolstering up or rehabilitation of a

corporation which has come into financial difficulties”.

Financial management is an integral part of overall management. It is concerned with the duties of the financial managers in the

business firm. The term financial management has been defined by Solomon, “It is concerned with the efficient use of an

important economic resource namely, capital funds”. The most popular and acceptable definition of financial management as

given by S.C. Kuchal is that “Financial Management deals with procurement of funds and their effective utilization in the

business”.

Howard and Upton: Financial management “as an application of general managerial principles to the area of financial decision-

making.

Weston and Brigham: Financial management “is an area of financial decision-making, harmonizing individual motives and

enterprise goals”.

Joshep and Massie: Financial management “is the operational activity of a business that is responsible for obtaining and

effectively utilizing the funds necessary for efficient operations. Thus, Financial Management is mainly concerned with the

effective funds management in the business. In simple words, Financial Management as practiced by business firms can be called

as Corporation Finance or Business Finance.

OBJECTIVES OF FINANCIAL MANAGEMENT

Effective procurement and efficient use of finance lead to proper utilization of the finance by the business concern. It is the

essential part of the financial manager. Hence, the financial manager must determine the basic objectives of the financial

management. Objectives of Financial Management may be broadly divided into two parts such as:

Profit Maximization

Main aim of any kind of economic activity is earning profit. A business concern is also functioning mainly for earning profit.

Profit is the measuring techniques to understand the business efficiency of the concern. Profit maximization is also the traditional

and narrow approach, which aims at, maximizes the profit of the concern. Profit maximization consists of the following important

features.

Profit maximization is also called as cashing per share maximization. It leads to maximize the business operation for

profit maximization.

Ultimate aim of the business concern is earning profit; hence, it considers all the possible ways to increase the

profitability of the concern.

Profit is the parameter of measuring the efficiency of the business concern. Therefore, it shows the entire position of the

business concern.

Profit maximization objectives help to reduce the risk of the business.

Favourable Arguments for Profit Maximization

The following important points are in support of the profit maximization objectives of the business concern:

Main aim is earning profit.

Profit is the parameter of the business operation.

Profit reduces risk of the business concern.

Profit is the main source of finance.

Profitability meets the social needs also.

Unfavourable Arguments for Profit Maximization

The following important points are against the objectives of profit maximization:

Profit maximization leads to exploiting workers and consumers.

Profit maximization creates immoral practices such as corrupt practice, unfair trade practice, etc.

Profit maximization objectives leads to inequalities among the stakeholders such as customers, suppliers, public

shareholders, etc.

Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1906 |P a g e

Drawbacks of Profit Maximization

Profit maximization objective consists of certain drawback also:

It is vague: In this objective, profit is not defined precisely or correctly. It creates some unnecessary opinion regarding

earning habits of the business concern.

It ignores the time value of money: Profit maximization does not consider the time value of money or the net present

value of the cash inflow. It leads certain differences between the actual cash inflow and net present cash flow during a

particular period.

It ignores risk: Profit maximization does not consider risk of the business concern. Risks may be internal or external

which will affect the overall operation of the business concern.

Wealth Maximization

Wealth maximization is one of the modern approaches, which involves latest innovations and improvements in the field of the

business concern. The term wealth means shareholder wealth or the wealth of the persons those who are involved in the business

concern. Wealth maximization is also known as value maximization or net present worth maximization. This objective is a

universally accepted concept in the field of business.

Favourable Arguments for Wealth Maximization

Wealth maximization is superior to the profit maximization because the main aim of the business concern under this

concept is to improve the value or wealth of the shareholders.

Wealth maximization considers the comparison of the value to cost associated with the business concern. Total value

detected from the total cost incurred for the business operation. It provides extract value of the business concern.

Wealth maximization considers both time and risk of the business concern.

Wealth maximization provides efficient allocation of resources.

It ensures the economic interest of the society.

Unfavourable Arguments for Wealth Maximization

Wealth maximization leads to prescriptive idea of the business concern but it may not be suitable to present day

business activities.

Wealth maximization is nothing, it is also profit maximization, and it is the indirect name of the profit maximization.

Wealth maximization creates ownership-management controversy. Management alone enjoys certain benefits.

The ultimate aim of the wealth maximization objectives is to maximize the profit.

Wealth maximization can be activated only with the help of the profitable position of the business concern.

ROLE OF STRATEGY IN THE BUSINESS

Why Your Financial Strategy is Essential for Your Business

Being an entrepreneur and managing your business finances is not an easy combination of roles to take on. Yet, the earlier you

start, the better it is. Small businesses in India do not spend adequate time to manage their finances early on, and this does create

an issue for the survival of these businesses. However, more and more businesses are realizing its significance and trying to tackle

this problem head on.

How Small Businesses manage their Company’s Finances

When Intuit India commissioned a survey on small businesses, and asked around 350 small businesses about the company‟s

priorities and what they could have done differently, they came up with some interesting answers. Around 78% wished to improve

their financial management skills in the financial year. Nearly 75% of small business owners we spoke to are prioritizing

investment in financial management for better visibility and control of their business. In addition, almost 75% of small businesses

understand the need to educate themselves on financial management – from the point of view of areas of investments, and the

associated areas of impact. This trend is seen even among companies that have been in existence for a few years, and is certainly

not just an issue faced by the new companies alone.

Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1907 |P a g e

When Managing Finances on Time Matter

Being an entrepreneur and managing your business finances is not an easy combination of roles to take on. Yet, the earlier you

start, the better it is.Small businesses in India do not spend adequate time to manage their finances early on, and this does create

an issue for the survival of these businesses. However, more and more businesses are realizing its significance and trying to tackle

this problem head on.

Therefore, what stops business owners from taking an active interest in financial management early on? This is a key cultural

barrier. Traditionally businesses have depended on CA‟s and accountants to take care of their financial requirements. Conversely,

the accountants commonly have limited access to business processes and objectives. Fallout is that accountants and bookkeepers

often retrofit generic accounting tools into the business. This often limits the business for opportunities to be flexible and agile in

financial management processes.

Small business owners need to acknowledge the fact that adopting financial tools does not necessarily mean scaling down the role

of an accountant, but in truth, it enhances the productivity of the accountant.

When asked why they needed to spend more time with financial management now vs. when they started up, around 92% of them

have cited business expansion as the reason for getting their finances in shape. Some other reasons cited are more invoicing

(71%), aggressive marketing (64%), and more customers than expected (63%).

54% of business owners felt that the first year of operations was the most difficult because they did not invest in financial

management. The majority said they eventually had to invest time in understanding the financials of a larger, more complex

business.

Accounting: From Support Function to Strategic Advantage

Defining a financial management goal at the onset of your business makes a lot of sense for a business owner. What you see is

what you believe, and what you believe is what you work for.

Intuit India‟s Vice President and Managing Director, Nikhil Arora, said, „Small businesses need to understand the importance of

having clear visibility of their finances, only then will they be able to make informed decisions for the betterment of their business.

Visibility enables business owners to incorporate better tools and processes into their existing systems. If executed well financial

management will evolve from a mere support function to a strategic advantage.‟

Therefore, here are some starting points for small biz owners:

At the end of financial year, take stock of your finances,

At the beginning of the new financial year, check if you have the right tools to check financial health,

Set new financial goals for the new financial year,

First three years are important to set your financial management vision,

Financial planning at the right time can take your business ahead, so don‟t sit on taking those firm decisions,

Invest in technology. Cloud, with its ease of access and low cost, can be the right partner for your small company.

For an insightful journey of being a small biz entrepreneur, read our white paper, Financial Management – An Essential Tool for a

Healthy Business.

The white paper, commissioned by Intuit India, reveals essential data on financial management trends and practices amongst small

business in India. “Financial Management – An Essential Tool for a Healthy Business,” represents data collected via qualitative

and quantitative interviews with 350 Indian small businesses. The small businesses researched have a full-time employee strength

ranging from one to 99 and annual revenue falling in the range of less than INR 60 crores.

FIVE MOST IMPORTANT FINANCIAL MANAGEMENT TRENDS FOR SMALL BUSINESSES

Amongst the various challenges that small business owners face, one of the most important ones is the efficient management of

finances. While starting a business, revenue fluctuations are common and owners struggle to have a steady income. Rising

manpower costs and spends on technology add to the burden of managing finances better. To ease up their life, small business

owners can follow the below financial management tips which will help them to sail through initial finance-related challenges and

even help them foresee them. Tapping into the latest technological solutions at the earliest will prove helpful and business owners

should not ignore them.

Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1908 |P a g e

Cloud Computing Solutions

Latest reports suggest that more and more small businesses are adopting for finance management solutions available on

cloud due to the many free or low-cost options available and lower barriers to entry. The trend is fast catching on as

spending on technology is proving to be far more affordable instead of hiring more people.

Managing bills and finances in it is a complicated task and can get stressful as well. Many companies are seeing the

opportunity to help small business in this area. There are several accounting software available on cloud which help in

not only sorting out the finances better but also help in taking effective business decisions.

Supply Chain Management

To efficiently manage supply chain, small business owners should ensure that there is tight supervision in the process and

sees to it that they rule out the possibilities of intermediaries who may add up to the extra costs. Efficient supply chain

management would be more prevalent to B2C. Such businesses should reassess the supply chain process from time to

time.

Being Prepared for Risky Times

The global financial crisis in 2008 has taught businesses to be prepared for all possible type of risks. Hence, risk

assessments should be an integral part of business and finance planning. Small businesses should be extremely careful

while managing cash flow and ensure they have a risk strategy in place in case there is any turbulence in the business

environment.

Go Paperless

One can be surprised with the amount of saving one can do by deciding to go paperless. Will it not only ensure cost

reduction in the business but will also help you do your bit for the environment. Clients will love to collaborate with

businesses, which are more aware of the societal and environmental needs.

Latching on to BYOD trend

It is unlikely that the Bring Your Own Device (BYOD) bug has not bitten new businesses. Smart entrepreneurs are using

and promoting the use of gadgets like smartphones; tablets during work hours, which help them, close on things faster.

An AMI report states that spending on smart phones in India among SMBs increased steadily. According to AMI‟s 2013

India SMB ICT & Cloud Services Tracker Overview, 55% of small businesses and 43% of medium sized businesses

currently have BYOD policies implemented. The report also states that SMBs enjoy several cost benefits with the

implementation of such policies. These include cost savings on hardware, increased employee productivity, as they are

able to access their devices anytime anywhere.

FOUR NEW TRENDS TO ATTRACT VENTURE CAPITALISTS

They say everything comes at a price, and this is so true in the case of businesses where you need investments to earn your profits.

Getting your investment capital together is perhaps the most daunting task while starting a new venture. In addition, this is where

venture capitalists can come to your rescue. You must optimize your plans of attracting professional investment in accordance

with your business structure and practice. Presently, venture capital is one of the simplest routes of putting your investment

together. Attracting venture capitalists to invest in your business, however, is not a piece of cake and you must be aware of certain

administrative control these capitalists will inevitably exert on your venture. However, keeping the willingness of venture

capitalists in undertaking high-risk ventures, there are a few points to be kept in mind to almost surely attracting them to invest in

yours.

Propose Your Business and Showcase Your Team

The first thing to keep in mind is creating an impressive value proposition. Your business must be unique enough to stand out

among the thousands of start-ups being born every day. Determining consumer interest is something many of these capitalists will

look at and putting forth a sample output of your business can be intriguing for them. You must also keep track of your market

opportunities since it will be a big issue for the venture capitalists in deciding whether to invest in your business or not. Prahar

Shah, CEO of Mobee, emphasizes the relevance of recognizing your market potential. Future profit is a basic thing any business

personnel will look into.

Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1909 |P a g e

Along with your business plan, however, investors will also be looking out for a team of professionals that are capable of

executing the business motives and achieving the targeted goals. Besides taking your venture forward, a team of diversely talented

individuals with strong essences of passion, tenacity, and commitment is sure to attract many an investor to dabble in your

venture.

Promote Your Product

Discussing the potential of investing in your research and development is a strict no-no. Capitalists will only be interested in

investing in a product that is ready for the market. You must defend your product or service as filling a specific market void and

capable of disrupting present market trends to your advantage. Keep your arguments factual while explaining the various aspects

of your products or services. Make a professional presentation, discussing aspects such profitability, repeatability, non-replicable

nature and market sustainability.

Create a Buzz

We all know the benefits of networking. Networking also acts as a great tool for attracting elusive capital. Get talking with expats

and professionals from the industry you will venture. Promote your new venture subtly and create a buzz for your forthcoming

developments. Listen for relevant industry conversations that might be taking place on the digital space. In that light, small-scale

digital promotions are a great way to get people talking about your business. Television coverage or a mention in print journalism

can also help you catch the eyes of potential investors.

Start Small. Dream Big

Let us face it. Investors are always on the lookout for the next big thing. Do not target or even expect your dream capital to walk

up to your door. Start with smaller investments and slowly build up to your dream brand. Promote the social and cultural impacts

of your venture – these are factors venture capitalists will be keeping an eye out for. Your business venture must be grounded in

reality but preferably break into pop market trend.

Your new business is like a baby you put everything within your capabilities to nurture and nourish. The right kind of capital and

investment can make or break your dreams. Putting together an appropriate business model and proper investment are definitely

the most crucial factors in deciding the fate of your success.

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Volume 4, Number 3, July – September’ 2015

ISSN (Print):2279-0896, (Online):2279-090X

PEZZOTTAITE JOURNALS SJIF (2012): 2.844, SJIF (2013): 5.049, SJIF (2014): 5.81

International Journal of Applied Financial Management Perspectives © Pezzottaite Journals. 1910 |P a g e

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