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,
[email protected] 24 Assistant Professor, Department of MBA, Swarna Bharathi Institute of Science and Technology, Telangana, India,
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.
REFERENCES
1. C., Paramasiva, & T., Subramanyam. (2013). Recent trends and challenges in Financial Management. New age
International Publications Limited.
2. Sudharshan, Reddy. (2013). Financial Management (3rd Revised Edition). Himalaya Publishing House Limted.
3. Chandra, Hariharan iyer. (2014). Financial Management Recent trends in Practical Application. International book
Publishers Private Limited.
4. Brian, Finch. (2014). Effective Financial Management Cresting. New Delhi: Success Source Books Publishers Private
Limited.
5. Retrieved from http://www.slideshare.net/sandeepkumarbondre/financial-management-wwwaccfilecom
6. Retrieved from http://newagepublishers.com/samplechapter/001683.pdf
7. Retrieved from http://www.slideshare.net/kishore2rock/financial-management-10587304
8. Retrieved from http://www.quickbooks.in/r/money-finance/small-beginnings-big-possibilities/
9. Retrieved from http://www.academia.edu/9261951/OBJECTIVES_OF_FINANCIAL_MANAGEMENT
10. Retrieved from http://godfreychege.blogspot.com/2014/01/argument-for-and-against-profit-and_9.html
11. Retrieved from http://godfreychege.blogspot.in/2014/01/argument-for-and-against-profit-and_9.html
12. Retrieved from http://www.quickbooks.in/r/money-finance/four-ways-to-attract-venture-capitalists/
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
13. Retrieved from http://mvn.edu.in/mvnlms/mod/book/view.php?id=974
14. Retrieved from http://www.quickbooks.in/r/money-finance/5-financial-management-trends-for-small-businesses/
15. Retrieved from http://quincyharrington.blogspot.com/2015/08/quincy-harrington-5-finance-management-tips-for-small-
b...
16. Retrieved from http://www.bms.co.in/profit-maximization/
17. Retrieved from http://mvn.edu.in/mvnlms/mod/book/view.php?id=971&chapterid=217
18. Retrieved from http://mvn.edu.in/mvnlms/mod/book/view.php?id=971
19. Retrieved from http://mvn.edu.in/mvnlms/mod/book/view.php?id=971&chapterid=214
20. Retrieved from http://www.intuit.in/html/time-to-finacial-health.html
21. Retrieved from http://janechiang.com/financial-management.html
22. Retrieved from https://relivingmbadays.wordpress.com/2013/04/28/objective-of-financial-management/
23. Retrieved from https://relivingmbadays.wordpress.com/2013/04/28/objective-of...
24. Retrieved from http://www.dnaindia.com/money/report-85-small-business-owners-start-with-personal-savings-survey-
208...
25. Retrieved from http://www.bms.co.in/unfavourable-arguments-for-profit-maximization/
26. Retrieved from http://www.quickbooks.in/r/money-finance/small-investment-big-reward/
27. Retrieved from http://www.quickbooks.in/r/money-finance/
28. Retrieved from
http://economictimes.indiatimes.com/small-biz/money/financial-management-critical-for-small-business...
29. Retrieved from http://www.fisme.org.in/newsletters/Jan01_2015/
30. Retrieved from http://www.ami-partners.com/blog/2013/06/04/lower-cost-mobile-phones-outpace-mobile-phone-giants-
in-...
31. Retrieved from http://www.franchiseindia.com/entrepreneur/article/features/ecosystem/latest/2/
32. Retrieved from http://www.mbaknol.com/financial-management/financial-management-definition-and-its-features/
33. Retrieved from http://www.ukessays.com/essays/finance/relative-merit-demerit-alternative-goals-of-finance-function-...
*****