Dr N. SUNDARAM

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Nov 10, 2013 (3 years and 9 months ago)

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Need and Importance of Financial
Management to MSME

Dr N. SUNDARAM

Associate Professor, SSL, VIT University.

Micro Small & Medium
Enterprises


The

Government

of

India

passed

in

June

2006

an

act

regarding

the

Micro

,

Small

,

and

Medium

Enterprises

.

The

Micro

,

Small

and

Medium

Enterprise

Development

Act

,
2006

(MSMEDA

)




The

Act

accomplishes

many

long

-
standing

goals

of

the

government

and

stakeholders

in

the

MSME

sector

.



The new definition has expanded the P&M limits

;


The new categorization is as follows :
-



Micro Manufacturing : P&M* Less than Rs 25 lacs
Micro Service : Equipments* Less than Rs10


lacs



Small Manufacturing : Less than Rs 5 crore


Small Service : Less than Rs 2 crore



Medium Manufacturing : Less than Rs 10 crore
Medium Service : Less than Rs 5 crore



*Original cost excluding Land and building and furniture,
fittings and such items, specifically excluded



Meaning


Financial

Management

entails planning for the future for a
person or a business enterprise to ensure a positive

cash flow.



It includes the administration and maintenance of financial
assets.


Besides, financial management covers the process of
identifying and managing risk.


The Financial Management of a firm deals with
questions such as the following on an ongoing basis:



Are we making or losing money?



How much cash do we have on hand?



Do we have enough cash to meet our short
-
term obligations?



How efficiently are we utilizing our assets?



How does our growth and net profits compare to those of our industry


peers?



Where will the funds we need for capital improvements?



Are there ways we can partner with other firms to share risk and reduce


the amount of cash we need? Money at call and short notice for Banks.



Overall, are we in good shape financially?

Financial Objectives of a Firm




Profitability



Is the ability to earn a profit.




Many start
-
ups are not profitable during their first
three years while they are training employees and
building their brands. However, a firm must become
profitable to remain viable and provide a return to its
owners.



Liquidity



Is a company’s ability to meet its short
-
term financial


obligations.




Even if a firm is profitable, it is often a challenge
to keep enough money in the bank to meet its
routine obligations in a timely manner.



Efficiency




Is how productively a firm utilizes its assets relative to its
profits.



Southwest Airlines, for example, uses its assets very
productively. Its turnaround time, or the time its airplanes sit
on the ground while they are being unloaded and reloaded,
is the lowest in the airline industry.
Inefficiency

Kingfisher

.


Stability



Is the strength and energy of the firm’s overall financial
position.



For a firm to be stable, it must not only earn a profit and
remain liquid but also keep its debt in check.

The goal of financial management




The goal of financial management is
to maximize the current value per
share of existing stock.

Financial Goals of the Corporation



The primary financial goal is shareholder wealth
maximization, which translates to maximizing stock
price.




Do firms have any responsibilities to society at large?



Is stock price maximization good or bad for society?



Should firms behave ethically?

FINANCIAL MANAGEMENT DECISIONS




Capital budgeting
: The process of planning and managing a


firm’s long term investment. VIT Chennai Campus





Capital structure
:
The mixture of debt and equity maintained by


the firm.





Working capital management
:
A firms short term assets and


liabilities.




Efficiently manage entity resources.




Effectively diminish risks to attain entity objectives.




Maintain a sound financial condition within the limits of available


resources.




Comply with applicable policies, laws and regulations.

Responsibility of the Finance Manager

Planning of Finances to Become an
Entrepreneur

1.
Assess your financial needs, personally
and for your new business venture.



2. Prepare a business plan with realistic
projections of income and expenses for
the first three to five years of operation.

Some of the essential steps include:

Continued…

3. Save money while working as an employee
in a regular job before you become an
entrepreneur.


4. Put aside a small amount from monthly
salary into an account that you will not
access prior to launching your business.

Continued…

5
.

Approach

friends

and

relatives

as

investors
.

Write

a

formal

agreement

to

repay

the

money,

with

interest

if

necessary

and

present

a

business

proposal

to

your

friends

and

family


Continued…

6
.

Begin

temporary

work

on

the

side,

while

still

employed
.

Being

careful

not

to

go

after

clients

or

do

any

work

that

would

be

considered

a

conflict

of

interest
.

7
.

Begin

making

connections

and

working

on

projects

that

will

enable

you

to

show

experience

once

you

become

a

full
-
time

entrepreneur
.


Continued…

8
.

Apply

for

loans

from

public

sector

banks

which

are

the

major

source

of

financial

assistance

to

entrepreneurs
.

They

extend

credit

support

to

firms

in

the

form

of

loans,

advances,

discounting

bills,

project

financing,

term

loans,

export

finance,

etc
.
,



9. Further the Central Government has established
schemes like Small Industries Development
Organization (SIDO) and National Small Industries
Corporation Ltd (NSIC) for Providing credit facilities,
technology support services and marketing
assistance.


Some Tips and Warnings


You

should

have

enough

money,

either

in

savings

or

obtained

through

loans,

to

be

able

to

pay

your

bills

for

the

first

two

years

of

your

entrepreneurial

venture
.



When

borrowing

from

friends

and

families,

make

clear

the

terms

of

loan

or

investment

and

put

everything

in

writing
.

Role of Finance in a Typical Business
Organization

Q
&
A …

Thank You…

TBI, VIT University.

30/11/2011