Case study of Bata Shoe companies

The financial management system for a small business includes both how you are financing it as

well as how you manage the money in the business.

Financial Management is the process of managing the financial resources, including accounting

and financial reporting, budgeting, collecting accounts receivable, risk management, and

insurance for a business.

Financial management is very important or significant because it is related to funds of company.

Financial management guides to finance manager to make optimum position of funds. We

can clearify its value in following 5 points.

1. With study of financial management, we can protect our business from pre-carious mis-

management of money. Suppose, you are small businessman and you took short-term loan and

financed fixed assets with this loan. It means, you have to pay loan within one year but fixed

assets can not be sold within one year. In the end of year, you have not enough money to pay this

long term debt and this will create risk to your business’s existence. You will become insolvent.

This is the simple example of mismanagement of money in your small business, but we do large

scale company business, importance of financial management is greater than small business. We

should invest in fixed asset if there is any other source of funds. In financial management, we

make optimum capital structure and we should buy all fixed assets out of share capital money

because, it will reduce the risk of repayment.

2. In financial management, we deeply study our balance sheet and all sensitive facts should be

watched which can endanger our business into loss. For example, a closing balance sheet shows

you, you have to pay large amount of debt in next year and you have blocked all the money by

purchasing goods or inventory. Financial management teaches you that this is not good outflow

of funds which is invested in inventory. Blocked inventory never generate earning and your

balance sheet’s stock value gives you idea that your company is not capable to sell products

quickly. Financial manager can elucidate you that overstocking will increase godown expenses

one side and it is also risky due to the danger of damage the stock. Moreover, it increases risk of

liquidity. Inventory management is the part of financial management and merely using inventory

management can be the best way to solve the problem of overstocking.

3. Yesterday, I am searching on Google "who are getting high salary in the world" and it is quite

startling for all of us that financial managers whose duty is to use the funds of company

effectively, are getting salary more than $110,640 per year ( information which is given by

Forbes Magazine). This fact obviously reveals the significance of financial management.

4. An imprudent man never thinks return on investment but you are not imprudent. So, get some

knowledge of financial management, you can not endanger your money.

5. Financial management works under two theories. One theory reins bad sources of fund. This

theory elucidates us that we should think cost, risk and control and these should be minimum

when we get money from others. Only financial management makes good financial structure to

minimize cost, risk and control of borrowed money. Second theory elucidates or clarifies us that

we should think about time, risk and return before investing our money. Our ROI should be more

than our cost of capital. Our risk of investment should be least. We should get our money with

high return within very short-period. All above things can be possible only after study financial

management.

In setting up a financial management system your first decision is whether you will manage your

financial records yourself or whether you will have someone else do it for you. There are a

number of alternative ways you can handle this. You can manage everything yourself; hire an

employee who manages it for you; keep your records inhouse, but have an accountant prepare

specialized reporting such as tax returns; or have an external bookkeeping service that manages

financial transactions and an accountant that handles formal reporting functions. Some

accounting firms also handle bookkeeping functions. Software packages are also available for

handling bookkeeping and accounting.

Bookkeeping refers to the daily operation of an accounting system, recording routine

transactions within the appropriate accounts. An accounting system defines the process of

identifying, measuring, recording and communicating financial information about the business.

So, in a sense, the bookkeeping function is a subset of the accounting system. A bookkeeper

compiles the information that goes into the system. An accountant takes the data and analyzes it

in ways that give you useful information about your business. They can advise you on the

systems needed for your particular business and prepare accurate reports certified by their

credentials. While software packages are readily available to meet almost any accounting need,

having an accountant at least review your records can lend credibility to your business,

especially when dealing with lending institutions and government agencies.

Setting up an accounting system, collecting bills, paying employees, suppliers, and taxes

correctly and on time are all part of running a small business. And, unless accounting is your

small business, it is often the bane of the small business owner. Setting up a system that does

what you need with the minimum of maintenance can make running a small business not only

more pleasant, but it can save you from problems down the road.

The basis for every accounting system is a good Bookkeeping system. What is the difference

between that and an accounting system? Think of accounting as the big picture of how your

business runs -- income, expenses, assets, liabilities -- an organized system for keeping track of

how the money flows through your business, keeping track that it goes where it is supposed to

go. A good bookkeeping system keeps track of the nuts and bolts -- the actual transactions that

take place. The bookkeeping system provides the numbers for the accounting system. Both

accounting and bookkeeping can be contracted out to external firms if you are not comfortable

with managing them yourself.

Even if you outsource the accounting functions, however, you will need some type of

Recordkeeping Systems to manage the day-to-day operations of your business - in addition to a

financial plan and a budget to make certain you have thought through where you are headed in

your business finances. And, your accounting system should be producing Financial Statements.

Learning to read them is an important skill to acquire.

Another area that your financial management system needs to address is risk. Any good system

should minimize the risks in your business. Consider implementing some of these risk

management strategies in your business. Certainly, insurance needs to be considered not only for

your property, office, equipment, and employees, but also for loss of critical employees. Even in

businesses that have a well set up system, cash flow can be a problem. There are some tried and

true methods for Managing Cash Shortages that can help prevent cash flow problems and deal

with them if they come up. In the worst case you may have difficulties meeting all you debt

obligations. Take a look at Financial Difficulties to learn more about ways to manage situations

in which you have more debt than income.

It is possible you may even be at the a point where you want to sell the business or simply close

it and liquidate assets. There are financial issues involved for these circumstances too. So, be

certain that you know what steps you need to take in order to protect yourself financially in the

the long run.

Clearly, financial management encompasses a number of crucial areas of your business. Take

time to set them up right. It will make a significant difference in your stress levels and in the

bottom line for your business

REASONS FOR LIQUIDATION OF SOME NIGERIA COMPANIES

The high rate at which small and medium scale business in Nigeria are folding up, has brought to

limelight, the issue of Government sincerity in ensuring that the revamping of the economy is

given utmost priority.

The reasons behind the collapse of these businesses can be traced to the following reasons:

Success in business is never automatic. It is not strictly based on luck although a little never

hurts. It depends primarily on the owner's foresight and organization. Even then, there are no

guarantees of success.

Many businesses fail within their first six months of operation. It is estimated that about Seventy-

five percent if not more of start-up businesses shut down within the first five years. These odds

can be very depressing. It makes you wonder how many of the start-up businesses in operation

today will eventually fold up or just give up trying. Thus, making great dreams of business

success of many become a nightmare that may haunt them for the rest of their lives.

As the saying goes that ‘there is no smoke without fire’, small business failure is attributable to

some possible causes.

The following reasons are suggested as some of the key reasons for small business failure:

1.  Lack Of Experience:

According to Dunn & Bradstreet, the major reason for small business failure is incompetence. It

is not incompetence relating to the product or the service to be offered to the public, but rather

incompetence in the area of how to run a business. Many people who go into business are first

timers. They take the plunge into business without investing the hours and effort needed to seek

out the requisite knowledge, vital information, wisdom, and expertise to develop the competence

they need to go into business.

2.  Unnecessary Risk:

Most of the businesses that fail take unnecessary risk without counting the cost. They just guess

something without adequate planning, researching, and investigating to see the odds that may

rise against them in the process of embarking on such a venture.

3.  Insufficient Capital (Money):

 Start-up Capital is very important to every start-up business and the sufficient of it the better.

Many business owners out of zeal and passion gather a little start up capital and start running

without considering whether the money or other material resources that are to serve as capital are

adequate for the take-off of the business. They start without sufficient capital and get stack

without the ability to continue thereby wasting even that with which they have started.

4.  Poor Location:

Where you locate your business is strategic to the success of the business. Many businesses are

located poorly to the detriment of their possibility of succeeding. Go back to the chapter five and

read on ‘How to Find the Best Location for Your Business’          

5.  Poor Inventory Management:

 Another problem at the root of business failure is the challenge of Business Inventory. Many

people in business are not organized in their record keeping, a key factor in business success.

This reminds me of an experience I had with one of my church members, a woman who sells

roasted plantain and peanuts (groundnuts).

She approached me for prayers as one of her pastors, against spirits stealing her business money.

I immediately discerned that her problem was not a spiritual one but rather mismanagement. I

prayed with her anyway to satisfy her religious curiosity. After that, I gave her an assignment. I

asked her to start keeping record of every transaction of the business, beginning with amount of

plantain and peanut she buys to start the business everyday, how much sales she makes at the end

of the day, how much she spends out of the sales for the day and the balance.

She came back to me after two weeks this time full of smiles that the so-called spirits have

stopped stealing her money.

If you don’t manage your inventory very well you will think you are making profit whiles in

actual fact your business is incurring serious loses.

6.  Over-Investment In Fixed Assets:

Many young businesses over invest their cash into fixed assets and become illiquid thereby

affecting their business adversely. A business caught in the illiquidity trap is like a car in the

middle of a journey without petrol. Don’t over invest in fixed assets which cannot be readily

reconverted into cash when you need it urgently. We will consider in detail how to manage your

cash flow in chapter three of this book.

7.  Poor Credit Arrangements:

Credit may appear an immediate respite to young and even existing businesses, but when not

properly managed can spell the doom of any business. If debt servicing, is not balance well with

the cash flow it can lead to total bankruptcy and possible liquidation of even a flourishing

business. Exercise some restraint in how you access credit facilities no matter how lucratively

they package them for you. 

8.  Personal Use of Business Funds:

This is one of the very serious and unpardonable reasons for business failure. Indiscreet use of

business fund is at the root of many business collapses and fold ups. A young person starts a

business and within the first five years, he is driving a flashy car, using expensive mobile

phones, taking lunch in the expensive restaurants in town. Simply put he wants to rub shoulders

with the big ‘guys’ in town just to prove a point. You have no point to prove, you are acting

unwisely.

Some business folks want to start building houses within the early years of the business when

they should concentrate on expanding and establishing solid foundations for the business.

What do you think is the fate of a young up and coming road contractor who has no equipment

and so relies on hiring equipment for his projects. This young man lands a big time contract and

having been paid the initial payment, goes to buy a brand new ‘HAMMER’  a modern luxury car

worth about $90 000.00 and is driving in town. This is sheer economic lunacy and you don’t

need anybody to tell you where such a person’s business will be in the next three – five years.

9.  Unexpected Growth:

By now, you are wondering how one could consider business growth, which is the greatest desire

of every businessperson as one of the killers of business. Note that, business growth can only be

a blessing when it anticipated and prepared for adequately. Other than that, it is death trap. If you

don’t prepare for success in life and success comes to you, it will only destroy you because you

will begin to do the unexpected and unimaginable. Instead of thinking about how to expand, you

may think you have already arrived since you have no immediate plans and preparation for

expansion of the business. Thereby becoming a victim of the parable of the ‘RichFool’ in Luke

12:16-20

And he spake a parable unto them, saying, The ground of a certain rich man brought forth

plentifully: [17] And he thought within himself, saying, What shall I do, because I have no room

where to bestow my fruits? [18] And he said, This will I do: I will pull down my barns, and build

greater; and there will I bestow all my fruits and my goods. [19] And I will say to my soul, Soul,

thou hast much goods laid up for many years; take thine ease, eat, drink, and be merry. [20] But

God said unto him, Thou fool, this night thy soul shall be required of thee: then whose shall

those things be, which thou hast provided?

 

10. Poor Pricing:

The most frequent mistake made when setting a selling price for the first time is to pitch it too

low. This mistake can occur either through failing to understand all the costs associated with

making and marketing your product, or through yielding to the temptation to undercut the

competition at the outset. Both of these errors usually lead to fatal results, and can cause the

business to fold up prematurely due to low cash in flow.

These reasons though real, are not meant to scare you, but to prepare you for the rocky path

ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles

entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and

take all the necessary precautionary steps.

Lack of Capital

No business can thrive without sufficient fund to carry out its daily operations.

The situation is pathetic in Nigeria, as most small businesses are starved of needed funds.

Commercial banks are not willing to release funds, and when these funds are made available, the

interest rate is so high, thus discouraging potential lenders.

Epileptic Power Supply

The power sector in Nigeria has gone from bad to worse, as most businesses are now forced to

resort to the use of petrol or diesel generator to sustain their business. This has adversely affected

the running cost of these businesses which are barely managing to survive. The present move by

the Nigerian Government to privatized the power sector is aimed at encouraging private

investors to fully utilize the huge potential available in the Nigerian market.

Inexperience Management

This is a key factor in the survival of every small business. The influence of management on

business success cannot be undermined. Most small and medium scale business is owned by

individuals, and this can often affect the choice of who manages the business. The decision about

who manage these businesses is often influence by family ties and relationship with recourse to

experience and business ethics. This can ultimately prove disastrous in the long run.

Insecurity

The spate of violence in most part of Nigeria has resulted in most of the small businesses closing

shop. Militant activities, kidnapping and ethnic/religious crisis have conspired to ensure that the

average business life span in Nigeria is greatly reduced.

Government Policies

The frequent change in Government has also resulted in change in Government policies.

Some of these policies are not business friendly, as they tend to add strain to the limited

resources of these small businesses. There are cases when multiple taxation is implemented and

where goods in ports are unduly delayed due to change in Government policies.

Lack of Creativity

The creative ability of small business owners can become a survival weapon in time of

depression. Most business owners are lacking in this regard, hence the high rate of failed

businesses. Some creative entrepreneur having studied the economic tide, are forced to diversify

their operation to counter any adverse effect that would otherwise have some negative

implication on the operation of their business.