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Unit 5: Managerial Aspects of Business
and Government Initiatives
Managing Finance
Finance is one of the important fundamentals to start an enterprise. It is a broad field that goals with the management of money, investments and other financial assets. It is the availability of finance that facilitates an entrepreneur to bring together land, labour, machinery and raw materials to combine them to produce goods. The significance of finance in production is clarified like a lubricant to the process of production. The decisions taken by the entrepreneur well in advance regarding the future financial aspects of his/her enterprise are called “financial planning”.
Classification of Financial Needs
On the Basis of Extent of Permanence
a) Fixed Capital The money invested in some fixed assets or durable assets like land, building, machinery, equipment, furniture, etc., is known as fixed capital. These assets are required for permanent use, that is, for a long period of time.
Classification on the basis of
Extent of
Permanence
Fixed Capital Working Capital
Period of Use
Long Term Capital Short Term Capital
b) Working Capital The money invested in current assets like raw materials, finished goods, debtors, etc., is known as working capital. In other words, money required for day-to-day operations of business/enterprise is called ‘working capital’.
On the Basis of Periof of Use
a. Long-term Capital This is such money whose repayment is arranged for more than five years in future. The sources of long-term finance could be owner’s equity, term-loans from financial institutions, credit facilities from commercial banks, hire-purchase facilities from specific organisations, etc. b. Short-term Capital This is a borrowed capital/money that is to be repaid within one year. The sources of short-term finance include bank borrowings for working capital, deposits or borrowings from friends and relatives, etc. Sources of Finance
Internal Sources
Under this source, funds are raised from within the enterprise itself. The internal sources of financing could be owner’s capital known as equity, deposits and loans given by the owner, the partners, and the directors, as the case may be, to the enterprise. One source for raising funds internally may be personal loans taken by the entrepreneurs on his/her personal assets like Provident Fund, Life Insurance Policy, buildings, investments, etc. Sources of Finance Internal External
is called trading on equity or leverage effect_._ In such case, there is greater dependence on borrowed capital in the capital structure.
Cash Flows
The ability of a business to discharge its fixed obligations depends upon the availability of cash, i.e. cash flows. As such more the cash inflows, the more the proportion of borrowed capital in the capital structure. Reverse will happen in a converse situation.
Purpose of Financing
The purpose of financing also affects the capital structure of the enterprises. In case funds are required for some directly productive purposes, for example, the purchase of new machinery, the enterprise may rely on external sources for raising the required funds. In case the enterprise is required to raise funds for unproductive purposes like spending on the employees’ welfare facilities, it will have to depend on the owner’s capital.
Provision for Future
The scope of changing the capital structure in future happens to be a basic consideration for determining the capital structure of an enterprise. As a general principle, it will always be safe to keep the best security to be issued in the last instead of issuing all types of securities in one stroke only. Optimum Capital Structure “Optimal Capital Structure” means a trade-off between the benefits of high leverage and the costs of high leverage. The benefits of high leverage include the tax deductions of interest and the low cost of debt in relation to equity. The costs of high leverage include high risk for all investors and potential costs of financial distress. Term Loans
- Short term loans are called such because of how quickly the loan needs to be paid off. In most cases, it must be paid off within six months to a year – at most, 18 months. Short Term Loans
- These are the loans taken for a fairly long duration Long Term Loans of time ranging from 5 years to 10 or 15 years.
Sources of Term Loans
Issue of shares Issue of Debentures Loans from Financial Institutions Loans from Commercial Banks Public Deposits Retention of Profits Management of Asset (Cash Management) Asset management refers to a financial services organisation managing a company’s or individual’s investment. Tangible assets, such as machinery, as well as non-tangible assets, such as intellectual property & goodwill and other financial assets, can both be managed. Planning, procuring, deploying, managing, and disposing of a client’s assets are all included in asset management. The examples of asset management companies are Vanguard, J.P. Morgan and Northern Trust (NT). Cash Management Cash management also called treasury management, is the process of collection and management of cash flows from three different activities i.e. operating activities, investing activities and financing activities. It is the main component of financial stability so it is valuable for both i.e. companies and individuals. Treasury bills, certificates of deposits and various money market instruments are those financial instruments that deal with the cash management process. The systematic cash management helps the organization in the following ways:
- Efficiency
- Accuracy
- Security
- Transaction Costs
Cost Estimation: Estimating the costs associated with a project,
product or service based on historical data, industry benchmarks and expert judgement.
Cost Planning: Developing a budget and cost management plan
that outlines how costs will be monitored and controlled throughout the project lifecycle.
Cost Control: Monitoring actual costs against budgeted costs,
identifying variances and taking corrective actions to keep costs within budget.
Cost Reduction: Identifying opportunities to reduce costs
through process improvements, supplier negotiations and other cost- saving measures.
Cost Analysis: Analysing cost data to identify trends, patterns and
areas for improvement in cost management practices. Advantages of Cost Management Following are the benefits of the cost management process: To control the project-specific cost which helps in reducing the overall cost of the business. To predict the cost and expenses associated with the future which helps in determining the expected revenue in future. Cost management helps in maintaining the predefined cost as records for the future. To compare the actual and budgeted costs and determine any additional costs occurred. To provide assurance that the resources and the business activities work for the achievement of pre-settled goals and objectives. To analyse the business trends which are long-term in nature. To analyse the business positioning in making an acquisition factoring which is involved in the cost component. Challenges of Cost Accounting
Complexity: Managing costs in a dynamic business environment
with multiple cost drivers and variables can be complex and challenging.
Resistance to Change: Implementing cost management
initiatives may face resistance from employees who are comfortable with existing processes or reluctant to change.
Data Accuracy: Ensuring the accuracy and reliability of cost data
can be a challenge, especially when dealing with large volumes of data from multiple sources.
External Factors: External factors such as market volatility,
regulatory changes and economic conditions can impact cost management efforts and pose challenges to cost control.
Balancing Cost Reduction with Quality: Striking a balance
between reducing costs and maintaining quality standards can be a challenge for organisations seeking to cut expenses without compromising on product or service quality. Management of Human Resource Human Resource Management (HRM) is the strategic approach to managing an organisation’s most valuable asset-its people. HRM involves the planning, organising, directing and controlling of the procurement, development, compensation, integration, maintenance and separation of employees to achieve organisational goals effectively and efficiently. Human Resource Planning Human Resource Planning is very important in human resource management and development. It seems that the organisation has the right people at the right time and place with the right skills. It believes that each employee is a resource to an organization and contributes to its productivity. The main objectives of Human Resource Planning are as follows:
- Identify and assess future human resource needs.
- Analyse and improve upon utilisation of existing resources.
- Integrate and coordinate human resource policies so that the present and future human resource needs are met easily.
assessing current workforce capabilities and developing strategies to address any gaps. Recruitment and Selection: HRM is responsible for attracting qualified candidates, screening applicants, conducting interviews and selecting the best candidates to fill vacant positions. Training and Development: HRM designs and delivers training programs to enhance employee’s skills, knowledge and competencies to improve performance and productivity. Performance Management: HRM establishes performance standards, conducts performance appraisals, provides feedback to employees and identifies areas for improvement or development. Compensation and Benefits: HRM designs competitive compensation and benefits packages to attract and retain top talent while ensuring fair and equitable pay practices. Employee Relations: HRM manages relationships between employees and the organisation, addresses workplace conflicts, grievances and ensures a positive work environment. Legal Compliance: HRM ensures that the organisation complies with labour laws, regulations and ethical standards related to employment practices. Organisational Structure in HRM Organisational structure in Human Resource Management (HRM) refers to the framework that defines how HR functions are organised, managed and integrated within an organisation. The HR department’s structure plays a critical role in facilitating effective HR operations, aligning with organisational goals and supporting the overall business strategy. Types of Organisation Structure
Line Organisation
In this form of organisation, a straight-line command exists from the highest to the lowest position. The authority and responsibility of every position are clearly defined. Each subordinate is accountable to only one superior. But there is no specialization. Line organization is considered to be most suitable for small-scale units.
Line and Staff Organisation
As an enterprise grows management requires the services of staff experts. These experts advise line managers but the final authority for making decisions and issuing orders remains with true executives. Line and Staff organisation provides the benefits of specialization and unity of command. There is a danger of conflicts between line officers and staff experts.
Project Organisation
In this type of organisation, a separate team is created for every major project. The team provides expert and focused efforts for the timely completion of the project.
Appropriate Span: Span of control means the number of
subordinates reporting directly to one superior. The span should be appropriate in view of the nature of work, ability of the superior, competence of subordinates, degree of coordination required, etc.
Human Use of Human Resources: The requirements of work
should integrated with the capabilities and aspirations of employees.
Flexibility: The organization structure should be able to adapt to
changes in the internal and external environment. Management of Human Resource of a New Enterprise In order to achieve maximum profitability, there is a strong need to integrate each employee’s work with the strategic goals of the enterprise and ensure clear-cut job descriptions for every post. Develop a Competency Model
Define Organisation Dimensions
Organizational dimensions mean human resource strategies of an enterprise should be according to the various aspects of the business. Such aspects are the nature of the business of the enterprise, the chain of command and the structure of the organization. These aspects are directly related to human resource strategies.
Define Mission, Vision and Values
These terms play a crucial role in shaping the human resource strategies and objectives for the future. Vision statement signifies long-term goals and objectives while a mission statement represents the short term objectives of the enterprise. Values are the beliefs that serve as a force behind the actions and operations of the organizations.
Perform Workforce Analysis
Workforce analysis focuses on organization people, culture and systems analysing the current situation of the company. This analysis identifies the gaps in those areas that requires specific objectives to achieve.
Evaluate Implemented Strategy
An enterprise will consider a variety of factors for evaluating the effectiveness of a human resource strategy. Such evaluation gives accurate facts and figures about the number of posts vacant, employee turnover, and customer grievances with the level of satisfaction and dissatisfaction of employees and customers. Role of HRM in a Start-Up Company Following are the contributions of HRM in a new enterprise: Recruitment and selection of workforce Organisation of the induction program Communication with the workforce Optimizing wage and salary costs Tracking and recording of attendance Redressal of grievances and disputes of/among employees Providing safety in jobs Management of company’s assets Record and maintain the database of the company Maintain healthy public relationships Maintain a good public image of the company Managing payroll and incentive systems Marketing Mix The marketing mix refers to the set of actions, or tactics, that a company uses to promote its brand or product in the market. The 4Ps make up a typical marketing mix - Product, Price, Place and Promotion. However, nowadays, the marketing mix increasingly includes several other Ps like people, process and physical evidence. 4Ps of Marketing Mix
Product: It refers to the item actually being sold. The product must
deliver a minimum level of performance; otherwise even the best work on the other elements of the marketing mix won't do any good.
Price: It refers to the value that is put for a product. It depends on
costs of production, segment targeted, ability of the market to pay,
Commodity: Commodity means co-created goods and services:
Commodity” C is based on the co-marketing concept where multiple companies work together to promote co-branded products & services through different channels.
Cost: It represents the total cost of ownership for a product or
service.
Channel: It transfers a product/service from the production point
to communication point.
Communication: It is a two-way communication between
business and consumers (Seller- Buyer).
Consumer: It follows cardinal directions N, S, E W means needs,
security, education and wants.
Circumstances: It refers to uncontrollable environmental
elements for a company which includes all elements of the external environment. Relationship Management Relationship management is a strategic approach that focuses on building and maintaining strong relationships with customers, partners, suppliers and other stakeholders to drive business success. It involves understanding the needs and preferences of these key stakeholders, engaging with them effectively and fostering long- term mutually beneficial relationships. It is crucial for enhancing customer satisfaction, loyalty and retention as well as for creating value for all parties involved. Benefits of Customer Relationship Management Entrepreneurs can improve their customer-retention level and customer service offerings by the benefits of Customer Relationship Management (CRM) which are as follows:
Better Customer Service: There are various relationship
management systems are available in the market which help small businesses and entrepreneurs with better customer service experiences. These customer services have a positive influence on customer retention and sales.
Data Analytics: CRM system has specialized data analytical
feature which helps in evaluating the success of the business and identifying the potential opportunities for improvement and growth and planning the future accordingly.
Managing Prospective Leads: Lead generation is another
important advantage of CRM systems that help nurture potential leads by providing “birds-eye view”. So CRM system has the ability to better manage prospective leads and keep track of the status of the lead as well as the information to plan for further steps.
Improved Marketing: CRM allows a personal approach and
helps in developing new products and services according to customer specific needs.
Increased Sales: CRM system builds sales pipeline by
streamlining the sales process and also automates the key tasks. It analyses the sales data and helps the business set up a step-by-step sales process. Stages of Relationship Management:
Awareness: This step focuses on reaching new customers as per
their requirements and interests. In this stage, make the customers aware of the brand, products and services and capture the potential customer’s attention and target audience by way of advertising, word of mouth, social media and others.
Acquisition: This stage helps to convert the prospects into
customers, subscribers or consumers. The attentiveness to the customer’s needs providing them good and better services and prompt response to their needs are necessary otherwise it will discourage the prospects.
Conversion: In this stage, gaining the attention of prospects,
providing a satisfactory pre-buying experience, building a rapport with the leads and imbibing a sense of trust in our brand will be done.
Retention: This stage includes building a strong relationship with
the customers, prompt response to their queries, proper support and sending follow-up emails to feel the customer valued. So retention policy says to keep the customers happy and loyal by various lucrative discounts bonus and rewards.
According to the scheme, bank loans between 10 lakhs to 1 crore can be borrowed by at least one Scheduled Cast (SC) or Scheduled Trade (ST) borrower and at least one women per bank brand to set up a Greenfield enterprise. The Greenfield enterprise may be based out of manufacturing, services or the trading sector. In case of non-individual enterprises, it is mandatory that an SC/ST or a women entrepreneur holds at least 51% of the shareholding and controlling stakes. ASPIRE This scheme operates under the Ministry of Micro, Small and Medium Enterprises. It stands for A Scheme for the Promotion of Innovation, Rural Industries and Entrepreneurship. The mentioned scheme was launched in 2015 to offer proper knowledge to the entrepreneurs to start with their business and emerge as employers. This scheme aims at increasing employment, reducing poverty and encouraging innovation in rural India. However, the main ideas is to promote the agro-business industry. Credit Guarantee Scheme for Start-ups It is a collaborative effort of Micro, Small and Medium Enterprises (MSME), Government of India and Small Industries Development Bank of India (SIDBI) to raise capital for Indian start-ups. Under this scheme, the government provides credit guarantee to credit institutions for loans provided to micro and small enterprises. In this scheme, guarantee is provided for loan amount up to Rs. 50 lakh. In this, the coverage of guarantee ranges between 75-85% of the loan amount. Its objective is to increase access to institutional credit for micro and small enterprises. Atal Innovation Mission (AIM) AIM has been established under the guidance of NITI Aayog. It is a major effort by the Government of India to promote the culture of innovation and entrepreneurship within the country.
AIM has established Atal Incubation Centres in universities, institutes and business entities as part of its objective. These AICs provide support to new entrepreneurs by providing modern facilities, resources, consultancy, finance, laboratory etc. Jan Dhan-Aadhaar- Mobile (JAM) JAM, for the first time, is a technological intervention that enables direct transfer of subsidies to intended beneficiaries and, therefore, eliminates all intermediaries and leakages in the system, which has a potential impact on the lives of millions of Indian citizens. Software Technology Parks of India Its functions as a premier scientific and technical organisation under the Ministry of Electronics and Information Technology. It works to promote IT industry, innovation, research and development and start-ups. It is dedicated to encouraging product development in the field of emerging technologies such as AI, ML and robotics. Pradhan Mantri Mudra Yojana This scheme has been launched by the Honourable Prime Minister on 8 th April 2015. It is a scheme to provide loans up to Rs. 10 lakh to small/micro enterprises. These loans are given by commercial banks, small finance banks and co-operative banks. Dairy Processing and Infrastructure Development Fund (DIDF) It was established in 2017 by the Government of India in partnership with NBARD. The scheme provides subsidized loans to milk cooperative societies at the rate of 6.5%. It increases the operational efficiency of dairy processing plants. It is a scheme to provide increased opportunities for ownership, management and market participation to rural milk products.
