Strategic Financial Management for Small and Medium Sized Companies

by Hande Karadag

Overview

Research shows the majority of small businesses fail in their early years due to poor financial management, turning the dreams of many business owners and novice entrepreneurs into nightmares. This book serves as a guide to prevent these financial disasters. In an applicable fashion, Karadag explains how financial management in an enterprise can be conducted strategically to attain significant improvement in business performance. Karadag takes the basic strategic management model of environmental scanning-planning-implementing-feedback as a framework, and approaches the core financial practices and instruments as elements of strategic financial management, which any small or medium sized enterprise can use as tools for sustainable organizational performance and growth. With its unique strategic outlook, this text is a vital reference for nonfinancier small or medium sized enterprise owners and individuals who aim to successfully establish and run their own businesses.

Product Details

ISBN-13:	9781785607752
Publisher:	Emerald Group Publishing Limited
Publication date:	12/14/2015
Series:	0
Pages:	272
Product dimensions:	6.00(w) x 9.10(h) x 0.80(d)

Table of Contents

Preface xi

Acknowledgments xv

About the Author xvii

1 Introduction 1

2 An Outlook of Small and Medium Sized Enterprise (SME) Sector 7

Small and Medium Sized Company Categorizations 8

The Role of SMEs in the Economy 14

SME Sector after the Global Financial Crisis 20

Structural and Financial Challenges of Small and Medium Sized Enterprises 24

3 A Strategic Management Approach to Financial Management Practices in Small and Medium Sized Businesses 33

Strategic Management in New and Existing Small and Medium Sized Companies 34

Financial Management in Small and Medium Sized Enterprises 41

Empirical Studies Investigating Financial Management Practices - SME Performance Relationship 48

Empirical Studies investigating Financial Management Practices - SME Growth Relationship 49

Empirical Studies Investigating Financial Management Practices - SME Competitiveness Relationship 50

Empirical Studies Investigating Financial Management Practices - SME Profitability Relationship 51

The Model of Strategic Financial Management in Small and Medium Sized Businesses 53

4 Strategic Financial Planning and Forecasting in Small and Medium Sized Businesses 63

Choosing the Appropriate Legal Form for the Organization 66

Sole Proprietorship 67

Partnership 67

Limited-Liability Company 68

Corporation 68

Preparing a Business Plan 69

Executive Summary 72

Company Information 73

Industry Analysis 74

Top Management, Organizational Framework, and Company Culture 75

Main Product/Service Lines 76

Marketing and Sales 76

Product/Service 77

Place 77

Promotion 77

Price 78

Major Suppliers 79

Financial Forecasts 79

Capital Budgeting (Fixed-asset Investment Analysis) 90

Payback Period Analysis 92

Net Present Value (NPV) Analysis 92

Tips for Budgeting Strategically 93

Critical Factors/Risks 94

Funding Request 95

Appendixes 97

Academic Studies on Financial Planning and Forecasting in SMEs 97

5 Strategic Working Capital Management in Small and Medium Sized Businesses 101

Strategic Cash Management 103

Strategic Accounts Receivables Management 108

Strategic Accounts Payable Management 116

Strategic Inventory Management 118

Academic Studies on Working Capital Management in SMEs 123

6 Strategic Capital Structure Management in Small and Medium Sized Businesses 131

Capital Structuring Decisions 132

Equity Capital 132

Debt Capital 134

Determining an Optimal Capital Structure 136

The Decision to go Public 137

Choosing Between Bank Loans 139

Applying for a Bank Loan 142

Academic Studies on Capital Structuring in SMEs 144

7 Strategic Fixed-Asset Management (Capital Budgeting) in Small and Medium Sized Businesses 151

What Is Capital Budgeting? 152

Net Present Value Analysis (NPV) 153

Internal Rate of Return (IRR) Analysis 154

Payback Period Analysis 154

Averaging Method 155

Subtraction Method 155

Profitability Index 155

Throughput Analysis 156

Academic Studies on Capital Budgeting in SMEs 157

8 Strategic International Trade Financing in Small and Medium Sized Businesses 161

Risks in International Trade 162

Political (Sovereign) Risk 163

Legal Risk 164

Exchange Rate Risk 165

Trading Partner and Fraud Risks 165

Non-Payment Risk 166

Basic Documents in International Trade 166

Commercial Invoice 167

Packing List 168

Transportation Documents 169

Certificates 171

Financial Documents 172

Incoterms® 2010 Rules 173

Rules for All Modes of Transport 173

Rules for Sea and Inland Waterway Transport 175

Basic Payment Methods in International Trade 176

Advance Payment 177

Open Account (Payment against Goods) 180

Open Account Process 181

International Trade Financing Tools for Minimizing the Risks in Open Account Trading 181

Consignment 185

Key Features of Consignment Sales 186

Documentary Collections 187

Main Features of Documentary Collections 187

Documentary Collection Process 188

Letters of Credit 190

Letter of Credit Process 191

Main Features of Letters of Credit 193

Types of Letters of Credit 194

Forfaiting 198

Main Features of Forfaiting 198

Process of Forfaiting 199

Managing Currency Risk 199

Hedging Techniques for Currency Fluctuations 200

Currency Forwards 201

Currency Futures 201

Currency Options 202

Academic Studies on Internationalization of SMEs 203

9 Strategic Financial Reporting and Control in Small and Medium Sized Businesses 207

Measures for SME Performance 208

Using a Balanced Scorecard 210

Financial Reporting and Control in SMEs 211

Understanding the Basics of Financial Statements 213

Balance Sheet 213

Assets 215

Liabilities 219

Shareholders' Equity 220

Income (Profit and Loss) Statement 221

Total Revenue (Total Sales) 222

Cost of Goods Sold (COGS) 223

Gross Profit 224

Operating Expenses 224

Operating Profit 225

Interest Income or Expense 225

Accumulated Depreciation 225

Net Profits 227

Cash Flow Statement 227

Cash Flows from Operating Activities 227

Cash Flows from Investing Activities 228

Cash Flows from Financing Activities 228

Evaluating Financial Performance 228

Profitability Analysis 230

Vertical and Horizontal Analyses 231

Vertical Analysis 231

Horizontal Analysis 232

Financial Control 233

Building an Accounting Information System 235

Cash-based Accounting System 235

Accrual-based Accounting System 236

Selecting an Accountant 236

Academic Studies on Financial Reporting and Control in SMEs 238

10 Conclusion 243

Index 249

Editorial Reviews

This academic text proposes a new process-based model of the interrelationships among the strategic financial management practices often neglected by small business owners, and explains the importance of strategic financial planning and forecasting, working capital management, capital structure decisions, capital budgeting, international trade financing, and financial reporting. The model advocates that successful conduct of financial management in small business entrepreneurial entities can have significant practical implications on overall small and medium sized enterprise management.

Annotation ©2016

This academic text proposes a new process-based model of the interrelationships among the strategic financial management practices often neglected by small business owners, and explains the importance of strategic financial planning and forecasting, working capital management, capital structure decisions, capital budgeting, international trade financing, and financial reporting. The model advocates that successful conduct of financial management in small business entrepreneurial entities can have significant practical implications on overall small and medium sized enterprise management.

Annotation ©2016