Various issues related to finance in SMEs

Presented by: P h o ol C h a n d MB A 3 r d S E M

Finance:
Finance is the art and science of managing money. -M Y Khan Financial management: Financial management is concerned with the duties of the financial managers in the business firm.

Importance of Finance in M!s:

Finance is the life blood

of any business.
Finance is one of the

basic re"uirements of a pro#ect.

M!$ as an important segment of the Indian !conomy:

%& of '() *+ & of the industrial units small-scale industries ,

I- produce about %...

products
/. & of output in manufacturing sector /.& of total e0port !mployment of about 1. million people

2ategori3ation of enterprises on the basis of financial In4estment:

Micro $ small and medium enterprises de4elopment 5ct. 6..7: 8.Manufacturing enterprises:

Micro enterprises: In4estment96+ la:h mall enterprises: 6+ la:h9In4estment; + crore Medium enterprises: + crore9In4estment;8. crore

Micro $ small and medium enterprises de4elopment 5ct. 6..7:

6.

er4ice enterprises: In4estment98. <a:h

.Micro enterprises:

mall enterprises: 8.la:h 9 In4estment ; 6 crore

. Medium enterprises:

6 crore9 In4estment ; + crore

2ategori3ation of M!s on the basis of financial strength = performance capability:

Financial trength >igh >ighest >igh )erformance 2apability Moderate @ea: )oor !85 !65 !15 !/5 !+5 Moderate !8? !6? !1? !/? !+? <ow !82 !62 !12 !/2 !+2

Financial re"uirement of small enterprises:

finance Land debtors Building Machinery Sundry Expenses stocks Finished goods Working Work in capital process Fixed investment

ource of finance in M!s:

Aenture capital

?usiness growth

ource of finance

?usiness angels

?usiness growth:
Internal

!0ternal

Internal source of finance:

Beser4e surplus Crganic growth: growth generated through the

de4elopment and e0pansion of the business itself.

'enerating increasing sales Dse of retained profit ale of assets )ro4isions ,ta0ation = depreciation-

!0ternal source of finance:

<ong term

hort term

Inorganic growth

<ong term:
8. hares:

Crdinary shares )reference share Eew share issues Bight issue ?onus or scrip issue

2ontFF
2. Loans: .(ebentures

. ?an: loans

. Merchant or in4estment ban:s

. go4ernment

hort term:
?an: loans C4erdraft facilities Grade credit Factoring <easing

Inorganic growth:
5c"uisitions

Merger

Ga:eo4er

?usiness angels:
Indi4idual loo:ing for in4estment opportunities

'enerally small sums

Aenture capital:

)ooling capital in the form of limited companies.

<oo:ing for in4estment opportunities in fast growing

business

Financial assistance to medium-scale enterprises:

1 !"# $nterest rate for units located at back%ard

area on loan &s! " Lacs

1'!"# $nterest rate for units located at non

back%ard area
&epayment period max! 1( years!

2onclusion:
Finance$ which has been aptly described as the life blood of industry is a pre-re"uisite for the mobilisation of real resources to organise production and mar:eting. (epending upon the nature of the acti4ity to be financed$ business re"uires short- term $ medium term and long term finance.

Beference:
Ghe (ynamics of !ntrepreneurial (e4elopment and

Management - Aasant (esai

!ntrepreneurship and mall ?usiness Management

- M ? hu:la
Financial management

- M Y Khan
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