Managing Small Businesses

Chapter 4: Managing small Business

After completing this chapter you will be able to understand:
 Marketing Management in small Business
 Human Resource Management in small business
 Financial Management in small Business
 Managing Growth, expansion and Business turnaround
Marketing Management in small business
Marketing: - is the process of matching the needs of the consumer to the capabilities and
resources of the firm. Marketing is about making money from satisfied customers. Marketing
then, is about making profits by anticipating and meeting the needs of the customers.
The market Mix:- The starting point for understanding the full rouge of benefits with an
existing product or service has to offer the list of features and then to translate it in to benefits
by working out exactly; and then to translate in to benefits by working out exactly what they
mean to the customers
Mix or 4Ps i.e.: - product (service)
- Places
- Promotion
- Prices
Each elements of the marketing mix is unique for business. Indeed the development of such
unique mix is the aim of marketing strategy of the business.
Product (Services)
In the heart of the marketing mix the product or services must not be a strait jacket
constraining that mix. It must be flexible and capable of adoption to the changing needs of the
customer.
It is always important to know why customers buy products and what particular feature &
benefits they expect. For any product or services that might includes

 Design and technical feature

 Performance
 Quality
 Range (size, color, etc.)

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Even a company selling product will have a strange scenic element to this component of the
marketing mix.

The more real, valued benefits a firm offers, the more likely it will attract buyers and convert
them in to satisfy customers who may refuel for repeated purchases. This also explains why
customers may greater a particular supplier of customers may greater a particular supplier of
an apparently identical product, despite the fact they are more expensive than revels. The other
benefit offered.

Place
The place element of the marketing mixes is about getting the goods or services to the right
place at the right time for the customer. For business, place is (physical distribution and
distribution channels. Physical distribution in concerned with transport:

Should a small firm use vehicles or the train?

Should it use its own vehicles or the train?
How frequently should it deliver?

These are all decisions related to distribution and they are not necessarily best made using the
simple criteria of cost minimization. Let you use for selling to customers.

Promotion
This is concerned with how well a business communicates its sales messages to existing and
potential customers. Promotion starts with the name of the company, and logo, and all the
general materials like cards & letter heads. There are many ways of promoting a business. The
two most basic types of promotions are:

1. Direct promotion: is when a company promotes its product and services directly to
potential customers. This could be undertaken through sales forces.
 It also includes direct face – to –face selling, telephone selling, direct mail, and
especial demonstration.
2. Indirect promotion: is concerned with the mass techniques of communications. There
are many ways you can choose from and spend money i.e. The Press, Magazines,
Journals, Cinemas, TV, Radio, Poster etc.
Most small businesses start out relying heavily on personal selling but when they grow, the real
cost of this activity become more apparent.

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Any advertising needs to address five basic questions?

 Who is aimed at?
 What should it say?
 How should the message be communicated?
 Who should prepare the advertisement?
 How will the results be measured?

Public relation (PR) is a very good way of getting publicity without paying for it. The big
advantage of publicity is ``editorial`` rather than advertising which has more credibility,
Public speaking, writing articles for journals, conference participation and mounting seminars
can be just effective.
Another form of indirect promotion in the sales promotion i.e. essentially a short term
campaign to influence customers to buy more or to motivate your sales forces to sell more.

Price
Pricing is an important part of the marketing mix; price is usually a barrier to sales rather than
a positive stimulus. Its change ought to reflect the value of the package of benefits, to the
customers. Many business of all size use a ‘cost-plus’ pricing formula; with this approach you
simply add up all the costs and add on a margin.
The whole marketing mix is only as strong as its weakest links
The Marketing mix
Product Place
 Design Retail /Whole seller /direct
 Quality Mail /Tele phone order
 Specification Distribution
 Materials Delivery frequency
 Packaging Location
 Before/ during / after sales service

Promotion Price
 Image - Product/Services prices
 Face to face selling - payment terms
 Telephone selling - Discount
 Exhibitions - Services and spares prices
 Spoiled demonstration ,Advertising , PR

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Human Resource Management in Small Business

A widely held view is that the small business firm provides a more motivational and happier
working environment than the larger firm. Although physical working conditions may
sometimes be inferior in small firms, most people prefer to work in small group where
communication present fewer problems, employee in the small firm can easily see the relation
between what they are doing and the objectives and performance of the firm as a whole.
This picture of harmony with in small enterprise was contrasted to the confrontational
industrial relations in larger firms. There are lower lauds of unionization & industrial action in
smaller firms. The lack of unionization and strike activity cannot be taken as synonymous with
lack of conflict. There are considerable evidences that a conflict expresses itself in different
ways with in the smaller firms.
Employee in a small firm is difficult to organize in to union because of:

 The fragmentation of their work place,

 The larger number of part-time employee &
 The higher labor turnover rates.

Types of Management:
The way in which owner- manager exercise control all the work force will depends not just on
the personality of the manager, but also the disposition of power in the employer- employee
relation.
To illustrate this relationship Goss identified four type of management control in small
business:

1. Fraternalism:- This describes situation where the owner manager is heavily dependent
on the skill of the employers to get the job done . Employer and employer work along
each other, with decisions made from a position of mutual respect.

This is common in the construction and building Industry Company. It is also common in some
professional and high technology small business
Ex:- Private physiotherapy practices
Soft was developed business
Craft & man

2. Paternalism: - The Situation in which the alternatives for employees are more limited,
and the employers in less dependent on them. A clear distinction between employers

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and employee exists, but owner manager are still sufficient aware of the importance of
their work force to encourage common ties & personal relation.

Ex. Farming:- Employee – farm worker

-Employer – Supervisor

3. Benevolent Autocracy: - It the most common situation for small firm, the owner manger
is less dependent on the employee and able to exercises their influence from a position
of power.
4. Sweating:- are circumstances which conspire to give the employer all the power and
the employee virtually none .

Personnel Practices:
Good personal practices should be on formalized, written procedures and longer term
planning. Small firms tend to manage people through informal, unwritten and ad-hoc
practices; and much will depend on the management qualities of the owner –manager to make
them work effectively.
Human Resource of the Small business could get in to formal structure in the way of the right
person to the right qualified position; they should also update the performance of the employee
in the organization to minimize the turnover of the employee.
1. Recruitment: - Its theory advocates several formal stages to ensure the selection of the
right person for the job.

 A job description: - Which carefully analyst goes the work to be done and details the
responsibilities of authority of the job.
 A person specification -Which attempts to match the ideal candidate to the job.
Reflecting essential and desirable qualifications, experience, skill & characteristics.
 A promotional campaign advertising the vacancy to attracts the best possible candidates
Using advertisement and possibly recruitment agencies.
 A short listing and interviewing process which in designees to find out as much as
possible about the applicant, and also allows them the opportunity to find out a much
as possible about the employer.

2. Training:- Small firm have a much lower incidence of formal training , relying mainly
on trading on-the -job .Owner- manager are reluctant today the prices of external training,
particularly the cost of losing staff for the time needed . Although owner- manager tend to

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retain control over personal matters, they also complain that people management in of the
biggest problems.

Financial Management in small business

Working capital management is the administration and control of those current assets and
current liability. Typically small company has a higher investment in current assets than a
larger company.
Working capital control: - Working capital is computed as current assets less current liabilities.
Current assets are those assets which are normally converted in to cash within one year and
current liabilities are liabilities which normally must be met with in one year.

The management of trade debtors

Debtors arise when sales are made not for cash; but on “account term” the area of control can
be described as,

1) Evaluating Credit policy of the business: for small business eager to get sales in a
competitive market, having the right credit policy can be crucial importance .In today’s -
cash conscious market, sales can easily be lost too often to other suppliers who are required
to give more liberal credit terms.
2) Evaluating the credit applicant (debtor): There are a number of ways in which the credit
worthiness of potential new customers can be evaluated. Broadly they can be categorized in
to:
Bank references
Trade references from other suppliers.
Personal Opinions (those of one’s own sales persons based on interview, meeting
with the customers.
Credit ratings and reports from credit bureaus & agency.
3) Adopting effective collection policy: The best debtor information control system is based on
an aged debtor information control system in based on an aged debtor list.
 Any effective collection policy must be enabling the small business proprietor to be aware
of the length of debt and credit to apply the appropriate procedure for collecting it.

Growth strategies for small business

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An enterprise may be considered growing when there in a permanent increase in its sales
turnover, assets, Volume of output .etc. Business growth is a mutual and on-going process.
Many business firm started small and have become big through continuous growth .But
growth may be restricted by constraints of market demand, finance, technology management
skills, etc.

Types of growth strategies

Growth strategy is a strategic plain formulated and implemented to expand the operation of a
business firm. It contains the growth objectives interims of sales volume, market share, etc. and
the schemes of action to be employed to realize these objectives.
The main strategies for growth are as follow
Expansion
Explosion and diversification are forms of internal growth. Internal growth implies increase in
scale of operations without join hands with other firms.
Expansion may takes place in the follow three forms:

 Market penetration: - it implies increasing the sale of existing products in the existing
markets.
 Market Development: - It involves exploring new market for existing products.
 Product development:- It implies developing new or modified product for sale in the
existing market

Advantage of Expansion
 Growth in natural and gradual .It can be handled easeful
 Expansion can be financed from the firm’s own funds
 No major changes are verified in the organization structure and management system of
business.
 Better utilization of existing resources becomes possible
 Expansion provides economics of large seal operation

Limitations of expansion
 Growth is slow and takes time.
 It is not always possible to grow in the present product market.
 A business firm may not be able to exploit many business opportunities by confining its
operations to the existing product and markets.

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Practical problem in expansion

When small business firms attempt to expand they have to face many problems. Some of these
problems are?

 Scarcity of fund: - Expansion requires additional funds for investment in both fixed
asset and current asset. These are not easily available.
 Technology: - In order to expand, it often necessary to upgrade technology and
replace plant & machinery. Modernization of technology in time consuming &
expensing process.
 Marketing: - Expansion is possible and profitable only. When the increased output
can be sold at remunerative prices. These con not performed due to compaction with
large scale.
 Risk: - Expansion involves additional risk. Few small scale firms have the ability to
assume these risks particularly, where the compaction is acute & raw material shave
to be imported.

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