Poor Management and Insufficient Funding as Roots of Business Failure - Assignment Example

MANAGEMENT DECISION MAKING A). Management One of the frequent reasons of business failure is poor management, insufficient and poor management of financing comes second. For starting or relocating or expanding a business sufficient capital is required. Having good financing is not enough in attaining profits; proper knowledge and planning are required to manage it well. These help in strengthening the management of financing and avoid common mistakes like miscalculating insurance risks or underestimating the cost. The following points had to be addressed before inquiring about financing: 1. How much capital is needed? 2. Why it is required? Is it for expansion or for tackling risks? 3. Are the risks involved greater than anticipated? 4. At what stage of development is the business? 5. How is the capital used? 6. How is the business going? Whether it is stable or depressed? 7. Does the management team can withstand the challenges? 8. How does the financing helps the business plan? Importance of Risk Management Risk management is of great significance for hedging financial risks as well as hedging underlying economic activities. It is through proper trade that goods produced at particular places are equitably distributed among users. With the help of trade goods are made available to consumers at the time of their need. It removes the hindrance of persons by bringing together producers and consumers who are widely scattered. Advantages of Risk Management Advantages of risk management are outlined below: It enables the insurers to concentrate on their production activities; otherwise they would have to go in search of insurance companies for goods they produce. Trade makes goods available to consumers who can concentrate on their own occupations It results in specialization and large-scale production as the markets are now spread over wide territories. Sale of insured goods from one country and purchase of goods from other countries. It provides avenues of employment to various persons. It increases the standard of living of people as they can avail of goods of various kinds produces by different producers. Risk management involves financing. Financing is of two types, equity financing and debt financing. When you are in need of money or looking for capital, company’s debt-to-equity-ratio should be considered. It is the relations between the Dollars or Euros that an entrepreneur has borrowed and Dollars or Euros invested in the business. The more the investment by the owners the more they attract the financing. When the equity to debt ratio of the firm is high then debt financing should be taken. If the proportion of the debt to equity ratio of the firm is high then it is advised that the owners should increase their equity investment, that way they cannot jeopardize firm’s survival. Equity Financing Limited equity financing is used by most of the small or growth stage businesses. Whereas in debt financing, funds pour in from different quarters like from friends, relatives, etc. Venture capitalists are the most common source of equity funding. Venture capitalists may be institutional risk takers, financial institutions, wealthy persons, etc. and most of them specialize in industries. Venture capitalists are risk takers and show interest only in three to five year old companies that result in more than average profits. These venture capitalists are called as investment gurus whose interest lies in those companies that have major regional and national concerns. Debt Financing Commercial finance companies, financial institutions, banks, savings and loans, Lloyds Bank small business, etc. are some of the sources for debt financing. Because of their positive impact on the whole economy local and state government encourage the growth of the small companies. In debt financing additional funds comes from friends, family, relatives, and industry colleagues, etc when capital investment is smaller. Generally banks formed as a major source for loans for the establishment of small businesses. Banks don’t offer long term loans to small firms instead they grant short term loans for machinery and equipment, they also offer demand loans to small firms that reduces the risk of leveraging the funds available. In any marketing sector marketing plan is considered to be very important and a thoughtful business plan cannot be overemphasized because much hinges on it: financial support, proper insurance, management of the available resources like operation and finances, credit from suppliers, promotion and marketing and last but not the least company’s goals and achievements. The marketing plan is considered to be a necessity and if a person fails in it then he or she is jeopardizing the future of the company. Many entrepreneurs argue the importance of marketing plan; according to them the market place has the tendency of changing very fast and therefore implementation of the marketing plan merely remains in spirit and not in action. B). A marketing plan is considered to be a tool comprising of three basic purposes, which are communication, management and planning. A business plans serves as a communication tool that helps in attracting investment capital, attainment of loans, hiring workers and convinces them to work for the company and importantly plays a part in attracting strategic alliances and business partners. A marketing plan is said to be successful if the outcome of the business is profitable backed by proper insurance of the company, a business plan that cannot help in attain profits is said to be an incompetent business plan. A realistic approach is required at almost every stage of business and allows an entrepreneur to workout all the potential problems and all the alternatives before launching the actual business. Marketing plan and risk management helps as a management tool in tracking, monitoring and evaluating the progress of the business. It gives a realistic and hands on experience on developing management skills and gain knowledge on different aspects of management. Business plan helps in establishing timelines and milestones and compare theoretical projections to the realistic accomplishments. As a planning tool risk management can be used as a guide throughout the different phases of the business. Proper planning helps in coping with the problems in advance and use of alternate methods. Understanding between the employer and employee yield good results and helps in the development of the company. There are two types of risks. The first one is risk pooling in trade and is represented in establishing a system in favour of providing financial support to individuals and businesses in case of loss of life or wealth.. This kind of protection is desired to encourage establishment of industrial base by saving small and infant industries against the competition of larger and well-established firms. Traders and investors relate the second, which is financial intermediation to the proprietorship as businesses. Multinational companies have been set up due to immense investments of foreigners. Multinational companies thought that they could evade tariff restrictors by introducing their own branches plants and subsidiaries, which allowed them to go to markets, mobilize resources and capital and get favours with the government. These kinds of investments have created to the economic nationalism due to expansion of multinational companies. The foreign owned companies could not take central position over economic decisions from their head office from outside. The economists are compelled to demand for bringing out a legislation to oversee the activities and restrain the growth of foreign ownership. Research A finance manage should have a hands on experience in research methodologies because in decision-making they may prove vital. A qualitative and quantitative research is must in developing an Information system. Qualitative research is more of collecting data, conducting interviews, using documents and to understand and explain social phenomenon. Quantitative research involves is of development of natural sciences to study natural phenomenon. Survey methods, formal methods, econometrics, etc., are some of the examples of quantitative research. It’s the research and analysis done by the economists in investments (FDI) yielded fruitful results in the development of different industrial sectors. The main purpose of these industries is to develop products that could be used in everyday life and produce more and more employment opportunities. The research involves finding potential problems in the present products used and resolving them by upgrading them or using new products. The researchers found the flexibility of a product enables it to be used by more clients. Another important factor probably the most important one is the cost. If the final product is expensive there will be only few takers for it. Therefore research has been done to use cost effective applications. Another important feature developed by the researchers was reverse engineering. In reverse engineering the work is done from final stage to the initial stage. The main purpose of reverse engineering is to extract the code from the final product, working on the final product to the scratch. By using reverse engineering technique one can extract their competitors application and introduce own application in the market accordingly. Qualitative research methods are more often used as it involves observation of data that helps in finding solutions to the problems. Qualitative research has been categorised into three categories named as positivist, interpretive and critical. Positivist research methods involves attempt to test theory that to understand the predictive element of the phenomena. It involves formal propositions, hypothesis testing, measuring of quantifiable variables, etc. In this type of research it is assumed that the objectives are given in reality and can be measured by their properties. Interpretive research method involves sharing of information and social constructions such as language. Interpretive method is used to understand the meaning of the given information that was assigned to the researchers. Critical research as the name implies concentrates more on the critical view of the subject. It highlights the critical viewpoint of the situation that has to be analysed. Action research and Case study research methods are as important as above-mentioned methods. The action research method describes what problems an organisation is facing; what appropriate steps should be taken to resolve these kinds of situations. It is more often action-oriented method. Case study method involves studying the main object of the organisation, how the situation is related to the real life context, etc. Case study can be positivist, interpretive and critical. The post war era has seen a rapid expansion in trade and accordingly the economic and political structure has experienced steady and substantial growth. Gaining profits from trade depends on individual economic behaviour. Instead of building own automobiles, manufacturing own goods, producing own food, it is better to manufacture goods in which they have specialisation and trade them for other goods that are required. This thought made the UK a leading exporting country in international trade. The most surprising thing is that the total UK imports amount to only about 12 percent of the country’s GDP. International trade brings rich dividends and imposing restrictions to such exchanges will hinder the further improvement and in realising the true gains from trade. Protectionism is the factor that’s becoming hindrance to international trade. Since there are risks involved in businesses each individual and organisation is making sure that there assets are properly insured so that risks can be minimised. Creation and destruction of jobs depends on comparative advantages and disadvantages. Cutting of jobs does not have any net loss on the economy further more it improves the living standard and raises the economy. It is known truth that international trade has positive and negative effects. The wages of an average worker will be hit if there is an increase in imports. But it is also true that worker in export business are benefited by trade. There is a possibility of gaining profits by not following the rules and regulations. If an exporting industry has been given subsidy, though it benefits the domestic consumer it will badly hurt the domestic market. From standpoint of overall economic welfare domestic market should be provided with alternatives and should allow foreign goods into the domestic market and gain in real income. The investors will believe in a firm where the insiders are investing more than the outsiders. This is clearly observed by the investors more over; the entrepreneurs need to signal the quality of there are no differences between the insiders and the investors. The investors should use more reliable method so that they signal the investors in a better manner so that the firms will have large shareholder base. Reference Mills R. W. and Robertson, J. Fundamentals of Managerial Accounting and Finance. Oregon: Mars Business Associates Limited. 1991. Booth, James R., Smith, Richard L., Stolz, Richard W. “Use of Interest Rate Futures by Financial Institutions,” Journal of Bank Research, 15: 15-20. 1984. Colquitt, L. Lee and Robert E. Hoyt. “Determinants of Corporate Hedging Behaviour: Evidence from the Life Insurance Industry,” Working Paper, University of Georgia, Athens, GA. 1995. Cummins, J. David and Hélyette Geman. “Pricing Insurance Catastrophe Futures and Call Spreads: An Arbitrage Approach,” Journal of Fixed Income 4: 46-57. 1995. Senge, P. The Fifth Discipline, The Art & Practice of the Learning Organization. New York: Random House Business Books. 1990. pg 12-13. Read More