How Important Small and Medium-Sized Enterprises Are - Coursework Example

Small and Medium Sized Enterprises Institution: Name: TABLE OF CONTENTS 1. Introduction…………………………………………………………………………3 2. Materials and methodology………………………………………………………….5 3. Obtained results………………………………………………………………………5 4. Discussion…………………………………………………………………………….9 5. Conclusion……………………………………………………………………………14 6. References ……………………………………………………………………………15 Abstract The main aim of this research paper was to get to know how important small and medium sized enterprises (SMEs) are and also determination of tax management system. Also of importance is the determination of financial management system for these enterprises. The results obtained from our findings clearly show that SMEs play a very critical role. An example is that of the small enterprises that have a little experience of applying the financial and tax management. This paper therefore has recommendations for the fiscal as well as tax management systems. Key words Small and Medium sized Enterprises (SMEs) Financial /fiscal management for SMES Tax management system for (SMEs) 1. Introduction Small and medium sized enterprises play a big role in provision and creation of jobs. These enterprises however face stiff competition from the big and established enterprises. This thus increases the competition and also poses a problem in getting better qualified and experienced manpower. Highly skilled manpower also tends to be more determined in working in the already established enterprises. This is simple because in this case they have a job security. Small enterprises lack security and could collapse any time in case of exhaustion of the resources that had been put in place to run that given enterprise. So many small enterprises begin every year but very few of them make it to be big multinationals. This could be caused by the problem in management, exhaustion of resources, poor management and lack of qualified personnel. The small enterprises could also fail due to occurrence of calamities and disasters. In most cases there are very few small and medium enterprises that are insured. This is so because the risks of running these enterprises are very high. Insurance companies will therefore show fewer interests in those enterprises as they do not want to incur losses. The business is also involving small amounts of money and also few fixed assets. This thus means that they have less security in case of a firm that wants to get insured. Only half of small and medium enterprises started every year make it to the fifth year. Small and Medium Enterprises play an important role in most developed countries. They are responsible for creation of a wide variety of jobs. They participate in growth of economies of most of the developed and also developing countries. In the case of European countries, they are known to have played a big role in creation of a hundred million jobs. This amounts to 67.1% of private segment employment. Evidence demonstrates that the individuals owning and managing small and medium enterprises make use of external sources of advice and support services. This is primarily due to the existence of a gap in their internal resource base. These enterprises need competencies in order to survive in the dynamic environment. These enterprises increases the chances of innovation and this in turn plays a major role in economic development. These types of enterprises are also flexible. Their flexible nature enhances the competitiveness and also this leads to provision of high quality goods and services. Flexibility means that the SMEs are easy and quick to adapt to new customer demands as compared to the big multinationals. 2. Materials and methodology of experiment Our main objective was to examine and be able to know how important small and medium enterprises are. A study was also interested in finding out the main challenges that face the SMEs and how they can be solved. The way of financing these enterprises was importance and also checking the checking on the financial and tax management system. In this case, information was obtained by analyzing of statistical data and also getting solutions from the final papers. Interviews with the managers of the SMEs were also conducted so as to get fast hand information from the people on the ground. 3. Obtained results The way different nationalities understand SMEs do vary greatly. They are however in most cases described by the help of quantitative measures. This may be defined by the number of owners. In the case of a sole proprietorship this is the case whereby the enterprise is owned by an individual. In classification of the number of employees an enterprise has employed is also key in identification of the type of an enterprise. In other countries, SMEs are defined according to the amount of revenue collected from them. European Commission describes SMEs as self-sufficient enterprises which employ smaller number than 250 personnel. According to the European commission the SMEs have either a yearly turnover not more than fifty million Euros and a yearly balance not exceeding forty three million euro’s. This category explains enterprises as being autonomous, and employs less than fifty individuals who’s once a year turnover or once a year balance sheet total is not more than ten million Euros. Other enterprises not in this category are classified under a group of larger enterprises. In developing the structure of the enterprise based on the size and the number of people employed in a given period of time, we studied from the papers showing the figures in Slovakia between the years 2009-2011. This is shown in the figure below fig3. First diagram represents the year 2011. The second diagram represents the year 2010. Key: ME-micro enterprises. SE-small enterprises. MSE- medium sized enterprises. LE-large enterprises. IN THE YEAR 2009 Developing the structure of an enterprise by size. Economy is greatly steered by the small and medium sized enterprises. These enterprises include the industrial ones and those that are nonindustrial. This fact is ascertained by the numbers recorded below: in 2011,the SMEs made imports that were 42% of the total imports made in Slovakia,30% of all the exports, 42 % of total production, 52% of profit made before taxation 56% of the added value and close to 70% of the of all the employments made in the year 2011. This was done so by the 99.6% of all the enterprises in the year 2011. This structure clearly shows how small and medium sized enterprise can play a big role in boosting the economies of different nationalities. It is evident from the results attained that making the SMEs thrive will render the economy an added advantage in all ways. Increase in imports and exports have a hand in employing many people and also contributing immensely to the revenue collection. What then does this mean? It means that the economies of countries will be boosted by the increased taxation and the revenue. While developing this structures financing should be sought first and a proper business plan developed. The importance of small and medium sized enterprises. Majority of SMEs are active in services in businesses involved in construction and in industry. Industrial enterprises have a very important role in the structure of SMEs. 16.3% of sole proprietorships were active in the industry as well as small and medium sized partnerships and corporations. It is therefore crucial to find a way of helping the SMEs in the dynamic and highly competitive environment. This can purposely be through an effective financial management as well as tax management. Financial management is a subsystem of the larger company that whose aim is to manage financial process. There are many financial processes that range from financial planning, decision making in matters concerning finances, financial organization processes and also financial analysis and also control. This subsystem plays a role in maximizing the value of the share holder. Financial management is tasked with obtaining of obligatory funding. This helps in effective allocation of finances and also deals with the mode of sharing the company’s profit. The effort of SMEs is to pay the lowest amount of taxes so as to maximize the net profit. This is generally achieved by having an effective tax management system. This plays a key role in management of finances. Managing of taxes provides a process from a tax perspective that aims at lowering the tax burden of a given enterprise. It is one of the perspective directive directions that help get better the financial state of affairs and competitiveness of small and medium sized enterprises. Financial tax management is a crucial for SMEs. From the research carried out, it is evident that more than half of the interviewed SMEs, crisis was noted that had a negative impact. This impact was generally felt in the onset of the year. More than 50% of the companies experienced a crisis that had a major influence. This influence affected their activities significantly. A significant reduction in the revenues and a minimal access to external financing was noted. The pressure of reduced prices was also felt. Minimized returns on the investment posed a challenge in paying back the credit. This in turn led to some companies being insolvent. These companies were left with the option of using of credit to current account. This could also help in increasing of the ownership equity that would in turn be used to solve this problem. It is particularly difficult for SMEs to get bank approval of a new credit. A limited number of SMEs are able to get the financing to start and run their businesses. This s particularly so due to their small nature that poses a big risk of their discontinuity. 4. Discussion According to today’s economic prose, there is an argument on the best practices for managing finances for the companies in a global financial and economic predicament. From the research carried out, the following recommendations were made for the financial and task managing of SMEs. 1. In the times of crisis, it is necessary for SMEs to put on emphasis on planning for a long term. This will help them obtain the financing and credits to begin the small businesses. In addition to that, a well organized business plan would attract the financiers if and only if the objectives and the mission of the business are well stated. 2. In the times of crisis it is also important to create and implement suitable corporate strategy as well as the financial strategy. This is oriented the maximization of the value of the share holders which is one of the primary goal of any given company. Corporate strategy is involved in making the company’s choice of the business markets and the activities. This in turn defines the general scope of the business and the direction that it takes. Financial strategy is also one of the core functional strategies. This helps in evaluation of the available operational options that help in monitoring of major decisions to be implemented. This kind of monitoring and evaluating of the operating decisions is imperative for the increase in the expected flow of cash in the company. 3. Monitoring of the economic environment is also vital in a given enterprise. This makes one to be aware and be able to cope with the financial and the economic crisis as well. This help in sensing of the warning signals of critical changes in the environment. They do not only need to pay attention to the comments and the estimates that are made by the rating agents but also there is a great need to analyze the financial well being of their suppliers, customers and the marketing agents that make supply possible. International banks that are a source of income should also be paid attention to. After carrying out this process, it is then necessary to put the main variables to planning processes. 4. SMEs should as well increase their focus on management of the cash flow. So as to survive the crisis it is necessary for the SMEs to remain solvent and have adequate liquidity. This could be made easy and possible in intensive collection of all the recievables and evaluation of the terms of the business with various stake holders including the customers and the suppliers. Monitoring of the financial well being of those who credit the business, managing the capital used to work and streamlining the balance due. Various governments have put down ways so as to help the SMEs to deal with the financial crisis. Financial programs are made available to SMEs. These programs involve the supporting of the innovations and the transfer of technology with an aim of achieving a high efficiency so as to increase the degree of effectiveness with which production takes place and also to minimize the ecological brunt. With the help of the governments, SMEs are able to access a financial help through an operational program that is availed. In some cases, the financing is made possible by the European unions. 5. Majority of the SMEs put into use financial ratios to be able to evaluate the performance of the firm and its financial position. The ratios used help in the analysis of the current and the past conditions and also play a pioneer role in planning for the future. Measures are also to be put in place so as to be able to predict the developments to be made in future. This is achieved by monitoring and analyzing of the non-financial indicators. Example of these indicators includes satisfying the customers, the employees, acquisition and retaining of employees that are well versed with the skills and those with a high grade of innovation. With these indicators, it is easy and possible to prediction of the company. This is majorly by pointing out then strengths and the new available opportunities for the business. 6. Companies that are experiencing decrease in their sales, liquidity and access to credit and are also facing problems in surviving in times of the financial crisis it is of utmost importance to do an analysis of the costs and do the limitations where need be. This means that all the unnecessary processes are scrapped off. This is due to their inability to add to the produced value. It is also important to produce high quality of goods and services during the times of crisis. This makes it possible to compete neck to neck with other businesses dealing with the same products. It gives one an advantage due to continuity in effectively satisfying the customers’ needs. This factor helps in identification of the succseful companies and those that are coming up and the other ones that are struggling with the quality issues. 7. Using the product norms for the management systems dealing with the quality, the attitudes towards the work quality improvement and various ways of improving and satisfying the demands of the customers. This is an attitude that is aimed at improving the customer demands and increasing the competitiveness of a given enterprise. 8. SMEs can also revise the terms of their agreements with the suppliers. This would include negotiating the prices of the payment and those of the delivery terms. These agreements could also lead to lowering the number of the employees in the case of unproductive old people or excess manpower. This helps the organization save for the other major projects. This increases the net profits. Reviewing of these terms could help also in better management of the working capital. There is also strict control of the direct costs and also reevaluation of the fixed assets. This could be made possible by looking at the alternative ways of financing the business. 9. SMEs are trying to maximize their tax liability. This makes it necessary to implement the management of tax as well as that of the financial management. The main functions of management of tax are to tax plan, making the decisions concerning the taxes, tax organization and also its control. All of them are interrelated and each of them includes a number of procedures. It is important to ensure the following activities, definition of tax policy in any given enterprise, monitoring of the real legislation, keeping the records concerning the taxes, execution and internal analysis of the tax. 5. Conclusion Indicators of profitable progress play a major role to the growth and increase in the industrial production. This also in most cases in the enterprises dealing with the production of vehicles. Many countries have opened their economies and in case of fluctuations in the foreign markets, there is an impact in the businesses. The SMEs are at a greater risk and so as to minimize this risk, measures should be put in place to lay an emphasis on the tax and financial management systems. There is also a great need to implement a system of tools that would help in dealing with future changes in the business environment. SMEs are key in playing a great role in driving the wheels of any nation. This is due to the jobs that they create and improvement of the quality of life of the services and goods that people receive. The SMEs help bring about stiff competition and those with the best strategy and the best skills always thrive best in the market. This is encouraging since the young entrepreneurs with the capability can source funding and easily start these small businesses. The SMEs should thus be encouraged at all costs and all possible means of making them thrive should be put in place. Guidelines as to how to start them should be imparted to the people. The problem with funding should be solved. This is by the governments coming up with low interest rates for those beginning small entrepreneurships. This will encourage people to start these small enterprises. A study should also be carried out to show why these enterprises fail; this will reduce the cost of taking risks as people can be able to know the possible mistakes and how they can be avoided. This will make the financiers more confident while providing the financing for the given enterprises. 6. REFERENCES 1. 4TH Research Forum on Small and Medium Sized Entreprises, from the University of Applied Sciences HTW Chur, Switzerland, 9th February, 2015. 2. A Research Guide from Shenendehowa middle school 3. Health and safety in the small to medium- sized Entreprise prepared by Heriot watt University, 2007 4. Research Paper from the faculty of material Science and Technology in Trnava, 2012 by Viera Bestvinova, Maria Homokyova, Martina Horvathova. Read More