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MGT601 - SME Management - Lecture Handout 19

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POST AND FIELD PROBLEMS FACED BY A NEW ENTERPRISE

Chapter deals with post and field this problems faced by a new concern.

  1. Acquisition of land;
  2. Construction of building and other aspect of civil works;
  3. Acquisition of machinery and its installation;
  4. Preliminary work about the sources of supply of raw materials , labor and managerial inputs;
  5. Prospecting about marketing;
  6. Preliminary work regarding sources of working capital;
  7. Coordination problem connected with the acquisition of different kinds of assets or completion of jobs;

Unless care is taken to ensure proper sequencing of different activities, the project would have cost over-run and/or time over run. Here in some kind of PERT analysis could be quite helpful.

Post Operative Problems of a New Enterprise

Several problems can create hurdle to start any enterprise-whether small or large. They need not always arise but an awareness regarding them could enable their timely avoidance or prevention. Below are given some of the post-operative problems.

  • Lack or absence of profits.
  • Experience factor:
    • Unfamiliarity or lack of experience in product or services line.
    • Lack of experience in management. There is a vast difference between being a machinist and being able to manage a machine shop.
    • Over-concentration of experience e.g. focusing only on the area of interest say, sales, finance, production etc and neglecting others.
    • Incompetence of management.

    Read more: MGT601 - SME Management - Lecture Handout 19

MGT602 - Entrepreneurship - Lecture Handout 33

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PRO FORMA SOURCES AND USES OF FUNDS

COMMERCIAL BANKS

Commercial banks are the most frequently used source of short-term funds.

  1. This is debt financing and requires some collateral, some asset with value.
  2. This collateral can be business assets, personal assets, or the assets of the cosigner of the note.

Types of Bank Loans

1.Accounts receivable loans.

  1. Accounts receivable provide a good basis for a loan, especially if the customer base is creditworthy.
  2. A bank may finance up to 80% of the value of the accounts receivable.
  3. A factoring arrangement can be developed whereby the factor (bank) actually buys the accounts and collects the money.
  4. If any of the receivables are not collectible, the factor sustains the loss, not the business.
  5. The cost of factoring is higher than the cost of securing a loan against the accounts receivable.

2.Inventory loans.

  1. Inventory is often a basis for a loan, particularly when inventory is liquid and can be sold easily.
  2. Finished goods inventory can be financed up to 50% of value.
  3. Trust receipts are a type of inventory loan used to finance floor plans of retailers such as auto dealers.
  4. The bank advances a large percentage of the invoice price of the goods and is paid a pro rate basis as the inventory is sold.

  5. Read more: MGT602 - Entrepreneurship - Lecture Handout 33

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