Description
Finance is the key input of production distribution& development. It is therefore aptly described as the "life- blood" of industry& is prerequisite for accelerating the process of industrial development. Especially in case of small scale industries, finance is the key input in growth & development. The financial investment of these small units comes mainly from within; most of them invest their own funds or borrowed funds.
http:/ / www.exclusivemba.com/ ijemr Page 1
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
A study of Financial Management in Small Scale Industries in India
*Prof. J ayshri J Kadam
**Prof. Dr. V.N. Laturkar
* Lecturer, IBMRD, A.Nagar, India
**Reader, SRTMU, Nanded, India
Abstract
Small Scale industries encompass vast scope covering activities like manufacturing, servicing,
financing, construction, infrastructure etc. In view of Government of India’s ever increasing
importance given to the small scale industries in the national economy more & more small scale
industries are to be set up in the years to come. By contributing it’s increasing share to the
national production, employment & exports, small scale industries also contribute to the
economic development of the country. However, these industries are also plagued by the
problems of raw material, finance, marketing, underutilization of capacity, etc. cash has become
a big problem for small & even big businesses today. Lack of finance has driven many small
business units into bankruptcy. Unfortunately many small businesses will become bankrupt
because their owners have neglected the principal of cash management which normally
determines their successes or failure. Cash is like oxygen to a business. Small scale enterprises,
given their small resources find it difficult to have these own. Finance has been the important
resource to start & run an enterprise4because it facilitates the entrepreneur to procure land,
labour, material, machine& so on from different parties to run his/her enterprise. Report of third
all India censuses also clearly indicate that lack of demand& shortage of working capital are the
main reasons behind sickness/ incipient sickness of registered & unregistered small scale
industries. Developing cash forecast is essential for new business because early sales do not
generate enough cash to keep the company afloat. Better financial management can lead the
company ahead in competition as well as it will help the entrepreneur to avoid the situation of
bankruptcy & industrial sickness. This paper is an attempt to understand various financial
techniques to help the entrepreneurs to avoid the situation of industrial sickness.
Key Words: Cash Management, Small scale entrepreneurs, Industrial sickness
http:/ / www.exclusivemba.com/ ijemr Page 2
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Introduction:
Finance is the key input of production distribution& development. It is therefore aptly described
as the “life- blood” of industry& is prerequisite for accelerating the process of industrial
development. Especially in case of small scale industries, finance is the key input in growth &
development. The financial investment of these small units comes mainly from within; most of
them invest their own funds or borrowed funds. Much less comes from banks & government
channels. Small scale entrepreneurs face a lot of problem while availing loan facility form
commercial banks as well as Government agencies. Financial institutions ask for a lot of
information& data, state financial corporation takes several months to takedecision on extending
term loans small scale sector are not in a position to offer guarantee required by the banking
sector. Even when small loans can be raised from Government agencies the procedure is so
cumbersome that most of the entrepreneurs, who either are illiterate or semiliterate, hesitate to
make use of these facilities. This makes matter very difficult for the small industrialist,
particularly when he is new to this way of life, & he has to deal with both state financial
corporation as well as banks. Quite often few get fed up at this stage & give up.
The importance of Cash Management to the success of Small Business-
Managing cash flow which is a struggle for many business owners involves-
Forecasting
Collecting
Disbursing
Investing & planning for the cash a company needs to operate smoothly. A business must have
enough cash to meet it’s obligations as they come due or it will experience bankruptcy.
Creditors, employees & lenders expected to be paid on time, which require cash. Proper cash
management permeates entrepreneurs to adequately meet their cash demands of their businesses
avoid unnecessarily large cash balances & stretch the profit-generating power of each credit or
dollar their companies own. Entrepreneurs must have the discipline to manage cash flow from
the first day of its operation. Although cash problem affect all companies young businesses are
more prone to suffer cash shortages because all the available cash is used for their productive
activities& their cash generating activities have not reached the level to generate enough cash to
cover rapidly growing expenses.
Cash Management Role of the Entrepreneur-
The five key cash management roles every entrepreneur must fulfill are-
1) Cash finder- This is the entrepreneurs first & the foremost responsibility. Must make sure
there is enough capital to meet present as well as future bills. This is not a one time task
but an ongoing job.
http:/ / www.exclusivemba.com/ ijemr Page 3
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
2) Cash planner- As a cash planner an Entrepreneur makes sure the companies cash used
properly & efficiently. Must keep track of its cash make sure that it is available to pay
bills & plan for it’s future use. Planning requires ones to forecast the company’s inflows &
outflows for the month ahead with the help of a cash budget.
3) Cash Distributor- The role require entrepreneur to control the cash needed to pay the
companies bills &the priority & the timing to those payments. Forecasting cash
disbursements accurately & making sure the cash is available when payments come due are
essential to keep the business solvent.
4) Cash collector-The role require entrepreneur to make sure customers pay their bills on
time. Too often entrepreneurs focus on pumping of sales while neglecting to collect the cash
from these sales. Uncollected accounts drain a small company’s pool of cash very quickly.
5) Cash conserver- The role require entrepreneur to make sure the company gain maximum
value for the dollar it spends. Avoiding unnecessary expenditure is an important part of this
task. The goal is to spend cash so it will produce a return for the company.
Type of industrial Finance-
Depending upon the type of activity entrepreneur require three type of Finance
1) Short term finance- For the period of less than one year. It is usually required to meet
variable, seasonal or temporary working capital needs.
2) Medium Term finance-The period of 1-5 years. Medium term finance is usually required
for permanent working capital, small expansions, replacements, modifications etc.
3) Long Term Finance- Period exceeding 5 years. Long term finance is usually required for
procuring fixed assets, for the establishment of a new business, for substantial
expansion of existing business, modernization.
http:/ / www.exclusivemba.com/ ijemr Page 4
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Sources of finance for small scale sector-
Sources of finance
Fixed Working capital
State Govt. SFC’s NSIC SSICS SIDCS Commercial
banks
Commercial Banks Industrial co-operative banks Indigenous banks Money lender
Investment corporations
http:/ / www.exclusivemba.com/ ijemr Page 5
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Magnitude of sickness in the SSI sector in country-
The incidence of sickness in the small scale industries sector has declined from the year 1999
to 2003, as per the data compiled by the RBI from scheduled commercial banks. The number of
sick units in the country has come down from 158226 as at the end of March 1987 to85187 as at
the end of March 2008( provisional) The total sick SSI units, , with the amounts outstanding
against them for years ending March 1987 to 2008 were as given in following table-
Year Sick SSI Units Amount outstanding
1987 158226 1542
1988 217436 1980
1989 186441 2243
1990 218828 2427
1991 221472 2792
1992 245575 3101
1993 238176 3443
1994 256452 3680
1995 268815 3547
1996 262376 3722
1997 235032 3609
1998 221536 3857
1999 306221 4313
2000 304235 4608
2001 249630 4506
2002 177336 4819
2003 167980 5706
2004 138811 5285
2005 138041 5380
2006 126824 4981
2007 114132 5267
2008 85187 13849
http:/ / www.exclusivemba.com/ ijemr Page 6
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Notes: 1. 2008 data are provisional
2. 1987&1988 data relate to end J une.
3. 1989 data relates to end September
The incidence of sickness in SSI sector has declined from the year 1987 to 2008 as per the data
compiled by RBI from scheduled commercial banks. The number of sick units come down from
158226 at the end of March 1987 to 85187 at the end of March 2008, but at the same time
amount outstanding continuously goes on increasing this is mainly due to lack of proper cash
management by small scale entrepreneurs.
http:/ / www.exclusivemba.com/ ijemr Page 7
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Conclusion:
For entrepreneurs, small business financial management is a vital aspect of growing a profitable
company. Implementing sound economic principles and keeping a close watch on cash flow will
help lay a solid financial foundation for the new venture. Monetary policies and procedures for
effective cash management need to be part of the entrepreneur's business plan. Though it may be
more exciting for the entrepreneur to dream about the actual services or products that the
company will provide, a business cannot thrive, and may not survive, if the financing aspects are
left to chance. In order to arrest sickness at the incipient stage banks & financial institutions
should periodically review the accounts of the small scale industr8ies borrowers to identify units
which are becoming sick or are prone to sickness. The Government of India & the RBI should be
requested to direct commercial banks & financial institutions to provide information on sickness
to the agencies like BIFR implementing the rehabilitation programme to facilitate them to take
up appropriate action. It is also suggested that Government should conduct special EDP’s for
training the entrepreneurs in financial aspects.
References:
1)I. M. pandey: Financial Management, ( sixth revised edition ), vikas publishing House
Ltd. , New Dehli, 1994, p.755
2)Vasant Desai; Small scale Industries & entrepreneurship, first edition, Himalaya
publishing House Ltd., New Dehli, Oct, 1994 p.94,95,179-181.
3) J ohn Argenti: Symptoms of sickness, Accountancy.
doc_131950664.pdf
Finance is the key input of production distribution& development. It is therefore aptly described as the "life- blood" of industry& is prerequisite for accelerating the process of industrial development. Especially in case of small scale industries, finance is the key input in growth & development. The financial investment of these small units comes mainly from within; most of them invest their own funds or borrowed funds.
http:/ / www.exclusivemba.com/ ijemr Page 1
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
A study of Financial Management in Small Scale Industries in India
*Prof. J ayshri J Kadam
**Prof. Dr. V.N. Laturkar
* Lecturer, IBMRD, A.Nagar, India
**Reader, SRTMU, Nanded, India
Abstract
Small Scale industries encompass vast scope covering activities like manufacturing, servicing,
financing, construction, infrastructure etc. In view of Government of India’s ever increasing
importance given to the small scale industries in the national economy more & more small scale
industries are to be set up in the years to come. By contributing it’s increasing share to the
national production, employment & exports, small scale industries also contribute to the
economic development of the country. However, these industries are also plagued by the
problems of raw material, finance, marketing, underutilization of capacity, etc. cash has become
a big problem for small & even big businesses today. Lack of finance has driven many small
business units into bankruptcy. Unfortunately many small businesses will become bankrupt
because their owners have neglected the principal of cash management which normally
determines their successes or failure. Cash is like oxygen to a business. Small scale enterprises,
given their small resources find it difficult to have these own. Finance has been the important
resource to start & run an enterprise4because it facilitates the entrepreneur to procure land,
labour, material, machine& so on from different parties to run his/her enterprise. Report of third
all India censuses also clearly indicate that lack of demand& shortage of working capital are the
main reasons behind sickness/ incipient sickness of registered & unregistered small scale
industries. Developing cash forecast is essential for new business because early sales do not
generate enough cash to keep the company afloat. Better financial management can lead the
company ahead in competition as well as it will help the entrepreneur to avoid the situation of
bankruptcy & industrial sickness. This paper is an attempt to understand various financial
techniques to help the entrepreneurs to avoid the situation of industrial sickness.
Key Words: Cash Management, Small scale entrepreneurs, Industrial sickness
http:/ / www.exclusivemba.com/ ijemr Page 2
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Introduction:
Finance is the key input of production distribution& development. It is therefore aptly described
as the “life- blood” of industry& is prerequisite for accelerating the process of industrial
development. Especially in case of small scale industries, finance is the key input in growth &
development. The financial investment of these small units comes mainly from within; most of
them invest their own funds or borrowed funds. Much less comes from banks & government
channels. Small scale entrepreneurs face a lot of problem while availing loan facility form
commercial banks as well as Government agencies. Financial institutions ask for a lot of
information& data, state financial corporation takes several months to takedecision on extending
term loans small scale sector are not in a position to offer guarantee required by the banking
sector. Even when small loans can be raised from Government agencies the procedure is so
cumbersome that most of the entrepreneurs, who either are illiterate or semiliterate, hesitate to
make use of these facilities. This makes matter very difficult for the small industrialist,
particularly when he is new to this way of life, & he has to deal with both state financial
corporation as well as banks. Quite often few get fed up at this stage & give up.
The importance of Cash Management to the success of Small Business-
Managing cash flow which is a struggle for many business owners involves-
Forecasting
Collecting
Disbursing
Investing & planning for the cash a company needs to operate smoothly. A business must have
enough cash to meet it’s obligations as they come due or it will experience bankruptcy.
Creditors, employees & lenders expected to be paid on time, which require cash. Proper cash
management permeates entrepreneurs to adequately meet their cash demands of their businesses
avoid unnecessarily large cash balances & stretch the profit-generating power of each credit or
dollar their companies own. Entrepreneurs must have the discipline to manage cash flow from
the first day of its operation. Although cash problem affect all companies young businesses are
more prone to suffer cash shortages because all the available cash is used for their productive
activities& their cash generating activities have not reached the level to generate enough cash to
cover rapidly growing expenses.
Cash Management Role of the Entrepreneur-
The five key cash management roles every entrepreneur must fulfill are-
1) Cash finder- This is the entrepreneurs first & the foremost responsibility. Must make sure
there is enough capital to meet present as well as future bills. This is not a one time task
but an ongoing job.
http:/ / www.exclusivemba.com/ ijemr Page 3
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
2) Cash planner- As a cash planner an Entrepreneur makes sure the companies cash used
properly & efficiently. Must keep track of its cash make sure that it is available to pay
bills & plan for it’s future use. Planning requires ones to forecast the company’s inflows &
outflows for the month ahead with the help of a cash budget.
3) Cash Distributor- The role require entrepreneur to control the cash needed to pay the
companies bills &the priority & the timing to those payments. Forecasting cash
disbursements accurately & making sure the cash is available when payments come due are
essential to keep the business solvent.
4) Cash collector-The role require entrepreneur to make sure customers pay their bills on
time. Too often entrepreneurs focus on pumping of sales while neglecting to collect the cash
from these sales. Uncollected accounts drain a small company’s pool of cash very quickly.
5) Cash conserver- The role require entrepreneur to make sure the company gain maximum
value for the dollar it spends. Avoiding unnecessary expenditure is an important part of this
task. The goal is to spend cash so it will produce a return for the company.
Type of industrial Finance-
Depending upon the type of activity entrepreneur require three type of Finance
1) Short term finance- For the period of less than one year. It is usually required to meet
variable, seasonal or temporary working capital needs.
2) Medium Term finance-The period of 1-5 years. Medium term finance is usually required
for permanent working capital, small expansions, replacements, modifications etc.
3) Long Term Finance- Period exceeding 5 years. Long term finance is usually required for
procuring fixed assets, for the establishment of a new business, for substantial
expansion of existing business, modernization.
http:/ / www.exclusivemba.com/ ijemr Page 4
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Sources of finance for small scale sector-
Sources of finance
Fixed Working capital
State Govt. SFC’s NSIC SSICS SIDCS Commercial
banks
Commercial Banks Industrial co-operative banks Indigenous banks Money lender
Investment corporations
http:/ / www.exclusivemba.com/ ijemr Page 5
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Magnitude of sickness in the SSI sector in country-
The incidence of sickness in the small scale industries sector has declined from the year 1999
to 2003, as per the data compiled by the RBI from scheduled commercial banks. The number of
sick units in the country has come down from 158226 as at the end of March 1987 to85187 as at
the end of March 2008( provisional) The total sick SSI units, , with the amounts outstanding
against them for years ending March 1987 to 2008 were as given in following table-
Year Sick SSI Units Amount outstanding
1987 158226 1542
1988 217436 1980
1989 186441 2243
1990 218828 2427
1991 221472 2792
1992 245575 3101
1993 238176 3443
1994 256452 3680
1995 268815 3547
1996 262376 3722
1997 235032 3609
1998 221536 3857
1999 306221 4313
2000 304235 4608
2001 249630 4506
2002 177336 4819
2003 167980 5706
2004 138811 5285
2005 138041 5380
2006 126824 4981
2007 114132 5267
2008 85187 13849
http:/ / www.exclusivemba.com/ ijemr Page 6
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Notes: 1. 2008 data are provisional
2. 1987&1988 data relate to end J une.
3. 1989 data relates to end September
The incidence of sickness in SSI sector has declined from the year 1987 to 2008 as per the data
compiled by RBI from scheduled commercial banks. The number of sick units come down from
158226 at the end of March 1987 to 85187 at the end of March 2008, but at the same time
amount outstanding continuously goes on increasing this is mainly due to lack of proper cash
management by small scale entrepreneurs.
http:/ / www.exclusivemba.com/ ijemr Page 7
International J ournal of Exclusive Management Research August 2011-Vol 1 Issue 3
ISSN 2249 –2585
Conclusion:
For entrepreneurs, small business financial management is a vital aspect of growing a profitable
company. Implementing sound economic principles and keeping a close watch on cash flow will
help lay a solid financial foundation for the new venture. Monetary policies and procedures for
effective cash management need to be part of the entrepreneur's business plan. Though it may be
more exciting for the entrepreneur to dream about the actual services or products that the
company will provide, a business cannot thrive, and may not survive, if the financing aspects are
left to chance. In order to arrest sickness at the incipient stage banks & financial institutions
should periodically review the accounts of the small scale industr8ies borrowers to identify units
which are becoming sick or are prone to sickness. The Government of India & the RBI should be
requested to direct commercial banks & financial institutions to provide information on sickness
to the agencies like BIFR implementing the rehabilitation programme to facilitate them to take
up appropriate action. It is also suggested that Government should conduct special EDP’s for
training the entrepreneurs in financial aspects.
References:
1)I. M. pandey: Financial Management, ( sixth revised edition ), vikas publishing House
Ltd. , New Dehli, 1994, p.755
2)Vasant Desai; Small scale Industries & entrepreneurship, first edition, Himalaya
publishing House Ltd., New Dehli, Oct, 1994 p.94,95,179-181.
3) J ohn Argenti: Symptoms of sickness, Accountancy.
doc_131950664.pdf