Small Business Management PDF
Preview Small Business Management
MACMILLAN SMALL BUSINESS SERIES Series Editors: Jim Dewhurst and Paul Bums The books in this series are designed for use by students in higher education taking courses in small-business related courses at undergraduate and post experience level. They are also particularly useful for those studying for professional examinations and for well-informed managers of small and growing businesses. The books are comprehensive in scope and written by leading experts and researchers in this field. They deal with the subject in a sophisticated and rigorous way whilst still providing essential practical guidance. PUBLISHED Small Business Management (Third Edition) Jim Dewhurst and Paul Bums (eds) Small Business in Europe Paul Bums and Jim Dewhurst (eds) Small Business: The Independent Retailer Gary Davies and Kim Harris Small Business: Production/Operations Management Terry Hill Marketing for the Small Business Derek Waterworth Small Business and Entrepreneurship (Second Edition) Paul Bums and Jim Dewhurst (eds) SMALL BUSINESS MANAGEMENT THIRD EDITION Jim Dewhurst and Paul Bums © Jim Dewhurst and Paul Burns 1983, 1988, 1993 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First edition (Small Business: Finance and Control) 1983 Reprinted 1985, 1986 Second edition (Small Business: Planning, Finance and Control) 1988 Reprinted (with corrections) 1990, 1992 Third edition (Small Business Management) 1993 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world ISBN 978-0-333-60654-4 ISBN 978-1-349-23109-6 (eBook) DOI 10.1007/978-1-349-23109-6 A catalogue record for this book is available from the British Library. 8 7 6 5 4 05 04 03 02 01 00 Contents Preface vii 1 Introduction 1 I Setting Up 9 2 The Genesis of a Business 11 3 Business and the Law 30 4 Business Taxation 40 II Business Basics 65 5 Marketing 67 6 Understanding Accounts 89 7 Contribution and Break-Even Analysis 105 III Planning 127 8 The Business Plan 129 9 Financial Planning and Budgeting 168 IV Finance 185 10 Bank Finance 187 11 Financial and Other Services for SMEs 201 12 Risk Capital 213 V Control 229 13 Accounting Systems 231 14 Costing Products 257 15 Using Budgets 266 16 Analysing Accounts 281 17 The Management of Money 303 18 Inventory Management 320 19 Decision Making 329 20 Capital Investment Appraisal 341 v vi Contents VI The Growing Business 367 21 Managing Growth 369 22 The European Dimension 383 23 Relative Performance of SMEs 397 24 The Future for SMEs 403 Select Bibliography 411 Index 415 Preface This book was first published in 1983 under the title of Small Business: Finance and Control. The title reflected its narrow focus. Despite this, it was reprinted twice. A second edition was published in 1989 under the title Small Business: Planning, Finance and Control. The new title reflected a much broader perspective. Managing small firms was treated much more as a multidisciplinary activity. Planning was the framework that bound this together. This edition was also reprinted. The familiar yellow cover is to be seen on the bookshelves of many academics, trainers and small business advisers, not to mention the students they have taught and the clients they have advised. Small Business Management reflects not only an extensive updating and rewriting of the previous edition, but also a further extension of the multidisciplinary approach. The planning framework is maintained but the book now has chapters on marketing, growth models and manage ment as well as a chapter on the opportunities for small firms in Europe. The book shows how small firms can be effectively and efficiently man aged - from start-up into growth. It is a 'why-you-do-it' text that also explains 'how-to-do-it'. It is intended to be used on small business courses in higher and further education and also for well-informed practitioners. The extension of the multidisciplinary approach means that it can now also be used on courses designed as an introduction to business studies. The book can be used with its sister volume Small Business and Entrepre neurship, which explores the managerial problems and issues facing entre preneurs and small, growing firms. This text explores the issues assuming that students have the necessary functional management skills and con centrates on the broader strategic implications. Throughout we have used 'he' (and similar terms) rather than 'he and she' or 's/he'. We ask the reader to accept please that this is merely a matter of convenience. Many thanks to Susan Bums, who wrote Chapter 4, 'Business Taxation'. She also helped at least one of the authors on many occasions when he needed inspiration. Thanks also to Claridges for permission to use their vii viii Preface business plan. Thanks also to the hundreds of small firms that have gone through the programmes and courses we have run. Without them we would have nothing to write about. JIM DEwHuRsT PAUL BURNS CHAPTERl Introduction TtIE SITUATION IN THE UK 1 THE DEFINITION OF AN SME 3 FINANCIAL UNDERSTANDING 5 SMEs IN THE UK ECONOMY 6 The situation in the UK In all the short history of modem business there is nothing so strange as this. On the one hand we have the traditional belief in the rightness and power of size. Rationalisation, standardisation and concentration are the watchwords. Economies of scale rule the industrial world. In the United Kingdom we say we must be big to stand up against the ruthless cost effective multinational corporations based in the USA, Pacific basin and Japan. And indeed in the United Kingdom we have gone further along this road of concentration than any other country in the world. Yet this predilection for economic orthodoxy has not brought us economic success. There is another viewpoint which has a growing number of adherents. Perhaps, these people argue, economic success is not the sole criterion by which we should judge all things. Perhaps people matter. Perhaps a society should be concerned to some extent with the quality of life, job satisfaction and good human relationships. Much evidence is now produced that some primitive races are more relaxed, more caring and (unbelievably!) apparently happier than we are. Some evidence has been produced recently that people working in small business units in a civi lised society are more committed than those working in large, amorphous, corporations. What are the alternatives? One solution, ably put by Fritz Schumacher, was that an intermediate technology should be developed. To use his own words, this would be a technology that is 'simpler, very much cheaper, 1 2 Introduction very much easier to maintain than the highly sophisticated technology of the modern West'. But the question to which he gave this answer was: 'What would be the appropriate technology for Rural India or Rural Latin America or maybe the City slums?' Now it may well be that for a com paratively rural, primitive society, intermediate technology (rather than a sudden forced transformation to high technology) may be the answer. But we are neither a primitive society nor all city slums. The situation in the United Kingdom is indeed almost the complete reverse. The Industrial Revolution started here and we have already gone further along the road of industrial success and then apparent rigidity and relative decline than any other country. What can we do? How can we combine our present state with an enlightened approach? The clue must partly lie in our difficulty in seeing that size and technological/manage rial efficiency are not the same, or at any rate are not hopelessly inter locked. The arguments against an undue concern with size (except in certain parts of the economy) are strong. The arguments in favour of applying modern technological and managerial control techniques are equally strong. What this book is concerned to show is that in a free thinking, democratic society it is possible to use sophisticated, sometimes highly quantitative, techniques in the control of small businesses without impairing those special characteristics of a small business which we (and particularly those who work with it) admire so much. This book therefore develops the theme that a small business is benefi cial, that it is flexible, that it can adapt to new situations more easily than large corporations, that it is innovative, that it already makes a good contribution and that with efficient control and management techniques the benefit it gives can be much greater. We do not use the words 'small' or 'smaller' here or throughout in any tight restrictive sense. We are not trying to keep businesses small. We are seeking to make small businesses more effective and efficient in the very broadest sense. We favour growth. A successful small business can grow into a medium sized business whilst still retaining those desirable charac teristics of personalised control and managerial flexibility which we dis cuss in the next section. Even though this book covers all small and medium sized enterprises (5MEs), it is certainly more concerned with the 'M' in the term than the '5'. Conventionally the terms 'small', 'smaller' and '5MEs' are all loosely used for much the same thing a,nd generally we follow this practice and use the terms interchangeably. Typically '5ME' would be the most ap propriate, but convenience and custom dictates that the term 'small' is often used. In the next section we look at specific size criteria. It is now realised that much of the resource allocation in the past in the UK for start-ups has been wasted. The vast majority of start-ups in the 1980s began as one-person enterprises and finished up that way. Window
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