Summary
Currently, it is vitally important that SMEs have financial strategies that allow them to achieve their objectives and therefore the development of the entity in the local market, so that the company grows and can be competitive with other companies, providing services of quality and internally, to carry out an adequate administration of resources and management of finances, economics and accounting for decision-making. Today SMEs do not make adequate decisions, it is not enough to offer a good product or service, if there is no adequate administration of resources in the entity and that the person responsible for financial decisions in SMEs is trained and has the experience to be able to take adequate financial strategies and a correct management of resources,attached to the objectives of the entity. For this reason, it is vitally important that the financial manager carry out financial strategies that help the development of SMEs.
Abstract
It is now vital that SMEs have with financial strategies to meet its objectives and therefore the development of the company in the local market, therefore the company grows and can be competitive with other companies providing services quality and internally, wear proper management of resources and financial management, economics and accounting for decision making. Today SMEs fail to take appropriate decisions, not just the product or offer a good service, if there is no proper management of resources in the state and that the person responsible for the financial decisions in SMEs, this has trained and experience to make appropriate financial strategies and proper handling of resources attached to the objectives of the entity. That is why, it is vital that the financial manager make financial strategies that support the development of SMEs. 1.Introduction
Nowadays it is vitally important that small and medium-sized companies in Mexico are competitive and develop in the local market and derived from the good service they provide and adding to the proper management of the company by the entrepreneur or administrative manager to develop, grow and become competitive with all the foreign companies and franchises that are currently dominating our market.
It is not enough to have an excellent service or provide quality products for an SME to be successful in the local market; Many times the success of an SME lies in its management and administration, together with the financial strategies that are taken.
There are several financial strategies that can be put into action in order to achieve the agreed objectives, if a financial strategy is established in a systematic way, it will achieve financial stability. This will increase the capacity of the SME to generate more profits.
The financial strategies of SMEs must be in relation to the general objective that has been decided; and these strategies must be able to provide a solution to the needs of the entity.
In the research work below, the background of the term strategy and its conceptualization are detailed with the perspective of different authors. In the same way I talk about what finance is and its importance within SMEs, a proposal is presented on how an SME should be managed (financially speaking), the requirements that must be for the person who has the responsibility of financial decision-making within the SME; I allowed myself to talk about what an SME is, its classification, presenting a comparison of how the way it is done in other countries is classified in Mexico.
The main problems that SMEs may have and the possible solutions to this problem are also presented; for this reason I propose the fact that in SMEs the role of the Financial Administrator is of vital importance for the achievement of the objectives and the execution of adequate financial strategies for the development of the SME, that the person in charge of this responsibility must be trained, have experience in the local market and knowledge of accounting to be able to interpret the financial statements for decision-making.
2. Background to the concept of strategy
Before talking about financial strategies in small and medium-sized companies, it is necessary to define strategy in this way to know the beginnings of this term in society. The concept of strategy is very old; Henry Mintzberg, James Brian Quinn, and John Voyer in their book The Strategic Process: Concepts, Contexts, and Cases (Mintzberg, Quinn, and Voyer, 1997) refer that in antiquity, generals led their armies both in conquest and in defense of cities, each type of objective required different deployment of resources; Similarly, the strategy of an army could also be defined as the pattern of actions that are carried out to respond to the enemy. The generals not only had to plan, but also to act.
Thus, already in ancient Greek times, the concept of strategy had as many components of planning as of decision making or actions together, these two concepts constitute the basis for the strategy. The Vocablo strategos was initially referring to an appointment (of the commanding general of an army). Later it came to mean "art in general," that is, the psychological skills and character with which he assumed the assigned role. In the time of Pericles (450 BC) he came to explain administrative skills (administration, leadership, oratory, power). And as early as Alexander of Macedonia (330 BC) the term referred to the ability to apply force, defeat the enemy, and create a unified system of global government.
2.1. Strategy conceptualization
In the field of Administration, Mintzberg Henry et al. (1997) establish that a strategy is the pattern or plan that integrates the main goals and policies of an organization, and at the same time, they establish the coherent sequence of actions to be carried out. A well-formulated strategy helps to put order and allocate, based on both its attributes and its internal deficiencies, the resources of an organization, in order to achieve a viable and original situation, as well as anticipate possible changes in the environment and the unforeseen actions of smart opponents.
H. Igor Ansoff, in his book Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion, (Ansoff, 1965) states that strategies are expressions of policy operations in the sense that, within a administrative system, define the operational criteria on the basis of which of the specific programs can be conceived selected and implemented.
Gerry Jhonson, Kevan Scholes and Richard Whittington (Jhonson, Scholes and Whittington, 2006), in their book Strategic Management, conceptualize strategy as the direction and scope of an organization in the long term, and allows to achieve advantages for the organization through its resource configuration in a changing environment, to meet the needs of markets and meet customer expectations.
On the other hand, Arthur A. Thompson, Jr. and AJ Strickland (Thompson and Strickland 1999), in their book Strategic Management, establish that the strategy of an organization consists of the combined actions that management has understood and that it intends to achieve the financial and strategic objectives and strive for the mission of the organization; This will ultimately help us how to achieve our goals and how to fight for the mission of the organization.
In this way, we can understand by strategy as the steps to follow to achieve a certain objective or goal, these steps to follow have a specific and defined plan and help in achieving the goal of the organization.
2.2. Finance conceptualization
Alfonso Ortega Castro in his book Introduction to Bail Bonds (Ortega, 2002), defines Finance as the discipline that, through the help of others, such as accounting, law and the economy, tries to optimize the management of resources human and material of the company, in such a way that, without compromising its future free administration and development, it obtains a maximum and balanced benefit for the owners or partners, the workers and the society.
On the other hand Guadalupe Ochoa Setzer, in her book Financial Administration (Ochoa, 2002), defines Finance as the branch of the economy that is related to the study of investment activities in both real assets and financial assets and with the administration of the same.
Similarly, Zvi Bodie and Robert Merton, in their book Finance (Bodie and Merton, 2003), conceptualize finance as the study of the way in which scarce resources are allocated over time.
And finally OC Ferrel, Geoffrey Hirt and Leticia Ramos, in their book Introduction to Business in a changing world (Ferrel, Hirt and Ramos, 2004) the term finance refers to all activities related to obtaining money and its use effective.
Therefore, I can conclude that finance is an applied area of economics that takes elements from other disciplines such as accounting, statistics, economics, law, mathematics, sociology, among others, to know how to obtain, manage and assign resources in an entity.
3. Small and medium-sized enterprises (SMEs)
3.1 Concept
There is no doubt that companies carry out a series of activities that vary according to the type of business they intend to develop and the volume of operations. Barreyre Pierre-Yves in his book The small and medium-sized company facing change (Pierre-Yves, 1978) establishes that it constitutes a part of the fruit known as small and medium-sized companies those in which the ownership of capital is identified with the effective management and It responds to dimensional criteria linked to behavioral characteristics and economic power.
Joaquín Rodríguez Valencia in his book Administration of small and medium-sized companies (Rodríguez, 2002), establishes that medium-sized and small companies should be understood as those companies whose income does not exceed 20 million pesos but not less than one and a half million. of weights and that you must consider various criteria to easily determine if the company is small or medium. As it can be the magnitude, the environment, the turn, market that dominates, the financing and the production.
3.2 Classification
According to the economic activity developed, there are various factors of how an SME can be classified (Rodríguez, 2002).
Table 1: Classification of SMEs
|
STATISTICS NATIONAL INSTITUTE AND ECONOMIC STUDIES (INSEE) FRANCE |
||||
| Handcrafted |
Of |
1 to 10 |
Workers | |
| very small |
Between |
10 and 50 |
Workers | |
| Little |
Of |
50 to 250 |
Workers | |
| Median |
Of |
250 to 1000 |
Workers | |
| Big |
Of |
1000 to 5000 |
Workers | |
| Very big |
more of |
5000 |
Workers | |
|
zThe Small Business Administration (USA) |
||||
| Little |
until |
250 |
Employees | |
| Median |
of |
250 to 500 |
Employees | |
| Big |
more of |
500 |
Employees | |
|
The Economic Commission for Latin America (ECLAC) |
||||
| Little |
Between |
5 and 49 |
Employees | |
| Median |
Of |
50 to 250 |
Employees | |
| Big |
more of |
250 |
Employees | |
|
Finance Executives (Mexico) |
||||
| Little |
less than |
25 |
Employees | |
| Median |
Between |
50 and 250 |
Employees | |
| Big |
more of |
250 |
Employees | |
|
J. Rodríguez Valencia (Mexico) |
||||
| Handcrafted |
Of |
1 to 5 |
Persons | |
| Microenterprise |
Of |
5 to 50 |
Persons | |
| Little |
Of |
50 to 100 |
Persons | |
| Median |
of |
100 to 250 |
Persons | |
| Big |
Of |
250 to 1000 |
Persons | |
| Very big |
more of |
1000 |
Persons |
Source: Adapted from Joaquín Rodríguez Valencia, Administration of small and medium-sized companies
This table allowed me to identify the differences in the conceptualization of what a small and medium company is, in relation to other countries; and that the circumstantial difference lies in the number of people who count the entity to be able to identify it as a small or medium-sized company. In more developed countries, the parameter for a small or medium-sized company in relation to Mexico is more than 200 or 300% more people than the number of people a company must have in Mexico to be considered an SME.
In Mexico, in order to promote business and promote competitive companies in the global economy, SECOFI released on April 13, 1999, the new criteria for the stratification of companies.
Table 2. Stratification of companies in Mexico
|
SIZE |
INDUSTRIAL |
COMMERCIAL |
OF SERVICES |
| Micro businesses | 1 to 30 employees | 1 to 5 employees | 1 to 20 employees |
| Small companies | 31 to 100 employees | 6-20 employees | 21-50 employees |
| Medium companies | 101-500 employees | 21 to 100 employees | 51 to 100 employees |
| Big enterprises | 501 or more employees | 101 or more employees | 101 or more employees |
Adapted from the Official Gazette of the Federation, 1999.
With this stratification, the aim is to advance in the definition of sector-wide policies, strategies, and actions; and thus increase the efficiency in meeting the requirements of Mexican companies, encourage the creation of new companies and also seek to ensure that the most capable are integrated worldwide.
3.3 Common problems of SMEs
The most important thing about business failures lies in knowing what caused it. A big step towards achieving SME success is knowing and understanding the reasons that led to failure in order to avoid them. Some of the main causes of a business failure are due to negligence, fraud, lack of experience in the field, lack of administrative experience, unbalanced experience, manager incompetence and disasters.
There are a series of common characteristics in companies that fail to achieve their objectives (Rodríguez, 2002), the most general are:
- Little or no specialization in administration: in essence, the management in the SME is carried out by a single person, who has very few assistants and in most cases, is not trained to carry out this function Lack of access to capital: it is a problem that occurs very often in small businesses, mainly due to two causes: the small business owner's ignorance that there are sources of financing and the way they operate, and the second is Lack of knowledge about the best way to expose the situation of your business and its needs to possible financial sources. Little dominant position in the consumer market: given its magnitude, the small and medium-sized company considers individually to be limited to working in a very small market,therefore, its operations do not have a significant impact on the market. Intimate relationship of the local community: due to its scarce resources in all aspects, especially small businesses, it is linked to the local community, from which it must obtain goods, administrative staff, skilled and unskilled labor, raw materials, equipment etc. Company accounting and finance, accounting records are commonly scarce, costs are poorly determined, and price lists do not cover full costs. The lack of real financial statements and not having timely information for decision-making are everyday problems in SMEs. Usually, SMEs do not have tools to plan their production correctly, a system is required that allows them to measure and control the quality,There are constant differences in inventories and normally there is no capacity to fill large or special orders, there is a poor distribution of work, which becomes a poor level of productivity and high operating costs. Another problem is the lack of of Technological Innovation; There are few systems specifically designed for SMEs and of these, most do not have a good adaptability, which means that SMEs cannot develop their full potential. A serious problem in SMEs is the lack of Market Knowledge, the ignorance of the competition that prevent them from applying marketing techniques that make their product known and know what do my customers expect from it? When to launch a market offer?Why am i selling less than before? and the possibility of exploring new markets.
3.4 Financial information
Currently, every entity must have adequate accounting management, adhering to official regulations and complying with the responsibilities and obligations to which it responds according to how it is formed and registered. The use and management of correct accounting will allow and facilitate rapid decision-making by the financial administrator.
3.5 Financial management
The financial director or financial administrator is the person responsible for making financial decisions within the entity; It is important that SMEs have positions within their structure that allow the financial manager to properly interpret financial information for decision-making, such as an accountant and treasurer with the skills and experience appropriate to the needs of the company.
And that decision-making regarding financial strategies and action plans to be taken within SMEs are carried out by a person with the academic knowledge and experience that allows them to substantiate the reason for their decisions; in this way and preventing people who are not prepared with the knowledge of the position or do not have the experience to stop making financial decisions that cause future problems due to the poor execution of financial strategies and therefore lead to failure of these companies.
3.7 The financial statements
The main objective of the preparation and presentation of financial statements within the organization lies in decision making. It is necessary to interpret the financial statements well to be able to make decisions about the investment and credit, the growth and stability of the company.
Derived from the financial statements, we can evaluate the solvency and liquidity of the entity, as well as the ability to generate funds; know the origin and characteristics of its resources to estimate the financial capacity for growth.
3.8 Financing of SMEs
Any entity that resorts to request a resource, usually does so to obtain the maximum benefit from them; and in this way to be able to return that capital, with the corresponding cost. It is normal for any developing company to need capital to continue its growth; In order to obtain these credits, the entrepreneur must go to sources of financing and therefore know what he is going to invest in, how much money is needed and how he will return this capital.
Therefore it is necessary to go to the financial information of the company and be able to detect the volume of income and expenses, the payment obligations and in this way be able to set the objectives and make their forecasts, that is, how much they need and value determining at a certain time and with that investment in the entity and the expected results such as repaying the loan.
3.9 Competitiveness for SMEs
It is necessary for SMEs to look exhaustively for the innovation of their products or services and to be competitive in the face of the market that is growing daily and to make use of new tools and procedures that allow them to simplify their functions and maximize the resources they have.
3.10 Financial risk
The financial manager must take into account that there are factors that must always be considered when designing, executing and evaluating financial strategies and decisions of any kind; this is the presence of uncertainty.
There are various risks that can occur
- Market risk: It is essentially derived from the change in prices from one moment to the next. Credit risk: when the institutions that gave the credit are unwilling to fulfill their contractual obligations. Liquidity risk: that is, the inability to raise funds to meet the entity's obligations.Operational risk: administrative failures, faulty control measures, fraud or human error.Redical risk: when a counterparty does not have legal or regulatory authority to carry out a transaction. Transaction risk: is say the individual transaction denominated in foreign currency; exports, exports, foreign capital and loans.
In general, I can conclude that the general problem of why SMEs do not achieve the desired success in the execution of their activities is due to the incorrect administration of the entity; not having a person at the head of the company with the necessary knowledge to analyze financial information and make decisions; the lack of investment and financing, since this causes SMEs to stagnate and are not competitive; the lack of technological tools that allow you to synthesize your daily work and their automation.
For this reason, the role of the financial manager within the entity is of vital importance, since with the right knowledge, he will be able to make good decisions, establish financial strategies that will allow him to develop the company and make it grow.
4. Finances in companies
4.1 Financial services and financial administration
It is worrying that currently the vast majority of companies in Mexico do not make sound financial decisions and this, along with the lack of strategies, can lead to bankruptcy. Therefore, it is important to carry out financial strategies to avoid this type of problem.
Finance in SMEs can be divided into two categories to better highlight the possibilities of development of each; one of these is Financial Services and the other is Financial Administration.
The Secretary of Economy establishes that financial service is any service of a financial nature offered by a financial service provider. Financial services comprise the following activities:
- Insurance and insurance-related services.Banking and other financial services, excluding insurance.
In other words, financial services are the area of finance that deals with providing financial products and advice to companies, individuals and governments. Financial services include Banks and related Institutions, personal financial planning, investments, real estate and insurance companies.
On the other hand, Abraham Perdomo in his book Basic Elements of Financial Administration (Perdomo, 2002), establishes that Financial Administration is a phase of general administration, which aims to maximize the assets of a company in the long term, by obtaining of financial resources for capital contributions or obtaining credits, their correct management and application, as well as the efficient coordination of working capital, investments and results, through the presentation and interpretation to make sound decisions.
Alfonso Ortega Castro, in his book Introduction to Finance (Ortega, 2003), establishes that it is a discipline that optimizes financial resources to achieve the organization's objectives with greater efficiency and profitability.
In other words, financial administration refers to the proper use of money, which is why it is important in the organization for both the development of operations and the investments that are made, that is, the tasks of the financial administrator in a company range from making budgets, financial forecasting and cash management, to credit management, investment analysis and fundraising.
Since most of the business decisions are measured in financial terms, the role of the financial administrator in the operation of the company is of vital importance. Therefore, all those areas that constitute the business organization such as accounting, manufacturing, market, Personnel, research among many others, require a minimum knowledge of the financial administrative function.
The importance of the financial function depends largely on the size of the company; In small companies, the financial function is usually entrusted to the accounting department, but as the company grows, it is necessary to create a special department to work in the financial area. The person who performs this role within the organization is usually the treasurer, who conducts financial planning, fund recovery, cash management, capital spending decisions, credit management, and portfolio management. investments.
SMEs in Mexico must aim to seek their autonomy, that is, be self-sufficient in terms of financial requirements; be able to generate enough income to finance the purchase of raw materials, machinery and equipment, payment of suppliers, payroll, administrative expenses, among others, through the correct perception and application of resources in the entity. It is for this reason that it is important that financial managers are responsible for obtaining and using funds in a way that maximizes the value of the company, so I conclude that the main goal of financial management should be to maximize wealth.
The financial administrator, plays a crucial role in the operation and success of a company, for them is that he must be familiar with fundamentals of Economics and Accounting; You should know the economic framework that prevails in the country, the changing levels of economic activity, policy changes, to name a few and the interpretation of financial statements such as the income statement, balance sheet, cash flow statement and the of profits. That is, knowledge of finances to know the treatment given to funds and accounting for decision-making.
4.2 Financial decisions
In addition to having within the entity a financial administrator who can maximize resources according to the correct analysis of financial information and correct decision-making, it is important to make adequate financial decisions that will guarantee the achievement of these objectives. Carlos García, Gustavo Lejarriaga, Pilar Gómez, Paloma Bel, Josefina Fernández and Marta Miranda, in their book Financial Management of the company (García, Lejarriaga, Gómez, Bel, Fernández and Miranda, 2003), establish that in order to maximize the finances in a company, nowadays companies must make use of financial decisions; These decisions can be grouped into three closely related categories:
Investment decisions, financing decisions and decisions related to dividend policy.
Figure 1: Financial decisions
Financial decisions
Source: Adapted from A. Damodaran
Aswath Damodaran in his book Corporate Finance (Damodaran, 1999), states that investment decisions refer to the acquisition of short or long-term assets. At the beginning these decisions were evaluated individually (I buy or not such a machine, the delivery truck, etc.); and currently it has evolved to a global analysis, this type of analysis takes into account the repercussions that the investment in question has on the rest of the company's investments.
Funding decisions seek to answer the question, what is the optimal mix of funding sources? These sources have two main origins: debts and equity. And finally the dividend decisions; These strategies are closely linked to the financing policy. It involves seeing if shareholders are remunerated, thereby depriving the company of funds to make investments.
4.3 Financial strategies
Currently, it is essential for SMEs to develop adequate financial strategies that allow them, combining the skills of the financial administrator and financial services, to maximize the entity's resources with the objective of growth and positioning in the market.
That is why the financial strategies to be followed must be defined, and this will be achieved by first identifying the key areas on which we are going to focus; that could be the chief financial officer, competitiveness, innovation, financing and financial risk; It is also important to define a strategic objective, which must be the goal to be achieved.
Some of the financial strategies that SMEs can adopt to make the entity prosper could be:
- Choose the financial manager who is trained to meet the needs of the entity, who has the knowledge and experience necessary to resolve the different contingencies that may arise, in the face of the changing local and national market. Be competitive with the different markets in which it operates; always striving for innovation and the creation of attractive products that meet customer demand expectations. Therefore, innovations of the product and / or service offered must be periodically established. Periodic evaluations of financing options must be carried out in order to be able to invest in the entity and achieve growth.Periodically perform an analysis of the financial ratios and thus be able to measure the economy of the company. Periodically analyze the financial statements in order to make appropriate decisions.
5. Conclusion
I can conclude that currently, it is not enough for small and medium-sized companies in Mexico to have an excellent service or to offer a quality product if they do not have a vision for the future, that they worry about growing, innovating and developing to be competitive and not remain stagnant in the constant market that changes and is renewed daily. Therefore, it is necessary for the financial manager to be concerned with having objectives in the entity and to take adequate financial strategies that allow him to meet the agreed objectives and for obvious reasons the development and success of the entity.
The role of the financial administrator or decision-maker in the entity is of vital importance, the poor execution of its decisions, the badly invested capital can bring many complications to the entity and sometimes even the bankruptcy of the business. For this reason, the person in charge of this responsibility within the entity must be someone with academic knowledge and experience that allows them to have the intelligence and decision-making skills; and nowadays we realize that these companies are managed by the same owners, and it often happens that they are not people with the academic knowledge or experience to face the financial needs of the entity.
As I already mentioned, the success of an SME lies in the good management of resources, innovation and being competitive with other local companies, the execution by the financial manager of adequate financial strategies according to the objectives of the organization and combined with the products or quality service that they offer, that are attractive to customers and that meet consumer expectations, will achieve the entity's success.
5. Bibliography
- ANSOFF H. Igor (1965), Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion, Ed. McGraw-Hill.BARREYRE Pierre-Yves (1978), Small and Medium Business in the Face of Change Ed. Hispano European SABODIE Zvi and MERTON Robert (2003), Finance, Ed. Pearson.DAMODARAN Aswath. (1999), Corporate Finance: Ed. WileyFERREL OC, HIRT Geoffrey and RAMOS Leticia (2004), Introduction to Business in a Changing World, Fourth Edition, Ed. McGraw-Hill.JHONSON Gerry, Scholes Kevan and Whittington Richard (2006), Strategic Direction, Ed. Pearson.MINTZBERG Henry, QUINN James Brian and VOYER John (1997), The strategic process: concepts, contexts and cases. Ed. Pearson.OCHOA SETZER, Guadalupe (2002), Financial Administration. Ed. McGraw Hill.ORTEGA CASTRO, Alfonso (2002), Introduction to Finance. Ed. McGraw Hill.PERDOMO Moreno, Abraham (2002). Basic elements of financial administration, Ed. Thomson. ECONOMY SECRETARY, Retrieved from www.economia.gob.mx date of consultation: May 2014. http://www.economia.gob.mx/files/comunidad_negocios/tlcs/tlc_peru /CHAPTERXII.pdfTHOMPSON, Jr. and AJ Strickland (1999), Strategic Management, Ed. McGraw-Hill.
