Summary
Currently finance is extremely important in the business field, for SMEs, keeping proper control of them can be the key to the success or failure of the company. It is very important to establish adequate financial strategies to achieve the development of the company.
Carrying out financial risk studies and prospective studies can help companies to provide various situations that could occur in the future and establish strategies in the present, to best face new risks.
Abstract
At present finances are highly important in business, for SMBs take proper control may be the key to success or failure of the company. It is very important to establish appropriate financial strategies for the development of the company.
Make studies of financial risks and prospective studies, can help companies to provide different situations that could happen in the future and establish strategies in the present may be the key to take in a better way the new risks.
Introduction
SMEs are the type of companies that generate the largest number of jobs in the country. In many occasions these companies do not reach their development and disappear a few months or years after being created.
In this essay I will talk about financial strategies and their importance in making SMEs successful or not.
It is vitally important to keep adequate control of all financial aspects in SMEs because the main driver of companies is the proper use of resources.
Background
Micro, small and medium-sized enterprises (SMEs) are independent entities, with a high predominance in the commercial market, being practically excluded from the industrial market due to the large investments required and due to the limitations imposed by the legislation regarding the volume of business and of personnel, which if surpassed convert, by law, a micro-company into a small company, or a medium-sized company automatically becomes a large company. Therefore, an SME can never exceed certain annual sales or a number of personnel.
SMEs are the backbone of the national economy due to the trade agreements that Mexico has had in recent years and also because of their high impact on job creation and national production. According to data from the National Institute of Statistics and Geography, in Mexico there are approximately 4 million 15 thousand business units, of which 99.8% are SMEs that generate 52% of the Gross Domestic Product (GDP) and 72% of employment in the country.
Due to the importance of SMEs, it is important to implement actions to improve the economic environment and directly support companies, in order to create the conditions that contribute to their establishment, growth and consolidation. Investors operate in different markets trying to get the best return for their money while trying to minimize the risk of their investment. The capital market offers an efficient frontier at all times, which relates a certain profitability to a certain level of risk or volatility. The investor obtains a higher expected return in exchange for supporting greater uncertainty. The price of uncertainty is the difference between the return on investment and the interest rate of those securities that are considered safe.
Technological advancement and the development of the media bring advantages and opportunities for the company, but they also bring threats; a company can grow and prosper with the use of technological advances if they are within its reach, on the other hand it can shrink by not having access to new technologies or means to which the competition can. In addition to this, the disappearance of borders thanks to the new global era in which we live makes it possible for a distant competitor to be close thanks to extensive media coverage.
Foresight studies allow the identification, anticipation and projection of trends in the social, economic and technological fields, very useful to get an idea of the threats that the company will face in the future. For this, it is crucial to identify a strategic vision that is not utopian but that recognizes and explains its implications for the correct decisions and actions of today.
The Organization for Economic Co-operation and Development (OECD) defines foresight as the “set of systematic attempts to observe the future of science, technology, the economy and society in the long term in order to identify emerging technologies that they are likely to produce the greatest economic or social benefits. "
Gastón Berger (one of the founders of foresight) defines it as the “Science that studies the future in order to understand it and be able to influence it. Although sometimes the term futurology refers to other disciplines not based on the scientific method ”.
There are many reasons why the foresight that requires us to identify and understand, in a systematic way, the dominant trends in the international economy is important: where is the research and development of new technologies going and how does this affect our businesses? and the quality of life in our country.
Development
The Finances of SMEs in Mexico
Nowadays it is very important to keep a good control of finances in companies and in a large number of SMEs, the correct financial strategies and decisions are not taken and this causes the company to come to an end many times.
The importance of good financial management is that the scarcest resource in the world is capital (money) and a good financial condition of SMEs opens the door to the arrival of new sources of resources to the company in the form of shareholders or credits, when a company is in a difficult economic situation, most credit institutions close their doors when they see that, if they lend their money to this company, it is not certain that the high interest rates charged on the credits can be covered, and prefer to make investments in financially stable companies.
One of the main problems that exist in SMEs is that an adequate control of finances is not carried out, even in some companies the accounting area is in charge of their finances, without realizing the serious danger they face in not have a person trained in the area of finance who is responsible for them.
SMEs face a very competitive market in which the first years are essential, in case they manage to survive for more than 5 years the percentage of consolidation of the company is very high
Financial strategies in SMEs
Alfred Chandler Jr. points out that "strategy is to determine the fundamental long-term goals and objectives, adopt corresponding policies and secure the necessary resources to reach those goals."
In order to establish financial strategies it is very important to know the areas you want to focus on in the company and obviously the strategies vary between one and another SME depending on the business.
Good strategy determination can be vital for the organization (Anzola, 2002).
Among the financial strategies that I consider very important to apply to achieve the success of SMEs are the following:
- Choose the most capable CFO: this person will be in charge of the company's resources, therefore the person with the greatest capacity for the position must be chosen, something that does not happen in many of the SMEs since they are placed family or friends in these positions and this can lead to the bankruptcy of the company.Choose good financing: most SMEs do it through banking institutions because government contributions are very low, the high rates of Interest charged by banks largely determines whether an SME grows or goes bankrupt. Other of the most used forms for financing in SMEs is the reinvestment of profits and the contribution of partners, which to a large extent represent better options than bank financing,but the latter is the most used by companies. Promote competitiveness based on benchmarking and productivity: it is very important to achieve a high level of productivity in companies by reducing costs and improving profits. Establish periods of innovation: it is very important be reinventing the company and thus always be at the forefront of technology with competing companies. Analyze the financial statements monthly: this is very important because it gives us an overview of how the company is doing and what actions can be taken to correct the course of the SMEs and achieving the goals, in many companies the financial statements are evaluated every year and this is a long time because if things go wrong the faster corrective actions are taken the better. Carry out risk studies:This means that the SME can know the risks to which it is exposed and find correlations between them. As the SME grows, it is exposing itself to new risks as it increases the complexity of the business. It is very important to try to know all the risks that our company faces in order to reduce the negative effects they may have on it. The Altman Z-Score model is widely used to know the financial risk of a company, and to see how solid it is and how likely it is that the company can go bankrupt. Conduct a prospective study: this study has taken much strength in recent years and most companies are relying on it for long-term planning. Its importance lies in the fact that technology is advancing very fast,Every day new products come out that could generate a lot of competition to current companies or even overcome them, things that a few years ago were novelties have disappeared, so this study takes great importance to have a vision of what the company's environment will be like in a future and to be able to apply the necessary strategies in the present to be able to achieve the permanence of the company in such a competitive world.
conclusion
SMEs are the main engine of the economy of our country since they generate a large number of jobs and their participation in the country's GDP is very important.
It is very important to choose good strategies to ensure that SMEs have a good financial condition that allows them to be a candidate for loans and to be a good option for investors, who seeing a financially solid company attracts attention to invest in it and become a shareholder.
It is very important to be able to carry out a financial risk analysis with the Altman Z – Score model to see the solidity of the company and depending on the result, apply the necessary strategies to improve it.
The prospective study is currently a new analysis methodology that provides a multiple, systemic, flexible and long-term vision, which seeks to optimize current strategic planning processes.
Bibliography
- Anzola, Servulus. Small Business Administration. Mexico: Editorial McGraw Hill; 2nd Ed. 2002. Pyme Mexico Observatory. "First Report of Results 2002". Electronic Publication by the Intersecretarial Commission for Industrial Policy of the Ministry of Economy. (March 2003)
