PLANNING AS TOOLS FOR DECISION MAKING IN SMALL BUSINESS

 

Question:

Write explanatory notes on each of the followings:

(a)   Planning as tools for Decision making in small business

(b)   Source of funds for Small Business Enterprise in Nigeria

(c)    Cash flow forecast

Answer:

In Nigeria where many of the businessmen are inexperienced and the academic preparation is by no means very impressive, planning to avoid waste of money and other resources is very important and compelling.  The importance of planning is well recognized by the Nigerian government that engages in National Development Plans.  Planning is a blueprint for action.  In Nigeria, a businessman who wishes to enter into any business has to engage in detailed planning in order to identify the sources of raw materials and equipment, determine delivery dates and sources of working capital.  Many projects have failed in this country because adequate plans were not made to identify all the important variables likely to bear on the projects that would determine their failure or success.

Planning is therefore the first and perhaps the most important function of management.  The essence of planning is to prepare for and predict future events. Howard (1976:554)  opines that planning involves the establishment of objectives and a step-by-step determination of the activities and resources necessary to achieve them.  It entails determination of control, direction and methods of accomplishing the overall organizational objectives.

THE PLANNING PROCESS

There are some planning processes an entrepreneur will pass through before taking off in any business endeavour.  These planning processes include:

1.      Setting Organizational Objectives

2.      Analyzing the environment/identification of opportunities

3.      Selection of alternative courses of action

4.      Formulation of specific targets

5.      Implementation

6.      Feedback

1.      Setting Organizational Objectives – it is therefore assumed that if these steps are taken, planning for the future becomes relatively simple.  The first thing to do is determine the organizational goals.  This is very important because it gives a sense of direction.  If a man decides to take bread, this will become the objective and will determine subsequent course of action.

2.      Analyzing the Environment/Identification of Opportunities – After having determined the organizational objectives, the entrepreneur will now analyze the environment, to determine whether or not there is an investment opportunity.  This he can do by determining the type of products/service customers would need; the reasons why such needs are not at present being satisfied: whether he, the entrepreneur can satisfy such needs and whether the gap is large enough for him to invest in.  the planner has to search for opportunities as to key customers, competitors, suppliers and the type of technology required.

The entrepreneur should equally determine or examine the environment in terms of economic, social, political, legal, technological and competitive level or the competitors.  This environmental analysis will help the entrepreneur to identify and analyze the threats to and opportunities for the success of the firm.

3.      Selection of Alternative Courses of Action  - At this stage, the entrepreneur has to take decision in choosing the best plan from the alternatives identified.  The entrepreneur should choose a plan that is not only based on its possibility of being done successfully but also that which would be flexible enough to suit the likely changes in the environment.

4.      Formulation of Specific Targets – In order to be definitive, he must set targets and quotas.  Quantitative measures help to know if the objectives are being realized or not – this may involve the use of budgets and schedules.

5.      Implementation – The next step is the implementation of these measures

6.      Feedback – To complete the planning process, there should be a review of the whole planning process.  These help to take corrective actions and serve as control process.  Any good plan must always have a feedback.

Solution to Cash Flow Forecast:

·         A cash flow budget measures the flow of money in and out of the business.  It is critical to you and your banker.

·         Many businesses operate on a seasonal basis, as there are slow months and busy months.  The cash-flow budget – projection will provide an indication of the times of a cash flow shortage to assist in properly planning and financing your operation.  It will tell you in advance if you have enough cash to get by.

·         A cash flow budget should be prepared a year in advance and contains monthly breakdowns.

Cash Flow Assumptions

When reviewing the cash flow plan, certain assumptions should be made.

·         Sales: Monthly sales (consulting service fees) that are expected to materialize.

·         Receipts: Due for goods sold on credit; rental income is rent that will be collected in advance at the beginning of each year.

·         Disbursements:  Accounts payable to be paid in the month following month of purchase.

·         Accounting and Legal:  To be paid upon the receipt of bill, expected to be paid after your fiscal year end.

·         Financial statements have been completed

·         Advertisement: Anticipated to be the same amount each month and paid for in the month the expense is incurred.

·         Car: Anticipated to be the same amount each month and paid for in the month the expenses is incurred.

·         Bank charges and interest: Anticipated to be the same amount each month and paid for in the month the expenses is incurred

·         Equipment rental: To be paid for in monthly payments.

·         Income tax: Amount for tax of the prior year and to be paid in the next season

·         Insurance annual premium: To be paid quarterly, semi-annually or annually in equal installments.

·         Loan repayment: Amount is the same each month and paid in accordance with the monthly schedule  furnished by the lending institution

·         Office supplies and expenses:  To be paid in month following receipt of invoice and supplies to be purchased on a quarterly basis

·         Licenses: To be paid upon due date

·         Telephone: To be paid for quarterly in month after receipt of bill.  Amount expected to be the same each quarter

·         Utilities:  Expected to fluctuate with weather conditions and to be paid for quarterly.

·         Wages and Benefits: Wages to increase after pay review.  Amount otherwise considered to be the same each month and paid one month in arrears.

·         Miscellaneous: Expected to be the same each month and paid for in the same month the expenses incurred.