Alejandro Lopez Salazar and Ricardo Contreras Soto
and Rafael Espinosa Mosqueda, “The Impact of Financial Decisions and Strategy
on Small Business Competitiveness”. Global
Journal of Business Research; 2012, Vol. 6 Issue 2,
p93-103, 11p
“The
Impact of Financial Decisions and Strategy on Small Business Development” is an
article that examines the financial decisions made by small and medium sized companies
in Mexico and how they relate to the organizations strategies to achieve a
level of competitiveness between each other. Companies in Mexico do not focus
on financial strategy to achieve their goals.
In this article, two hundred two companies in Celaya were studied to try
to gain some insight into this area of study. The authors Alejandro Salazar, Ricardo Soto
and Rafael Mosqueda conclude that Mexican companies are not very competitive
and thus do not have the capabilities to expand to higher levels.
Small
business competitiveness is important to look at not only in Mexico but here in
the United States. After having read the article, I realized that some of the
guidelines in Mexico to apply for loans or acquire cash to start up a business
are the same guidelines here in the USA. For example, most Mexican business
owners always look to family for cash first. This is step one in most cases. Secondly,
they will look to small banks. The issue arises when most loans are declined
due to lack of financial information. As the article reiterates over and over,
most Mexican business owners do not have the necessary resources and knowledge to
get what is asked of banks. I, for one, am a small business owner and it took
me many years to establish my husband’s company and to finding the right bank
to help me was a challenge as well. I resort to a strong relationship with a
small bank in Clear Lake.
Such
findings were supported through the study of the 202 companies in Celaya. The technique that was used was a personal
interview questionnaire that was very detailed. It asked questions that ranged
from: What are your finance problems? , How do you plan on solving these
problems? , What strategies have you applied to your company? , What sales
problems do you have? Furthermore, three
hypotheses guided the research process. The first hypothesis was that SME’s
(small and medium sized enterprise management) main financial decisions are
about financing and working capital. The second hypothesis was SME’s that make funding
decisions have higher competitiveness than those without. Finally, SME’s
financial and business strategies are not aligned.
Rebecca, I agree with you, most small business owners both here and Mexico, do not have the business savvy to start a new company. This fact may account for many new small businesses folding within 1-3 years.
ReplyDeleteMy sister and I opened a small business many years back and the business did well until a mall was opened in the area. We could not compete with the prices offered by the larger retailers. To start up a company you do have to come up with some capital, before going to the bank asking them to invest in your great idea. I believe that this idea of investing in you is good for the business owner; it says to the bank that he has a financial stake in making the business work. I think a new business owner would do well for themselves if they would take some type of business classes before embarking on a business adventure.
Rebeca,
DeleteI can understand why this study is so important. In many economies growing personal businesses benefit not only the individual but also the country as a whole. Yet it is very difficult for a small business to survive competition, financial issues and family problems. Research from the Small Business Administration states that 7 out of 10 new businesses survive for the first two years and only 51% last at least 5 years. It is no wonder why many small business owners have a difficult time getting loans from banks with these statistics.
Having a strong strategic plan for business goals is essential. Management needs to know where they want to be in the future and how to get there. Having a plan will help a company stay focused, obtain opportunities that they will benefit from and track their progress. Banks need to know that they are investing in people that are smart, organize and have plan. If the business does not succeed, the banks will not get their money back
http://www.businessknowhow.com/startup/business-failure.htm
I found reading your article quite interesting. I knew that a lot of small businesses fail quickly after starting up. I have never given any thought to small businesses in Mexico or read anything pertaining to it. I just assumed most small businesses in Mexico were started with cash that the family had. I did not know that they went through similiar steps with getting a loan to start up the small business.
ReplyDeleteI think that the lack of financial strategy really affects the success of companies in Mexico. The fact that some companies in Mexico do not have a financial strategy might scare the banks from lending funds to even start the company. I was aware that the failure rate for small companies was high, but I was not aware that most sink before even reaching year 4.
ReplyDeleteThe questions that are asked of small business owners when applying for loans is understandable. If the owners can answer those questions properly and elaborate on a truly well thought out strategy. That would help the bank to know that this person has looked at the climate for their area of business. They have chosen a good location, and have more than one way for the business to run should the first alternative fall through. I think many business owners have really great ideas and the skills to make them work. But sometimes not having enough business sense to know how many people to hire, what to pay them, when to have sales and have good strategies to make the customer want to come to their company versus a larger competitor is where they can be lacking.
ReplyDeleteI have seen small businesses failing first hand but most of the ones I have seen were not started with help from a bank, more just started out of someone's garage. Financial planning is very important to any business and unless you have a clear plan its not going to work. Obviously a large percentage of these companies mentioned were not focused on the right goal and that was what ultimately lead to their demise.
ReplyDeleteKimberly ,
ReplyDeleteThank you for the information. I, myself , own a small business and struggled hard to survive the first five years. I am going on ten years in business now and things are much easier. It is a small business and I do plan on developing some type of strategy to make it grow once I graduate here this summer.