The SME sector is expanding at rapid paces and is expected to reach further heights with changes anticipated in the archaic laws and favourable policies of the government like the MAKE IN INDIA initiative. SMEs are also transforming to keep up with the momentum. We have analysed a few essential steps that should be followed by any entrepreneur to ensure success:
Comprehensive business strategy:
As an entrepreneur, you start with the presumption that the business is a going concern. Have a detailed business plan with a thorough vision and strategy before starting the business. If you are aiming to obtain finances from banks or non-banking financial institutions, then the business plan document will become the basis and starting point for all discussions and negotiations.
Robust accounting and reporting system:
SMEs are still not investing in a robust accounting and reporting mechanism. As an entrepreneur, you need to understand and appreciate that from the day of commencement of business, it is necessary to use a suitable system for accounting and reliable reporting, which will be able to scale up as the business grows, thereby reducing the need to migrate to another system at a later point in time. In the absence of same, the profits will not be visible.
Proper organisation structure:
Irrespective of whether the SME is starting with a sole proprietor, partnership or stemming from a HUF (Hindu Undivided Family), it is essential that a clear organizational structure is created with a specified head, who will be responsible for the operations, along with a well-defined hierarchy. The chain of reporting and decision-making should be well-defined and unambiguous. It will not only help in financial dealings, but also lead to efficient team management and growth.
Awareness of applicable laws:
The SMEs must spend sufficient time and efforts in understanding the applicable laws of the land, which will include not only the Central laws, but also, state enactments, rules and notifications. The education and awareness of applicable laws is mandatory; ignorance is not considered as an excuse for breaking the law. The compliance cost of these laws may help in saving the non-compliance costs and possible penalties and punishments.
Invest in registration of IPR:
Intellectual Property Rights (IPRs) can add immense financial value as they are considered assets, like goodwill. The filing and registration process may appear to be costly and time-consuming; however, they will result in strong branding and earning reputation in the longer run.
Apt usage of IT systems:
The appropriate application of IT systems and automation will help establishing streamlined processes and bring transparency in the business. It will help in reducing additional costs and save lot of time. The initial set-up cost cannot be avoided for the benefits will render.
No undocumented and/or cash transactions:
The entrepreneur should start the business with a policy of no undocumented transactions, no cash dealings, transferring funds only through banks and clarity in all financial transactions. This will help in reducing fraud and ensure that the company doesn’t get entangled with the Income Tax department for accounting irregularities. The SME will benefit in the long-term and will not have any issues with financiers or loan-providers.
Be diligent with cash flow
The cycle of payment and receivables should be checked thoroughly. The credit period must be exploited wisely.
Every entrepreneur should bear the above points in mind and begin with a clear purpose and direction in order to ensure success.