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Definition:

SME in Pakistan defined as Business having up to 250 people, capital of 25 millions.

Diffrence Between Business Termination and Business Failure

Business termination
1
2
3

When business no longer exist for

any reason
In business termination, Owner has
opportunity to sell his business and
move towards another business
Business termination may mean
the permanent or temporary

Business Failure
When business close with financial loss of creditor
In business failure owner doesnt have this opportunity
because he already financially got down
it ceases to exist as before. It may continue in the form
of a merger, a consolidated company, a partnership

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discontinuance of a businesss
operations

and/or as a new company altogether.

Small & Medium Enterprise Development Authority (SMEDA)

The government to promote the cause of SME development in the country has recently established
SMEDA. Given the mandate of SMEDA, it was not possible to work in the absence of definition for the
target segment. At a broader level SMEDAs objective is not only limited to catering to the financial
requirements of the SMEs whereas its mandate encompasses all other aspects such as marketing, human
resource development etc. SMEDA went one step ahead and used two variables to define SMEs in Pakistan.
Following are the definitions of the SMEs:
Micro:
Less than 10 people employed
Productive assets limit of 2 million rupees.
Small:
Between 10-35 people employed.
Productive assets limit of 20 million.
Medium:
Between 36-99 people employed
Productive assets limit of 40 million.

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The SMES in Pakistan

Pakistans economy is an economy of SMEs. Policies in the past

have given a general perspective, direction and defining broad parameters of activity within the macro
economic framework, but efforts have focused on the large enterprises, neglecting SMEs which are at the
heart of our economy while SMEs are being mentioned in some of our socio-economic strategies and policy
documents, measures are not sufficiently specified and prioritized for us to be able to speak of any coherent
SME policy or approach. SME promotion is an important issue for many government departments and
central offices. However, there is an existing lack of coordination and regular information exchange
mechanism among institutions that constrains their collective ability to deliver in the SME development
process.

THE START UP PROCESS OF A SMALL

The Startup Process of a Small Enterprise: The challenges of starting a new enterprise from
the stage of its conception till functioning are indeed stupendous or multidimensional as indeed
its contribution to the society in various forms such as employment, economic growth, balanced
development, equitable distribution of wealth etc. Success is a slave to those who only correctly
perceive the nature and intensity of problems that they are likely to encounter but also plan
appropriate remedial actions. This lecture is devoted to studying the following:
1. The Identification of New Venture Opportunities and
2. The Field Problems of Starting a new Enterprise.
Sources of Ideas for New Products:
1. Necessity: It involves the identification of potential customer needs and then tailoring the
product and services to meet them.
2. Hobbies/ Personal Interest: For example, an aircraft designer working for a large company
developed a catamaran for his own pleasure. Later he was asked to build a similar catamaran for
a friend. Gradually, it took the shape of a successful business.
3. Watching Trends in Fashions and Customs: Alert observers of the fashion scene can
capitalize the opportunity thrown by the change of fashion. Demand for handcrafted jewelry, fast
foods etc. have made many professionals in these fields.
4. Observing Others Deficiencies: It helps improve performance or add desirable features, for
instance, development of a key that would identify the person and open the door only to him. It
would sound an alarm if the door is forced open or in case an improperly coded key is used.

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Business Plan
Content Of Business Plane
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

Title Page
Executive summery
Table of content
General Information about business/ Historical background of business
Detail product statics
Marketing
Channel distribution
Research and development
Manufacturing/ Service business
Management
Risk evaluation
Financial forecasting
Milestone
Appendix

Title Page: It includes the following information.

1.
2.
3.
4.
5.
6.
7.
8.

Name, nature and type of business

Trade name and slogan
Name of partners or owners
Specify location where business is situated
Telephone, mobile and fax number if available
Website address and email address if available
Good color theme and computer animation
Issuance of date and year

Executive Summery: A good summery is one that successfully captures the one minute to attention of potential
investors or reader. A good executive summery is a guarantee sign that the rest of business plane will be read by
the reader. It includes the following information.
1.
2.
3.
4.
5.

Nature of business and its related product

Objectives of business
Unique features of business
Standard English mechanics
A good summery should be precise one, not exceeding to 1 or 2 page.

Note: Sometime an executive summery is written with the title heading of a abstract or mission
statement.

Table of Contents: It is an overview of an entire business plane which exhibits whats there in business
plane. It includes,
1.
2.

Either short form or long form context

Page numbers against each item/ unit.

General Information about business:

It includes the following information.

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1.
2.
3.
4.
5.

Name of the business

Nature and kinds of goods or services it offers
Number of partner and their capital invested in business
Legal form business as like sole proprietorship or partnership
Location where business is situated

Detail Good or Service Status: It includes the following.

1.
2.
3.
4.
5.
6.
7.

Types of goods and services business offers

Product research status
Product design engineering
Product quality standards
Methods and procedures of manufacturing
Technology used
Copy rights status regarding, patents, products, design etc.

Marketing: It is divided into three segments and portions.

1.
2.
3.

Research and survey

Marketing plane
Marketing Budget

1.

Research and survey: It includes the followings.

a.
b.
c.
d.

2.
3.

Target Market
Competitors analysis
Market analysis
Industry analysis

Marketing Plane: It includes stages of the market plane.

Marketing budget: It prepared on the basis of estimated expenses incurred on the uses of media vehicle for
effective marketing.

Channel Of Distribution: It includes the followings.

1.
2.

Target market to be surved

Number of whole sellers and distributer coverage.

Research and development: It includes the following information.

1.

Research or survey related to

a. Product
b. Location
c. Technology

2.
3.
4.

Research cost and budget

Research purpose, necessity and expected outcome
Research tools used/ Methods of research applied

Manufacturing / Service business: This segment contains the information related to specific business like,
manufacturing service or trading business. So, manufacturing business includes the following information.
1.
2.

Raw material cost and quality

Methods of production and technology used

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3.
4.
5.

Plant location feasibility and illustrate the status of electricity supply, labor, transport, sanitation facility
Cost of labor and cost of product
Total estimated manufacturing cost

Management structure: It includes the following information.

1.
2.
3.
4.

Top management team: a partner, experts, consultant lawyers.

Compensation strategy/ wage and salary classification:
a. How many people will be working, then salary status.
Fixed salary expenses will be estimated
Organizational chart/ structure

Risk Evaluation:

It includes the estimation of risk numerically to know how much risk is involved in the
business so that to decide either to invest or not the in the business.
1.
2.

Risk prediction can be done by an entrepreneur or by an expert.

Risk is probability to calculate the chances of success and failure of business.

Financial Forecasting: It includes the following.

1.
a.
b.
c.
2.
3.
4.

Estimate financial statement like,

Projected balance sheet for 1 to 3 years
Projected Income statement for 1 to 3 years
Projected Cost of goods sold statement for 1 to 3 years.
Expected turnover
Rate of return
If loan is borrowed then a comprehensive plan needs to be prepared for bank loans repayment or paying
of the liability.

Milestone:
It is statement of scheduled timetable the helps on entrepreneur to examine the strength of
business to achieve its goal on time.

Appendix: It includes the following information.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Reference
Bibliography
Letter of appreciation
Letter of recommendation
Sample questioner, used in conducting research or a research tool.
Copy of bank loan approval
Copy of lease approval for space
Copy of partnership agreement
Copyright available photocopy documents
C.v of partner
Copy of print advertisement, if available.

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WORKING CAPITAL
Meaning of Working Capital: Working capital is the amount of funds needed by an enterprise
to finance its day to day operation. It is the part of capital employed in short-term operation such
as raw materials, semi finished products, sundry debtors. Because of its variable nature, the
working capital is also referred to as circulating capital. It may be pointed out that the total
working capital is composed of two parts.
1) Regular Capital
2) Variable Capital
Regular Working capital is required for permanent investment in any business for holing certain
minimum quantity of raw material, finished product or cash. Such investment is irreducible
minimum and remains permanently sunk into business.
The remaining portion of working capital is variable. The variable portion first gets tied up into
raw materials which are then converted into finished goods. On the sale of goods it gets
converted into account receivables or cash and circle is then completed. It is depicted in
following figure.

Factors Affecting Working Capital Requirements

In case of a small enterprise, the various factors affecting its working capital requirements.
1. Size of Business
What are the size of unit and the volume of business?
2. Nature of Process
Nature of production process i.e. lengthier the duration of production, higher shall be the working
capital needs and vice-versa.
3. Proportion of Raw Materials and Total Cost
Proportion of raw material to total cost must be decided.
4. Terms of Sale & Purchase
Terms of sale and purchase e.g. sales are on cash terms, lesser working capital will be sufficient.
5. Turnover of Inventories
If inventories are large and their turnover is slow, larger working capital would be needed.
6. Labour Vs. Capital Intensive
Labour vs. capital intensive, the former requiring higher amounts of working capital.
7. Cash Requirements
Cash requirements will have direct impact on working capital quantum.

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HR In SME
Talented employees are the key assets of the company. The problem with small business entrepreneur is that it
cannot afford the luxury of a full time specialist in personnel area. The entrepreneur himself is generally a novice
and tends to look after this aspect rather haphazardly. Either the owner personally takes care of the personnel
function or delegates it to an employee who performs it along with his main job. The general tendency is to hire
the first person who comes the way and accepts the lowest salary. Their basic thrust is on marketing, regarded as
primary to existence.
Defining Job Requirement
The pre-requisite to efficient selection is the systematic defining of requirements of each task. The
identification process has three phases;
Conducting job analysis,
Developing job descriptions, and
Preparing job specifications.
Job Analysis
It is the process of investigation and collection of pertinent information about each task in terms of skill,
abilities, duties and responsibilities. It covers;
a) Job title,
b) Department to which it relates,
c) Line of supervision,
d) Description of job including major and minor duties
e) Relationship with other jobs i.e. promotional avenues. Transfer, possibilities, experience required etc.
f) Unique job characteristics (location, physical setting), g) Type of material and equipment used,
h) Educational qualifications, i) Experience,
j) Mental and manual dexterity, k) Physical requirements,
l) Working conditions.
Job Description
It consists of a written statement of the major and minor duties involved in each task along with a description of
responsibilities, work conditions and task requirements e.g. hazards, time involvement etc. The job description,
therefore, focuses on what, why, when and how tasks are to be performed.
Job Specification
It describes the salient features of the person expected to fit in the job. It enumerates qualities, knowledge,
skills and abilities an individual should possess to perform satisfactorily along with such other characteristics
as planning, leadership and decision-making abilities, experience, education etc. It provides a standard against
which to measure how well an applicant matches the job.
Recruitment- Engaging the Employee
It is the translation of job specifications into actual recruitment of the employee by exploring main sources of
supply. The major sources of supply could be;
1. Current employees or references i.e. asking friends and acquaintances to provide a good person.
2. Newspaper advertisement specifying the requirements of the position to attract individual with appropriate
qualification.
3. Drop-in applicants i.e. individuals who occasionally drop in to inquire if any job is available. It is better to take down sorn e information
relating to them.
4. Unsolicited application i.e. those who may have applied in anticipation of vacancy. Maintenance
of record of them could be advantageous.
5. Technical journals to look up to candidates with specific technical qualifications and backgrormd.
6. Universities, colleges and technical institutes.
7. Employment agencies- public and private.
8. Former employees who may have voluntarily quit.

RECRUITMENT, SELECTION AND TRAINING II

It involves a number of activities which may be performed either by the owner-manager himself or with the
assistance of specialists. Following is the process of selection.

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Application Blank
It contains a written record of candidates qualifications, name, experience, references etc. from a perusal of the
record, a broad idea can be formed about the applicant potential.
Personal Interview
The purpose of this interview is to ascertain technical competence of the candidate and his capacity to meet the
requirements of the position. The fundamental mistakes committed in interviewing are;
1) Not spending enough time analyzing the requirements of the job to be filled.
2) Failing to ask right questions to test strengths and weaknesses of the candidate,
3) Relying too much on gut reaction instead of making an objective analysis.
Checking References
References listed by the applicant should be cross checked through telephone and preferably
through a written letter.
Employment Tests
Though not a sole criterion of selection, these tests are making the employee selection more
efficient. These are;1) Aptitude test to measure mechanical, electrical, manual dexterity and other potential talent.
2) Achievement test to measure performance (skill proficiency)
3) Intelligence test to measure general mental abilities e.g. verbal ability, reasoning,
comprehension etc.
4) Personality test to select managers.
Final Interview
It is designed to final impression based on earlier assessments and particularly to ascertain interpersonal
competence (capability to go along well with others), whether he has autocratic/democratic disposition,
cooperativeness, rigidity flexibility. The interviewer should do well to adopt a balanced approach. He should guard
against Halo effect i.e. forming rational judgment on the basis of first impression. What happens is that the
interviewer forms a favorable or unfavorable impression of the applicant very early and searches for confirmation.
To guard against it, the interviewer should withhold judgement until after the interview.
Physical Examination
Physical examination to determine whether the prospect meets health standards demanded by the job.
Orientation
The new employee should be provided thorough orientation regarding company policies and specific nature of the
job. It markedly reduces apprehension during the first few days of the employee. He should be introduced to
colleagues, explained as to how the job fits into overall goals of the company, the operations and conditions of
employment. Some employers have Employee Handbooks containing written information about salient aspects
of company e.g. companys expectations of employees, pay-policies, working conditions, fringe benefits etc.
Wage and Salary Administration
Principal object of a compensation plan is to motivate employees to achieve higher levels of
performance. Following are the elements of wage and salary administration.
1. Wage & Salary Level.
2. Wage & Salary Structure.
3. Individual Wage Determination.
4. Method of Payment.
5. Individual Compensation or fringe benefits.
6. Management Control.
Wage & Salary Levels and Structure
The wages should be established by reference to the following:1. Prevalent Wage Levels in Industry.
2. Compliance with Minimum Wages Laws and other enactments governing compensation.
3. Standards and Values of the entrepreneur.
4. Consent of Trade Union.
By adhering to the above, a small firm can hire and retain productive work force.
Wage Determinations and Method of Payment

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Determination of compensation for each position is the second step in salary administration. More responsibilities
and more difficult a job, higher should be the pay-packet. Also establish a range of compensation for each position.
The wage structure must be such that the staff has the motivation to work for vertical movement. The incentives
and fringe benefits associated with each position should also be settled. To attract qualified, hardworking and loyal
staff, small firms may introduce special awards. Benefits to be offered to managers pose special problem. The
popular forms of benefits given to them include:
1. Stock Option.
2. Profit Sharing.
3. Use of Company Vehicle.
4. Club Membership.
Small firm should use its limited resources carefully and devise a productive salary administration. Broad objectives
of a good salary program include; maintenance of competitiveness, capacity to attract managers of superior
caliber, rewarding superior performance and motivating staff to achieve higher production levels. Two more
ingredients of efficient compensation plan are:1. It should link reward and performance,
2. It should ensure payment of reward as soon as after achievement.

ROLE OF MARKETING IN SME

Concept of Marketing
Marketing is the process of integrating and coordinating the following.
Identifying and measuring the needs of customers for the type of products or services that the firm is
equipped to provide.
Translating the perceived needs into products or services development.
Developing and activating a plan for availability of product or service available.
Informing perspective customers about availability of the product/service and stimulating their
demand at a price that generates satisfactory profits for the firm.
Marketing Function
The functions that must be performed in the marketing process are as follows:
1. Buying And Selling
Exchange process involves buying in anticipation of customer demand and searching for materials
that will satisfy those needs. Selling function includes determination of potential customers and
using a combination of sales techniques to stimulate demand for those goods or services.
2. Transportation And Storage
It involves the movement and handling of goods. Not all goods are sold at the same time they are
manufactured. Storage is done so that goods are available at the time and place they are needed.
3. Risk-Taking, Standardization And Grading
Stored goods are subject to several types of risks. They may undergo spoilage, obsolescence, destruction.
Consumer preferences may change leaving the business owner with a large quantity of unsold goods. Some of
the risks can be shifted through insurance coverage. But the most effective means of dealing with risks is the
adoption of good management practices. Standardization and grading enable consumers to make a
comparison of the products. Standardization establishes uniformity of specifications in the matter of color,
weight, composition etc. grading is done in the case of products that cannot be produced uniformly e.g. fruit,
egg.
Definition and Role in Economy
The small and medium-sized sector is a varied one and plays a predominant role in the economies of most
developing countries. It comprises factories, workshops, traders and other service facilities. It ranges from the
most modern and up-to-date to the simple and traditional, from independent enterprises to ancillaries and
subcontractors, and from units mainly catering to the domestic market to exporters.

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Small and medium-sized enterprises (SMEs) are a key component in economic life, not only because of their
number and variety but because of their involvement in every aspect of the economy, their contribution to
regional development, the complementary role they play in support of the large sector, and their role as
proving ground for innovations and adaptations. They can be seen as a kind of industrial breeding ground, a
source of constant renewal of industry and commerce, and a wellspring of competition and dynamism.
There is no universally accepted definition of an SME. One study has identified more than 50 definitions in
75 countries. Frequently, criteria defining as SME in a country may be based on the purpose for which the
identification is required.
Again it is possible notionally to group manufacturing SMEs in three broad categories:
Cottage or Artisan Units.( less than 10 employees)
Small Scale Units.( up to 50 employees)
Medium Sized Industries.( Between 50 and 200)
These would not be watertight compartments and such a grouping would be arbitrary. SMEs play a
significant role in the economies of most countries, industrialized as well as developing. Organized small and
medium-scale industries in many African countries are relatively smaller in number and their contribution to
GNP more limited.