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Before delving into the report, it becomes necessary to understand what SMEs or Small and Mid-sized Enterprises are. As the name suggests, SMEs are not giant corporations but small and mid-sized businesses present in a region. Although the basic idea of SMEs is similar in most places, the exact definition concerning the economy and size differs in different regions. SMEs have a significant impact on the economy, and they many times change and even challenge big organizations putting them out of the line due to the better employment rate of staff within them. SMEs help in entrepreneurial growth with their small but well-coordinated and collaborated management and the individualist nature of the team, which are given the autonomy to speak out. In this market dynamics across the globe, gradually, the SMEs are flourishing at a rapid pace and are expanding themselves into more significant markets to compete with the national and international giants. Many companies established as business giants today had begun only as small companies that went to achieve what they did through proper planning and structure of their strategic framework and its proper implementation. The current achievements of these companies are solely due to the extensive growth plan which they adopted for the success of their organization (de Araújo Lima, Crema and Verbano, 2020). SMEs can grow significantly only if they, as aforementioned, indulge in precise planning for sustainable growth. Small businesses come to the market with less money and few products. Still, some small businesses make it big in different markets achieving success in front of corporate giants by expanding through strategy and planning. Therefore, this paper will indulge in analyzing those objectives, strategies, and plans that small companies and businesses adapt to achieve success to analyze a small UK-based company, BuildWork, a designer of great quality and also a consultant. Rapid and effective growth requires analysis of different opportunities for growth, strategies and finance-based information; therefore, the assignment would deal with all of those facets a company might require in order to succeed in a market.
LO1. Analyzing the key considerations, SMEs should consider when evaluating growth opportunities.
P1. Key considerations for evaluating growth opportunities
BuildWork is categorized under an SME, which deals in designing and constructing buildings, from design to project management and furnishing. All responsibilities are shouldered by them and taken care of properly. It is a small business organization that competes in the face of great rivals. Therefore it is important for the company to focus on its growth opportunities and do so in a strategic manner to be able to properly stand in front of the already established rival companies. Growth opportunities are nothing but the scopes for expanding the business in a new or existing market; therefore, BuildWork would need to analyze the following different opportunities of growth and considerations regarding them. The three important considerations which are required for the growth opportunities are a competitive advantage, innovation and portfolio strategy.
Competitive advantage
Competitive advantage is a type of advantage where a company is required to obtain a feature so unique that it would make the company superior to most of the others and the competitors. BuildWork would be required to find its own competitive advantages for being to grow fast and compete with the competitors in a considerable and respectable manner. The resources and capabilities of the company must be analyzed, resources and capabilities which would help the company to develop and expand properly (Juergensen, Guimón and Narula, 2020). To design the business plan, all the core competencies must be figured out. Porter's Generic Strategy is a form of strategy which helps the company and assists in gaining the competitive advantage it requires for the sake of expanding in the market and properly competing with the different already-established organizations.
Porter's Generic Strategy
As aforementioned, generic strategies play an important role in the building of a company's competitive advantages, and the Porter's Generic Strategy is one such strategy which is a combination of four different strategies. To be able to analyze and acquire the core competencies of BuildWork, this Porter's Generic Strategy could be and in this paper shall be applied to find out what is the requirement. The four strategies namely are cost leadership, differentiation, cost focus and differentiation focus. The first strategy, which is the cost leadership, that strategy helps the company to balance its cost operations and keep it low, which consequently helps the company in gaining a greater share in the market (Priyono, Moin and Putri, 2020); therefore, cost leadership would bring down the cost to gain more presence in the market. The differentiation strategy helps in offering innovative and unique services and products in the market; it helps create a distinction between the company and the competitors in the market so that the company can set itself apart. The focus strategy is of two parts, the cost focus and the differentiation focus. The cost focus is basically similar to the cost leadership, but the focus of it is on a niche market. The differentiation focus is similar to the differentiation strategy, but just like the cost focus and leadership, the difference between differentiation focus and strategy is that of its concentration on a distinct niche market.
Innovation: Innovation, as the word suggests, is inventing and innovating new ideas, techniques or methods within a company. The primary focus of BuildWork is service to other areas of business; in that case, unique designs and features come under the innovative services. The unique design and features would help the company and play the role of competitive advantage. Hence, it is necessary for the company to think upon a new design with an aim to aid the consultancy services with suggestions which are unique and innovative for the clients. These innovative offerings would help the company to reach a level of setting itself apart for gaining the competitive advantage to grow rapidly.
Portfolio strategies: Portfolio strategies are several growth strategies which cater to SMEs for their rapid growth of a business. Two such portfolio strategies have been further discussed in the paper.
BCG Growth-Share Matrix:
The growth-share matrix is a model of planning which helps in showing that the business can be categorized into four classifications. The matrix aids the company in analyzing its growth rate with respect to the market and its share in the market. A part of the matrix shows the condition of a company’s high rate of growth and the high share of the market.
Figure: BCG matrix, source: (Cenamor, Parida, and Wincent, 2019)
GE-McKinsey Matrix is a nine-box matrix which is a tool for the prioritization of investment among all the business units by offering a methodical approach. The matrix also helps in exploring opportunities for the growth of the business.
P2. Evaluating growth opportunities by applying Ansoff's growth vector-matrix
Businesses like BuildWork have many opportunities which it can look through in the creative sector, and these opportunities need to be analyzed to acquire better strategies for them. Ansoff's growth matrix would help in analyzing those growth opportunities for BuildWork.
Ansoff's Growth Matrix is a tool which helps in building strategies with the purpose of speeding up the company's business growth. Businesses can achieve growth through developing their products and services only through adopting a pronounced strategic plan. There are four strategies which come under the Ansoff's Growth Matrix, and those strategies have been elaborated next.
Market Penetration: It is a strategy in which the company is supposed to initially keep a higher price to achieve a cushion of profit margin and then later lower it to penetrate the market so that it expands properly. BuildWork can apply this strategy as it is in the consultancy and design sector (Cenamor, Parida, and Wincent, 2019).
Ansoff’s growth matrix, source: (Cenamor, Parida, and Wincent, 2019).
Product development: The action of launching new products and services in the market is known as product development; it may also be referred to as product modification. Build work may introduce new and innovative design offers to attract a larger base of clients.
Market development: Market development or expansion is one of the most effective strategies SMEs adopt by exploring newer markets and expanding the clientele.
Diversification: It is a strategy which includes completing new markets, services or products and is different from the other three strategies.
LO2: Assessing various methods through which organizations access funding and when to use different types of funding
P3. Assessing the potential sources of funding available
One of the most crucial decisions which companies need to make besides strategic management is that of finance and investments. Decisions related to investment are necessary for all sizes of business, be it small or big. Financial backing is necessary for the company to have a strong base and a strong base is necessary for the proper growth of a company. Investment requires proper planning and decision-making for better management of finance within a company. Especially smaller companies which are still struggling their way into the market in front of large competitors must have a proper source of finance and funding to be able to survive in the rapidly growing market.
Payback method: This method relies heavily upon a time frame, and it helps the company in recovering the amount they had invested initially within a span of fixed time. As a result, the main focus of this method is not the money's time value. The following formulas are implemented in the payback method to recover the initial spending within a fixed time frame:
Payback Period with Even Cash Flow - payback period= investment required/net annual cash inflow.
Payback Period with Uneven Cash Flow - payback period= years before full recovery +(unrecovered cost at the end of year/ cash flow during the year).
Net present value method: the net present value method, unlike the former method, had it focused on the present value of the money (Qalati et al., 2021). Net present value is the difference between the current value of cash inflow and outflow. There are three concepts in this method:
Present value of cash inflow>Present value of cash outflow NPV is positive, and the project is acceptable.
Present value of cash inflow = Present value of cash outflow NPV is zero, and the project is acceptable.
Present value of cash inflow < Present value of cash outflow NPV is negative, and the project is not acceptable.
Potential sources of funding:
BuildWork is a small business situated in the UK which requires funds for the smooth operation of the business. There are several sources through which funds can be acquired, and the company must analyze as to which one is most suitable for them to collaborate with. A company must collaborate only with such financial sources must either be relevant for its market or must be safe to deal with in terms of the loyal and financial trust; without loyalty and financial trust, a company which is an SME could come crashing down due to the problems in funding. There usually are two types of sources from where funding can be acquired: internal and external sources; both of these sources shall now be further discussed.
Internal sources
Retained earnings: the retained earnings are the profit amount which is saved after paying all the company's shareholders. The other name given to this type of profit is "Ploughing Back of Profits"; it is quite a reliable source of funding for the company, and it gives long-lasting benefits.
Reducing working capital: Working capital is one of the most important sources of funding as it helps in completing the daily activities in which the company indulges. Maintenance of the cost-effectiveness is necessary, and for it to happen, the working capital amount needs to be reduced. Reducing the working capital would help in making an internal fund for the business (Lima et al., 2020).
Benefits and drawbacks of the internal sources: Retained profits are a reliable source of long term funding, but the stakeholders' claims upon the profits can create problems for it to happen smoothly.
Then reducing the working capital is really cost-effective, but making the working capital really minimal may lead to bankruptcy.
External sources
Bank Loan: Among all external sources of funds that big, medium, or large companies rely upon the most is bank loans. The funds which are provided by banks greatly help small and medium businesses to initiate their business or consolidate it in a proper manner (Lu et al., 2020). In this regard, BuildWork also has an available opportunity in the form of bank loans which they can acquire for the proper establishment and growth of their small and budding business.
Crowdfunding: Crowdfunding has and still is gaining considerable ground in the field of funding and finance, and the phenomenon started to gain pace in the recent few years. It is a form of funding where a large number of funds can be collected by acquiring smaller amounts from a greater number of people; this helps reduce the pressure upon a single source, and funds are still easily raised. It mostly happens through online modes and methods (Masood and Sonntag, 2020).
Benefits and drawbacks of the external sources:
Although bank loans help in accessing large amounts at any time, the interest rates make it extremely problematic for small businesses to take the risk of taking such a loan due to limited funds and uncertainties. Then crowdfunding may seem to be a nice way of interacting with people or potential customers to raise significant funds, but the risk of online fraud and many people finding the crowdfunding to be not appealing can also create problems (Lu et al., 2020).
LO3. Developing a business plan (including financials)
P4. Business plan for growth
BuildWork's business plan for growth: BuildWork, while doing business, has great opportunities to be able to grow and acquire a place as a distinguished and established organization. New ideas and designs about the interior and exterior structure would require a proper business plan for its promotion, and that would, in return, accelerate the growth of BuildWork as a small business in the UK. Every business requires a business plan and strategy to be able to keep moving and have its place fixed within the market; BuildWork would need to acquire a business plan too. To be able to make a business plan, the company would require the assistance of top management individuals who would assist them in the strategy they have and alter it if need be (Matarazzo et al., 2020). There has to be a mission, and a vision as part of the plan and the combined force of the two would be known as strategic intent.
Vision: Vision is the illustration of the objectives and aims for the future of a business. Vision differs in different organizations and companies as it helps to achieve the desired future ambitions of the company. A vision of the company is as unique as a thumbprint to humans; it differs from one entity to another as it is a special set of goals which is adopted by a company according to its special aims and objectives. BuildWork's vision should be to contribute to the environment by encouraging and inspiring its customer base and clients to focus on sustainability. That sustainability would further help in market expansion and long term relationships with the clients, along with honesty and excellence in business (Prasanna et al., 2019).
Vision statement: BuildWork would like to see itself in a better position than its competitors by being committed to its goals and objectives and by staying honest with its clients in solving their needs. The company would acquire a better image with the help of those features which are unique to them (Effendi et al., 2020).
Mission: Mission is the combination of strategies that helps in achieving the vision which was set as part of the strategic intent. The company also constitutes a mission statement just like the vision statement to properly elucidate their mission. The primary mission of BuildWork would be to stay committed to the cause of market expansion by adopting better strategies and ways to work themselves up the ladder of success. They also aim to provide excellence in matters of technicalities by being honest and catering to long-term goals and relationships.
Mission statement: BuildWork would stay committed to market expansion by catering to the needs of the clients in the best way possible with the help of efficient team members.
Strategies to achieve the objectives:
There should be a highly skilled team of efficient employees and staff members who would become so through training and workshops.
Finding the strength of the corporation to be able to use to achieve success.
Using environment-friendly material.
Structure of business: There would be a CEO, a chief architect and designer, HR, Project Manager, Marketing Manager and Interns (Zhang et al., 2022).
Financial information: All financial information of BuildWork shall be conveyed by the owner of the company to investors and clients for the sake of transparency.
Presenting Business Plans to the Investors: A written form of the structure and future of a business is known as the business plan, which is presented to investors so that they know what they are investing their money into and also helps in making investors interested in investing.
LO4: Assessing different ways using which small business owner can exit the business and the implications of each option.
There are many ways in which a small business owner can walk away from the business. They are:
Liquidation
Sometimes, a small business owner feels frustrated with the business’s performance and decides to leave the business (Zhang et al.,2022). This scenario happens quite often in the business world. For example, small business owners like restaurants, shops, hotels, etc., can decide to leave the business. In order to do this, an owner must sell all the assets. In case all the debts are already paid, it can also be called a Walkaway. This whole process of selling the assets is known as liquidation.
In case the business wants to earn profits during the process of liquidation, the company must sell all its valuable assets, like land, buildings and machinery. Sometimes, the brand name also holds some value. In such cases, the business owner can sell the brand name to some other businessmen who can start the business with the same name. The value of the brand name of the business completely depends upon the reputation and profits.
Family Succession
Many business owners think of passing the leadership of the business to one of the family members. This makes the business stay within the family and in trusted hands. This is a versatile way of exit. The business owner can also interfere in the business if needed, and control does not get out of hand. However, a business owner should not suddenly hand over the business to one of the family members (Liu, Liu. and Zhang, 2019). The owner should talk about the decision with other family members in family meetings and should hand the business to a capable family member. The owner always expects the family member to run the business properly, but sometimes due to the incapability of the new family member, the opposite can happen.
Bankruptcy
This is one of the most common reasons for business owners to exit the business. This is a legal process of exiting the business. A business can be called bankrupt when the company fails to pay its debts and doesn't have sufficient money to run the business operations. In such cases, many owners sell the valuable assets to the bank and put the money into paying the debts. After some complex legal processes, the owner can quit the business. However, in this process, the chances of gaining money while diluting the business are very low. Most of the time, extra money is needed to pay the debts (Gagné et al., 2021).
Selling the Business
This is a common method of quitting a business too. Sometimes the owner gets bored with the same business and decides to start a new one in a new industry. In such cases, the owner can sell the existing business to some other person. This is also a legal method of quitting a business (Shi and Li, 2019). The owner must follow the legal steps to transfer the business to another owner. The new owner pays the old owner the money that the assets and brand name hold and takes charge of the business.
Conclusion
SMEs are small or medium-sized businesses which have the aim to expand their economic base outside of their comfort zone to ably stand in front of their competitors. The primary way in which a business can be expanded is by adopting a proper business strategy by applying several models for proper analysis. The company must have its structure fixed on the basis of finance, like, where it is going to acquire its funding. The company must have a proper vision and mission on which they shall work for the upliftment of the company to be able to compete in the market and expand. To be able to achieve those visions and missions, the company must also follow several positive strategies.
References
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