University of Moratuwa

Faculty of Information Technology

Assignment 02
ITE 2003 - Business Studies
E151041035
1. A number of small and medium businesses have boomed in the last two decades in Sri Lanka but the number
which has failed is also high.
a) What might be the reason for this situation?

The term of SME is used to denote micro, small and medium enterprises. Different countries use different
definitions for SMEs based on their level of development. The commonly used yardsticks are the total number
of employees, annual turnover, and total investment. In the Sri Lankan context, the SME policy framework
defines SMEs based on the number of employees and annual turnover

The category of Small and Medium-sized Enterprises (SMEs) is made up of enterprises which employ less than
300 employees and which have an annual turnover not exceeding Rs.750 Min. In this context, micro enterprises
are also read with SMEs for any policy-related measures.

It is a global understanding and a duly recognized fact that Small and Medium Enterprises are a major
contributing source to emerging economies in terms of economic growth, employment generation, social
cohesion, and development. In Sri Lanka, SMEs contribute more than 70 percent to gross domestic product
(GDP) and employment generation. Indeed, SMEs contribution to Sri Lanka’s economy is significantly more than
in Singapore, Malaysia, and Japan.

There are various reasons, which influence someone to start a business. Primary reasons to start a business are
to increase revenue, to obtain personal freedom and to secure job security. Therefore, can say, small and
medium businesses have boomed in the last two decades in Sri Lanka

Various people have defined business failure in various ways. Studies had recognized business failure upon its
exit, bankruptcy, and liquidation. However, some other scholars have recognized the business failure through its
business-underperformance. Consequently, business failure was defined under three parameters for this study.

These parameters are, a business that was having

1) Continuous losses
2) Severe working capital problems
3) Closed businesses

Reasons for failed of Small and medium businesses,

• Small and medium enterprises face continuing damage and liquidity problems.
• Disputes among business partners
• Inventory management issues
• Economic recessions
• Lack of prior business and management experience
• Inadequate startup capital
• Lack of marketing skills and knowledge
• Lack of a clear business plan
• Business activities are not properly organized
• Insufficient attention to the business
• Not exercising due care in dealing with suppliers
• Failure to understand your competitive position
• Weaknesses in financial management
• Poor interpersonal skills
• Insufficient knowledge in own field of business

were also contributing source to business failure.

b) What action could the government take to tackle this problem in order to protect and create jobs?

Small and Medium Scale Enterprises (SMEs) make up a large part of Sri Lanka's economy, accounting for 80
percent of all businesses. These are found in all sectors of the economy, primary, secondary and tertiary and
provide employment for persons with different skills, skilled, semi-skilled and unskilled. There are SMEs in the
agri-business sector engaged in growing spices, fruits and vegetables and in the manufacturing sector engaged
in numerous industrial activities accounting for about 20 percent of industrial establishments. In the service
sector, SMEs accounts for more than 90 percent of business establishments. SMEs are an essential source of
employment opportunities and are estimated to contribute about 35 percent of employment. The SMEs play an
important role in promoting inclusive growth. The focus on SMEs in policy discussions emanates also from their
role in developing entrepreneurial skills, innovation and promoting economic growth. These are also seen as
useful in promoting social cohesion. It is therefore considered essential that the environment these SMEs
operate in be improved.

Now let's discuss how the government is working to resolve above problem and protect and create jobs in Sri
Lanka.

• As environmentally, government design and enforce Business-friendly laws and regulations and contract
enforcement to strength the legal environment for business.
• Government support and improve infrastructure facilities.
• As a social government has organized employees training programs.
• More attention paid to underdeveloped areas.
• The government is going to promote environmental friendly cleaner production technologies and
practices.
• It is recognized and reward new technologies leading SMEs and assist them to participate in foreign
trade fairs, exhibitions, and technology demonstration platforms.
- Through these programs, they can get good knowledge and practice. Using their knowledge, they
can begin their own business.
• To begin their own business government will supply loans.
• The Government of Sri Lanka has taken over the international market for Sri Lankan products to provide
market facilities.
• Providing subsidies for SMEs.

2. Discuss the importance of having a business plan for a newly establish business. Explain your answer by
providing suitable example.

A business plan is a detailed document stating various stages the business must go through and various targets
the business needs to achieve if it is to be successful. A good business plan should,
• Provide structure and guidelines to the owner
• Easy to monitor the progress of the business
• Shows the details about starting capital and capital needs in growing the business (development capital)

Contents of a Business Plan

• Details of the business

- Name, location, physical size of the business
• Goals and Objectives
- Mission and vision statements
• Present state of the market
- Sales volume
- Revenue
- Location
• Customer profile
• Projection of sales volume and revenue in the short and long term
• Present orders
 - Bank will consider more about present orders when providing loan facilities
• Competition analysis
- Detail analysis of competitor’s products and their strengths
- Pricing policy-how the price will be compare with the competitors
- Promotion and advertising
- Method and medium of promotion and advertising
• Assets and required financing
• Staff
- Skills, background
- How many new members will recruit
• External factors
- Interest rates
- Status of local labor force
• Ownership

A good business plan provides solutions for the problems occur under following areas.

Business
Objective

Production

Resource
Requirement

Business Plan

Sales &
Marketing

Finance
Support

The business plan is a very important thing in the every newly established business. Without a business plan business
cannot go to ahead. Business plan decides about the overall business and their stability. There is a content to a business
plan. It is shown above. Let's explain them as an example.

Example

Anywhere Remodeling
Residential Remodeling Business Plan
 Firstly, business plan's includes details of the business. Name of business, location, physical size of the business.
✓ In these Anywhere Remodeling, Inc. has located Keidanren Kaikan Bldg., 1-3-2 Otemachi, Chiyoda-ku,
Tokyo 100-8188, Japan.
 Secondly, business plan includes goals and objectives. Goals means the purpose toward which an endeavor is
directed and objective means Something that one's efforts or actions are intended to attain or accomplish;
purpose; target.

Anywhere Remodeling, Inc.’s objectives

✓ Sales increasing to $2 million by June Year 5.

✓ Improve net profitability to 12% by end of fiscal year 5.
✓ Provide 10% of gross sales for Owner and 10% of gross sales for company.
 Under the goals and objectives, we can mission and vision statements. Mission statement describes present
state of a business and overall purpose. Vision statement describe future state.
Anywhere Remodeling, Inc.’s Mission

Anywhere Remodeling is a full-service remodeling company that is devoted to building the dream homes of
local high-end clients.

We believe that attention to detail and customer service sets us apart from our competition, and it is what
allows us to continue to focus on high-end projects. We work with the property owner to select the highest-
grade materials possible, and we continue to contact the customer even after the job has been completed.

 Next, business plan includes present state of the market. It is as follows.

 Competition analysis
Target Market Segment Strategy
Anywhere Remodeling's targeted market groups were chosen because of the long-term potential for
continued sales. Assuming high quality work and effective word-of-mouth marketing, the targeted,
potentially upgradeable, neighborhoods afford a continuing supply of work to do. The business remodels,
while providing a smaller portion of the firm's income, offer an important opportunity to build relationships
and generate trust with business owners and managers who have homes in the targeted ‘upgradeable'
homes.

Service Business Analysis

As a whole, the building industry is a very fragmented industry. Despite large homebuilders, no single
company has as much as a 2% market share.

The remodeling industry is even more diluted with only a handful of companies in the nation showing annual
sales in excess of $10 million. Under the standard definition, all remodelers fall into the category of a small
business.

Competition and Buying Patterns

The remodeling market is made up of potential customers who weigh three competing values: Price, Quality
and Service. There is a saying that a remodeling company can deliver any two of those values. A large portion
 of the potential customers are asking for quality and service, and then go shopping for price. These customers
are extremely difficult to work for and make a profit.

There is another segment of the market that is concerned with getting a "fair" price, but is primarily
concerned with getting quality work and superior service--they want to be "taken care of." This customer is
generally happy to work with one contractor, developed a trusting relationship, and pay a little bit more for
this comfort.

 Ownership
Company Ownership
Anywhere Remodeling, Inc. is an S corporation owned in majority by its founder and president, Bob Hammer.
There are two part owners: Steve Field & Bill Sales. Neither owns more than 15%, but both are active
participants in management decisions.

(Reference: http://www.bplans.com/residential_remodeling_business_plan/executive_summary_fc.php)

- To Grow existing business.

- To Back up a business loan application.
- To Seek investment for a business, whether it's a startup or not.
- To Create a new business.
- To Valuation of the business for formal transactions related to divorce, inheritance, estate planning, and
tax issues.
- To Sell the business.
- To Deal with professionals.
- To Develop new business alliances.
- To Share and explain business objectives with the management team, employees and new hires.
- To Decide whether need new assets, how many, and whether to buy or lease them.
- To Hire new peoples.
- To Decide whether or not to rent new space.
- To Set specific objectives for managers.

The above facts can be shown the importance of having a business plan for a newly established
business.