The Challenges of Small Organizations; Engaging in

Collaboration with Financial Management and Human

Resource Capacity

Abdul Ahad Majumder 1

Kyungsung University, Master of Global Business, South Korea, Busan.

Email: [email protected]

Abstract:
Small firms are widely acknowledged as the main forces behind socioeconomic growth in both

developed and developing economies due to their major contribution to the creation of new jobs,

growth in Gross domestic product, entrepreneurship, and innovation. 80% (Eighty percent) of all

businesses in Bangladesh are classified as small businesses. Hence, compared to other growing and

developed nations, Bangladesh has a significantly higher significance of small business for its

economy and society. Small businesses experience a variety of difficulties, but the issues brought

on by "poor financial management and Human Resources" are said to be the main reasons for

company failures. Financial Management and Human Resource management is one of the

important managerial areas of Small Companies, because of its crucial impact on Firms' survival,

growth, and performance. This article's main goal is to examine how crucially important financial

and human resource management are, as well as to highlight the issues and techniques that affect

how well organizations work in Bangladeshi small businesses. The conceptual framework created

is also predicted to be helpful to academics in setting goals for next empirical study.

Keywords: Collaboration, Financial Management, Human Resource Capacity, Small

Organizations, Entrepreneurship.
The Challenges of Small Organizations; Engaging in Collaboration with
Financial Management and Human Resource Capacity

Abdul Ahad Majumder 1

Introduction:

Small business enterprises are a vital part of Bangladesh's overall business and industry. Small

Business Enterprises (SBE) can play a significant role in Bangladesh's economic development

by producing goods and providing services to meet domestic demand and export to other

countries, creating more job opportunities, implementing modern technology, and investing

necessary funds in critical sectors. SBEs have become one of the top industries for creating

jobs, accounting for 80% of all jobs in Bangladesh. Moreover, being a significant generator of

employment growth, the sector considerably contributes to 25% of the country’s GDP through

manufacturing a wide range of products and services. Small Business are based on Sole

Partnership. But, Nowadays Entrepreneur are facing many problems to run their businesses.

But Why? The primary causes of small business failure because a lack of money or finance,

the retention of a management team that is insufficient. The majority of business owners

operate informally, raising money from friends and family or from themselves, In addition,

there are significant hurdles with regard to capacity, skills, product innovation, and product

design, as well as a shortage of new technologies, and the cost of doing business is increasing

in this industry.

Focusing on these Problems, this study examines two areas, Collaboration with Financial

Management and Human Resource Management. Many Professional reports have claimed that,

most small businesses failure because of insufficient practices of Financial and Human

Resource management. Many SBEs has good Human Resource management practices but they
don’t have financial management practices and alternatively many Organization has better

Financial Management practices rather than Human Resource Management. So, Collaboration

with these two areas is the only solution to solve these issues.

Methodology:

Understanding the goals and objectives of this study and looking into related previous research

caused me to believe that a qualitative approach would be the most appropriate. The study was

conducted aiming to determine the effect of human resources and financial management. The

information used to analyse the research study was only gathered from secondary sources.

Through journals, publications, the internet, and other published items, secondary data were

gathered. There was no need for primary data. Many journals were used to support these issues

and all journals were the similar to each other. Moreover, few publications was taken to

strongly support these crucial concern.

Discussion and Result:

Small businesses, which operate in both urban and rural areas of industrialized and developing

nations, are the backbone of the market-based economy. Small businesses serve as financial

safety nets for larger businesses. SBEs have received acknowledgement from the public and

other relevant authorities for their proper contribution to Bangladesh's economic development.

But today’s business world is very much challenging, so cover up these challenges small

business needs to take an action. In light of this, the current study aims to provide few specific

areas to growth organizations effectiveness, 1) Human resource management 2) Financial

Management 3) Collaboration with Financial and Human Resource Management. At first, the

practice of recruiting, hiring, assigning, and managing personnel is known as human resource

management (HRM). Human resources (HR) is a general term for HRM. In small businesses,

the drawbacks of both small size and innovation are likely to show up in the way the business

handles human resource issues. A very small number of formal HR departments or

professionals, increased difficulty in hiring and retaining employees due to a lack of financial

resources, and a greater reluctance to engage in expensive or restrictive practices may all be

present in small businesses where resources are likely to be limited. We may anticipate a lower

emphasis on organized training, difficulty hiring owing to lack of legitimacy, and more

informal and possibly unpredictable personnel management systems in developing enterprises

where experience is likely to be missing. Small businesses face a variety of particular HR issues,

such as a sometimes corporate identity that can be readily impacted by new hires, essential

talent and talents are difficult to attract and keep, and the firm lacks credibility as an employer,

maintaining workforce flexibility and creating human resource policies that can cope with

changes in the market and the needs of the company.

Other view of point, Financial Management effectively is essential to operating a profitable

business. Every aspect has consequences, from making plans that ensure business owners can

take advantage of possibilities to managing cash flow and monitoring corporate success. To

attain goals through wise business decisions, financial management comprises bookkeeping,

forecasting, financial statements, and financing. One of the key paths to success for a business

owner is financial management .

Theoretical Framework: This study's conceptual models and related concepts are

presented in this study. The definitions of financial management and human resource

management were provided; the discussion will focus on working together in these two areas.
Figure 1: Conceptual Overview of Financial and HRM Model on Organizational

Effectiveness.

Looking forward to Figure 1: In entrepreneurial businesses, the drawbacks of both newness

and small size are likely to show up in the way the business handles human resource issues.

A very small number of formal HR departments or professionals, increased difficulty in

hiring and retaining employees due to a lack of financial resources, and a greater refusal to

engage in expensive or restrictive practices may all be present in small businesses where

resources are likely to be limited. We could expect a lower emphasis on organized training,

difficulty hiring owing to lack of legitimacy, and more informal and possibly unpredictable

personnel management systems in developing enterprises where experience is likely to be

missing. Though, we are discussing about four most important Human management

practices, 1) Staffing: Staffing assists in the recruitment of the greatest human resources

for various job responsibilities inside the firm. The organization's production is boosted as

a result of this. Staffing shortages are one of the issues that many firms are now dealing
with. Small businesses in Bangladesh are dealing with this issue. Staffing shortages can

have negative effects on a variety of factors, including cost, labor quality, staff tiredness,

and more. Under normal conditions, understaffing may occur due to a number of factors,

such as cost-cutting measures or insufficient management planning. It's a big issue for small

businesses that don't put staff retention first. 2) Compensation: Any payment made by an

employer to an employee during their employment is referred to as compensation. It is

among the most significant elements that have an impact on employees' pay. The

compensation will be larger if there is a greater demand than there is a supply. Industry

Standards: No worker would choose to work for a company whose pay is below average

for the sector. An appropriate wage package guarantees: Retention - An attractive

compensation plan aids in lowering the company's turnover rate. 3) Training and

Development: Workplace training is the process of increasing knowledge, abilities, and

productivity at work. Depending on needs, urgency, and the resources available, employers

conduct several sorts of training. Employees will perform better as a result of training and

development since they feel like they are a part of the small business. Employees' abilities

and professionalism are improved. There will be less absenteeism and fewer salary

demands as a result of well-trained staff. Less errors will be made by properly trained staff.

4) Performance Management: In order to maximize a person's performance and match it

with corporate strategic goals, performance management is an ongoing, continuous process

of communicating and clarifying job tasks, priorities, performance expectations, and

development planning. An effective performance management system assists staff in

knowing the small business' objectives and what they must do to meet them. This indicates

that they are aware of how their contributions impact the company's overall expansion.

Financial Management in Small Business: The model of financial management practices

in Figure 1 illustrates the flow and linkages of the strategic financial management practices
with respect to SME performance. The importance of the correlations between the strategic

financial management model's four main components—financial planning, working capital

management, which has three sub-constructs—cash, receivables and inventory

management, fixed-asset management, and finally financial reporting and control—and the

overall performance of the business is assessed by the owner/managers of SBEs. In order

to overcome financial management issues and improve organizational performance in

small size companies, the conceptual model is therefore created to identify the key practices

of financial management and derive proposals about how the model can be used as a

"strategic tool." 1) Financial Planning: For Bangladesh SBEs, issues with access to

financial resources are crucial. However, research indicates that a successful SME

performance is more dependent on the planned, accurate, and goal-oriented application of

the acquired cash. A strong focus on financial planning that leads to the creation of "a solid

financial plan is considered to be the key to starting and running a successful enterprise, as

the absence of financial planning and projection is argued to be one of the major causes of

business failures, particularly in SBEs. 2) Working Capital Management: Working

capital management is especially crucial for businesses operating in emerging markets

because these businesses, which are typically SBEs with little access to long-term capital

markets, are heavily dependent on owner financing, trade credits, and inventories to meet

their funding needs for cash, accounts receivables, and inventories. According to studies,

SBEs owner/managers in Bangladesh, as in the majority of developing nations, spend the

majority of their time on cash, receivables, and inventory management because they see

these activities as "strategic" for their companies. Despite this high level of managerial

expertise, it's interesting to note that the poor and ineffective management of working

capital is said to be the primary cause of most business failures. 3) Financial reporting

and analysis: The poor financial literacy of SBEs owners in Bangladesh and the effects of
that issue on poor managerial and overall performance. Small business owners have

"powerful tools" at their disposal to manage their organizations in the form of financial

reports and statements, notably important statements like the balance sheet, profit and loss

statement, and cash flow statement. However, studies reveal that only 11% of small

business owners/managers "analyze their financial statements as part of the managerial

planning and decision making processes". This is mostly owing to the insufficiency of

accounting and finance knowledge of SBEs owner/managers. The "control and feedback"

function of the strategic financial management process is the evaluation of financial reports

that show trends and snapshots of the company's past and present financial performance.

As a result, a lack of knowledge about the financial situation and crucial performance

indicators represents a threat to the company's overall awareness. 4) Capital Budgeting:

Despite the fact that deciding whether to invest in fixed assets is important for SBEs

because of the effect that choice will have on a small or medium-sized business's long-term

cash flow, SBEs operating in Bangladesh face a significant challenge because they lack a

well-structured strategic approach. Without an earlier practicality investigation, the

investment's contribution to the overall productivity and success of the company is very

uncertain. Since the primary goal of fixed-asset investments in small businesses is to

"increase the efficiency, thus profitability of the enterprise," mistakes and problems in

making these decisions and acting accordingly harm the profitability thereby the financial

and overall performance of the company, while insufficient investment towards having

more advanced production or service facilities limits the growth of the organization, which

underlines the importance of a sound business strategy.

Collaboration: Why Collaboration Between HR and Finance Is Essential for

Strategic Workforce Planning in Business?

Collaboration is defined as "a process of joint decision-making among key stakeholders of

a problem domain about the future of that domain" This concept makes references to

common rules, norms, and structures, as well as ways to participate and autonomy.

Collaboration is defined as "organizations cooperating to solve problems through shared

resources, decision-making, and ownership of the final good or service." We use this

concept and concentrate on small businesses that collaborate with other organizations to

improve their ability to serve customers. Employees and their associated costs are part of

the basic link between HR and finance. Each employee in a company costs money in the

form of wages, bonuses, and benefits. Given this, it makes perfect sense that these two

departments would collaborate closely. The pandemic made it even more important for HR

and finance to collaborate. Businesses were compelled to reevaluate objectives as a result

of the sudden change to remote labor. In order to address and resolve urgent human capital

concerns, finance teams and HR teams—who often didn't communicate—were compelled

to do so. Finance, which typically concentrates on the client experience, was now also

concerned with the staff experience. The companies that enabled these two functions live

peacefully during this stressful time were the ones that effectively recovered from the

pandemic. The financial team and the human resources staff seem to be completely

unrelated at first glance. One focuses entirely on boosting and increasing revenue, while

the other is concerned only with the satisfaction and productivity of internal people. But

when we take a closer look and really analyze what each of these teams do, we'll find that

they're rather similar. And when their objectives are in line, revenue typically increases

significantly. Finance and HR both rely on investments. One focuses on investing in people,

while the other is concerned with building and protecting assets and investments to achieve

financial objectives. However, both are ultimately choosing and acquiring assets. This

means handling turnover in addition to expanding and improving assets. A Chief Financial
Officer spends 50% of their time on HR-related tasks, according to America's Back Office.

Why? The most significant price for a firm usually involves the cost of finding, hiring, and

onboarding new employees. A combination of finance and human resources makes logical

sense given how much money human resource initiatives cost. A corporation can gain a

great deal from connecting finance and HR. HR may use finance to assist with data-driven

hiring decisions. HR can assist finance in the meanwhile by coordinating employee

incentives with projected spending. As a result, decisions are made with greater knowledge,

personnel costs are reduced, and staff retention rates rise. While hiring and onboarding new

employees is a major HR expense, keeping a team in place comes at a high and continually

rising cost. The broad spectrum of labor costs that fall under the labor force are to blame

for this increase. Let's examine some of these HR personnel costs and how they affect

business financial choices. 1) Salary: Salary ranges are influenced by a variety of HR

criteria, including job seniority, job type, salaries for comparable roles, salaries for various

functions, and the job market. It's important for HR to assist the finance department in wage

determinations, even if HR staff occasionally use calculators and other tools. The

company's overall budget is impacted by changes in compensation. A department's account

could experience a net loss as a result of a single pay rise, necessitating the use of more

revenue from other sources to make up the difference. Similar to this, a bonus structure that

isn't designed in accordance with a system of checks and balances might have an impact

on the entire organization. 2) Benefits: The cost of benefits has a significant impact on an

organization's total financial choices. Health insurance, however, is sometimes the only

benefit that individuals consider when they think about benefits. Along with health

insurance, an employer may also provide benefits like paid time off for school, sick days,

sign-on incentives, and maternity leave. For HR departments around the world, personnel

costs have been rising as a result of the extensive benefit offerings. HR seeks to give the
finance department the information they require to have access to the financials of the

company. The information needed for HR reporting does not always need to be accessed

by finance and accounting. However, given that salary is frequently the largest expense,

they need a high-level overview of HR's costs and expenditures. Both the financial and

business outcomes of this relationship scale together when HR and finance align interests.

HR must accurately track personnel data for finance. The number of hours worked by

employees, the places they work, overtime that must be paid, benefit deductions, etc. To

effectively communicate with employees about how they should be working, HR has to

know from finance where they stand in the budget.

Limitation and Conclusion:

Several limitations of this study should be taken into account when interpreting the results.

This research approach solely takes into account the workforce size, as was mentioned

previously. Future research needed for this issues.

In contrast to the last few decades, which forced HR and finance departments to take on

separate tasks, 2020 has shown us that the workforce must constantly change.

The demand for HR and finance collaboration across companies and within company

departments is heightened by the increased worker flexibility. Finance and HR must be

able to work together wherever they are. Similar to HR, finance needs targeted initiatives

from HR to maximize its data-driven goals. Finance and HR need to work together because

of these two demands.

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