Task 6. Reduce the text saving the main ideas.
Date: 2015-10-07; view: 400.
Task 4. Read the text “Working Capital Problems in a Small Business” and translate it.
Task 5. Find answers to the following questions in the text and write them down:
1. What financing problems do seasonal small businesses have?
2. Is seasonality a problem that is exclusive to small business?
3. The smaller business firms are likely to be more dependent on suppliers and commercial banks, are not they?
4. What is the answer to seasonal working capital problems?
5. Does the answer to all these financing problems lie just in planning?
WORKING CAPITAL PROBLEMS IN A SMALL BUSINESS
Many small businesses that are seasonal in nature have difficult financing problems. This is particularly true of retail nursery (plants) stores, greeting card shops, boating stores and so on. The problem is that each of these businesses has year-round fixed commitments, but the business is seasonal. For example, Calloway's Nursery, located in the Dallas – Ft. Worth Metroplex does approximately half of its business in the April to June quarter, yet it must make lease payments for its 16 retail outlets every month of the year. The problem is compounded by the fact that during seasonal peaks it must compete with large national retail chains such as Kmart and Home Depot who can easily convert space allocated to nursery products to other purposes when winter comes. While Calloway's Nursery can sell garden-related arts and crafts in its off-season, the potential volume is small compared to the boom periods of April, May and June.
Seasonality is not a problem that is exclusive to small businesses. However, its effects can be greater because of the difficulty that small businesses have in attracting large pools of permanent funds through the use of equity capital. The smaller business firm is likely to be more dependent on suppliers, commercial banks and others to provide financial needs. Suppliers are likely to provide necessary funds during seasonal peaks, but are not a good source of financing during the off-seasons. Banks may provide a line of credit (a commitment to provide funds) for the off-season, but it can sometimes be difficult for the small firm to acquire bank financing. This has become particularly true with the consolidation of the banking industry through mergers. Twenty years ago, the small business person was usually on a first-name, golf-playing basis with the local banker who knew every aspect of his or her business. Now a loan request may have to go to North Carolina, Ohio, California, New York or elsewhere, for final approval.
The obvious answer to seasonal working capital problems is sufficient financial planning to insure that profits produced during the peak season are available to cover losses during the off-season. Calloway's Nursery and many other small firms literally predict at the beginning of their fiscal period the moment of cash flow for every week of the year. This includes the expansion and reduction of the workforce during peak and slow periods and the daily tracking of inventory. However, even such foresight cannot fully prepare a firm for an unexpected freeze, a flood, the entrance of a new competitor into the marketplace, a zoning change that redirects traffic in the wrong direction and so on.
Thus, the answer lies not just in planning, but in flexible planning. If sales are down by 10 per cent, then a similar reduction in employees, salaries, fringe benefits, inventory and in other areas must take place. Plans for expansion must be changed into plans for contraction.