SMEs: A Bare Necessity of an Economy

Newsletter Issue 47
March 2017

When we think of businesses or companies anywhere across the globe the first thing that comes to mind are the giants, the multi-nationals and the big conglomerates of businesses that seem to form the majority contribution to an economy. As much as that is true what we do not realize is that it is the SMEs of an economy that create the backbone of it and are the dire necessity of an economy to ensure its existence.

According to a report by world bank the SMEs of any economy contribute about 33% to its GDP and give employment to about 45% of its population. Even if we just focus on these 2 aspects it resonates that the SMEs of an economy although contribute only 1/3rd to its GDP yet are responsible for creating a livelihood for almost half of its population which becomes the driving force of the economy.

Each and every business in the SME sector has an extensive potential to grow and be a part of the bigger leagues yet the lack of proper funds and support from the governments makes it difficult for them to carve their niche. Having said that, in the recent years most governments are realizing their potential and are creating more SME favorable policies and laws.

Necessity of Succession Planning

“The number one role of any leader is to identify and prepare their successor.” – Bill Blisss, Author, Entrepreneur

If you believe that succession planning is only for large businesses, you are not alone.

According to PwC’s 2016 India Family Business Survey Report[1], only 15 per cent of family businesses have a ‘robust, documented and communicated succession plan’. Given that most SMEs in India are family businesses[2], this statistic paints quite a grim picture of succession planning among SMEs.

In simple terms, succession planning refers to organizations identifying potential candidates for filling future vacancies, especially at the top. Once these candidates are identified, they are often trained and prepared for the role, and sometimes are even appraised of the possibility. Whether large or small, succession planning is a must for all organizations. Here’s why:

  • Disasters Don’t Come with a Warning: Even with all the fail-safes in place, a business disaster is often completely unforeseeable. Be it an unexpected illness or personal emergency of the current employee, a natural calamity, or a sudden retirement of an executive, having a successor on your mind ready to jump in when there’s a crisis is not only precautionary, but also proactive. It is a relief to know that irrespective of the personal crises in your life or that of your employees, your company always has a lifeboat to turn to.
  • Benefits of Succession Planning are Ongoing: Succession planning is primarily for the future, but not exclusively so! It is not like an insurance policy designed for contingencies. Instead, it helps the business today by encouraging mentorship, learning, inflow of fresh perspectives and bringing a dimension of comprehensiveness to business decisions. With a robust succession plan in place, a long-term point-of view is automatically built-into the execution of critical business operations.
  • Healthy Competition Makes Your Potential Candidates Realize Their Best Potential: The moment you encourage your team members to perform with the succession plan in mind, they often push themselves voluntarily to give their best. Instead of being employees who follow orders, they start to think like leaders who have to fill the shoes of an exemplary senior someday. This healthy competitive climate brings out the fullest potential of your choicest employees, like never before.
  • Succession Planning Applies to All Levels: While succession planning is usually spoken of in the context of top management, its ideal application is across the entire hierarchy of the company, for all the critical positions. Having a seamless succession plan in place lends voice to your employees, mitigates contingencies in a timely manner and ensures passing down of knowledge and information capital in a streamlined manner. After all, a business rarely functions only from the top, and functional succession plans can bring significant clarity in the running of the entire length and breadth of the organization.
  • Succession Planning is a Good Way to Foster Cross-Learning Among Departments: Gone are the days when departments in an organization operated in silos. Each department follows a learning curve of its own, and the best organizations enable dialogue and engagement among their departments to make the best of their knowledge resources which have been developed over a period of time. Succession plans encourage your team members to develop their skills and experiences in a rounded manner, as they foresee the necessity of all-round professional growth.
  • Succession Planning Improves Longevity of Employees: Today, there is no dearth of opportunities for a quality professional, and often employees look for much more than monetary benefits. It is likely that when an employee gets a hint of his organization having future plans for him, he considers sticking to the organization instead of mindless job-hopping. He begins to consider his current association as more valuable and reliable than before, and starts making business decisions knowing that he is in for the long-haul.

Thus, whether large or small, your business will definitely benefit a lot with a meticulous and realistic succession plan in place. This article has been brought to you by – the most preferred platform to buy, sell, fund and grow businesses in India.



Necessity of Valuation for your Business

As the term ‘Business Valuation’ suggests, it  envisages the value or worth of your business in currency value. The factors influencing business valuation include assets and liabilities, cash-flow, profits and competition benchmarks, among others. It is necessary for a business to get valued not only to know how much the business is worth, but also to understand how desirable the business is given the current market scenario, as well as to compare the health of the business with its competitors  and to understand if the business is towards an upward or downward trajectory.

For all those owning or running a business, the general notion is that you should get your business valued only when you want to sell it. Let us bust your myth – you should always know the approximate value of your business whether you wish to sell it or not. You need not get business valuation done every quarter or year but it is always good to get it done once  in a few years just to know where you were then vs where you are now, as well as to envision where you want to be in future.

Whether you are someone looking for investment for you business or planning to form a joint venture or partnership, or simply planning to sell it off, finding the value of your business helps you formulate your strategy and gives you an edge over others. It also helps you realize what to expect on the negotiation table vs what you are wishing for,  and how to reach your expectations from here.

We at offer expert services to help you find the current value of your business as well as help you secure an  investment / partnership / sale deal ideal for you, while you focus on  growing your business to the  level you want.

Our in-house CA, Sneha Gohil has a special message for all of you.

Financial Information is the heart of business management which when presented in a structured manner is called Financial Statement and Reporting. It plays a vital role by reflecting overall position and growth of the business, shows how effectively and efficiently business resources are being used and is helpful for its owners and various business stakeholders in decision making process.

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