Table Of ContentMACMILLAN SMALL BUSINESS SERIES
Series Editors: Jim Dewhurst and Paul Bums
The books in this series are designed for use by students in higher education
taking courses in small-business related courses at undergraduate and post
experience level. They are also particularly useful for those studying for
professional examinations and for well-informed managers of small and
growing businesses.
The books are comprehensive in scope and written by leading experts and
researchers in this field. They deal with the subject in a sophisticated and
rigorous way whilst still providing essential practical guidance.
PUBLISHED
Small Business Management (Third Edition) Jim Dewhurst and
Paul Bums (eds)
Small Business in Europe Paul Bums and Jim Dewhurst (eds)
Small Business: The Independent Retailer Gary Davies and Kim Harris
Small Business: Production/Operations Management Terry Hill
Marketing for the Small Business Derek Waterworth
Small Business and Entrepreneurship (Second Edition) Paul Bums and
Jim Dewhurst (eds)
SMALL BUSINESS
MANAGEMENT
THIRD EDITION
Jim Dewhurst and Paul Bums
© Jim Dewhurst and Paul Burns 1983, 1988, 1993
All rights reserved. No reproduction, copy or transmission of
this publication may be made without written permission.
No paragraph of this publication may be reproduced, copied or
transmitted save with written permission or in accordance with
the provisions of the Copyright, Designs and Patents Act 1988,
or under the terms of any licence permitting limited copying
issued by the Copyright Licensing Agency, 90 Tottenham Court
Road, London W1P 9HE.
Any person who does any unauthorised act in relation to this
publication may be liable to criminal prosecution and civil
claims for damages.
First edition (Small Business: Finance and Control) 1983
Reprinted 1985, 1986
Second edition (Small Business: Planning, Finance and Control) 1988
Reprinted (with corrections) 1990, 1992
Third edition (Small Business Management) 1993
Published by
THE MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
ISBN 978-0-333-60654-4 ISBN 978-1-349-23109-6 (eBook)
DOI 10.1007/978-1-349-23109-6
A catalogue record for this book is available
from the British Library.
8 7 6 5 4
05 04 03 02 01 00
Contents
Preface vii
1 Introduction 1
I Setting Up 9
2 The Genesis of a Business 11
3 Business and the Law 30
4 Business Taxation 40
II Business Basics 65
5 Marketing 67
6 Understanding Accounts 89
7 Contribution and Break-Even Analysis 105
III Planning 127
8 The Business Plan 129
9 Financial Planning and Budgeting 168
IV Finance 185
10 Bank Finance 187
11 Financial and Other Services for SMEs 201
12 Risk Capital 213
V Control 229
13 Accounting Systems 231
14 Costing Products 257
15 Using Budgets 266
16 Analysing Accounts 281
17 The Management of Money 303
18 Inventory Management 320
19 Decision Making 329
20 Capital Investment Appraisal 341
v
vi Contents
VI The Growing Business 367
21 Managing Growth 369
22 The European Dimension 383
23 Relative Performance of SMEs 397
24 The Future for SMEs 403
Select Bibliography 411
Index 415
Preface
This book was first published in 1983 under the title of Small Business:
Finance and Control. The title reflected its narrow focus. Despite this, it was
reprinted twice. A second edition was published in 1989 under the title
Small Business: Planning, Finance and Control. The new title reflected a
much broader perspective. Managing small firms was treated much more
as a multidisciplinary activity. Planning was the framework that bound
this together. This edition was also reprinted. The familiar yellow cover is
to be seen on the bookshelves of many academics, trainers and small
business advisers, not to mention the students they have taught and the
clients they have advised.
Small Business Management reflects not only an extensive updating and
rewriting of the previous edition, but also a further extension of the
multidisciplinary approach. The planning framework is maintained but
the book now has chapters on marketing, growth models and manage
ment as well as a chapter on the opportunities for small firms in Europe.
The book shows how small firms can be effectively and efficiently man
aged - from start-up into growth. It is a 'why-you-do-it' text that also
explains 'how-to-do-it'. It is intended to be used on small business courses
in higher and further education and also for well-informed practitioners.
The extension of the multidisciplinary approach means that it can now
also be used on courses designed as an introduction to business studies.
The book can be used with its sister volume Small Business and Entrepre
neurship, which explores the managerial problems and issues facing entre
preneurs and small, growing firms. This text explores the issues assuming
that students have the necessary functional management skills and con
centrates on the broader strategic implications.
Throughout we have used 'he' (and similar terms) rather than 'he and
she' or 's/he'. We ask the reader to accept please that this is merely a
matter of convenience.
Many thanks to Susan Bums, who wrote Chapter 4, 'Business Taxation'.
She also helped at least one of the authors on many occasions when he
needed inspiration. Thanks also to Claridges for permission to use their
vii
viii Preface
business plan. Thanks also to the hundreds of small firms that have gone
through the programmes and courses we have run. Without them we
would have nothing to write about.
JIM DEwHuRsT
PAUL BURNS
CHAPTERl
Introduction
TtIE SITUATION IN THE UK 1
THE DEFINITION OF AN SME 3
FINANCIAL UNDERSTANDING 5
SMEs IN THE UK ECONOMY 6
The situation in the UK
In all the short history of modem business there is nothing so strange as
this. On the one hand we have the traditional belief in the rightness and
power of size. Rationalisation, standardisation and concentration are the
watchwords. Economies of scale rule the industrial world. In the United
Kingdom we say we must be big to stand up against the ruthless cost
effective multinational corporations based in the USA, Pacific basin and
Japan. And indeed in the United Kingdom we have gone further along
this road of concentration than any other country in the world. Yet this
predilection for economic orthodoxy has not brought us economic
success.
There is another viewpoint which has a growing number of adherents.
Perhaps, these people argue, economic success is not the sole criterion by
which we should judge all things. Perhaps people matter. Perhaps a
society should be concerned to some extent with the quality of life, job
satisfaction and good human relationships. Much evidence is now
produced that some primitive races are more relaxed, more caring and
(unbelievably!) apparently happier than we are. Some evidence has been
produced recently that people working in small business units in a civi
lised society are more committed than those working in large, amorphous,
corporations.
What are the alternatives? One solution, ably put by Fritz Schumacher,
was that an intermediate technology should be developed. To use his own
words, this would be a technology that is 'simpler, very much cheaper,
1
2 Introduction
very much easier to maintain than the highly sophisticated technology of
the modern West'. But the question to which he gave this answer was:
'What would be the appropriate technology for Rural India or Rural Latin
America or maybe the City slums?' Now it may well be that for a com
paratively rural, primitive society, intermediate technology (rather than a
sudden forced transformation to high technology) may be the answer. But
we are neither a primitive society nor all city slums.
The situation in the United Kingdom is indeed almost the complete
reverse. The Industrial Revolution started here and we have already gone
further along the road of industrial success and then apparent rigidity and
relative decline than any other country. What can we do? How can we
combine our present state with an enlightened approach? The clue must
partly lie in our difficulty in seeing that size and technological/manage
rial efficiency are not the same, or at any rate are not hopelessly inter
locked. The arguments against an undue concern with size (except in
certain parts of the economy) are strong. The arguments in favour of
applying modern technological and managerial control techniques are
equally strong. What this book is concerned to show is that in a free
thinking, democratic society it is possible to use sophisticated, sometimes
highly quantitative, techniques in the control of small businesses without
impairing those special characteristics of a small business which we (and
particularly those who work with it) admire so much.
This book therefore develops the theme that a small business is benefi
cial, that it is flexible, that it can adapt to new situations more easily than
large corporations, that it is innovative, that it already makes a good
contribution and that with efficient control and management techniques
the benefit it gives can be much greater.
We do not use the words 'small' or 'smaller' here or throughout in any
tight restrictive sense. We are not trying to keep businesses small. We are
seeking to make small businesses more effective and efficient in the very
broadest sense. We favour growth. A successful small business can grow
into a medium sized business whilst still retaining those desirable charac
teristics of personalised control and managerial flexibility which we dis
cuss in the next section. Even though this book covers all small and
medium sized enterprises (5MEs), it is certainly more concerned with the
'M' in the term than the '5'.
Conventionally the terms 'small', 'smaller' and '5MEs' are all loosely
used for much the same thing a,nd generally we follow this practice and
use the terms interchangeably. Typically '5ME' would be the most ap
propriate, but convenience and custom dictates that the term 'small' is
often used. In the next section we look at specific size criteria.
It is now realised that much of the resource allocation in the past in the
UK for start-ups has been wasted. The vast majority of start-ups in the
1980s began as one-person enterprises and finished up that way. Window
