By KC Soares, Contributor
FOR THE small business sector to progress there has to be significant changes in three key areas. These three areas are generally defined as credit, management and marketing.
I have in previous articles dealt to some extent with the matter of credit. As readers will recall, I mentioned the high interest rates and the collateral requirements of the financial institutions. I also mentioned that to access cheap money from the Development Bank of Jamaica (DBJ) is a real up-hill task. This is because the Affiliated Institution (AFI), which are mainly commercial banks, complain about the three per cent spread that they receive on each loan. In light of this they are very reluctant in accessing these funds and business persons most times end up using the high cost funds of these financial institutions.
Today, I will focus on the area of management. A large percentage of small businesses was started by one person with an idea. The idea may come from the desire to satisfy a need or simply to make money for oneself rather than to work for someone else. In both cases the business is usually started with a deficiency in management capabilities.
Consider for instance, the following example. An auto mechanic having worked with a large firm for many years is almost certain to develop skills in diagnosing and rectifying problems developed by motor vehicles. At some stage this mechanic may decide to open his own repair shop. He is confident that he will do a good job repairing motor vehicles as he has been doing this for many years. But does this mean that he would be a good manager? Of course not. What usually happens is that such businessmen tend to use bank funds to cover their inefficiencies in management. The bankers do not help the cause of the small businessman in this case as only a few managers take the time to visit such business places. The presence of knowledgeable bankers at the business site may help the customers as the bankers should be able to make recommendations for better management of the business. They will also see first-hand what is happening and then determine whether or not, under the present conditions, more money should be put into the operations. Without the intervention of good management practices sooner or later these businesses will run into problems as loans and overdraft facilities rise to unmanageable proportions. To compound the problem, many owners/operators of businesses refuse to bring in good managers as they consider it infradig to do so. Some businesses outgrow the managerial competence of those who started them. Without good management the business suffers.
In the prevailing circumstances, it is my firm opinion that bankers should play a more active role in the development of small businesses. To just pass on funds to the small businessman is not good enough.
Firstly, financial institutions funding small business projects should ensure that there is at least reasonable management in place. It would help if bank managers take the time out to visit business places where they can have meaningful discussions on the operations. While it would be good to have all small businessmen attend management seminars or even better, attend an institution for formal training in management, this is not practical. What is more practical is for the bank managers to pass on knowledge to their customers. The bank stands to benefit tremendously from this as small customers will grow into larger customers with the end result being more business for the bank. The bank that puts emphasis on this aspect of its operation will certainly have the competitive edge over its competitors, as satisfied customers will no doubt improve their corporate image in more ways than one.
It is my experience that Bank managers tend not to visit the business places of small business operators. They appear to prefer having the small businessman in their comfortable offices rather than being accommodated in what are usually humble surroundings. Is it that bank managers, like most people, like to have a feeling of importance? I implore bankers to get out of their offices and play a more active role in the development of their small business clients. In the normal course of business bankers should be properly trained and being properly trained they should be able to impart knowledge to the small businessman.
If bankers take more interest in the development of the small businessman they will benefit not only from lower levels of non-performing loans but also in greater volumes of business. In the long run we will all benefit.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited.
E-mail: soledad@netcomm-jm.com
