ASSIGNMENT

ON
FINANCING IN A
SMALL BUSINESS
 Assignment on
Financing in a Small Business

MGT 306: Small and Medium Enterprise Management

Prepared for:
Tahmina Khanam
Assistant Professor
Department of Management
University of Dhaka

Prepared by:
Faysal Chowdhury
ID: 31
Section: A
Department of Management
University of Dhaka

Date of Submission: November 17, 2020

 Executive Summary
Small and medium size enterprises (SMEs) are the backbone for a developing country like
Bangladesh. Small and Medium Enterprises are particularly suitable for the densely populated
countries in order to alleviate poverty, create ample job opportunities, drive a resilient national
economy and contribute to the growth of GDP. In manufacturing, small industry/enterprise are
those with assets worth 3.5 to 13.5 million dollar and/or 25 to 99 workers. In the service industry
and in business, small enterprises are those which employ 10 to 50 workers and have assets worth
3.5 to 14.5 million dollars.
The business chosen for this assignment is “Bismillah Store”, a small business which offers
laundry services and iron clothing, operated by Md. Mostak Ahmed. It is located in Aliganj,
Fatullah, Narayanganj. Customers are happy with the services he is providing for years which have
created a loyal customer base in the area. “Bismillah Store” was started in 2005, at that time the
primary investment was approximately 1 lakh taka only. As it’s a sole-proprietorship small
business the investment was lower. Mostak Ahmed borrowed the money from a person which took
almost 2 years for repayment. His estimated Annual net income is around 2 Lakh taka now. When
asked about the financial situation, the owner said he was happy with his business currently.
In conclusion we can say that SMEs are a vital part of Bangladesh. This sector needs proper
attention and development. It is important not only for the betterment of the country but also for
increasing the living standards of each and every individual citizen of Bangladesh.
 Introduction
Small and medium-sized enterprises (SMEs) are the backbone of the national economy in
Bangladesh. This sector is playing an important role to develop the economy of our country. The
role of the SME sector is immense to alleviate poverty from the country as well. Small and Medium
enterprises are particularly suitable for densely populated countries like Bangladesh where the
SME sector can provide huge employment opportunities with much lower investment. They are
expected to create jobs, reduce poverty, and drive a resilient national economy.
Though small in size, small and mid-size enterprises (SMEs) play an important role in the
economy. They outnumber large firms considerably, employ vast numbers of people and are
generally entrepreneurial in nature, helping to shape innovation.
In manufacturing, small industry/enterprise are those with assets worth 3.5 to 13.5 million dollar
and/or 25 to 99 workers.
In the service industry and in business, small enterprises are those which employ 10 to 50 workers
and have assets worth 3.5 to 14.5 million dollars.
In manufacturing, medium industry /enterprise would be those with assets worth Tk 100 to 300
million (minus land and factory building, and including replacement value) and/or 100 to 250
workers.
In the service industry and in business, medium enterprises will get those which employ 50 to 100
and have assets worth Tk 10 to 150 million.
The total number of SMEs in Bangladesh is estimated to be 7900000 establishments. Of them,
93.6 percent are small and 6.4 percent are medium. Small and Medium Enterprises are the
bloodline of Bangladesh’s economy creating employment for 7.8 million people directly and
providing livelihood for 31.2 million contributing 25% to our GDP.
 Business Overview
“Bismillah Store” is small business which offers laundry services and iron clothing, operated by
Md. Mostak Ahmed. It is located in Aliganj, Fatullah, Narayanganj. It was started in 2005 and at
that time the owner’s brother also worked there, as a part-timer.
Basically, Bismillah Store provides its services all over the area of Aliganj. The owner himself
does the ironing of clothes and for the laundry service he takes the help from another remote
service provider outside the area. Although there are 2 new stores in the area offering similar
services, “Bismillah Store” is still doing good compared to others. Its because of its standard
quality services, timely delivery and affordable cost. The location of the store also gives an
advantage to the store as it is close to the main road, alongside a branch road and a Mosque. As
his brother left, Mostak Ahmed is the only one running the business now and he is doing a great
job. Customers are happy with the services he is providing for years which have created a loyal
customer base in the area.

Financing Challenges
As stated earlier “Bismillah Store” was started in 2005, at that time the primary investment was
approximately 1 lakh taka only. As it’s a sole-proprietorship small business the investment was
lower. Mostak Ahmed borrowed the money from a person which took almost 2 years for
repayment. For being only a high school passed student, he didn’t even think of getting a bank
loan because he knew almost nothing about it. And also, there wasn’t much flexible loan
opportunities for such small businesses.

Financial Situation

With his primary investment, Md. Mostak Ahmed bought 3 display racks, 2 tables and 3 iron
machines. He also spent on the decoration of the store a little. This was his primary investment.
When asked about the current financial situation of the business, the owner stated that he bought
another display rack recently which cost him around 30,000 taka. These were the fixed costs of his
business. Electricity bills, maintenance costs, store rents are the variable costs of this business. He
stated that the shop rent is currently 6,000 taka and the electricity bills come around 3,000 to 4,000
taka depending on the amount of services provided. Maintenance costs include repairing and/or
replacing iron machines, store shutters or other equipments.
As a sole proprietor, he couldn’t provide more detailed information about his venture’s income
and expenses. But he said that if the month goes well, at the end of the month he has 19,000 or
almost 20,000 taka as his net income. And if not, he gets 13,000 to 15,000 taka as his net income.
Based on this information, his estimated Annual net income is around 2 Lakh taka now. When
asked about the financial situation, the owner said he was happy with his business currently.
 Opportunity
Small and Medium Enterprises have emerging opportunities in Bangladesh. As reported more than
90 percent of businesses are small and medium enterprise but still, there are many opportunities in
this sector that will help contributing more into GDP. Bangladesh is one of the most densely
populated country in the world. It has great manpower source and every year 2 million people add
to the workforce, half of them wanted to work at home and half of them wanted to go abroad for
employment. Small and medium enterprises are not only labor-intensive but also cost-effective.
So, SME can be a better solution for unemployed people in the country. In our country, there are
many training and vocational institutions where unemployed people can be trained and can be
turned into strong manpower. Although poor training facilities are hampering the SME and its
acceptance abroad. And this is why young people are not interested in the training program but if
they take the opportunity of those training programs it may increase its facilities and become
helpful for SME. The Daily Star took a survey in 2019 in which 50 SME took part in a fair in
Dhaka and responded to the survey. Most of them demanded a common marketing platform for
micro and SME along with easy access to funding. And now there are many online platforms
which are jointly promoting SME. There are many banks and NGOs who are helping especially
SME organizations which are helping our economy though there are many people who are not
capable but getting those loan opportunities if a capable person gets those opportunities, they will
be more helpful for our economy and total governance can be a solution to this. In Bangladesh
handmade things like bags dresses which created a great opportunity for SME. And along with
Bangladesh, there is demand abroad for those things produced through SME. The product of
Bangladesh might not rival with hyper competition of European world but have chance to lock
head with India and China due to recent labor cost hike there.

Current Picture
The global recession in corona has affected all industrial sectors in Bangladesh. SME enterprises
are facing the effects mostly. The industries are facing tremendous loss as there is trouble getting
financing, continue sells and shrinking job opportunities. Several researches have been showing
us the crisis SME enterprises are facing and possible devastating failures. Small and medium
enterprises run mainly from day to day transaction. So, they are fragile if the transactions are not
performed periodically. Due to the widespread of Corona virus the whole country has been on
lockdown for several months affecting their natural way of business. As a result, multiple problems
are emerging that are crucial for the existence of SME business. Surveys are showing that
inconvenience of business activities are leading to mass layoffs and closures. Existing businesses
cannot afford as much employees due to lack of liquidity. Percentage of closing down of small
enterprises are alarmingly high.
In spite of the downward flow of transaction, enterprises could continue business by borrowing
SME debt. Sadly, Covid-19 corona virus has also affected new equity transaction by lowering the
level drastically. Consequently, borrowing debts from banks and other financial organizations have
become difficult than ever. Surveys also indicate that few small and medium enterprises of our
country had prepared themselves for any crucial moments like this pandemic. Enterprises took no
precautionary measures to save money which would certainly help them to survive this pandemic
period.

In a nutshell, it can be indicated that Small and Medium Enterprises organizations of our country
are facing huge financial risk that increases the risk of continuing business further.

Conclusion
In conclusion, we can say that Small and Medium Enterprises are an emergent part of Bangladesh.
This sector needs proper attention and development facilities from both public and private sector.
It is essential both for the betterment of the country and for increasing the living standards of each
and every citizen of Bangladesh.