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ED 241 774 CE 038 578

AUTHOR Vaughan, Gary L.TITLE Guidelines for Management Consulting Programs for

Small-Scale Enterprise. Appropriate Technologies forDevelopment.. Manual M-14.

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PUB DATE Dec 81CONTRACT 81/487-3740NOTE 229p.PUB TYPE Guides - Classroom Use - Guides (For Teachers) (052)

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ABSTRACTThis manual is designed to assist management

consultants in working with small-scale entrepreneurs in developingcountries. Addressed in an overview ,of the small-scale enterprise(SSE) are: the role of the SSE.in third world development, problemsof SSEs, and target firms. The second chapter deals with variousforms of management assistance to SSEs, including generalconsiderations in management consulting and program approaches to SSEmanagement assistance. Examined in a discussion of managementassistance to target firms are the implementation experience of theTulua Management.Consulting Program in Colombia, guidelines forseminars for SSE managers and employees, suggestions for providingconsulting assistance to target firms, and work related to managementconsulting. Appendixes to the manual include sample seminar andteaching aids, aids for conducting a management consultancy, andresources for management consulting to SSEs. (MN)'

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Peace Corps' Information Collection s Exchange (takkgssiestablished so that the strategies and technologies devel-oped by Peace Corps Iblunteers, theft co- workers, and theircounterparts could be made available to the wide range ofdemplormeit organizations and individual workers who mightfind them useful. Training guides, curricula, lesson plans,project reports, annuals and other Peace Corpe-generatedmaterials developed in the field are collected and reviewed.Sore are reprinted "as is"; others provide a source of fieldbased information for the production of manuals or for re-search in particular program areas. Materials that you sub-mit to the Information Collection &Exchange thus becomepart of the Peace Corps' larger contribution to develcsirent.

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Peace Corps3

GUIDELINES FOR MANAGEMENT

CONSULTING PROGRAMS FOR

SMALL-SCALE ENTERPRISE

Written by

Gary L. Vaughan

Peace Corps

Information Collection and Exchange

Manual M-14

December, 1981September 1983

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GUIDELINES FOR MANAGEMENT CONSULTING PROGRAMSFOR SMALL-SCALE ENTERPRISEDecember, 1981

0Prepared for the Peace Corpsby Gary V4ughan underContract No. 81/487-3740

Available through:Peace Corps, ICE806 Connecticut Avenue, N.W.Washington, D.C. 20526

/ 5

PREFACE

This manual is designed to,assist management consul-tants working with small-scale entrepreneurs in developingcountries. It also contains material of interest to PeaceCorps or developing country programmers who plan devdlopmentprojects for the small-scale enterprise (SSE) sector. Thebulk of the manual deals with management assistance to onetype of SSE in,developing countriesz owner-operated small in-dustrial firms,. Much of this emphasis flows from my pastfield experience as a Peace Corps Volunteer in Colombia.Nonetheless, many of the tools and techniques explained inthis handbook may have applicability to other types of SSEsor even to other forms of business organization throughoutthe Third World.

In writing this, I have synthesized a growing body ofreference material in small-scale enterprise development- -some of which is presently available to Peace Corps Volunteersand staff through Peace Corps' office of Information Collec-tion and Exchange (ICE) in Washington. This manual providesthe reader with insights into answering the following ques-tions:

(1) Why are SSEs important. in Third World development?.

(2) What problems are commonly faced by the small-scale entrepreneur?

(3) What role can management consultants play in help-ing small-scale entrepreneurs -solve such problems,thereby boosting SSEs' productivity and profitabil-ity?

(4) what kinds of development programs or deliverysystems are effective in planning for, training,and supporting SSE management consultants?How can such programs' effectiveness be evaluated?

(5) Finally, how-does a management consultant go aboutassisting a small business in the Third World, andwhat techniques (in human relations and in variousareas of business administration) will help the -

consultant improve both the quality and accept-ability of his advide to the small entrepreneur?

This manual offers answers to all of these questionsin a practical, handbook format. Chapter One deals withquestions (1) through (3), and provides ttlp reader withbadcground information on how SSEs, with the aid of manage-ment consultants, may play an important role in developingThird World economies. In addressing question (4), ChapterTwo briefly examines a variety of programs which have at-tempted to boost SSE productivity and profitability throughmanagement consulting assistance. It also sets forth my ownrgcommendation for SSE assistance in the form of a hostcountry Economic Development Intern Program. This programwould train local high school or university graduates to as-sist "target firms" (i.e. those firmg carefully selected forproduction potential) using the tools and techniques out-lined in this book.

From the background information On SSEs provided inthe first two chapters, we move on to a discussion of ap-plied techniques in Chapter Three, and additional sourcesof practical guidance in the Appendices and Selected Bibli-ography. In addressing question (5) above, these sectionsprovide the management consultant with a variety of toolsto help him or her in consulting work--regardless of theprogram methodology chosen. For example, Chapter Three dis-cusses how to organize and teach a seminar'to SSE managersand employees. It examines the use of human relationsskills in building an effective consultant-client relation-ship. This chapter also offers appropriate advice for con-sulting on specific problems in finance and accounting,marketing, personnel management, planning, and other areas.Appendicvk, tc the manual provide additional practical guid-ance to the consultant, such as seminar audiovisual mate-rials, classroom handouts, and case studies, as well asforms useful in planning and executing a consultancy. TheDirectories of Selected Small-Scale Enterprise DevelopmentOrganizations and Information Sources in Appendix III,Exhibit 132: indicate further sources of information for theSSE consultant. Finally, the Selected Bibliography directithe oontultant to a wide array of reference materials onthe subject of SSE promotion.

There are a number of well-written books on smallbusiness administration in industrialized countries and agrowing body of work concerning the promotion of SSEs in theThird World. In writing this manual, I hope'to make furthercontributions to the field by:

41.

translating a number of appropriate concepts andprinciples from modern small business administra-tion in the United States into a methodology forassisting SSEs in developing countries;

reviewing a variety of.recent foreign assistanceprograms which have attempted to promote SSEsthrough the use of management consulting services;

proposing that the "target firm" approach, whencompared to other SSE programs, is a lean and cost-effective means of helping the urban and ruralpoor; and,

providing guidance to the prospective user of this' manual without hampering creativity or initiative.

As the manual's title implies, this handbook offersprogrammatic and technical guidelines so that the reader maydevelop his or her own program, specifically tailored to theneeds and realities of a given developing country. Conse-quently, this reference work is not a self- contained pre-.scriptionfor consulting success. Success will, largely de-pend on the initiative and ingenuity of the user, as wellas on his or her willingness to consult other appropriate,information sources.

A number of people assisted me with the general con-cept 'and content of this manual. Gary Petersen, now a region-al director for the United S ,:ates Small Business Administra-tiol, and Michael J. McGuire, a former Peace Corps colleaguein Colombia, gave me valuable a4,%;ica in designing the "tar-get firm" program outlined in this book. Jose Manuel Arenas,Financial Manager'of the Colombina Candy Company, JeanFrancois Christin, consultant,for the United Nations Indus-trial Development Organization (UNIDO), and Howard Lewis,Peace Corps Volunteer.in Ecuador were also helpful in advis-ing me during the early stages of preparing this manual.I wish to thank the Fundaci6n para el Desarrollo Industrialand my supervisors in Peacb Corps/Colombia, Peter Fraserand William Phelps, for encouraging my work with,SSEs, as.well as the small entrepreneurs of Tulue, Colombia, whoprovided me with the experience necessary to research thisbook. I also gratefully acknowledge the editorial assist-ance of Pirie Gall and Susan Hewes of Peace Corps' Officeof Programming and Training Coordination (OPTC), WilliamPhelps, formerly of Peace Corps' Latin America Regional Office,

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and ichael Hirsh, Program and Training Officer for PeaceCorP/Ecuador. This manual would never have been producedwithout their time and patience in editing various draftsof the manuscript. In addition, I would like to acknowledgeall the hard work of the several secretaries who contributedto typing this manual. Finally, I owe a great debt oe'zrati-tude to the late Alonso Lozano Guerrero, former ExecutiveSecretary of the Chamber of Commerct of TuluA, who providedme with the inspiration necessary to write this handbook.

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This doct.ment does not bear the approval (nor imply such) of theUnited States Agency for Ilternational Development, or any of itsOfficers.

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TABLE OF CONTENTS

CHAPTER ONE : THE SMALL-SCALE ENTERPRISE'

A. SomeDefinitions

1. What is a "Business"? 12. What is a."gmall-Scale Enterprise"? 13. How Management of Small-Scale Enterprise

Differs from that of Large'arge Enterprise "I' 2

B. The Role of Small-Scale Enterprises inThird World Development

1. Why are Small-Scale Enterprises Important? 52. Promoting the Development of SSEs 6

r.

C. Problems of Small-Scale Enterprises 7

1. Capital 9

2. Marketing 103. Human Resources . 124. Technical Constraints t 145. The General Business Environment 156.`Business Practices 17

D. The Target Firm

CHAPTER TWO : MANAGEMENT ASSISTANCE TO SSE,s

A. Managemert Consulting: GeneralConsiderations

1.9

1. Checklist of Guidelines for Designers. of SSE Consulting Programs 232. Focus and Purpoie of Managem6nt Con-

sultancy 25,3. Interdependence Be..:ween Consulting AY

and Cred±t 274. The Role of Management Consulting

Assistance in a Small-Scale EnterpriseDevelopment Program 28

5: Cross-Cultural Considerations 29

B. Program Approaches to SSE ManageMentAssistance

1. A Brief Overview 332. The Economic Development Intern Program

a. Purpose and General Approach 35

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\' b. Intern win the iitld 36

c. Training and Supporting the Interns 37d. Vrogram Organization and Funding 41e. Conclusion . 45

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CHAPTER THREE ; 40:GEMENT ASSISTANCE TO 'TARGETFIRMS

--IN..,

/A. The Tulu& Experience: A Case Study-.

1. Colombia and its Small Business Assistance-Programs

2. Tulu& and its Business Environment ?3. The Tulu& Management Consulting Program

B. Seminars for SSE Managers and Employees

1. Sponsoring and Cooperating Institutions2. Role of the Seminar in a Management

Consulting Program3. Recruitment for the Seminar4. Preparation for the Seminar: Location.

and Teaching' Materials5. Teaching Techniques6. Evaluation of the Seminar and Selection

of Clients-for the Consultancy

474951

57

6264

6668

73

C. Consulting Assistance to Target Firms

1.. Building the Consulting Relationship 772. Planning; the Consultancy 793. Conduct of the Consultancy 834. Final.Recommendations, Followup and

Evaluation 905. Guidelines to Consulting on Specific

Problems 92a. Accounting 94b: Finance 101c. Marketing and Sales 110d. Purchasing and Inventory 113e. Personnel 119f. Production 124g. Planning 127

D. Work Related to Management Consulting

1. Small Business Cooperatives 1302. Trade Fairs 1323. External Investment Promotion 133

CHAPTER FOUR : CONCLUSION 135

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APPENDICES

APPENDIX I. SAMPLE SEMINAR AND TEACHING AIDS

A. Sample Table of Contents for aSeminar for Small Entrepreneurs 139

B: Poster or Blackboard Illustrations

1. Illustrative Diagram: HowProfits or a New Loan canAffect the Balance Sheet

2. Illustrative Drawing: TheCheesemaking Process

Sample Classroom Handouts

1.. Illustrative Case Materialswhich"the Consultant can Usein Seminar Presentations, forSmall Entrepreneurs

.11

143

144

a. Case No. 1: "The CachacoTailor Shop" 147

b. Case No. 2 "Industrias'La Confianza" 150

2. Sample Handout. which can beUsed'during a Senina; forSmall Entrepreneurs: TheCalculation and Significanceof Cost of Goods Sold andInventory 155

3. Sample Homework Problem which1d,; /can Test SSE Seminar. Parti-

cipants' Knowledge of Account-ing Controls 159

4. Illustrative-Examinati o n toTest SSE Seminar Participants'Knowledge of Basic AccountingEntries 163

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APPENDIX II. AIDS IN CONDUCTING A MAAGEMENTCONSULTANCY

A. Pre-Screening Instrument forSelecting Target Firms 167

B. Sample Letter of Intent 169

C. Accounting Interview Questionnaire 171

D. How to Build an Effective Consult-ing Relationship by Becoming aBetter Listener 175

E. Evaluation Form for SSE Consul-, . tancies 177

APPENDIX III. RESOURCES FOR MANAGEMENT CONSULTINGTO SSEs

A. A Review of Selected SSE Manage-ment Assistance Programs 179

B. Directories of Selected SSE Develop-ment Organizations and InformationSources 187

.C. How to Assemble a Management Con-sultant's Reference Kit 195

D. Selected Bibliography 199

13viii

LIST OF FIGURES AND TABLES IN THE TEXT

Table I

Figure 1

Figure 2

Table II

Table III

Figure 3

Table IV

Figure

Figure 5

Table V

Table VI

Figure 6

Figure p7

Figure0

Contrasting Characteristics ofLarge, Target and Micro-Enterprises 3

Examples of Vicious Circles of Manage-ment Problems for the Small-ScaleEntrepreneur 8

Administrative Evolution of a SmallIndustrial Firm 20

Differences in Perspective Betweenthe Government and the Small Entre-preneur 31

Proposed Training Program for EconomicDevelopment Interns 38

Organization Chart for the EconomicDevelopment Intern Program (as ofend Year 2) 42

General Implementation Schedule forthe Economic Development InternProgram 44

: Seminar Methodology 52

Consulting Methodology 53

: First Page of a Sample Lesson Plan 70

Sample Questions to Ask the SmallBusiness Person at the Start of theConsultancy

The Problem - Solving Process

Focus on Various Areas of SmallBusiness Management

8 Diagram of the MICRON AccountingSystem

Figure 9

Figure 10

Table VII

The Business System: An Overview

Break-Even Chart

Illustrative Aging of AccountsReceivable

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e#181

88

93

100

102

103.

104

Table VIII : Sample Cash Budget 105

Figure 11 : Options for Equipment Decisions 107

Figure 12 : The Cash Cycle for a Small-Scale'Industry 109

Figure 13 : Example of an Advertising Handbill 114

Figure 14 : Sample Kardex Card' 117

Figure 15 : The Distribution System 120

Figure 16 : Floorplan for a 600-Liter-CapacityCheesemaking Plant 126

Figure 17 : Steps in the Planning Process 128

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CHAPTER 1

THE SMALL-SCALE ENTERPRISE

A. Some Definitions

1. What is a "Business"?

Businesses assume a variety of organizational formsthroughout the world: from cooperatives to corporatiots,from capitalistic to state-run enterprises, from small scaleto huge. However, all types of businesses share the goal. ofmaximizing output per unit of input, regardless of whetherthat return is measured by higher dividends, more valuablemember shares, or by a surpassed production quota set by thestate economic plan. Moreover, in achieving greater outputper unit of input, all enterprises must bring together threekey ingredients: resources (land, labor, and capital), tech-nology, and their organization or management.

This manual focuses on one particular form of busi-ness organization: the owner-operated, small-scale enterprise,especially the small manufacturing firm. It discusses theimportance of efficiently running a business; that is, soundmanagement of the small entrepreneur's time, technology, andresources. Specifically, the guidelines in this manual helpexplain both the art and the science of efficient businessadministration to the prospective management consultant.The tools and concepts set forth herein should be of generalusefulness regardless of the country or kinds of small busi-nesses which the consultant encounters. '

2. What is a "Small-Scale Enterprise "?

A television repair shop in New York is one exampleof a small-scale enterprise. A metal-working firm in Libe-ria is another example. And an artisan leather-worker inEcuador is a third. All these firms have traits in commonwhich--di-st-i-ngtri-sh-them-from--1arge-enterpr-i-ses---Ye-f-businesses in developing countries often have special char-acteristics which set them apart from their counterparts inthe industrialized world.

Each country appears to have a different officialdefinition of small-scale enterprise or small business.The United States Small Business Administration, for exam-ple, defines as "small" those manufacturers with up to1,500 employees and all retail firms with sales up toUS$7.5 million per year. The World Bank, on the other hand,

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characterizes small-scale = nterprises (or SSEs) ts_firms pos-sessing less than US$250 0 (1976 prices) in fixed assets,excluding land. And a co tracted study for the United StatesAgency for International evelopment (A.I.D.) by PracticalConcepts Incorporated (P I) recommends yet another definition:SSEs are those firms wi a maximum of 20 workers, no morethan US$50,000 in total assets, and maximum capital costs perworkplace provided of S$5,000. The PCI definition providesa rough quantitative i ea of the size of "target firm" SSEs,a concept discussed 1 ter in this manual.

Yet even thi numerical measure is a very relativeone. For example, i some impoverished countries, a firmwith US$50,000 in a sets and 20 workers may well be manageri-ally advanced and r latively large compared with most otherbusinesses in the ountry. By contrast, in a more highly de-veloped country a company with double or treble that quanti-ty of assets and rkers may be relatively small, given thegreater wealth of the economy, sophistication of the market,and number of lax/ge national and multinational enterprisesoperating in the/country. Consequently,.a qualitative descrip-tion is. needed to focus on what is meant by the concept of .

small-scale enterprise. The table on the following page provi,%-.-ssuch a qualitative indication by comparing large businesses and twotypes of small-scale enterprises: the micro or very smallenterprise, and the transitional or "target" SSE, which is amain concern of this book.

3. How Management of Small-Scale Enterprise Differs fromthat of Large Enterprise.

Thousands of books have been written on business ad-ministration and organization. Many of the concepts in thosevolumes (such as accounting, planning and personnel admini-stration)appear to be generally applicable to any size busi-ness organization. Why then the special concern with manage-ment assistance toward SSEs? What makes SSEs unique, requ-,r-ing separately designed management systems?

Illustrating the difference between a Piper Cub and aBoeLng 747 jet aircraft is one useful way to depict the contrastsbetween large and small-scale business management.) Thebasic processes governing the flight of both planes are the

iThis example is drawn from Cohn and Lindberg's Survi-val and Growth: Management Strategies for the RrrFirm. pp.-1T781 .(See entry #42 in the Selected Bib-1::ography).

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Table I. Contrasting Characteristic

Micro-Enterprise

1. Local, neighborhood market

2. Marginal resources

3. Owner is often illiterate

4. Owner-manager usually con-trols all equity

5. Hand_ tools and some mactutnery (if a manufacturer)

6. One to three employees

7. Examples: a neighborhoodgrocery store, a tailor,a cobbler.

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of Large., Target and Micro-Enterprises

Target Firm SSE

1. Often a regional market

2. Adequate equity base andperhaps limited access tobank and trade credit

3. Owner is often.. literateand has access to techni-cally trained or expe-rienced workforce; manage-ment is simple and cen-tralized'

4. Owner-manager may shareequity with partners orfamily members

Large Enter rise

1. National or itvisrna-tional market

2. Well financed by avariety of creditsources

3. Sophisticated mana-gerial and technicalpersonnel; complex'organization

1

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4. Strong differentia-tion between managersand owners of capitalor stock

5. Power tools and light ma- 5. If a manufacturingchinery, some home-made firm, has light and(if an industrial firm) heavy machinery (some

imported)

6. Ten to 15 employees 6. Many employees

7. Examples: a metal-working 7. Examples: a manufac-shop making bicycle frames, Curer of biCycles, aa small manufacturer of 'textile plant, a dis-children's clothing, a lo- count departmentcal agricultural supply store.store.

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same. Both aircraft take off, cruise, and land; both arecontrolled and directed by pilots; and both are subject tothe same laws of aerodynamics. There, however, the similar-ities end. The Piper Cub is steered by a manual stick andrudder pedals, plus a few simple gauges. The 747, on theother hand, requires a complex set of machines and instru-ments to guide its flight., Moreover, the pilot of the PiperCub, flying at ninety miles per hour with a good tail wind,must constantly view the scene at hand to watch for possibledangers. By contrast, the jet crew flying at hundreds ofmiles per hour must focus their attention, through instru-ments, on the far horizon where they will arrive in a mat-ter of minutes; their immediate environment is of much lessimportance to them.

The same comparison applies to large and small firms.The sophisticated planning and organization of large enter-prises (and the standard business textbooks which adopt thisperspective) are often not applicable to small companies.Complex accounting systems suitable for large corporationsare usually not appropriate for SSEs--especially for smallfirms in the Third World. Costly market research methods,mass advertising, and hierarchical approaches to personnelmanagement and organization are also usually inappropriate.However, simplified accounting systems, marketing techniques,personnel administration, and other management skills areurgently needed by small firms and'are some of the topicscovered in this manual.

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B. The Role of Small-Scale Enterprises in Third WorldDevelopment

1. Why are Small-Scale Enterprises Important?

Small-scale enterprises often form an important partof a nation's economy and may account for up to one-half ofa country's labor force and productive output. In addition,successful small businesses may spur greater economic growthin their communities through what economists call "backwardand forward linkages". An example of such linkages,isfound in the sweater knitting enterprises of Mira; Ecuador,where Peace Corps Volunteer's in the 1960s helped developthe occupation into a booming regional industry. Today, thiseconomic sector extends from shepherds, spinners of wool, andbutton-makers (backward linkages) through the sweater knittersto traders with national and international market connections .

(forward linkages).2

SSEs play a key role in many economies because theymeet a special need not often filled by larger business or-ganizations. Such needs include:

- - Providing products or services to specialized,often localized markets: for example, printshops, makers of women's and children's clothing.

Processing dispersed, bulky, and often perish-able raw materials, where small plants near suchinputs are at an advantage: for example, saw-milling, cheese-making, pottery manufacture.

- - Providing ease of access to dispersed consumers:for example, neighborhood general stores, ta-verns, street vendors.

-- Making handicrafts where precise, hand crafts-manship is required; for example, basket-weavers, leatherworkers, jewelers.

- - Providing necessary flexibility in meeting cus-tomers' needs: for example, job metalworkingshops, electrical appliance repair, tailoring.

In addition to their economic importance, SSEs, ifencouraged to grow, may also offer other socio-economic

2 For further details see entry #14 in the Selected Bi-bliography.'

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benefits. They may prove an excellent source of trained mana-gerial talent. Moreover, given their relatively lower costper workplace as compared to larger firms, they may generateemployment opportunities more efficiently. Other socio -eco-nomic attributes of SSEs include decentralizing a country'seconomic establishment (perhaps reducing the flow of rural-urban migration), enhancing national savings rates based onmany small owner-managers'high propensity to-save for invest-ment, and preserving skills in traditional handicrafts. Indeed,it is such broad social and economic effects which help justi-fy public assistance to private, profit-making small entrepre-neurs. Countries have long offered tariff preferences, taxwrite-offs, and worker training to attract'large-scale enter-prise for some of these same reasons. .It would seem equallyjustifiable to work through small business people for similareconomic and even more attractive social ends.

2. Promoting the Development of SSEs

Once a country decides to encourage small-scale enter-prise, it mayimplement a variety of programs to promote theirdevelopment: One approach is to strengthen SSE infrastructurethrough the provision of plantsand equipment (for example, sub-sidized buildings and public services in an industrial park forSSEs). Another strategy is to bolster SSEs' capital positionthrough tax reductions, bank credit, or government procurementsfrom small-scale businesses. Marketing is another importantarea where SSEs need support. Here government can help bysponsoring trade fairs, by assisting with the export of SSEs'products and services, and by compiling national trade directo-ries for use by local and foreign consumers.

Public programs can also stimulate small firm innova-tion by financing prototypes and by assuring patent protectionfor small entrepreneurs. They can boost product demand byconducting market surveys and by organizing national qualitycontrol standards. Finally, technical assistance and trainingmay help entrepreneurs in important areas such as vocationalinstruction for workers and management training for smallbusiness owner-managers.

Although all of these SSE promotion strategies areuseful, different countries will,find different program mixesto be appropriate depending on their own social and economicconditions.3

3 Entries #1-B in the Selected Bibliography providemore extensive discussion of the range of SSEdevelopment program options available to developingcountries.

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C. Problems of Small-Scale Enterprises

SSEs play different roles in different economies. In theUnited States, for example, franchise operations are,common-place and many small businesses are important subcontractorsin supplying inputs (or marketing outputs) to large corpora-tions. In Colombia, a growing economy and dynamic entrepreneur-ial spirit have made SSEs an important factor in manufac-turing, retailing, and services. And in many other countries,small national economies and fragile sources of local entre-prenelirship may mean that all entrepreneurs, regardless ofsize, constitute a limited' and precious development resource.

Despite these differing contexts, small businessesthroughout 'the world face challenges in six major problemareas: capital, marketing, human resources, technical ortechnological constraints, general business environment, andbusiness practices. With the help of a management consul-tant, the small entrepreneurcan take effective steps to ad-dress the first four problems. And if a number of his or.her peers receive such assistance, some inhibiting generalbusiness practices may also change for the better. SectionC.5 of Chapter /hree of this manual offers guidelines tothe consultant in advising the entrepreneur on these speci-fic problems. However, the general business environment

.'prevalent in any given, country is usually a situation which.,both consultant-and entrepreneur must learn to live with..Yet a recognition of such environmental limits is often help-ful to both the consultant and the client in structuring thegoals and expected outcomes of any consultancy.

As Figure 1 illustrates, some of these areas--delegationof management authority, lack of working capital, and aft en-trepreneur's reactive management style--may pose complicatedand interrelated problems for which there are no easy solu-tions. Fortunately; however, an SSE is not assaulted by eachof these woes with equal intensity. A particular problem or'set of problems may prpdominate among small businesses in-one country or region and not be found in another. Moreover,in the same region or country, different SSEs will oftenface different sets of difficulties. Consequently, althoughthe following list of problems will not be faced by each andevery client, it will likely sum up the entirety of problemsfound in the consultant's portfolio. In becoming more famil-iar with such typical problem areas, the consultant andclient'should be better able to devise prospective solutions.

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FIGURE 1

EXAMPLES OF VICIOUS CIRCLES OF MANAGEMEgT

PROBLEMS FOR THE SMALL-SCALE ENTREPRENEUR

.7 Problem:

Lack of time to re-cruit and graduallycoach a productionchief into a respon-sible position

No delegation of functions by -...the ovmer-manager

NJOwner- manager is pressedfor tine in attending tovarious aspects of thebusiness

Problem: Raw materials are bought in ...,

small lots and at high prices

No working capital

IDwer profits .due to highunit prices; inadequacy ofraw materials stocks whenneeded

-7 /Problem: Little concern or time fordaily routine` of record-keepinF"%\

Entrepreneur' sf busy,reactive managementstyle

<-

OM% IMa%INA IL

Inability to plan, sinceno record of past or pre-tent on which to plan

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1. Capital

Small entrepreneurs often cite lack of capital astheir number one problem. Yet while they commonly mean lackof addition41 cash, poor management of existing'current°sets may be an equal or greater concern. Small firms do of-ten need outside capital, and the greatest indication of thisneed is typically a negative working capital position, (wherecurrent liabilities exceed current assets). Thiq situationis brought about by a number of factors. First,)the smallbusiness person's weak marketing poditionMen forces himor her to sell a service or product on liberal credit terms.Meanwhile, the entrepreneur often may have to pay suppliersunder more stringent credit terms, or even cash. Second,inflation in many countries escalates the cost of raw mate-rials. In developing countries, such materials make up be-tween 50 and 80 percent of the cost of goods sold, and anyinflation consequently has "a greater negative impact on work-ing capital. Third, small entrepreneurs are often reluctantto bring in equity capital by acquiring a partner andthus, are undercapitalized. And fourth, a small businessperson's poor record-keeping, adverse credit history, andweak 'collateral position often leave him isolated from for-mal credit sources. As a result, the entrepreneur mayresort to moneylenders, whose rates may exceed prevailingcommercial rates several times over. Even if commerciallenders are available, they may not offer the entrepreneurcredit under repayment and other terms suitable to his or herbusiness.

The small business person also may suffer from poormanagement of existing assets. Many small firms, for exam-ple, possess no accounting or formal record-keeping systems;in New York, one small business person's only cash controlsystem consisted of two shopping bags--one for receipts andone for payments, due. In-the Third World, records are ofteneven more inadequate because of less education and trainingthan in industrialized countries.

Poor accounting records limit controls on cash flow,inhibit a correct estimation of cost -price relationships,and may well lead to bad checks, unpaid bills, andlgener'almismanagement of cash resources. Furthermore, weak histor-ical record-keeping also makes any .cash budgeting or fore-casting difficult. Conversely, use of such planning tech-niques may often he2p to avoid temporary cash shortfalls.

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Lack of cash and poor management of existing resourcesmay affect the small enterprise in a number of ways. Suchconstraints compel the owner-manager to spend an inordinate'amount of energy avoiding or replenishing periodic cash de-ficits. They can lead the owner to abuse trade credit, whichin turn may prove a negative reference in a later applicationfor commercial or public sector loans. And they may restrictthe entrepreneur's ability to take quick adliantage. of profitopportunities. For example, without a cash reserve, the C

small business person is unable to exploit seasonal discountsfrom his supplier or put money down on an attractively pricedpiece of equipment. By .encouraging improyed financialmanagement, the consultant can help the entrepreneur betteraddress his or her capital constraints. Chapter Three, SectionC.5., of this manual provides the coAdultant with' specifictools in accounting and finance which he or she may use inassisting the small business person'in this area.

4 2. Marketing

A market for his or her-product or services is justas important to the small entrepreneur as capital. The mar-keting problem can be viewed from two persgectives: lack oftimely and adequate demand, aid poor marketing practices bythe small business person in exploiting available demand.

Small enterprises often encounter difficulties-in' se-curing a steady market for their output. This situation ispartly due to SSEs' competition with large businesses and part-

-ly due to the even fiercer competition among themselves. A de-

.

pendable market is also threatened by periodic swings in thebusiness cycle in capitalistic economies.. Given their weak eauitybase and typical concentration within a narrow range of Prod-ucts or services, small businesses often fare worse thanlarger enterprises. SSEs' markets maybe further disruptedby sudden changes in government jo1icies affecting interna-tional trade, internal price controls, or the money supply.

Geographic isolation of SSEs--especially those insmall towns and rural areas--often presents another impedimentto timely marketing. Poor roads, sporadic transport, and un-reliable communications can impede the marketing of productsaneElow of market information to the small entrepreneur.

Many of these problems are beyond the control of thesmall business person. He or she can, however, try to betteraddress demand constraints through improved marketing prac-tices. Yet often the small-scale entrepreneur has no

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preplanned marketing strategy. His or her products may be ofuneven quality relative to,dustomer desires or of a designundistinguishable from competing products. The entrepreneurmay also display his output poorly and may make limited useof salespeople. MoreoVer, in meeting demand, the entrepre-neur's purchasing practices- are often uneconomical (frequentsmall purchases as opposed to planned buying in larger lots),and inventory information and control may be nonexistent.

In short, the small business person often lacks anoverall marketing strategy.. He or she may be well aware ofthe benefit of buying cheap and selling dear and may also bean expert salesperson. Yet the entrepreneur typically lacksa planned approach to the purchasing-inventory-sales cycleof the business. One cause of this may be due to the absenceof any record-keeping, cash budgeting, and other accountingcontrols. Thus the owner-managercannot promote the most .

profitable or best'-selling product becausehe or she is oftennot sure just which item. is most profitable or best selling.The owner could reach a better decision if he or she couldimprove market research; sales promotion and advertising,take advantage of volume marketing, and learn to weigh thevalue of customer relationships in comparison with marginalreturns on various productn. Moreover, although `small firmsare theoretically more flexible than large firms, SSEs (es-pecially small manufacturers) must pay particular attentionto meeting customers' needs for timely delivery of qualityproducts. They must develop ways of offering follow-up ser.vice or guarantees for defects in workmanship of the itemssold.

This situation may affect the way in which smallbusinesses address their markets. First, small entrepreneursoften fail to consciously decide on a discreet line of busi-ness. A retailer of men's clothing, for example, may stocka variety of other merchandise such as bicycles or appli-ances.He or she may have added the different merchandiseeither because he got a "good buy",or because he felt thata quicker profit opportunity was more readily available inthat line than his own. Likewise, a small-scale industrial-ist may choose to divide operations between production anda small retailing outlet. Despite the higher retail mark-up,-low sales volume may indicate that the entrepreneur's timeand resources would be better spent in improving production.

These examples are not to say that diversification isinappropriate to small business. On the contrary; a retailoutlet well integrated with a small manufacturer may be a

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sound marketing approach. In general, however, sideline ac-tivities do not reflect a conscious marketing strategy, butrather a "scatter-shot" and unfocused approach to marketing.

Small entrepreneurs may also tend to exploit highmarginal returns in a narrow upper-class market rather thanlower marginal returns and higher volume sales in a massmarket. This may be due to 'limited territory and populationor to the low purchasing power of the clientele; In somecases, this marketing approach may reflect a sound strategyin addressis,, a narrow market. In many other instances, how-ever, this attitude may be unduly limiting and may reflecta small entrepreneur's reluctance to expand business opera-tions (and profits) into wider markets.

Nonetheless, this situation is changing, especiallyin rapidly-growing, middle-income countries. Colombia, forexample, offers two contrasting types of markets within thefurniture-making industry. On the one hand, many small °

businesses hand-carve colonial wooden furniture, selling Alow volume of high-priced items to an upper-class market.On the other hand, many other small entrepreneurs mass pro-duce inexpensive, plastic-upholstered, metal-frame furnituiefor a larger market. Thus, changing market, conditions cangradually bring about more dynamic marketing strategies bysmall business people. The guidelines on marketing and sales,and purchasing and inventory (see Chapter Three, Section C.5.)will also better enable the consultant to assist the smallentrepreneur in meeting marketing constratntS.

3. Human Resources

Given the'relative labor intensiveness of smallbusinesses, human resources are crucially important, and theowner-manager usually sets the tone for the workplace. Infact, a small-scale enterprise is largely an extension ofthe entrepreneur's own personality and ego. However, thispersonalization and informality of small businesses also, poseobstacles to the management consultant, 'since he or sheusually recommends increaded organization of the small firmas a requirement to further growth.

The small entrepreneur typically maintains close con-trol over the activities of the business. A typical smallentrepreneur often has no formal education beyond primaryschool. Formerly a worker, the owner may have started thebusiness with a loan from relatives or with severance payfrom his or her last employment. Though hardly a simple

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individual, the owner is often a pragmatist whose personaland business horizons are limited to the needs of the day.Also, as an ex-craftsman, he may find it difficult to re-linquish his daily concern with the production process anddevote himself tc the abstractions of management. In orderto survive, he or she normally has great self-reliance,, ag-gressiveness, and a sense of initiative in dealing withclients, suppliers, and workers, as well as a healthy skep-ticism when dealing with outsiders.

The central role of the owner-manager within the SSEis not necessarily bad, but it does present problems oncethe firm begins to expand. A centralized, informal manage-rial style often includes poor record-keeping, little dele-gation of authority to subordinates, and lack of formal jobdescriptions. The result is usually an owner who is simul-taneously technician, record-keeper, salesman, purchaser,and manager. In assuming all these tasks, he or she is prob-ably neglecting the best possible use of the employees, whomight assume some of these responsibilities. Moreover, along-term implication of such centralized management is thatif the owner dies or becomes ill, there is no trained succes-sor or replacement to run the business. Intsmall firmsowned and managed by families, relatives brought into thebusiness may help resolve the succession problem. However,a family-run business may also promote chaotic decision-making as various family members compete for authority in,the firm.

The dominance of a family or of a single owner-manager in directing the business may also influence theoverall goals of the enterprise. Although increased profitsare commonly sought by most small entrepreneurs, there maybe other competing objectives. For example, a prestigiousfamily business may consider tradition and social positionto be more important than added earnings; or, having reacheda level of self-support, a business owner-operator may de-cide that the extra workload, responsibilities"and unfamil-iar roles associated with expansion and greater profits aresimply not worth it.

While labor is plentiful in most developing countries,skilled workers are usually at a premium. And SSE employeesare often more poorly trained and educated than their coun-terparts in large firms. In addition, employees in SSEsnormally do not receive benefits under social security, min-imum wage, and health insurance laws. Such situations oftenlead to high'employee turnover among SSEs as workers move to

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larger companies which offer such benefits, or start theirown small business.

Small enterprises are often unable to hire qualifiedmanagers given their competition with larger firms for em-ployees and given the demanding work environment of SSEs.Also, the small-scale entrepreneur is typically loath totrust one of his or her own workers, let alone an outsider,with the technical and financial secrets of his business.After all, the employee might quit and start a competing en-terprise in the same line (as might have been the case withthe owner).

Fortunately, the entrepreneur can remedy many humanresource problems by modifying personnel practices. By fol-lowing the guidelines in Chapter Three, Section C.5., partic-ularly those on Personnel, the consultant can assist theentrepreneur in making the best possible use of his or hermanpower.

4. Technical Constraints

One's first acquaintance with-an SSE in the ThirdWorld can be an eye-opening experience. A small tailor shop,for example, may be located. in a cramped section of theowner's home, with five or six workers bent over sewing ma-chines. A small metal-working enterprise may straggle overa half-vacant lot covered by a tin roof. It may have toolsand machinery strewn about, and what passes for a stock roommay be filled to overflowing with jumbled parts and equip-ment. If the firm is a retail enterprise, it may have mer-chandise scattered in no apparent order, with music blaringto attract potential customers off the street.

The problem of physical plant and business layoutmay warKant considerable technical assistance. For example,a cabinet-maker may request help in making the most efficientuse of raw materials and labor in producing wooden furniture,perhaps through the use of time-motion studies of his or her em-ployees' work routines.

While addressing technical weaknesses is importantto the small entrepreneur, most small businesses (especiallysmall manufacturing firms) are in greater need of managementrather than technical assistance for two reasons. First,many small business people were once workers or craftsMenthemselves. While having mastered a manual skill and abilityto work with machinery, they are often more puzzled by the

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abstractions associated with business administration.Second, small entrepreneurs must have some basic technicalgrasp of their business (or a foreman who does) or theywould not survive. Frequently, however, they postpone deal-ing with records, planning,. and improved persondel practices--especially while their firm is still small. Nonetheless,*there are general technical areas in which the managementconsultant can help the client improve his or her performance.(Refer to the section on Production on pages 124- 127-fortips on the kindsof technical advice which a managementconsultant might convey to a client.)

5. The General Business Environment

Small businesses have to exist in social. and econo7/mic environments which usually deal with themloOre harshlythan with larger firms. With less capital, greWter ptoductspecialization, and fewer personnel than large,ccompinies,SSEs may be ill-equipped to handle sudden change* 'in consumerpreferences or downturns in the economy. SMall_firms mayalso find it difficult to deal with local legal.requirementssuch as income taxes, social security for employes, andlegal registration of the business with a local chamber ofcommerce or government agency. Often the time and paper-work associated with these regulations are more onerous thanthe fees or taxes paid. Finally, due to their smallness,SSE-s may find themselves squeezed out by larger firms in ob-taining commercial credit, in attracting "skilled workers andmanagers, and even in acquiring adequate shares of existingpublic services. on the other hand, SSEs can sometimes avoidthose legally mandated costs paid by larger businesses (e.g.social security taxes for workers, income taxes, duties onimported goods, minimum wages); and as a consequence, may evenbe able to offer certain goods and services at a more eco-nomical price than larger firms.

Business support services are often weaker for SSEsthan for larger enterprises, and in many developing countriessuch services may be inadequate or nonexistent for any sizebusiness. Although the consultant cannot really change ,thegeneral availability of such serices, he or she should befamiliar with the adequacy of the local business infrastruc-ture. Such knowleage will het i: the consultant in structuringthe scope of a consultanc. and in planning for follow-upservices to the client u= :..n c=71asion of the consultancy.

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The sophistication of business infrastructures willvary by country. Howeveroin many developing countries theconsultant should be prepared to cope with deficiencies insupport services such as the following:

(a) Diversified capital markets: Credit may belimited to a government hank or the local money-lenders local equity markets or commercialcredit services to margirll borrowers usually donot exist. In addition, existing credit sourcesmay offer a limited range of credit packages,often unsuited to the needs of small businesses.

(b) Certified public accountants (CPAs): CPAs pro-vide a valuable internal control by auditingthe accounts of the entrepreneur's firm. By au-diting other companies, CPAs may also help as-sure honest practices by other enterprises withwhich the small business person deals. In manycountries, however, tax accountants (often with.only bookkeeping training) are far more commonthan CPAs.

(c) Factoring services: In industrialized countries,factoring firms purchase accounts receivable at adiscount and then collect from as many debtors aspossible in ord'.r to make a profit. The scarcityof such services in the Third World (especiallyto SSEs) deprives small businesses of anothercredit source, as well as a check against slow-paying customers.

(d) Civic associations: Developing countries oftenlack strong trade associations or the equivalentof better business bureaus.

(e') Information concerning markets and credit histo-ries of other bnsinesses: In the United States,a small business person can consult a creditreporting service on potential clients and canread a variety of marketing studies concerning-his or her particular product. Such informationis deficient for large companies in developingcountries and is almost nonexistent for SSEs.

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6. Business Practices

A difficult business environment for small enterprisesoften affects how the businesses are run and their relation-ships with the outside-world. The greater risk associatedwith small entrepreneurship often makes for greater informal-ity, greater skepticism, and less planning than in large com-panies. Given the harsher terms of the environment, thesmall entrepreneur may often carry these qualities to extremesin the eyes of an outsider. Yet when one considers the un-certainties of the environment, particularly the lack ofbusiness checks and balances found in more industrializedeconomies, these business practices are more understandable.For SgEs in many developing countries,typical business prac-tices may include the following:

(a) Mistrust: Absence of auditors, factoring agen-cies, and credit reporting services often leadto poor compliance with the terms of sales indeveloping countries. Poor quality control pro-cedures--particularly in small businesses--makethe warning "buyer beware" especially necessary.Consequently, post-dated checks and high dis-counts given for cash purchases are more prevalentthan in industrialized countries.

(b) Legal informality: SSEs in developing nationsoften enjoy a kind of'outlaw status". They maynot pay taxes, and many do not pay workers theminimum wage. These small firms also often donot officially register their businesses, andthey customarily ignore public health and zoningstandards. As a result, their relationship withlocal authorities is at best one of benign ne-glect. An unfortunate consequence of such'"ille-gality is that small entrepreneurs may expendmore effort in escaping the notice of the taxcollectdk than in improving the administrationof their businesses. Thus, if an owner has anaccounting system, he or she often will not keepaccurate records, but rather an official set ofbooks which will look good to the government andproduce a nominal income for his income taxreturn. A micro-entrepreneur may survive verywell without accurate financial statements andother such legal niceties. A growing smallbusiness person, however, in postponing a legaland administrative formalization of the firm,

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may run the risk of official fines and denialof bank credit. He or she may also eventual-ly lose real financial and administrativecontrol" of the enterprise.

(c) Reactive management: Most small entrepreneursare jacks-of-all-trades and consequently oftenappear overworked and disorganized. A varietyof factors--including a lack of skilled help,lower educational levels of the entrepreneur,and little access to technological labor-savingdevices such-as computers- -may make the smallbusiness in the Third World even greater preyto a "busy" management style. Within twentyminutes on a typical day, the small owner-manager may ring up a sale, chat with a sup-plier, help a worker adjust a lathe, and stepout for a beer with the local moneylender.As a result, the owner may often flounderabout in trying to address the dangers (or op-portunities) confronting his or her enterpris,e. -

The'level of small business mistrust and legal in-formality will vary by country and by culture. Where suchconditions prevail, the consultant must try to understandand adapt himself to them. Reactive management styles, onthe other hand, can often be remedied throUgh individualconsultancies. Although some of this informality is unavoid-able (and even enjoyable) to the small business person, muchcan be brought under control through improved managementpractices, especially planning. Small entrepreneurs oftenfail to plan properly due to a variety of reasons: ignoranceabout planning techniques, lack of an appropriate time andplace in which to plan, or a general 'fear and reluctance toconfront the future. Some small entrepreneurs in the ThirdWorld may also resist planning given the highly uncertainbusiness environment in many of the countries. Such a cir-cumstance, however, is all the more reason for trying toanticipate and decide on contingencies for the future. Oftensmall entrepreneurs will intuitively accept the usefulnessof planning, but it is usually difficult for them to changehabits and acquire the necessary discipline in order to plan.(See guidelines to consulting on Planning on page 127.)Nonetheless, small business people (especially those of"target firms" desdribed in the next section) can and willimprove their planning techniques given enough patience andpersistence on the part of the management consultant.

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D. The Target Firm

Thousands, perhaps millions, of SSEs may exist in a givendeveloping country. An extension program cannot possiblyprovide individualized consulting services to all these enter-prises. Consequently, one approach is to target assistanceto those firms with real growth potential. Providingmanagement consulting to such "target firms" is animportant focus of this manual.

What exactly is a "target firm"? In essence, such a firmhas reached a threshold size where 'the need for accounting,marketing, and other management controls is self-evident tothe owner-entrepreneur. He or she must improve the. admini-stration of business resources.in'order.to grow or the enter-prise may stagnate or die. The target firm has reached acrossroad where improved organization (as opposed to technol-ogy, credit, or other resources) is the main barrier tofuture growth. The size and characteristics of target firmswill vary with differing cultures and economies, just as thedefinition of small business differs from country to country.Figure 2 on the following page provides one illustration ofthe evolution of a target firm. Other features of this kindof small-scale enterprise include:

(a) Size: The target firm.maintains between five to 15employees, with total assets ranging from US$25,000-50,000 (1979 dollars).

(b) Property: The entrepreneur owns some property: forexample, plant equipment, a motor scooter, and per-haps his or her own home or place of business (al-though such items may not be acceptable as collateralby a local commercial bank for one reason or another).The entrepreneur has probably surpassed his "basichuman needs" although often his workers have not.

(c) Education: The owner can read, write, and figure,or else he or she has a trusted manager or familymember in the business who can.

(d) Finance: The target firm entrepreneur likely has aEiiiiricount though he might not reconcile it withhis monthly statement. He or she has little or nocommercial bank credit and makes use of moneylendersand other informal credit channels.

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Figure 2

ADMINISTRATIVE EVOLUTION OF A SMALL INbySTRIAL FIRM

OWNER-MNAGER

W O R K E R S

CMNER-WINAGER

MICRO-BUSINESS

"TARGET FIRM"

Secretary/Ds

e=i

(Management Consult-ing Intervention)

DYNAMIC SMALL Flat

Part-time,ser-vices of an ac- ff

countant andperhaps one

salesperson

Senior worker.

EOREMA14_1\

Senior worker

W O R K E R S

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Clearly, the target fUm approach is only one of a va-riety 'of ways to convey management assistance to SSEs. Butthen why focus on the relatively prosperous target firm?Why not concentrate on micro-entrepreneurs who may be in_greater need? The guidelines below may help to answer thesequestions:

(a) Maximize rate of return

Resources--particularly skilled human resources--areat a premium in developing countries. Consequently,management consultants would do well to focus theirassistance, at least initially, for maximum impact'on the local economy.

A consultant's workload does not correlate directlywith firm size, but rather with the number of fireshe or she deals with. Thus, the same consultant maybe able to assist four target firms (with perhaps atotal of 40 employees and US$400,000 in net sales),as opposed to only five micro-enterprises, with per-haps only 15 employees and not more than US$100,000in net sales. In fact, the consultant might even beable to handle more target firms, since their prob-lems are usually more focused and easily addressedthan those of smaller SSEs.

In order to maximize economic impact, a consultingprogram should target those firms which will makebest use of its advice through hiring more employees,producing or trading more output, or expanding phys-ical plant. However, a great many SSEs in develop-ing countries do not fit the target firm description.Most are micro-enterprises which were formed morebecause of a lack of better employment opportunitiesthan because an entrepreneur decided to try to applyhis or her skills in meeting a real economic need.A seller of lottery tickets, for example, is an ex-treme example of the former. The vendor is not ex-ploiting a productive market niche but merely provid-ing a redundant service in the absence of other em-ployment possibilities. On the other hand, thereare large numbers of target firm entrepreneursthroughout the Third World who could dramatically ex-pand production and employment, given management.as-sistance. The expansion of such firms may even pro-vide more productive work for underemployed micro-entrepreneurs.

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(b) Seek entrepreneurs who will listen and act

The target firm entrepreneur has already met mostof his or her needs for food, education, andhousing. This relative security may make him moreopen to the consultant's recommendations and adviceand more capable of translating them into practice.

The micro-entrepreneur, however, often has otherpressing needs on his or her mind besides new ad-ministrative practices. Moreover, many of thesetechniques are inappropriatd to a tiny firm since agood memory may well be more reliable than unfamil-iar written records in a tiny enterprise. Further-more, the micro-business person probably lacks thefinancial resources needed to put the consultant'srecommendations into action.

By analyzing and assisting target firms, the consul-tant will likely help small entrepreneurs tap theformal credit system. Micro-entrepreneurs, on theother hand, may well have to rely exclusively oncostly, uniquely designed credit systems to meettheir special needs.

(c) Make target firms models for other SSEs

SSEs generally have high employee turnover with manyworkers leaving to start their own businesses. Targetfirms may, therefore, prove to be informal traininggrounds and models for future entrepreneurs. Further-more, once management consultants gain experience inassisting target firms, they may prove to be excel-lent supervisors of less skilled and more numerousconsultants serving smaller business people. (Such asystem is described in Malcolm liarper's book, Con-sultancy for Small Businesses: The Concept - Train-ing the Consultants, which is discussed in ChapterTwo and in Appendix III, Exhibit A.) Thusta develop-ing country might best begin, ny SSE developmentprogram with a focus on target firms. The earlymeasurable benefits would help assure the survival ofthe program which might then go on to assist smallerbusinesses.

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'CHAPTER 2

MANAGEMENT ASSISTANCE TO SSEs

A. Management Consulting: General Considerations

1. Checklist of Guidelines for Designers of SSE Consult-ing Programs

Before organizing a management consulting program,designers should assess the rationale for such a program andhow it might best be structured to meet the needi of theirparticular country. Prospective consultants should also_ques-tigh how, consultancies could be organized at the Communitylevel. ihe checklist below provides a useful framework forconsidering such issues:

(a) Before contemplating ah SSE program, are smallenterprises important enough to the economy toWarrant special attention?

(b) If the answer is yes, define the needs of SSEs inyour country. Does lack of management assistanceconstitute a key constraint to small businessdevelopment?

(c) what local institutions (public or private) nowexist which may serve SSEs better than starting aspecific SSE assistance program?. What publicmeasures, such as.tax deductions or su4idizinginterest rates, might encourage these inptitutionso increase their - support services for SEs?Wh t other policy measures might directly\ assistSSE xpansion?

(d) noes a overnment SSE extension program alreadyexist in your country? Can it be improved? Is ---------an additi nal program really necessary?

(e) If the government decides to expand an existingSSE extension program or to launch a new one,what are its objectives? For example, on whatkind of SSE whl it foods its efforts (largeOrsmall; industri 1, commercial, or services; or aSpecific econom sub-sector in f given regionof the country).- Should the program work withnew or establi hed businesses, or both?

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(f) Where will funding come from for'the.prograin (fromcentrayor,local government budgets, ,:rom theprivate sector, or from foreign sources)? Shouldspeci#1 taxes,be earmarked for the program's sup-port? Bette cathe program bemade self-sufficient r al st so (perhaps by charging SSEsand larg .firms f r iteservices), thus reducing,any d ndence on external financing?

(g) where will the extensionists for the program comefrom? Will they need only a primary school edu-cation? Will they be high school or universitygraduates? Should they have had prior experiencein managing small businesses themselves? If theyrequire further training, what kind will it be(classroom, field trips; on-the-job training)?

r(h) Should the consulting program start all at once,

with widespread coverage, or should some selectedadvisors and their consulting techniques be testedfor a year or so in.a pilot area?

(i) Is the management consultant to be a Peace CorpsVolunteer or an Economic Development Intern (inthe model discussed later on), or will someoneelse carry out a similar role? The followingquestions provide some guidelines for designerswho decide on this type of approach:

(1) What is the interest of the local sponsoringinstitution in receiving the consultant? Willthe entity provide him or her with officespace and other slUpport? In the case of anEDIP intern, will it eventually be able to payfully for services rendered?

(2) In addition to supervision, does the localinstitution provide the consultant with a coUterpart who will ideally replace the consul-tant after_hki or her departure? If not, woulda local university or trade school be interest--ed in recommending recent graduates for fur-ther training as extensionists by the consul-tant?

(3) Is the tiwing of the consultant's arrival inthe community propitious? Should situationslike a local political crisis or economicdepression postpone the person's arrival, orotherwise modify the program approach?

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(4) Apart from the sponsoring institution, whichlocal organizations could the consultant helpmobilize to assist SSEs in looking out fortheir own interests? Are trade associations,chambers of commerce, or other business or-ganizations good possibilities?

0) Which government entities are already repre-sented in the community and working directlyor indirectly with SSEs? How, might the con-sultant constructively cooperate, rather thancompete, with such organizations in assistingSSEs?

(6) Is the consultant able to take a balanced ap-proach to his or her task? The consultantmay be tempted to one of two extremes: totake all program tasks upon him or herself,leaving little room for community participa-tion, or to do nothing unless he or she re-ceives explicit guidance from the local in-stitution. Ideally, the consultant should.stimulate local individuals and organizationsto more actively pursue their own interests,supplying expert advice when appropriate.Consequently, the personal role and ego in-volvement of the consultant in any programshould be downplayed, and the role of thelocal institution should be highlighted.

(7) How will the consultant's program be evalu-ated? It is best to establish objective quan7titative criteria which will set a goal forsuccess and a lower limit for failure. Con-sultancies do fail, often either because theynever should have been attempted with a givenclient or because the'consultant was inexpert.Therefore, evaluations are necessary to de-tect such failures (or successes) and thushelp prevent for assure) future replication.

rY

2. Focus and Purpose of Management Consultancy

A management consultant ultimately seeks to boost thereturn on investment to the small-scale enterprise by workingclosely with the owner-manager. This return is,normally ex-pressed in profits although it may also take the form ofsales growth or increased liquidity. In achieving this goal,the management consultant must rely on knowledge of account-ing, finance, marketing, personnel administration, planning,and tax and legal questions, plus a willingness to learn

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about the basics of the technical aspects of theblient'sbusiness.'

Management consulting, with its reliance on skills inbusiness administration and human relations, is different fromtechnical assistance to a small firm. Technical advice relieson a consultant's knowledge of a technical skill or trade suchas engineering, construction, or metalworking; in small-scaleindustries such assistance would focus primarily on the pro-duction side of the business. Because of the unique and com-plementary skills each brings to the job, a management con-sultant and a technical advisor would make an ideal team inproviding comprehensive assistance to a small entrepreneur.

In assisting the small firm, the consultant shouldfollow a logical, predictable pattern which both eases thework and makes methods and recommendations understandable tothe client. A typical consulting work plan should probablyinclude the following steps:

(a) Diagnosis of the firm.

(b) Development of the objectives and requirementsof the consultancy.

(c) Review of present business operations.

(d) Development:of new methods to meet requirements.

(e) Evaluation of alternatives to establish the bestone for the client.

(f) Final written recommendations.

Ogl' Implementation of the recommendations.

(h) Evaluation and follow-up.

The last two stepi are normally beyond the consul-tant's complete control. This fact points to a basic frus-tration of contulting-ork--namely, the client is free toaccept or reject the consultant's advice. Or, the client mayaccept the consultant's recommendations but then lack thenecessary resources to. put them into practice. Nonetheless,if the consultant accurately diagnoses the client's interestsand resources before the start of the consultancy, at leastthe latter pitfall can often be avoided.

In developing a program, the consultant should decidewhether to concentrate assistance on new or established busi-nesses, or both. Generally, it is easier to work with ongoing

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businesses than with new ones. New firms lack a history uponwhich future plans can be based, and the owner and his or.herproduct have yet to be tested in the marketplace. Moreover,construction delays, financing shortfalls, and other logis-tical problems can complicate a new firm's start -up. There-fore, it is usually preferable to begin consulting with anestablished business which has a verifiable track record.The consultant may further decide to specialize in a givensmall business sector, such as retail trade or some subsectorof manufacturing, where his or her talents may be most ap-plicable.

Although it may be most effective to limit consult-ing efforts to target firms, this programming goal, like anyother, may be modified to meet field realities. Once in thefield, the sponsoring institution will probably expect theconsultant to assist a variety of local businesses, many of-which may not conform to programming criteria Yet consult-ing with a mix of large, very small, and target firm enter-prises is not necessarily something to )1p Avoided. All sizefirms play a role in local or regional development. Main- -

taining he health of selected larger firms (so that theycontin to purchase outputs from and provide inputs to SSEs)is of n as important to the deVelopment of SSEs as directasst tance to them. Larger firms can often serve as rolemo is for SSEs and the consultant will likely learn of ac-c nting and management systems which SSE target clients mayuse in a modified form as they grow. And successful workwith a few large companies can often serve to increase aconsultant's credibility among small-scale entrepreneurs.Selected micro-entrepreneurs, on the other hand, through asincere interest in learning how to make the best possibleuse of their more limited resources, may also make excellent -

use of consulting assistance and balance out the consultant's"portfolio".

3. Interdependence Between Consulting and Credit

The objectivity and confidentiality which a consul-tant develops with a client may be fruitless if resources arelacking to carry out the recommendations. Sinbe target firmsdo have some equity cushion, there are generally resourcesavailable for realizing the consultancy's goals. Yet if theconsultant recommends changes requiring a major influx ofcapital--such as the purchase of a new machine, or a.dou-.bling of sales necessitatkhg a major increase in cash tied upin ipventory or accounts receivable -- substantial outsidefiglincing may be required. External financial assistancemay therefore prove indispensable in helping the SSE imple-;ment the advisor's suggestions. Preferably, the management

43

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consulting should precede the owner's request for credit.In fact, the consultant will typically perform cash projec-tions to assist the owner in his or her request for financing.

Since access to capital is usually a critical ingre-dient to realizing a consultant's recommendations, creditand management consulting assistance could be provided bythe same entity. For example, a development bank with asmall business loan department might provide both types ofassistance to small entrepreneurs. From a practical andprogramming standpoint, however, it is often preferable forthe two services to be supplied by different institutionswith a close referral relationship.

4. The Role of Management Consulting Assistance in aSmall-Seale Enterprise Development Program

The focus of this manual is on how to carry out amanagement consulting program to train small-scale entre-preneurs in developing countries through individualized man-agement consulting and a complementary group instruction ap-proach. The techniques outlined in this book possess fourmajor advantages over providing other inputs, and are adapt-able enough to be used in coordination with other approacheswhen necessary:

(a) Although developing countries do require addition-al resources, weak management of existing re-sources,is often a more serious problem. Thus,any program designed to improve general manage-ment skills would help to effectively addressthis constraint to development.

(b) Despite small entrepreneurs' naming inadequatecredit as their principal problem, poor manage-ment is probably the number one cause of businessfailure. Sound management advice provided in atimely fashion will likely not only diminish thehigh bankruptcy rate among struggling small busi-nesses, but will also help healthy SSEs expandmore rapidly, thus providing more of the generalsocial and economic benefits discussed in ChapterOne.

4),

(c) Management consulting offers at least a dual im-pact in assisting SSEs. While the consultanttrains the small business pclson (who can inturn share this newly acquired knowledge with his orher peers), the consultant, at the same time,is gaining valuable experience wh: :ch can be

44

f!- 29 -

applied in future consultancies. Furthermore, theconsultant's advice may also serve to .train otherprofessionals-..lawyers, accountants, and clerks- -who render valuable support services to SSEs.Such individuals often.gain valuable experiencein assisting SSEs by working together with theconsultant during the consultancy, and by provid-ing SSEs with more sophisticated services oncethe consultancy has ended.

(d) Individual management consulting services can beprovided on a cost-effective basis. Not only'foes this manual's Economic Development InternProgram (focusing on the target firm) fulfillthis criterion, but so do a number of other pro-.grams described briefly in this chapter, and inmore depth in Appendix iii, Exhibit A.

Cr.

5. Cross-Cultural .Considerations

Just as the consultant must be wise in business andinterpersonal skills, so he or she must be aware of culturalsurroundings_ and how these affect the management consultingtask. The SSE advisor must appreciate his or her culturalenvironment at two levels: first, the 'general'customs ofthe region or country, and seconds the'mix of politics, taboosand traditions peculiar to his or her own community.

Cultural values which reward (or punish) competition,acquisitiveness, or teamwork will directly influence howSSEs conduct their business in a given place. -General socialtraditions governing the role of the family, the status ofmen and women, and religious practices will also affect howsmall entrepreneurs go about their affairs. The managementconsultant should be keenly aware of such cultural parameters,and strive to work within them wherever possible.

Certain cultural traditions may need to be modified inorder to remove key constraints to SSE development. For example,a community's traditional acceptance of fatalism and prefer-ence for a stable social order may hinder the development ofsuch business concepts as planning, saving, and even profit..Through patient persuasion, the consultant might at leasttemper a community's potential opposition to such ideas.

Many customs of a given country or region may favorSSEs and the management consultant's efforts to assist them.For example, many communities place a high value on poolingtheir labor to build small infrastructural projects of com-mon interest. This same spirit might translate into support

for cooperative ventures among small business people in thearea.

Cultural differences will also subtly condition howthe consultant teaches and advises small entrepreneurs. Asan example; the case study in Appendix I, C.1,, relies in parton humdr to convey its - message of a needed change in Don M-guel's personal management style. 7et'while the image of En-rique's flirting with his 'female co-workers is perceived to behumorous by Colombians, it might be considered to be in poortaste, or simply not funny, in some countries of Asia or Africa.

Thus, each consultant's cultural situation will be dif-ferent, and it will be up to him or her to decipher itsmeaning. Such a learning process involves understanding newvalues, respecting taboos, an perhaps learning a differentlanguage. With time, the consu t must also acquire bodylanguage and other nuances in orde improve communicationskills. Achieving such cultural assimilation is a long,frustrating process. It may.take even longer for the manage-ment consultant, since his or her unique training and exper-tise may inadvertently threaten local tradition and powerstructures.

When first entering a different culture, the consul-tant might best play a relatively passive role -- listening,observing, and asking questions of those around him or her.The advisor might also gain added insight by reading aboutother persons' cross-cultural experiences (see Selected Eth-nography #25, 35, 36). In many societies, an outsider'sexternal appearance will bear especially close scrutiny.Consequently, early close attention to personal grooming andneatness may often be appropriate.

As the consultant begins teaching classes and advis-ing individual clients, he or she will get a better feel forthe local society and his place in it. Social relationshipsoutside the workplace will also help the consultant feelmore comfortable and secure in the community.

In summary, the consultant should strive to adaptthis manual's tools and techniques to the cultural realitiesof his or her work site. Likewise, program designers shouldtake into account cultural factors as they plan SSE assist-ance programs.

Cultural considerations apart, the consultant shouldalso be aware of the great difference in perspective whichoften separates him or her from the client. Although the

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general social and economic advantages of management consultancy are evident to the consultant, they are often less so tothe entrepreneur. As the table below indicates, the typicalsmall business person reacts to goals which are more prac-tical and immediate than those postulated by general SSE.development programs. Since consultants are often part ofsuch programs, they should also appreciate this crucialdifference in perspective so that their advice will bebetter accepted by small business people.

Table II

Differences in Perspective Between the Government andthe Small Entrepreneur

The Government ...

1) Wishes to promote SSEsin order to increaseemployment, especiallyof the unskilled poor.

2) Offers special creditsto SSEs to expand pro-duction and employment.

3) Perceives SSE develop-ment as an importantelement in community andregional development

The Small Entrepreneur ...

1) Prefers to invest any spareresources in added machineryrather than more labortas theformer constitutes a goodinvestment in a capital-scarceand inflationary developingeconomy. If labor is needed,the entrepreneur looks firstfor skilled workers who arescarce, not the unskilled whoare abundant.

2) Is often unfamiliar with the. required paperwork and pro -cedures,as well as the poten-tial benefits; may be suspi-cious of the government'smotives.

3) Is often more preoccupied.with day-to-day survivalthan community development.

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B. Program Approaches to'SSE Management Assistance

1. ArBrief Overview

SOeral national governments, private voluntary or-ganizatiOhd\t and international agencies have sponsoreA pro-grams 'to asi4st small-scale enterprises.1, In the majorityof these programs, management consulting assistance playedan important part.

The U.S. Agency for International Development recent-ly contracted a study by ACCION International/AITEC, en-titled, PISCES: Pro ram for' Investment in the Small Enter-prise Sector Phase I {Se ected Bib iograp I, #9 and .

This study illustrates the wide variety WI: work being donewith SSEs around the world--not only in management consulting,but in credit, infrastructure, and other areas of assistance..The multi-volume PISCES study (only the world-wide synopsisand the Latin American volume are detailed in the SelectedBibliography) provides a.range of case studies of SSE pro-motion programs in Africa (Kenya, Tanzania, Upper Volta,Swaziland, the Gambia, and Cameroon), Asia (India and thePhilippines), and Latin America (El Salvador, Colombia, Ecua-dor and Honduras). The reader might refer to these studiesto see how management assistance played a role in helpingSSEs in the countries he or she is interested in.

A number of excellent studies besides PISCES haveanalyzed SSE management assistance programs throughout theworld. Four of these programs are discussed here. Theyprovide SSE programmers with a sample of the variety ofmodels available for small business management development. ,

These descriptions also provide the consultant in the fieldwith a glimpse at extension methodologies used in othercountries which may be relevant to his or her own situation. Asummary of the programs is presented here, followed by amore detailed description of each in Appendix III, ExhibitA.

(1) Malcolm Harper's methodology for assisting mostlyrural, retail micro-enterprises in developingcountries has been tested in various countries,especially in Kenya. It relies on large numbersof "schoolboy consultants" to provide numerous

1For names and mailing addresses of some of these organ-izations, see Appendix III, Exhibit B, "Directories ofSelected SSE Development Organizations and InformationSources."

- 34

SSEs with basic management assistance. Thisprogram model is best explained in Harper's ex-cellent book, Consultancy for Small Businesset:The Concept - Training the Consultants (SelectedBibliography #15). In addition to its SSE as-sistance methodology, the book contains over 150pages of problems, case studies, and forms usefulin teaching management consultants (or small en-trepreneurs) and in carrying out a consultancy.

(2) The SSE Assistance Program of the Government ofLiberia (GOY) and the Partnership for Productiv-ity (P11') in the,mining town o. Yekepa, Liberia.This is a fascinating case history of an inte-grated development program (SSE management con-sulting, credit, agricultural development, andsocial services) which promoted the creation ofnew small-;scale enterprises in this community.A multinational mining company'as to leave Yeke-pa and thus provided the prograM with its specialurgency. The company also assisted the programwith funding and equipment (Selected Bibliography#10).

(3) The Small Enterprise Development Program of Fun-dacibn Carvajal and ACCION International/AITEqto assist micro-entrepreneurs in Cali, Colombra.Based on a methodology originally developed byAZTEC in Brazil, this program links a nonprofitmanagement consulting service with private bankcredit. It provides a tightly programmed ser-vice of consulting, teaching, and loan processingto very small firms in one 'of Colombia's largestcities (Selected Bibliography #13). Thisprogram also poses an interesting contrast to theauthor's experience in assisting SSEs in thesmaller city of Tulufi, Colombia, which providedthe basis for the following theoretical model.

(4) The Economic Development Intern Program, Thisproposed program model would train high school or,university graduates to assist target firm SSEsas defined in Chapter,One. Consultants wouldwork with local sponsoring institutions such asprovincial councils or chambers of commerce. Theywould also forge links with local bankers, ac-countants, and lawyers in order to provide com-prehensive business support to SSEs, especiallysmall - -scale 'industry.

49

- 35 -

.64

Although these four programs by no means exhaust*pos-sible approaches to SSE management extension in developingcountries, they certainly present an interesting range of al-ternatives--any one of which may prove appropriate to theneeds of a given developing nation.

2. The Economic Development Intern Program

a. Purpose and. General Approach. The Economicvelopment Intern Program (EDIP) contains some of the same ele-ments as the management consulting models discussed previous-ly. It differs from them, however, in the following respects:

(a) EDIP is a proposed program and has yet to beput into practice.2

(b) It would focus its assistance on target firmSSEs.

(c) Although the consultant would initially as-sist SSEs, he or she would eventually starttraining local people to provide this ser-vice. The consultant would also organizegroups such as trade associations which couldthen lobby the government for consulting andother types of business assistance:

(d) Consultant interns would be hired and trainedby an organization in the capital city,but they would work directly with community-based institutions.

(d) The program would probably obtain best re-'sults in a middle-income developing countrywhere there are relatively good public ser-vices, large numbers of SSEs, well-developed(though often overlapping) institutions, po-litical and economic development centralizedaround the capital or a few large cities,and a large pool of unemployed or underem-ployed university or advanced technicalschool graduates.

2However, the author's consulting experience in Tulua.Colombia (discussed in Chapter Three), effectivelypilot-tested the operation of such a program at thefield level.

50

- 36

Under the program as envisaged, a public sectoride-velopment bank, SSE assistance agency, or vocational trdin-ing institution would train the interns and then assign themto local institutions based on request. Such local institu-,tions would be chambers of commerce, trade associations,other forms of business organizations, municipal governments,or local universities. An intern's services would be com-pletely paid for the first year by the EDIP program, withonly office space, materials, and transport provided locally.However, starting the second year, the local institutionshould pay all or a major share of the intern's salary.

The intern would be required to live in the localcommunity for a contract period of two years,'with a maximumone-year extension. Depending bn the host country, the pro-gram may wish to prohibit the intern from engaging in per-sonal business activities during the consultancy, and may re-quire that the intern post a bond to ensure that he or shecomply with the rules and contract period of the consultancy.Existence of such a bond would also help assure local insti-tutions and businesses of the consultant's integrity.

The program would focus and expanding target firm SSEs.However, in addition to management consultancy to small =Si-.nesses, EDIP has other objectives, such as to:

- - Train local consultants.

- - Strengthen local institutions such as cooperatives,trade associations, and chambers of commerce, sothat they may be able to provide for obtain fromelsewhere) consulting assistance, credit, and otherservices to constituent small businesses.

- - Promote local development through such communityactivities as stimulation of external investmentand organization of industrial or artisanal fairs.

The last two areas of action should comprise thebulk of the intern's work in his or her second or third year ofservice. Thus, although initially a "doer", the intern shouldevolve into a catalyst for local individuals and institutionsto carry out SSE promotion activities.

b. Interns in the Field. Interns would be drawnfrom recent university graduates in economics or businessadministration or from high school graduates with some ad-ditional commercial school or junior college-type trainingin a field such as accounting. It is necessary for interns

51

- 37 -

to possess some analytical skills and a capacity for abstractthinking prior to receiving training under the program. Itis important that the young consultants see their jobs as areal-life, full-time occupation and not merely as a divert-ing escape from academic routine.

Consultant interns should.be self-starters and shduldrequire little supervision since local sponsoring institu-tions may often be unable to guide their work technically.Although EDIP will provide at least six weeks of specializedtraining, prospective interns should come to the programwith basic skills in human relationsL'accounting, and gener-al business administration. Consultants should also have acertain amount of dedication and patience for working withsmall business people; often in remote, provincial areas.

Interns begin their work in a community by assist-ing SSEs using the seminar/consulting methodology elaboratedin the following chapter. In this first stage, the interngains experience with local small businesses' problems anddemonstrates that he or she has the capacity to solve them.The consultant then moves to strengthen local SSE institu-tions and to promote community-wide activities, such astrade fairs, which help local business. Working closelywith the local sponsoring organization, the intern also at-tempts to strengthen and make the best use of existing localprofessionals and institutions (banks, universities, account-ing firms) in meeting the SSEs' needs. A target workloadmight be six firms assisted in the first six months, 12 newfirms in each of the next six-mon*: periods, and six newfirms in the intern's last six months. By initially workingin relatively larger communities such as market towns andprovincial capitals, interns should find an ample pool ofSSEs from which to build such a caseload. By the end of theintern's period of service, a local capacity should be de-veloped to meet the needs of SSEs: However, a second internmay be assigned to a community if this organizational efforttakes longer than expected.

c. Training and Supporting the Interns. Internsare field promoters whether the field is the premises of asmall metalworking shop or the meeting hall of a local tradeassociation. He or she should not be a desk-bound bureaucrat,but an outside catalyst available to energize and organizelocal institutions. *Although interns should be idealisticand highly motivated for development work, they will be at-tracted to the program only if it offers th-m skills usefulin a highly competitive, urbanizing, developing society.The special training offered by the program should parti-cularly interest prospective intern candidates. An inten-sive, six-week training program might cover the followingtopics:

52

1:

- 38 -

TABLE III

Proposed Training Program for EconomicDevelopment Interns

Topic

1. Structure and goals of theintern program

2. General national developmentgoals

3.Existing SSE assistanceprograms

4. Credit for small-scale en-terprise

a. Private commercial bankview

b. Development bank per-spective

5. Definition of the SSE, theentrepreneur, and theirrole in the country's de-velopment strategy

6. Characteristrs of SSEs inthe country: environmentand typical problems

7. Developing a management con-sulting programs focus andpurpose, the client-consul-tant relationship, inter-dependence with financialassistance, evaluation.

8. Alternative approaches toSSE management assistance(lessons learned)

a. The Malcolm Harper Model

b. The Government of Liberiaand Partnership for Pro-ductivity Model (Yekepa)

InstriCtor

Program Directok

Representative from the Plan-ning Ministry (or equivalent)

Representatives from variousSSE proMotion agencies

Commercial banker

Development banker.

The remainder of the programwill be taught by EDIP staff,with active participatign:oftprivate business people,.ac-countants, consultants; aca-demics, and other public sec-tor speakers asapproprtate

53

;

- 39 -

Topic,

C. Fundaciem CarvajalAITEC,Program (Cali, Co-lombia)

d. Other methodologies(perhaps,an existingprogram sponsored bythe country).

9. Sources of local support theintern might find in his orher work site (e.g. accoun-tants, trade associations,and universities)

10. Management assistance totarget firms

a. Seminar instructilli forSSE managers and employ,ees (purpose of the semi-nar, recruitment, loca-tion, teaching techniques,and key role of sponsoringlocal institutions)

b. Consulting assistance totarget firms (selectioncriteria, building theconsulting relationship,and planning, conducting,and evalu4ing the con-,eultancy): .

c. Guides to consulting onspecific SSE managementproblems (accounting,finance, marketing, per-sonnel, technical .and en-gineering, tax and legal,'and planning).

11. Institution - building andpromotion of community -wideactivities

a, The key role of the-in-,tern asa catalyst

Instructor

(EDIP staff, with active par-ticipation of private busi-ness people, accountants,consultants, academics, andother public sector speakersas appropriate)

11 It

54

1

- 40-

/ Topic

b. 1.16w to go about strength-ening local institutionsand organizing communityevents such as trade fairsand external investmentpromotion campaigns

12. Case studies based on realSSE situations

13. Field trip's to SSEs (linkedto case studies)

14. Two week "practicum" inwhich the intern ideally per-forms a diagnosis for an SSEclient of an existing SSE ex-tension service

15. Group discussions of prac-ticum experiences

16. Final examination

17. Visit to prospective worksite

18. Orientation to SSE infor-mation sources and referencematerials. Distribute con-sulting references' to allinterns graduating from thecourse (see Appendix III, Ex-hibit C3.

A

Instructor

(EDIP staff, with active par-ticipation of private busi-ness people, accountants,consultants, academics, andother public sector speakersas appropriate)

11

SI Of

If It

If H

Of II

II Of

If Of

The training course is designed to stress human re-lations and analytical skills, introducing practical fieldexercises toward the end. It will also build upon the interncandidates' prior work experience or formal academic train-ing in business administration. Interns should be paid astipend during the training and must pass a final examinationconsisting of.a written test, a verbal examination, and a one-hour interview with a local SSE accompanied by an instructor.

55

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The purpose of the examination is co both encourage candidateinterns to study during the course, and to assure an adequatelevel of analytical skill and personal commitment to SSEpromotion prior to assignment to the field.

Once interns begin their work in a local community,they wilt receive a modest monthly stipend from EDIP (includ-ing health and other benefits). and logistical and office sup-port from the local vonsorin9 entity. Eventually, the localinstituttOn shoul-t provide full support for the intern. Thispractice will help thd local institution establish a fundings-ategory in its bud(p.t so that it can readily hire at leasttint local consultant following the intern's departure. Otherpeople trained bythd intern outside the small firm could..ontinuo or start up support serviis to SSEs such as accoun-tancy, logal aid, or provision of bookkeeping forms and otheroffiN-e supplies. On completing their period:of service, theinterns will also receive a Lump sum severance pay and out-placement counselino, perhaps to help them set up their ownOusineses.

Although EDIP field supervisors will visit the internsapproximately once every three months, day-to-day coordina-tion of a local,SE promotion program will be the responsibil-ity of the intern and the local sponsoring institution. Anexplanation of EDIP headquarters and field support for theintern, as well as the program's overall organization andfunding is discussed below.

d. Program Organization and Funding. As Figure 3on page 42 illustrates, the EDIP program would have limitedcapital-city-based staff, relying on field support for theinterns frOm local institutions. Given the select qualifi-cations of interns and the need for careful programming andlogistical support, EDIP would train no more than 20 internsper class, supporting a maximum of 40 interns in the fieldat any one time.

Local sponsoring institutions would be chosen basedoh their experience and contacts with the local business com-munity. These groups would not supervise the intern'stechnical work with SSEs, but assist the intern with theoverall strategy of the program, help him or her select con-sulting clients, and offer support when crises occur in in-dividual consultancies. In following these roles, theseinstitutions would not need any special training from EDIP;however, a brief explanatory brochure on the program plus acopy of the intern's training manual might assist them intheir work.

56

Secretary

- 42 -

Figure 3

Organization Chart for the Economic Development

Intern Program fas of end Year 2)

Supervising Agency:

e.g. Small Business Assistance

Agency, Planning Ministry,

Development Bank

Treasurer

IClerk

Programmer/

Field Supervisor

Secretary

Programmer/

Field Supervisor

Daily Supervision

by Local Counter-

part Institutions

20 Intern Consultants

Secretary

20 Intern Consultants

4

- 4 3 -

The experience, ability, and motivation of thepro-gram's management, and especially of the program director,is crucial to the program's success. The director shouldhave at least ten years of business experience, ideally withprivate enterprise or public sector development banking. Heor she should also possess a sound grasp of the problems ofsmall-scale enterprises and of regional development.' Thefield supervisors (there may be two or more, depending on agiven country's geography and program goals) should have atleast five years of experience in business administration andextension work --they may even be drawn from work with exist-ing SSE promotion agencies. In such a case, the contacts theywould have would enable them to help the interns gain thecooperation of such entities in boosting local SSE supportservices.

EDIP's annual headquarters expenses might be approxi-mately US$50,000 to 60,000, or roughly equal to the Cali DESAPprogram's administrative support budget. In addition toheadquarters costs, program expenses would include payment ofstipends, fringe benefits, and severance pay to interns. Il-lustrative costs might add up as follows for a typical pro-gram (competitive wage rates fdr interns will vary from coun-try to country).

Stipend: US$4,000 per intern per year

Health, social secur-ity, and other bene-fits:

Severance pay:

Total support costs infielding one class of20 interns (40 person-years)

US$2,000 per intern per year

US$4,000 per intern on completionof service

US$320,000

The first year of the program would train only 20 in-terns, with an additional 20 trained each year thereafter.Consequently, from the second year on, any given year mightrequire an intern support budget in the area of US$200,000(stipend an inge benefits for interns in their first year--local entiti should pay for the second year-- and severancepay for 20 graduating interns from the previous class). Con-sequently, the entire central program funding needs for sucha program (adding funds for intern travel and training) mightbe around US$300,000. Initial funding for such a project,therefore, might be ideally suited for small pilot projects

by international organizations such as A.I.D., the World Bank,or private foundations. Local, counterpart funding sourcesmight be business registration fees and income taxes (reve-nues which should grow as the program takes effect) and feeswhich the program charges SSEs for consulting services andfor entrance to EDIP-sponsored trade fairs and other busi-ness promotions.

A summary illustration of how the program would getunder way is outlined in the following table:

Table IV. Ge11neral Implementation Schedule for theEconomic Development Intern Program

1. Name Program Director and carry out general programplanning. (Organize syllabus and instructors forfirst training seminar, identify tentative local in-stitutions which would receive interns, and developprogram brochure to familiarize other public insti-tutions and local sponsoring organizations with EDIPgoals and services.)

2. Recruit professional and secretarial staff, rent of-fice space and equipment, and carry out other house-keeping tasks.

3. Recruit interns (especially at local universities andcommercial schools)'.

4. Program intern positions with prospective local sponsor-ing entities.

5. Carry out six-week training course at EDIP headquartersfor initial group of 20 interns. Training may need toinclude special language instruction, depending on thecountry.

6. Year One: Have Group One interns begin consulting workwith SSEs in coordination with local sponsoring insti-tutions.

7. Year One: Carry out a two-week in-service training ofthe. Group One interns.

8. Year One: Recruit for Group Two class of interns.

9. Year Two: Encourage Group One consultants to move toinstitution-building phase in site communities,

59

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with sponsoring entity assuming all salaryand support costs for the intern.

10. Year Two: Train Group Two interns and place them atwork sites.

11. Year Two: Hold a four-day job conference for Group One(in which Group Two trainees will also par-ticipate as part of their training).

12. Provide outplacement services for Group One interns andhold a graduation for them. (Some interns may extendfor a third year.) Select and train Group Three.

e. Conclusion. 'The EDIP program is but one ofseveral SSE assistance methodologies which might be appliedin any given developing country. It also poses some chal-lengea in that it may compete with existing SSE agencies; itmay "go against the grain" of purely centralized governmentprograms in many developing countries; and it may prove dif-ficult to attract sufficiently qualified individuals whowould be willing to devote two or three years away from fam-ily and friends in a strange city or provincial. town.

However, the program also offers a number of com-pelling advantages:

The professional status of consultants And thequality of training should attract qualifiedintern candidates.

The program requires small amounts of annual cen-tral funding compared to the benefits to thecentral government'of placing interns in localareas, and compared with the costs of alternativeprograms. It also entails a minimal permanentbureaucracy.

In five years, the program could produce a cadre ofapproximately 100 trained intern managers, ideallysuited for important positions in local businessor the public sector. It would also train a far_greater number of small entrepreneurs, local con -sultants, and accountants in communities assistedby individual interns.

Interns are expected to make efficient use ofexisting institutions which may assist SSEs.

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The impact of the program over time should be sig-nificant and quantifiable (e.g. increased earningsfor SSEs). This makes excellent economic and poli-tical sense.

Finally, the program will strengthen local insti-tutions and enhance their ability to deliver ser-vices to SSEs.

This section has presented a general outline of theEconomic Development Intern Program. The reader should mod-ify this outline in applying it to the realities of his orher own development environment. For example, the size ofan intern class, the population of the communities in whichinterns work, and the content of their assistance and rela-tionship with local institutions will vary from country tocountry. Furthermore, the amount of the program's budgetwill also differ based on a given area's prevailing wagerates, and on the program's ability to obtain office spaceand other support from existing government agencies. By de-tailing the content of a management assistance program totarget firms, the following chapter will better enable thereader to judge how such an SSE development program might beapplied in his or her own country.

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CHAPTER 3

MANAGEMENT ASSISTANCE TO TARGET FIRMS

A. The Tulua Experience: A Case Study

1. Colombia and its Small Business Assistance Programs

Colombia is a country of some 25 million people, cov-ering an area of approximately 440,000 square miles. It hascoastlines on both the Pacific and the Caribbean, and threespur ranges of the Andes Mountains divide it into variousclimatic and cultural regions. The country's population isdivided roughly equally between urban and rural areas, andsome 70 percent of the adult population is literate. Itsrugged topography has promoted the development of key urbanareas other than the capital city of Bogota.

In the past 50 years, the nation has reached a middle-income developing country status. Industrialization and agri-cultural diversification have greatly reduced the country'ssole dependence on coffee production. Manufacturing accountsfor over 20 percent of GDP. important industries includemetalworking, textiles, and the processing of agriculturalproducts.

Small business plays an important role in the Colom-bian economy, and the government has responded with an arrayof programs to meet the sector's needs. Of the more than12,000 firms surveyed in the manufacturing census of 1976,approximately 91 percent employed between five to 99 peopleeach, with the remaining nine percent employing 100 or more.Artisan work (especially handicrafts for: tourists and forexport) is also an important. element of the SSE sector. Anumber of factors have favored the growth of small businessesin Colombia: a governmental policy since the 1930s of import-substitution-industrialization, the regionalization of mar-kets, and the entrepreneurial tradition of Colombians.

The country has a number of public and privatein-stitutions which provide services to.iinall and medium-sizeenterprises. The most important entities are SENA (the Na-tional Apprenticeship Service) and the "Grupo Popular" bank-ing group. SENA has two programs which assist SSEs: ittrains workers in various skills in centers located through-out the country, and it offers management and technical con-sulting services to SSEs throughout Colombia by means ofconsultants based in major cities. SENA is\one of the oldestand largest public institutions of vocational training in

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Latin America. It is also relatively self-suffic::,-nt, witha large share of its expenses financed by a two pdrcent pay-roll tax collected from all businesses.

The "Grupo Popular" consists of the "CorporaciOn Fi-nanciera Popular"'(CFP) and the "Banco Popular". CFP is.aquasi-governmental development finance company organized tooffer credit and management assistance to small and medium-size enterprises. These services are provided through re-gional offices located in the country's major cities. CFPwas first organized and financed by the United States Agencyfor International Development in the .late 1960s, and it hassubsequently received loans from the World Bank.

The "Banco Popular", the other member of the group,is a commercial bank designed to reach poor segments of thepopulation not served by conventional commercial banks. In .

1977 -1978, the Bank attempted a program to develop new small-,scale industries in intermediate-size cities throughout Co-lombia. This program was eventually dismantled due to itsunprofitability and the problems of inexperienced collegegraduates working with largely untested entrepreneurs and en-terprises.

A number of other organizations offer assistance tosmall and medium-size businesses in Colombia:

The Institute for Technological Investigations(ITT), a government scientific research organi-zation which conducts laboratory tests, technicalanalyses, and feasibility studies of various largeand small industry technologies.

The Coffee Growers Federation, which promotes thediversification of agro-industry away from coffee.

The Colombian Institute of Administration(INCOLDA), which administers private managementdevelopment schools supported by donations fromlocal corporations. Organized on a regionalbasis, it provides clerical and managerial train-ing for employees of local companies; classes areusually held at night or on weekends.

The Foundation for the Promotion of Scientificand Technological Investigation (FICITEC), whichis a quasi-public management consulting firm forsmall and medium-size industry based in Bogota.

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A variety of trade associations, such as the Co-lombian Association for Small Industry GAWK),

sand associations of firms (regardless of size)in various sectors, such as retailing and metal-working.

Regional development foundations, such as theFoundation for Industrial Development (FDI) inCali, which perform regional economic studies,promote outside investment, and invest seed ca-pital in large industrial ventures in their re-spective regions.

Clearly, Colombia possesses an extensive institutionalnetwork with the potential to serve small and medium -sizebusinesses. Yet these organizations generally overlap infunction and fail to coordinate their activities. They alsotend to focus their efforts on larger firms rather than on SSEs,and on businesses in lArge metropolitan areas rather than onthose in provincial towns-or the countryside.

2. Tulufi and its B'isiness Environment. The author, serv-ing as a Peace Corps Volunteer, worked with small businessesin the small Colombian city of Tulufi from 1977 to 1979.Tulufi lies.in the fertile Cauca Valley, little more than anhour's bus trip away from Cali, Colombia's third largest city.In the 1950s and early 1960s, Tulufi was plagued by the coun-try's long civil war 'and lost much of its population to Caliand other cities. It is now one of the so-called "inter-mediate" urban areas which receives the focus of the govern-ment's decentralized development programs. This designationis appropriate for Tulufi since it really is intermediate inits development: too large to be considered a town (it has...pproximately 100,000 inhabitants), and yet lacking the vari-ety of social, commercial, and industrial activities whichcharacterize a city.

Tulul possesses both problems and prospects for smallbusinesses. First, it is an active marketing and transpor-tation center for the surrounding region.' This situationhas encouraged a, number of private and public banks to setup branches in Tulufi. However, apart from a small SENA of-fice, no entities in TuluS provide specialized credit, tech-nical, or management assistance to SSEs through local offices.Consequently, small businesses normally use moneylenders andthe services of local tax accountants in running their

--/businesses.

During the author's period of service in Tulufi, thewhole country was experiencing; a offee boom. This situation,

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combined with Tulufils strategic geographical location, pro-vided ample demand for the products of local SSEs. The prob-lems for the SSEs, however, were usually lack of credit andinadequate marketing strategy in meeting such demand.

Like small firms in many developing countries, SSEsin Tulul lacked skilled workers in such areas as metalwork-ing, bookkeepiny,and plant management. SSEs also frequent-ly lost good workers who started their own businesses, wentto work for larger firms, or abandoned TuluS for the bright-er lights of Cali, Worker' mobility was also enhanced by thepossibility of working as casual labor in the nearby sugarcane fields.

The small industrial entrepreneurs of Tulul oftenfit the ex-craftsmen image presented in Chapter One.' Manywere metalworkers or other types of skilled workers who knewsomething about the manufacturing process but were uncomfort-able with the abstractions associated with accounting andmanagement. The businesses usually faced problems of improperoperation and maintenance of machinery, poor plant organiza-tion, and the inefficient use of raw materials.

The general business environment also affected SSEs.Few businesses were registered at the local Chamber of Com-merce, and all had to deal with rising input prices, limitedtelephone service, unpaved streets, and interruptions or.absence of power and water. Complex Colombian social legis-lation (minimum wage, social security, the SENA tax) increasedsmall entrepreneurs' labor bill and also complicated theirbookkeeping chores. Post-dated checks were also commonlyused in business transactions.

A few trade associations existed in TuluS, but mostwere social groups appended to powerful, national politicallobbies providing few business services to their local mem-bers. The TuluS SENA office offered a very limited number ofcourses, mainly because the community did not press for ec-panded or more varied training programs. SENA's.apprentice-ship program never gained wide acceptance, since small firms'had to pay,a worker's salary while he or she studied part-time; at the end of the worker's year or more of internship,he or she Often left to seek better employment.

The Chamber of Commerce of TuluS, however, had anactive executive secretary with an interest in helping localSSEs address their problems. In October, 1977, the authorbegan working with the Chamber in organizing a managementassistance program for small-scale enterprise in Tulul.

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This activity was also partially sponsored by the Cali-basedFoundation for Industrial Development, which saw an opportu-nity to extend its programs to include SSE promotion in oneof the Valley's intermediate cities.

3. The Tulua Management Consulting Program

a. Program Purpose and Methodology\.,

The goal of the program, entitled "How to DevelopYour Enterprise", was to provide management consulting assist-ance to small businesses in the Tulul area. The Chamber ofCommerce of Tulua and the author decided to organize a selec-tive, structured, and financially-independent program whichwould guide the work of the management consultant and commandthe interest of potential client firms. The program chose tofocus on small industrial firms rather than on retail or ser-vice firms, given their greaterorelative need for cost ac-counting, plant management, and other administrative skills.Businesses assisted under the program tended to be targetfirms, although some were larger and others smaller. SSEsselected for consulting assistance were expected to eventual-ly become eligible for bank credit.

The Chamber of Commerde and the author organizedgroup seminars to teach basic concepts in accounting andsmall business management to owner-managers and key employeesfrom-a number of firms. Three or four firms were then se-lected from those attending the seminar to receive individual,.intensive consulting for three to four months. A month orso after this consulting was completed, a second seminarbegan with a new group of firms, again with the idea of at-,tracting candidates for additional consultancies. A fee wascharged for the seminars sufficient to cover the cost 'of allteaching materials. Another nominal fee was charged thosefirms receiving the consultant's individual attention.This charge covered the consultant's transportation, mate-rials, and a minimal salary. Figures 4 and 5 illi4strate thesteps in this seminar/consulting methodology; Sedtions Band C in this chapter discuss techniques for teaching semi-nars and providing consulting to individual firms; and,Appendices I and II provide sample teaching and consultingaids useful in implementing this approach.

Two seminars were organized for small entrepre-neurs in TuluS, each lasting roughly 20 hours and coveringa period of three weeks (classes were held every other weeknight). The classes dealt with general business .administra-tion, concentrating on accounting and elementary financialanalysis (see Syllabus in Appendix I, Exhibit A). A total

FIGURE 4 SEMINAR METHODOLOGY

10 =11=0 .,IPrepareseminarmaterial

SSEparticipants

Hold demon-stration se-

udnar ses-sion to at-tract partic-ipants

Preparefinal en-rollmentlist andcollectenrollment63e

Conduct se-minar throughpresentationsby the con-sultant andother speak-ers

DROP

i0

nwp

Evaluate se-minar.Provide op,portunity forseminar par-ticipants toapply forconsultancy

Hold grad-uation forparticipants;celebratewith a party

110

Select firmsfor consul-tancy.

68

Perform

°Diagnosis

Reach agreemenwith owner-manager on worplan for con-sultancy.

FIGURE 5 . CONSULTING NETHODOLGOY

Follow-up onConsultancy

DROP

69

Recruit. SSE' fornew seminar

70

DROP

Begin cycleagain withnew SSE.

of 30 people attended the two seminars. Most were owner-managers of small enterprises (primary audience), althoughplant foremen, accounting clerks, and other employees alsoattended. Firms represented at the seminars included avariety of businesses from manufacture and repair of agri-cultural equipment to retailing of construction materials;most firms, however, were engaged in metal-working. Themajority of companies had fewer than 20 employees, but a fewfirms with between 50 and 150 employees were also represented.

Seven firms received consulting assistance underthe program--three selected from the first seminar and fourfrom the second. The firms ranged in size from four employ-ees to over 100.' A typical-size firm had net sales ofUS$100,000 to 150,000 a year and equity of around US$40,000(1979 dollars). The companies' businesses included themanufacture of metal products (such as metal furniture, bi-cycle frames, and strong boxes), dairy farming, manufactureof children's clothing, and design, manufacture and repairof agricultural and industrial equipment. The content ofthe consultancies varied with the particular firm. In onelarge company, the author performed a complete financialanalysis of the enterprise based on existing accounting rec-ords. In other firms, he installed simple accounting systemsand methods of inventory control. With all clients, fieworked with the owners to improve marketing strategy, per-sonnel administration (especially delegation of authority),and general planning techniques. Toward the end of one con-sultancy, the author 'assisted the firm with financial analy-ses so that it could apply for a bank loan.

A year and a half after the program's consultinghad ended, one firm had completely reorganized its accountingsystem as a result of the consultandy; another, however, hadmoved out of the community and a third had gone bankrupt.Although only one .client could be termed a complete success,almost all clients made partial improvements. Such changesincluded the following: One ft= began issuing its workerswages in precounted envelopes instead of from stacks of un-counted cash. Another company sold off many years' accumu-lation of scrap and old machinery to clear greater workspace. Yet another reorganized its product display casesfor greater customer appeal. And several firms began re-conciling daily cash flows, balancing checkbooks, and keepingrecords of production costs.

In a separate but related venture, the Chamberof Commerce and the author organized an informational bro-chure on Tulufi in order to attract outside investment.

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Although the brochure was finally published and distributed(thanks to local businesses underwriting the publicationcostsh it was not part of a general' investment promotioncampaign. Therefore, at least to date, it hai failed to at-tract much new investment to Tului.

55 -

Toward the end of the author's period of servicein Tulul, the Chamber of Commerce also organized a seminarspecifically aimed at local accountants. This seminar ad-dressed relatively sophisticated topics such as funds flowanalysis, simplified accounting systems, and capital budget-ing. Roughly a dozen accountants attended. Representativesfrom CFP, SENA, FDI, commercial banks, and a Cali accountingfirm taught the course. Given the greater length of the sem-inar (almost 30 hours) and the use of outside speakers, a high-er fee was charged to cover the cost of materials and travel ofthe speakers. The purpose of this seminar was not to lead toconsultancies, but rather to encourage accountants to assistSSEs as part of their regular business. Although attendancewas good at the classes, the seminar did not seem to signifi-cantly change the way in which accountants conducted theirbusiness.

b. Lessons Learned

The Chamber of Commerce's program in Tulul waspopular with small businesses and local sponsoring institu-tions. In early 1979, however, the death of the executivesecretary of the Chamber and the departure of the authorbrought an abrupt end to the program. Some of the lessonslearned from the Tulu& experience include the following:

(1) Do not attempt to do too much with a singleclient. It is better to successfully do less with a greaternumber of SSEs than to accomplish all consulting objectiveswith only one out of five or six.

(2) Ensure the continuance of an institutionalizedprogram beyond the departure of the Volunteer. The Volunteershould downplay his or her personal role in any program andemphasize the role of the local institutions.

(3) Keep it simple. Whether teaching a group orproviding consulting services to an entrepreneur, keep ex-planations simple and to the point. Although elaboratecharts and illustrations may be perfectly understandable tothe consultant, they may not always be so to small businesspeople.

(4) Do not undertake an activity unless thecommunity demonstrates a real need and interest in performing

most of the work and providing follow-through. A PeaceCorps Volunteer is usually better off diverting excessenergies to perhaps unrelated secondary activities thanin pushing business-related projects which may interestthe Volunteer more than the community.

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B. Seminars for SSE Managers and Employees

1. Sponsoring and Cooperating Institutions

A key requirement for the success of any seminar is alocal sponsoring institution which will effectively supportthe consultant. Such an institution, as with the author'sexperience in TuluL Colombia, should provide the consultantwith office space, supplies, and local transport. It shouldalso help the advisor locate and select clients, organize ap-propriate seminar presentations, and identify counterpartsto be trained as local management consultants. A local in-stitution's inside knowledge of a community might help theconsultant steer clear of divisive interest groups and avoidworking with businesses which, for one reason or anotheroweuldnot likely benefit from the' assistance. Local institutions,of course, have their own political interests, some of whichmay diverge from those of the community at large. The in-tern's program manager should attune the consultant to suchspecial interests prior to his or her assignment in the com-munity.

Before placing a Consultant in an area, the programdirector should carefully identify and make arrangements withsuch a counterpart institution, as well as pinpoint other keyindividuals in the community who could help the consultant.These individuals, who may be leaders in local government,trade, 'o± civic associations, should be slightly abut not toofar) advanced of the rest of the local people in their manage-ment practices in order to give an SSE program its necessaryimpetus. Once in the community, the consultant should takecare that these,contacts with counterparts and communityleaders are translated into systems and institutions whichwill continue to assist SSEs beyond the consultant's departure.

One way to perpetuate .a consulting service 'is for theconsultant to obtain local financing for the training andsalaries of four or five local consultants. Ideally, the-consultant trainees would be selected from among the communi-ty's university or commercial school graduates and would havecompetencies in different areas (e.g. accounting, marketing}.After a month or so of classroom training, the trainees wouldaccompany the consultant on visits to client firms, graduallytaking over the consultancies. At the end of the process,the trainees should be ready to take the consultant's place.Note, however, that resources are an essential prerequisiteto training and then supporting the new consultants. There-fore, the original consultant must direct a major share ofhis efforts toward building local institutions' interest andchanneling local financial resources into carrying on thework. Indeed, it is often difficult for the consultant toresist assisting all businesses personally, instead ofstrengthening local institutions' capacities to do it them -selves.

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A variety of institutions already exist in many com-munities which could support the consultant's work with SSEs.Other organizations might be created or strengthened given apropitious local environment, as well as patience and per-'sistence on tile part of the consultant. These institutions

. and organizations might include the following:

(a) Trade Associations: Trade associations, chambersof commerce, and similar local organizations may prove at-tractive ways of organizing and assisting SSEs. By organiz-ing small firms in a given trade or industrial sector, an as-.sociation can acquire power in obtaining services such ascredit and management assistance from other institutions forits membership. Such an organization may also establish itsown training and consulting services for member firms. Fur-thermore, it may establish a fund to provide its memberswith guarantees in obtaining commercial bank credit.

0sities may also sponsor small business advisory services.The concentration of potential consulting personnel amongstudents and faculty and universities' ties to local communi-ties may offbr excellent possibilities for extension work.Such programs are fairly popular in the United States. Manyschools make small business consultancy part of their NBAprograms; the Georgia Institute of Technology, for example,employs its faculty in a state-wide technical assistanceprogram aimed at small firms.

Trade organizations are usually attractive vehi-cles through which the management consultant can work, es-pecially in light of their broad membership. The goal ofstrengthening such institutions might prove an appropriatescope of work for the beginning consultant.

() Universities and Nonprofit Foundations. Univer-

Developing countries, however., may find such pro-grams of limited value. First, universities may be few innumber and are often confined to large cities. Second, theirfaculties may not have the time for such work. Nonetheless, universities do comprise a reserve of trained manpower, and theyshould be drawn on to help, SSEs as appropriate. Graduates ofsuch universities, of course, may prove excellent candidatesfor management consultants under programs such as EDIP.

Another approach to smal2 business consulting isthe organization of local, nonprofit development foundationswith either private or government funds. Such entities maybe purely technical in nature, or they may offer funding orguarantee access to funding for small enterprise clients.Examples of such institutions include regional developmentfoundations, the AITEC /Fundaci6n Carvajal program in Colom-bia, and Pfp's development program in Yekepa, Liberia. Such

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organizations offer advantages of low cost, flexibility andlimited bureaucracy in addressing SSE problems. Often, how-ever, they are specialized and unique entities, whose exist-ence is dependent on uncertain foreign or local public as-sistance.

(c) Local Government: Local governments may provideanother institutional base for a consultant. He or she mightlink up with a municipal planning board, a public utility, orwork directly out of the local mayor's office. Given the po-litical nature'of this support, however,the consultant shouldtry to avoid being drawn into partisan conflicts with otherimportant individuals and institutions in the community.

Apart from personal resources and those of the spon-soring institution, the consultant should identify and drawupon other organizations and individuals who can assist withthe consultancy. These include other businesses, banks, localaccountants and consultants, and special advisory panels.

(a) Inter-Business Cooperation. A common form of as-sistance to small firms is cooperation with other businesses.One obvious form of cooperation is the trade credit which asmall firm may obtain from a similar-sized or larger company.Other types of cooperation may include subcontracting rela-tionships. The industrial sectors in the U.S. and Japan, forexample, maintain extensive subcontracting links betweenlarge companies and small businesses. A large factory mayoffer design help or credit assistance to a subcontractorwhich manufactures its components. Likewise, a large manu-facturer may offer training in sales and maintenance to itsindependent small distributors.

Large and small businesses also cooperate indeveloping countries, but much remains to be done. Given thegreater uncertainties in a Third World economy, many largeentrepreneurs prefer a vertically integrated organization.They may have little respect for SSEs or may be reluctant todepend on the quality and timely delivery of products andservices by small entrepreneurs. Nonetheless, the mutualinterests of large and small businesses in certain situationsmay provide strong incentives for them to cooperate. Alarge manufacturer of automobile parts, for example, may bewilling to provide sales training to small distributoks inorder to expand its market. Distributors, in turn, benefitfrom training by applying the newly-gained knowledge to in-crease sales. An SSE consultant in a developing countrymight thus profitably seek to uncover such possible relation-ships for his or her SSE clients.

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(b) Banks. The extensive branch network and lendingexperience of commercial banks Suggests them as prime vehi-cles for SSE assistance activities. However, the higherrisk and lower profitability associated with small businesslending may make them reluctant candidates for this role.Banks usually prefer large industrial or commercial customerswhich represent lower risk loans while generating larger vol-ume, and which bring in such profitable ancillary business asletters of credit and foreign exchange transactions.

In developing countries, most SSEs generate thebulkNof their capital needs internally, while relyingonmoneylenders or trade credit for additional requirements.Small enterprises' isolation from the private'banking systemis partly due to the banks' heavy collateral requirements.By loosening collateral criteria and by sharpening their analy-ses of small firms' future profit potential, bankscouldpromote more lending and deposits by SSEs. Banks might alsotest small businesses' repayment capacity with small, short-term loans; and they might offer limited managerial aid tocustomers once a loan is disbursed. Such managerial assist-ance would help assure SSEs' prompt repayment of loans, aswell as increase their bank deposits due to increased salesand prOfitability.

Public sector development banks may present yetanother means of helping SSEs. Indeed, given the social ob-jectives of many SSE programs, some form of government in-volvement may often be desirable. Public sector banks mayassist SSEs in a number of ways: through specialized creditprograms, through subsidized vocational training, or bymeans of management and technical consulting. These servicesmay well exist (but be little used) in developing countries.Thus, it may fall on the outside management consultant to en-list community support in getting more and better servicesfor local SSEs from existing government institutions.

(c) Local Accountants and Consultants. CPAs andprivate consultants play a large role in industrialized coun-tries in providing management consulting services to smallbusinesses. Accountants in the Third World, however, areoften more concerned with tax accounting and simple bookkeep-ing than with the overall management concerns of a businessclient. They may also possess less professional trainingthan their industrialized-country counterparts and may failto see any profit opportunity in working with SSEs. Al-though private management consultants do exist in developingcountries, especially in the large cities, most advisors'high fees and general economics training make their assist-ance unsuitable for small businesses. Other individuals in

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local communities who might provide needed services to smallbusinesses include lawyers, insurance represeritatives, andcollection agents.

An extensionist working with SSEs should attemptto enlist the aid of these professionals in assisting smallbusinesses. In many situations, the large numbers of SSEsand their common problems may well offer a unique source ofprofit to the local accountant or consultant, providing heor she is willing to market simple accounting and managerial -systems on a volume basis.

(d) Advisory Panels. 1 Advisory panels are used bymany small businesses to bring outside observers into thefirm onka continuing basis to advise the owner. Panel mem-bers, usually from different firms than the owner's, receivea fee to meet with the small entrepreneur and other companymanagement in order to discuss,the business's problems. Suchadvisors may provide the owner with,a fresh perspective on his orher business situation. Sipce they are not a legally consti-tuted body (like a board o directors), they can afford tobe frank, spurring a produdtive give-and-take with the owner.And because the entreprene# pays for the panel's services,he or she is likely to give close attention to their recom-mendations.

In many countries, advisory panels work becauseleading business people;in a community are flattered when asmall firm requests their advice. Moreover, the small busi-ness person in such situations is usually willing to shareconfidential information about the firm with members of thepanel. Obviously, if 'trust is lacking, the concept mayprove impractical. Nonetheless, SSEs in the Third World mayavail themselves of this type of assistance providing that:(1) the owner implicitly trusts all panel members, (2) theadvisors are in businesses very different from the one theyare advising, and (3) the firm is large enough (target firmor above in size) to be able to pay the fees and benefitfrom the advice of such a multi-faceted team of counselors.

Thus,a consultant may draw upon a number ofindividuals and organizations in carrying out a con-sultancy. Relationships between a client and a local ac-countant or bank are especially valuable since they shouldlast beyond the end of the consultancy, perhaps strengthen-ing some of the consultant's' recommendations in the process.

1 For further details, see Cohn's and Lindberg's Survivaland Growth: -Management Strategies for the Small Firm(Selected Bibliography #42)..

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The consultant ma also work with cooperatives, organize tradefairs or spur investment'promotion campaigns in order to mar-shal other resources to assist SSEs. These activities arediscussed in greater detail in Section D at the end of thischapter.

2. Role of the Seminar in a Management Consulting Pro-gram.

A seminar can play a key role with respect.to thetotal consulting program, performing an introductory, ground-breaking function for those companies ultiMately selected forthe consulting. Explanatory handouts diStributed during theseminar should prove useful in orienting the entrepreneur and

, employees to key management concepts to be covered in moredepth diring the consultancy. The seminar also demonstratesthe professional capability of the consultant-initructor,helps to establish his or her credibility (confidence) withthe small business participants, and encourages firms toeventually request individualized consulting. The classesalso help familiarize the consultant and participants withthe problems facing SSEs in the community and give the instruc-tor a chance to assess students a s potential clients. Fi-nally, the seminar trains SSE entrepreneurs and employees inthe basic concepts of small business administration which willprove useful to them regardless of whether or not they laterreceive consulting assistance.

The seminar's content should meet the practical needsof the participants. As a general rule, it should be shortand to the point. A total of ten classes of two hours each(plus a little homework) might be a useful maximum amount oftime for a seminar. The classes should also be directed atas homogeneous an audience as possible. Differences in edu-cation, occupation, or social standing could impair a commonunderstanding of the material and inhibit class discussion.On the other hand, some differences among class prxticipantscould enrich discussions, and perhaps build bridges of under-standing among students where previously none existed.

The consultant may choose from a wide variety of top-ics or formats in organizing a seminar for SSEs. He or shemay create instructional materials, use existing teachingplans, or mix the two together. Possible seminar formatsinclude the following:

(a) A general seminar.on small business administra-tion: Such a format is useful in sparking classid TEIssion (given the variety of material covered),

yet is disadvantageous given its generality.

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An actual example of this type of seminar is onepresented in the TuluA program (see Appendix I,Exhibit A.). Another format can be developedusing Malcolm Harper's manual (see Selected Bib-liography #15), which contains almost 100 pages .

of teaching materials divided into51 separateunits: The Harper seminar may also be brokendown into shorter seminars discussing specifictopics.

(b) A seminar on a specific topic such as bkeak-evenanalysis or how to effectively delegate authority:While sacrificing broad coverage, such a coursecan convey specific knowledge in a more rapid andintensive fashion than a longer seminar.

(c) A simulation exercise: One example is the S/MPROexercise which teaches entrepreneurs about qualitycontrol and basic recordkeeping through buildingpaper airplanes. (See Selected Bibliography #24.)S/MPRO, though, may need to be simplified or other-wise modified before using it with most ThirdWorld SSEs.

(d) An accounting course: It may be useful to trainentrepreneurs in a simplified accounting system,thus saving repeated explanations in individualconsultancies. (MICRON: Accounting for the Micro.Business presents one such system in an instruc-tional format requiring about 33 classroom hours.See Selected Bibliography #31.) The consultantwould be advised to have installed such a systemin a small business at least once before teachingit to a group.

(e) A course using a programmed learning text: Twoexamples are the U.S. Small Business Administra-tion's Ten Keysto Small Business Success andBurley's An Introduction to Basic Supervision ofPeople (Selected Bibliography #19).

(f) An advanced seminar addressing a more sophisti-cated topic and audience: Such a course mightteach intermediate accounting techniques to localaccountants or familiarize trade association of-ficers with organization and leadership skills.

so

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Seminars offer an'economical means of exchangingideas between the consultant and small entrepreneurs. Yetthey are also limited in duration and rarely change students'business practices in and of themselves. Follow-up bnsult-ing with individual firms has a better chance of eff ctingsuch changes. Nonetheless, seminars are a useful fist stepin launching a small business assistance program.

3. Recruitment for the Seminar

Regardless of how well designed a seminar may be,some entrepreneurs will be wary of participating. They maymistrust the real purpose of the seminar, feel they do nothave enough time to attend classes, or feel uncomfortable asstudents in a classroom.

If a consultant is to attract small entrepreneurs andtheir employees to a seminar, he or she must actively recruitthem. Some elements which typically are attractive to po-tential attendees are a prominent guest speaker (perhaps thelocal banker), the backing of an important local institution(probably the one which is sponsoring the consultant in thecommunity), and a topic which the entrepreneurs believe ad-dresses their needs.

The first step for the consultant is to identify 4pool of SSEs which might be interested in participating inthe seminar. This pool'of firms might be gathered from a va-riety, of sources:

(a) Referral by the sponsoring institution: It isoften wise to actively recruit SSEs recommendedby the consultant's sponsoring institution, sincethey are usually on good terms with the institu-tion and can be counted on to form an enthusias-tic core of attendees.

(b) Referrals by banks, trade associations, and. other organizations: These entities have excel-lent business contracts and should be able tosuggest a number of candidate firms for the semi-nar. Judicious accept/ance of firms' sponsored bythese organizations may also help the consultantlater in institution-building tasks.

(c) Trade directories and other printed sources: Ifa trade association or chamber of commerce existsin the community, the consultant should scantheir membership lists for potential seminar par-ticipants. Firms' advertisements in the local

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newspaper or in a telephone directory constituteanother source of candidates.

(d) A small business census: This technique is anexcellent way for the advisor to become acquaint-ed with SSEs and their problems. It will alsofamiliarize the consultant with the general cul-ture and economy of the community. To allay smallentrepreneur's suspicions, the consultant shouldask only a brief list of questions which relatespecifically to the planning of the seminar.Support by a prestigious local institution in car-rying out the census should help ensure SSE co-operation. In fact, a local person Might accom-pany the consultant during the census to helpexplairi its purpose. If successful; an SSE cen-sus should provide the consultant and his counter-.parts with an inventory of prospective seminar andconsulting clients for many months to come.(See Selected Bibliography *13.)

Once the pool of candidate firms has been identified,the consultant can begin an active campaign to recruit par-ticipants for the first seminar. If the zeminar is a general-purpose series of classes (similar to the syllabus in Appen-dix I, Exhibit A.), 12 to 15 participants is probably appro-priate. More would render class participaljon and controldifficult, and less would diminish the potential diversityof class discussions and would reduce the pool of candidatefirms for the consultancy to too low a number. The consul-tant should recognize that sonic absenteeism will be inevitableand should probably over-recruit participants by perhaps onefifth tc, one third to compensate. Entrance requirements forthe seminar should not be overly restrictive. The se-lection criteria should be the firms' interest in part'cipat-'ing and their ability to pay a nominal inscription. fee'.

There:are several methods the consultant might use,typically in sombination, to transform a pool of potential-ly interested' firms into a select group of active seminarparticipants:

(a) Invite small entrepreneurs to a* free demonstra-tion seminar session. This session will enablethe consultant to explain the purpose of theseminar and will allow the small entrepreneur tosee which colleagues are also attending. A localbanker and the consultant's local supervisorshould keynote the presentation to heighten localinterest. The banker's appearance would not

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guarantee credit to participants in the program,but rather establish a linkage and implied in-centive between improved business administra.ionand qualification for bank credit. The meetingshould distribute a course description, offerrefreshments and perhaps even entertainment'asan added attraction.

(b) Advertise the program. The consultant should takeadvantage of the local media to advertise theseminar. Ads could be placed with local news-papers and radio stations, and brochures could bedistributed. Such publicity should briefly statethe purpose, content ane. sponsors of the seminar,which firms are eligible to participate, andwhere and when the first free session will beheld.

(c) Personally canvass potential participants. Peopledo not just appear at traini g sessions; theyhaNee to be actively encouraged and recruited.While general publicity helps, personal canvas-sing is crucial to ensure attendance. If the com-munity has telephone service, this means of com-munication can help the consultant do follow-upcontacts after initial personal visits. Thetelephone is also valuable in reminding thoseconfirmed participants to attend each class oncethe seminar begins. The consultant's personalvisits and follow-up calls are the critical in-gredient in the seminar recruitment campaign.In general, people will not break out of routineand participate in an activity unless someonetakes a personal and persistent interest in theirparticipation.

4. Preparation for the Seminar: Location and TeachingMaterials

In advance of recruiting seminar participants, theconsultant should make the necessary physical arrangements.A first concern is location. Should the seminar be held insomeoness'home, in an official government building, or in acommunity meeting hall? Or would it be more appropriate(and comfortable) to hold it outdoors? The consultant shouldexercise judgment in selecting a location which would becomfortable and would promote a positive atmosphere for theprogram. -f the seminar is to take place indoors, it shouldhave adequate lighting, ventilation and bathroom facilities.It also should have enough room to accomodate different

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seating arrangements. Kitchen facilities might also come inhandy in providing refreshments for class breaks.

The following is a checklist of useful materials andsupport services for a seminar (several of these items 'wouldnot be available in many situations; e.g. photocopier, type-writer, secretary, etc.):

Access to a typewriter.

Secretarial services to type handouts.

Access to a photocopier or mimeograph for duplicat-ing handouts.

A looseleaf notebook for the instructor's notes.

A podium or table to support the instructor'sclass notes.

A blackboard, chalk, and eraser.

An easel and poster paper.

Felt tip markers.

Chairs, preferably with attached writing surfaces.If not available, perhaps provide,sheets of card-board so that participants will have somethingstiff to write on.

Folders for participants to keep handouts.

Pads or notebooks for participants to.take notes.

Pens and pencils.

Coffee cups.and saucers, glasses, spoons, plates,a bottleopener, and napkins. .

Refreshments, such as coffee, tea, soft drinks,and cookies.

Diplomas or certificates of attendance.

Although this list will vary depending on the typeof seminar and available resources, it might serve as a guidefor compiling a list of materials needed to effectively or-ganize a seminar. The successful presentation of a seminarrests in large part on careful and detailed planning.

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5. Teaching Techniques

While the consultant is making physical arrangementsfor the seminar, he or she should also be planning the con-tent of the course itself. As a starting point, knowledge ofsome basic principles about how people learn might be useful forthe consultant who plans to design and teach a seminar:

-- People learn by doing.

-- People develop new impressions through theirsenses.

- - People learn when they are ready to learn.

- - People tie their learning to what they alreadyknow.

-- People learn one thing at a time.

-- People learn more rapidly when the results aresatisfying to them.

-- People need to understand what they learn.

- - People develop skill through practice.

-- People differ from one another in skills and back-ground.2

Perhaps the effort and number of steps involved inpreparing a seminar appear to be excessive. Yet the samebasic process is as necessary to teaching fruit and vegetablesellers how to sell more produce as it is to teaching a moresophisticated topic to specialists. In fact, it is oftenmore difficult for a consultant to present basic ideas simplyand persuasively to relatively unsophisticated audiences.

Having absorbed these teaching principles., the con-sultant and sponsoring institution should then determine thenumber, length, timing, and content of the classes. The or-ganizers of the seminar must also decide on the mix of teach-ing styles which will best get their message across. If themessage is compact and time must be economized, a lectureformat might be appropriate. However, to foster-Class

2Taken, from Buell's and Heyel's A Handbook of ModernMgrketing, pp. 3-44. (Selecte2BUATTI7)--------

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discussion, a seminar approach is more useful. A rola play- -for example, to depict consultant-client or banker-creditapplicant situations--is a particularly useful training tool.Case studies, examinations, and the audio-visual techniquesdiscussed below could also be used by the instructor.. Fi-nally, guest speakers (local accountants, bankers, or success-ful entrepreneurs) may be used, or the participants encouragedto,give presentations before the class.3

Once the consultant has a basic idea of the topic,scope, and general instructional approach to be used in theseminar, it should be outlined on paper. The-first step isto sketch a general lesson plan. Such a plan should helpclarify the flow of the seminar from one topic to the next,the fit between course topics and class time, and the inter-relationship between the instructor's class notes, handouts,audio-visual aids, and participants' activities. A samplefirst page of a lesson plan is given in Table V . When com-pleted, such a plan would serve dual purposes: it would actas a blueprint for the instructor to complete detailed notesfor class presentations, and it would constitute 2 draftsyllabus which could be distributed to the students.

The ne step is the preparatiort" of the instructor'sclass notes. A looseleaf notebook is usually most appro-priate for this task so that the instructor may add or de-lete notes as the seminar progresses. For example, at theend of each class, the instructor will probably wish to mod-ify the notes for the next class based on discussions andquestions remaining from the class just ended, so as toprovide a bridge between the classes. Class notes should beprepared in as legible a form as possible, so that anotherconsultant may teach another group with the same materials.References are especially important to any consultant begin-ning work in a new community. He or she should have thenames of all potential references ready (whether personalexperience, individual authorities, or published text books)in case he is challenged on a point by a participant.

The notes should indicate when the instructor shoulddeviate from a lecture and refer to a poster, make a sketchon the blackboard, or start a role play or case study exer-cise w1 01 the class. Audio-visual techniques play a keyrole in making the instructor's verbal presentation comealive and can dramatically increase interest on the part ofthe participants. Selected Bibliography entries #23, 32

3For further ideas on class formats; see SelectedBibliography #17.

TOPIC

TABLE V: FIRST PAGE OF SAMPLE LESSON PLAN

HANDOUTS

I. IntroductionH#1: Distribute seminar syl-

A. Local sponsor presents the instructor; labus to the class. (Seeseminar participants present themselves. Appendix I, Exhibit A.)

B. Outline or the content of seminar.

C. Purpose and content of the seminar andthe consulting program in the community.

D. Leading question to open seMinar: Whatqualities does the model small entrepre-neur possess?

II. Acc:ounting and Finance0

A. What is "accounting" and why is ituseful?

AUDIO-VISUAL

AV#1: Poster showing name ofthe program, sponsors, ob-jectives, and program cycle:seminar -4 selection -4consulting.

H#2: Handout listing specificSSE problems which inproved.ac-counting can help the entrepreneuraddress. (Should be handed outafter the discussion under.II.A.)

B. Description of the balance sheet and H#3: Have students fill in a AV #2: BladMokoard drawingincome statement and how they differ. simple balance sheet. showing different impact

of debt and profits on

87 balance sheet. (See AP-pendix I, Exhibit B.1.)

co

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and 33 provide extensive guidance on the use of audio-visualmaterials; a few useful techniques are summarized below:

(a) Handouts. Handouts can be used as a basis foraTlintion and can serve to ensure that thestudents have a written record of key pointscovered in the seminar. Note that such handoutsare usually presented only in outline form tohelp encourage the student to take notes and torefer to them outside of class (see examples inAppendix I, Exhibits C.1 - C.4.).

(b) Props. The instructor can profitably use simplematerials to vary his or her presentation and togain participants' attention. Props may vary fromholding up a lottery ticket to illustrate thechance element in business, to pulling out one's(empty) pockets to exemplify the problem of li-quidity.

(c) Blackboards and posters. Blackboard and posterpresentations can be Fepared either prior to orduring a class. In either case, they should besimply and carefully prepared. If the diagram orIllustration is too complex, it will obscurerather than clarify the message. (See Figures 8and 17 in the text'and Appendix I., Exhibit B,1.,for samples of poster designs used in the Tulua,Colombia program).

(d) Other audio-visual aids. Movies, filmstrips,and slides can make for welcome breaks in a lec-ture presentation. They can also stimulate classdiscussion.

This listing hardly exhausts the range of audio-visual aids which might be profitably used by the consultant.Cassette tape recorders, video-tapes, and do-it-yourselftechniques such as the flannelgraph are some other aids whichthe consultant-instructor may find useful: It is up to theconsultant, however, to combine these mechanical aids withinstructive class notes in an overall lesson plan which willgenerate maximum student interest, and present the topicmost effectively. Such a combination is not always easy toachieve. Some consultants are endowed with a confident pres-ence before a group and may need to rely only minimally ontheir notes. Most, however, are more dependent on advanceplanning and notes to pull a class presentation together.Some additional tips which might prove helpful in structuringan effective seminar are:

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(a) Encouraging class participation. An interchangeof ideas between class and instructor is essen-tial. It enhances student interest, enrichesthe course content, and helps the consultant bet-ter assess participants as future candidates forconsultancies. Class participation can be elic-ited in a number of ways:

-- discussion of case studies.

- - reaction to a poster, a slide, or a movie.

- - response to a question placed before thegroup by the instructor.

-- response to a question raised by one of theparticipants (i.e. the group must wrestleto resolve its own question).

- - role-playing.

Although the instructor should encourage .parti-cipation, he or she should not force it by pos-ing difficult question's to individual partici-pants. This only causes embarrassment. Con-versely, the teacher should try to restrain in-dividuals who tend to dominate discussion. In-formal conversations during coffee breaks canalso be carried over into formal class discussion.

(b) Fielding questions. An instructor may havesucceeded so well in generating class participa-tion that he or she will receive many questions.Since it is important that the instructor main-tain his credibility before the class, difficultquestions might be handled in the following ways:

-- If the instructor can think on his feet, heor she could answer the question step-by-step before the class. Such a thoughtfulanswer may prove a better explanation thanan immediate response.

- - If the question may be answered on the basisof local experience or custom, the instructormight ask if one of the other participantscould answer. If an answer is forthcoming,both the questioner and the instructor willbe educated.

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-- If the question concerns material which iscovered in a later class, the instructorshould defer an answer until that time. Theinstructor must then make sure that the an

will be provided for in the future class.

-- If the query should be answered at the'timebut the instructor believes he cannot respondeffectively, he or she should congratulatethe questioner on his incisive observationand promise a response at the beginning ofthe next class. This allows the instructortime to think and consult references infinding an answer.

(c) Varying the.teaching style. A good classroompresentation should contain variety if it is tobe effective. Intermittent use of audio - visualaids is one way to vary the presentation. Theinstructor may also interject illustrative metaphorsor anecdotes, For example, comparing a balancesheet to a photograph and an income statement toa movie makes much more impar't the class thana more traditional explanation. Departing fromhis prepared notes, moving around the classroom,or taking a seat instead of standing all thetime will also vary the instructor's. style ofpresentation. Or the teacher may opt for a com-plete change of scene by taking the class on afield tripto a small business in another town.

(d) Proposing new ideas gradually. The instructorshould introduce new ideas gradually during theseminar, due to participants' lack o knowledge,their strangeness to a classroom sit Ati, andtheir resistance to certain concepts. In manyseminars, the consultant might avoid certaintopics all together, or wait until he or she issure there will be acceptance. For example, theconcept of depreciation and the need to save nowfor future replacement of equipment is acceptedonly with difficulty by many small entrepreneurs,given the rising nominal value of their currentequipment through inflation.

6. Evaluation of the Seminar and Selection of Clientsfor the Consultancy

Learning about new concepts in small business ad-ministration is, of course, the main purpose of the seminar.Participants' evaluation of the course and their submission of

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formal applications for the consultancy will be among theindicators of whether the classes have achieved this objec-tive.

One way to evaluate a course's educational impact onthe participants is to distribute a brief questionnaire tothem on the last' -'day of the seminar. Or if literacy is low,the instructor might pose questions verbally. Their answersto questions like the following will help improve the con-tent of the next seminar: Which topics did they find themost or least useful? How would they improve the way thecourse was taught? How did they feel about the length, size,and timlng of the classes? Which elements do' they want toapply in their own businesses?

Another way to evaluate a seminar is to hold discus-sion sessions with the participants a month"or so after theconclusion of the seminar. These sessions. would examine howmuch material the small business people had accepted, re-tained and applied. A class reunion, including a visit toan SSE influenced by the seminar (perhaps followed by dis-cussion over lunch or dinner), might be an ideal conclusionto the evaluation.

One significant measure of seminar success is seriousapplications for the consultancy' from participating firms.Applications often are verbal, a more face-saving means thana written request if the small business is ultimately reject-ed. On the other hand, a written application (eithe a let-ter from the small business person, or a completed applica-tion form) represents a more committed expression of interest.Whichever means of application is appropriate, the.consultant'sgoal at the end of the seminar is to generate more requestsfor the consultancy than can be met.

How the consultant deals with those applicant entre-preneurs whom he or she rejects is a delicate issue. If therejection is irrevocable--for example, the owner is a seriousalcoholic, or persists in manufacturing for a dying market--the consultant should be firm but diplomatic in.his or herrejection. However, if the firm is rejected due to circum-stances or attitudes which may change, then the entrepreneurshould be given a second chance to receive the consulting.One way might be for him or her to receive assistance afterhavitTattended the brief feedback session a month or soafter the seminar. Another would be for the SSE to enrollin the second seminar and be considered for the consultancyalong with another group of candidate firms. Yet regardlessof the difficulty of saying "no", the principle of selectiv-ity should remain.

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The consultant can soften the blow to frustrated ap-plicants by enhancing the status the seminar itself.Nonetheless, the question arises a to why shouldn't the se-minar end with all interested participants receiving consult-ing assistance. Why is there a need for selectivity? Thediscussion of the "target firm" in Chapter One mentioned anumber of social and economic factors which warrant usingthis approach. Selectivity leads SSEs to compete for theprivilege of getting the assistance; thus they are likely tovalue it more highly when they receive it. Since the nomi-nal pricing of the consulting does not really limit demand,competitive selection of firms is gA effective rationingdevice.

Chapter One described the "target firm", which iswell suited to receive management consulting assistance.While the general characteristics of such firms - -a thresh-old size, the entrepreneur's possessing some property, abasic education, and a few financial resources--are importantcriteria for selecting clients, they are not sufficient. Ad-ditional necessary questions which must be answered are:

(a) Is the'consultant assured of the firm's integri-Ay and stability? Before entering into a con-sulting relationship with an'ISSE, the consultantshould form an accurate appraisal of the charac-ter of the small entrepreneur. Is he or shehonest and open to new ideas? Does'he havehealth or personal problems which interfere withthe business? What kind of people are the firm'semployees? Do key positions, such as plantmanager or bookkeeper, turn over ftequently?

The consultant's observations and those of coun-terpart(s) are important in forming accurateimpressions concerning the integrity and stabil-ity of small business people as prospectiveclients.

(b) Does the business have a future? The consultantshould feel assured that a firm's long-termprospects will enable it to make productive useof the consulting. Similarly, be sure that theSSE's marketing and other problems are solvable.For example, a firm's poor accounting may con-istitute the main barrier to its fv.ture growth.However, if the owner's husband or wife refusesto modify or relinquish his inexpert handling ofthe books, then short of divorce this key con-straint to growth resists solution. Not all,SSEproblems are susceptible to,improvement by the

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consultant. In fact some may be aggravated byhis or her intervention.

(c) Why does the firm want the services of the con-sultant? The entrepreneur could be interestedin the expertise, concentration and objectivitywhich a consultant would bring to bear on a,problem. Yet, despite an entrepreneur'sclaimed interest in improving the management ofthe firm, the real reasons for requesting as-sistance may be quite different. The businesscould be looking for a loan, with no intentionof making any changes. Or maybe the manager ismerely searching for an outside opinion to backup throwing a malingering brother-in-law offthe payroll. There may be any number of othersituations which demonstrate a lack of commit-ment or capability to implement needed changes.The advisor should clarify the real reasonsbehind an SSE's request for consulting and thenask him or herself whether they provide the basisfor a healthy.consultant-client relationship.

There are several kinds of firms which, by theirvery nature, do not fit well with the intended goals of theconsultancy program and therefore ,,should not be offered aconsultancy. They may, however, attend the seminars. Theseare:

-- National franchise orchain stores

-- Firms controlled by'foreign investors

- - SmLl businesses which are hobbies of rich orabsentee owners

- - Large, profitable businesses which can pay .fortheir own consultants

- - Companies on the verge of bankruptcy.

Concernng the final point, the consultant should notautomatically avoid a challenging client; but he or she shouldsteer clear of imminent financial disasters, especially whilestill struggling to establish creditiblity and a reputationfor success. In general, the consultant should select onlystable SSEs early on in his or heriperiod of service andpostpone more difficult clients until he or she has gainedmore experience in management consulting.

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C. Consulting Assistance to Target Firms

1. Building the Consulting Relationship

Select SSEs deserve management assistance from selectconsultants--individuals who know small business administra-tion and who can effectively communicate those skills to thesmall entrepreneur. Such consultants should possess"knowl-edge in a number of business management areas (see Section 5,"Guides to Consulting on Specific Problems"). They shouldhave the ability to solve problems analytically and pragmat-ically, since the solutions to many SSE problems are notfound in any textbook. And just as importantly, they shouldpossess strong human relations skills; they should be ableto demonsttate empathy and understanding and should be ableto persuade the entrepreneur to adopt new ideas. Such skillswill help the consultant bridge any educational, culturaland age gaps with the small business people and achieve arelationship of mutual respect.

The consultant will usually have relationships withothers besides the small business owner-manager. These mayinclude accountants, lawyers, bankers, government officials,as well as the apprentice counterpart consultant. Withinthe business, the consultant interacts with the employees inaddition to the owner-manager.

The variety of clients and other actors with whom r

tlfle consultant must work makes the role a complex one. Heor she must act as teacher, problem - solver, and referralagent for a variety of individuals. All three of these rolesare necessary, just as it is necessary for the consulting totake place in an atmosphere of both professionalism and con-fidentiality.

Apart from the qualities needed by both consultantacid client, four other ingredients (discussed at greaterlength throughout Sections 3 and 4) help to ensure a success-ful consulting relationship:

(a) The consultant should live in the community wherehe or she works. Small entrepreneurs usuallytake part in their community's civic and sobiallife. Thus,to know his clients better and tofully understand their businesses, the consul-tant must also come 1-o understand, the local cul-ture. Such knowledge cannot come solely fromsurveys or discussions with local notables, butmust come trom living as well as working in thecommunity.

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A consultant's living outside a cgmmunity (per-haps based out of a nearby city) means a sacri-fice of significant opportunities to interactwith clients. A locally based consultant can af-ford to have a beer or tea with a client afterworking hours, and in a relaxed atmosphere discussnew approaches to solving a particular problem.

(b) A certain amount of professional distance betweenconsultant and client is also necessary for achiev-ing the goals of the consultancy. Alogicalconsulting work plan, such as the one discussedearlier, is one way of conveying such profession-

, alism. Another way is to charge for the consul-tant's servicek to help defray the cost of the con-sulting program. Such a relationship helps placethe firm's problems, as well as the consultant'sproposed solutions, in an objective light; italso puts the consultant and client in a struc-tured situation where tangible payoffs are ex-pected within a given time frame. Yet while theconsultant should preserve a certain amount ofprofessional distance from ,the client, he or sheshould also assumq2 some degree of familiarity sothat the small business TeTson will talk openlyabout business problems. pl .this role, the con-sultant is less an "expert" than a sympatheticlistener.

(c) Confidence is essential in any consulting rela-tionship and must be established early on betweenconsultant ano client. The client should have con--fidence in t' consultant's ability to help solvehis business. problems; he or she should alsotrust that the consultant will not betray confiden-tial information concerniLg the enterprise. Theconsultant, on the other bend, should be sure heis able to gather reliable information from theclient in order to do his lot. He or she also re-quires that the client react candidly to his or,her ideas and contribute solutions of his own with-out a sense of inferiority before the consultant.Such a relationship is rct achieved overnight.'It requires time and patience by-both parties.A working relationship will often begin with '.heclient telling less than the whole truth abouthis business, and the consultant being indirctand undeservedly complimentary to the client inan attempt to win favor. This stage, while anecessary one, should soon evolve into one of

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greater honesty and directness between clientand consultant.

(d) The consultant should take a "medium-term" ap-proach. The small entrepreneur often faces awide range of management problems, most of which he orshe feels must be taken care of at once. Billscome due, machines break down, and workers quit;these and other such problems may tempt the con-sultant to spend all of his or her time helping theclient solve them. Early in the consultancy,the consultant might well tackle some of theseproblems--both to enhance his credibility withthe client, and to 'relieve some immediate pres-sures on the firm so that the owner can betterfrJcus on the broader issues. However, while theowner will continue to 2.)e immersed in the dailydetail of running the business, the consultantshould focus .on more medium-term, systematicsolutions to the firm's problems. The consul-tant's main focus, for example, should not be onhow to acquire the missing widget to get order"X" out on time, but on how to design purchasingand inventory control ,systems which will preventsuch problems from recurring in the future.

2. Planning the Consultancy

Small business consultancy must be well planned inorder to be effective. Once SSE clients &re selected, cer-tain procedures can assure that the consultant spends his orher time with clients in the most productive fashion. Theseinclude preparing a diagnosis of the firm, testing a firm'sinterest and capacity in implementing consulting recommen-dations, and planning the consultant's visits to clients.

(a) Preparing the Diagnosis

Most consultancies begin with an early periodduring which the consultant and client feel one another out.The consultant may wish to formalize this first stage as aconsulting diagnosis; such a period would span one or twoweeks and would require no fees or commitment from the smallbusiness person. The consultant's report at the end of thediagnosis would provide both parties with an opportunity toterminate the relationship early on if it appeared to be un-productive. From the consultant's viewpoint, this approachpresents another opportunity to limit availability of his orher services to only those SSEs which are sincerely interest-ed in the consultancy and able to implement its recommenda-tions.

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During the diagnosis the consultant should ac-complish the following key tasks:

-- Get to know the owner and his or her business,mainly by asking questions.

-- Meet and 'talk briefly with other importantemployees of the firm (e.g. bookkeeper, plantforeman,- ch:_ef sales clerk) and determine whoare full-time or part-time workers and whoare members.of the owner's family.

-- Inspect the firm's physical premises; if anindustrial enterprise, get a basic idea ofhow the product is manufactured.

Identify and prioritize the firm's problems(especially the status of its accounting,banking, and credit relationships).

-- Collect key baseline data such as estimatedmonthly sales. This will also assist inlater evaluations of the consultancy.

Effective completion of these tasks should revealwhether the firm's problems can be solved with the aid of theconsultant. An effective diagnosis should define the focusof the consultancy and eventually contribute to a jointlyagreed-upon work plan. It should also provide a blueprintfor consulting success based on appreciation of the client'spriority problem(s) and on his or her human and capital re-sources for dealing with them.

Initially, the entrepreneur is likely to view theconsultant as an outsider whose motivation in assisting himor her may be questionable and whose: presence in the commu-nity may be brief. Thus, the small business person willoften try to take advantage of the consultant by urging himor her to tackle a large number of the firm's problems assoon as possible. One purpose of the diagnosis is preciselyto narrow down a workable list of problems for the consultancyand to begin to build a sense of confidence between client andconsultant.

The consultant will spend different amounts oftime diagnosing clients depending on the situation of eachfirm. On the average, however, the diagnosis should notexceed six one-hour interviews over a two-week period.During this period the consultant should informally pose anumber of questions concerning the business; Table VI providessome sample questiOns. Such interviews could take place in

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TABLE VI

Sample Questions to Ask the Small Business Person

at the Start of the Consultancy

PRODUCTS/SERvICES (P-S)

- What are the P-S for which cus-tomers come to you?

- What' are the most distinctiveP-S you offer?

- What are the new P-S? thefad-ing P-S?

- What are your plans for devel-oping new P-S?

- How do your 2-S =ware withcompetitors'?

- What economic (value added) fac-tor do you provide?

- What are the most profitableP-S you offer? The leastprofitable?

- What business do you do withwhich customers at what profit-ability and investment?

- What markets do you now serve?- What new markets Could you

serve?- How do your customers see you?- 'What do they think you do well'or poorly?

PRICES

- How are your prices set?- When were they last reviewed?- How do they =pare ccapeti-tively?

PROFTTABILITY

- HOW do you ccapare with theindustry? With your awn bestperiod?

- What action do you take withthe information you have?

- What action would you takewith additional information?

DECISION-MAKING

- What decisions are critical toyour business?

- Who makaswhalt decisions on whatbases? (a key question)

- Are your decisions based onadequate information?How can your decision making beimproved?

PEOPVE

- What do you knew about your pres-entiammagement and technicalstaff in terras of age, skills,potential, turnover, and retire-ment?

- How does your fringe- benefitprogram compare with that ofother firms?

- What are the expectations of yourstaff?

- How do your people feel about thecompany? About its prospects?About their own future?

DANGERS

- What would you do if substantialchanges took place in your prod-

ams-.

petitors: key staff: location-environment: sources of supply?

ADAPTED WITH RERMISSION FROM: Cohn,Theodore, and Lind:erg, Roy A.Survival and Growth:Management Strategies for the Small Firm

( New York: AMACCI4, a diVision of American

Management Associations, 1974), pp. 52-53.

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the rmner's office or-over drinks or coffee at a local.tav-ern or restaurant, but definitely not at the consultant'soffices. The latter location would tend to make the clientuncomfortable and restrict the flow of information betweenclient and consultant.

At the end of the diagnosis, theconaultantshould discuss his or her findings with the client.' If thisdiscussion indicates a continued willingness:by both sidesto continue with the consultancy, the diagnosis should thenprovide the basis for a written work plan. Once signed orotherwise agreed to by the client and the consultant, this'plan provides goals and Steps for successfully implementingand eventually evaluating the consultancy. Similarly, it mayalso be useful for the consultant to present a Contract orletter of intent to the client before starting the consul-tancy. Such a document should detail the roles and responsi-bilities of both parties during the consultancy, as well asthe goals, cost and duration of the relationship. It couldbe a legal-like contract signed by both parties. Or shoulda contract format be intimidating to the small entrepreneur,the same purposes can be met by a letter of intent, signedby the consultant-and presented to the client.' Regardlessof the format used, it is important to clarify the "rules ofthe game" before the consulting starts (see Appendix II,Exhibit C. for a sample letter of intent).

(b) Testing the Firm's Performance

An SSE's interest and ability in implementingchanges is not measured only by the entrepreneur's satisfac-tory answers to a consultant's questions dosing the diagnosis.,.Actions speak louder than words. The consultant shouldtherefore challenge the entrepreneur to make small changesin his or her business, either as part of the diagnosis oras part of the incremental implementation of the consultancyitself. The consultant'should focus first on a relativelysimple problem of the enterprise - -one already identified bythe owner. The consultant would then outline a small mana-gerial change needed to correct the problem. After adequate-ly instructing the owner in the necessary pocedure'to carryout the change, the consultant would defer any further visitsto the firmuntil the change had been successfully implement-ed. -

This approach is useful in helping the clientgradually work through the steps of implementing any complexchange, such as establishing an accounting system. Forexample, if the owner cannot reconcile his daily cash entriesand monthly bank statements, it is useless to proceed withimplementation of accounting records. Likewise, it might be

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0

advisable for the client to peiform an inventory prior toopening a beginning balafice sheet. Of course, theconsul-tant should carefully explain each new procedure to the owner

' in order for it to be a valid test of the client's interestin making changes.

These performance tests are notmeant to beannoying hurdles for the small entrepreneur. Nor shouldthey unduly interrupt the flow of a consultant's work witha client. Rather, they should stimulate the small businessperson to tackle and implement changes one at a time. Grad-

.ual fulfillmenta these tests will also allow the consul-tant to manawohis time productively and allow him or her to

cr. carry a crCload of six to 12 clients at once.

(cNtamp!tmg the Consultant's Visits

Once a Consultancy is underway, the consultantshould carefully plan his or her expenditure of time withclients. Though most cultures expect the consultant toengage in small talk before or during a business session,the consultant should not waste time in aimless brainstorm-ing with the owner. He or she should research problems,think of possible solutions, and outline new questions inadvance of each consulting visit. And visits to any onefirm should be limited to two or three hours per week.These suggestions willhelp keep the colasultant from missingthe forest (e.g.'the client's need fore gefieral businessstrategy) for the trees (e.g. the daily detail of runningthe firm). The following section provides other planningtechniques which the consultant may profitably use in hisor her day-to-day conduct of SSE consultancies,

3. Conduct of the Consultancy

(a) Getting Started

The suggested list of materials below shouldassist the consultant in actually carrying out a consul-tancy:

-- a ruled notebook for taking notes

-- accounting sheets to use in showing theclient sample formats for proposed account-ing systems

-- file folders for confidential files orleachclient

-- a desk to store records and perform writtenwork

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- - a portfolio to protect papers and notebooks. while carrying them on client visits

pensi pencils (black and red), an eraser

- - a large ruler, as an aid in reading ornoting entries on long accounting sheets

-- ready business references, such as thismanual and the MICRON accounting manual

- - business cards (depending on the situation)

a four function calcdlator.

With these materials, a consultant is ready to,begin work with his or her clients. Although the consultantshould not be tied to a desk, a file folder for each clientshould be maintained to monitor progress. Each client'sfolder should contain key documents from the consultancy(e.g. work plans, letter of intent, samples of the client'srecordkeeping forms, and copies of the consultant's writtenrecommendations). The consultant should also add to the filecopies of handouts or illustratkie materials which he or shehas used with the client to. convey various points. It isbest that all such papers be iuitialed by the owner to in-dicate that he or .she has reviewed them with the consultant,If a client later claims-that no advice or explanation wasgiven on. a-problem when needed, such countersigned documentsprovide a useful record of the course.of the consultancy andof the advice conveyed to the entrepreneur.

The consultant should also keep a record ofvisits to client firms. In separate notebbok sections fordifferent firms, he or she can write down points to cover inadvance of each consulting visit and record pertinent dialogueduring the visits. Some entrepreneurs may feel uncomfortableif notes are taken in their presence: in such` situations, theconsultant should write down observations only after the inter-view.

Finally, the consultant should maintain a carefulrecord (preferably with supervision by the ccunterpart insti-tution) of fees collected for consulting services and of ex-penditures for seminar materials and other program expenses.A daily log should also be kept showing how the consultant hasspent his or her time. Such records help attest to the con-sultant's honesty on the job.-"The advisor should also be care-ful about accepting gifts or merchandise discounts from aclient. Though well intentioned, such favors could damage aconsultant's reputation for dealing impartially with aclient.

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(b) Persuasion Techniques

The first step in persuading A client is to winhis or her confidence. The consultant will not achieve suchconfidence by confronting the client with a superior attitude.Nor will the advisor win respect by rushing to placate aclient's every desire or by consuming a lot of time in exces-sive socializing. Rather, the consultant should try to builda relationship of mutual respect with the client. As dis-cussed earlier, this relationship takes time to: develop--time for the consultant to become accustomed to his or herrole and to the personality of the owner, and time for theowner to overcome his or her fears that the consultant iseither a covert tax collector or a rival entreprene% benton stealing trade secrets.

The consultant should spend the majority of anyconsultancy time in observing and listening to the client.The small business person will often press the consultantfor'advice, saying, "You're the expert, tell me what to do."Nonetheless, recommendations will have a far better chanceof realization if they appear"to be ideas of the client.Listening to the client's version of the firm's problems andobserving the production process, the firm's employees andcustomers, all help the consultant form a clear picture ofthe business's problems and prospects. The consultant may betempted to deliver immediate advice to the firm to economizethe use of time. This, however, is usually false.economy.Often the owner does not need expert advice so much as helpwith problem identification and then encouragement in solvingthem. The consultant may also play a useful role by urgingthe entrepreneur to draw more fully on employees' sugges-tions for dealing with the firm's problems. For more tipson becoming a better listener, refer to Appendix II, ExhibitD.

While the consultant should strive to become agood listener, he or she should also speak out as appropriate.He or she should help the client draw conclusions when pointsare raised, instead of leaving issues operi ended and subjectto inference. The advisor should also use his or her ownnatural style to best advantage in persuading a client. Youcannot adopt a false persuasive style, but you should tryto perform. to the best of your ability.

0

Consulting recommendations should be made.spar-ingly. A few pieces of useful advice will gain a consultantmore success with a client than a large number of ideas andschemes, some of which fail. When proposing new ideas, theconsultant should, as far at possible, graft the changesonto existing ways of doing things, or onto new ideas

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proposed by the owner or his employees. Such an approach helpsensure client acceptance of the change, since the new ideais based on the status quo. Also, if the change proves afailure, the old system still remains for the owner to fallback on.

A number of other techniques can help the consul-tant orient the client to a given course of action. He or shecan use written case examples, drawings, and props to illustrate points to the entrepreneur. The consultant can also

\ refer to other firms he or she is advising as examples in agiven area of business administration. At the same time,however, the consultant should be careful not tO break hisor her confidentiality with'one client by passing insideinformation on to another. The advisor should also take carenot to play favoities among clients, but to. deal with all SSEsequally, devoting a reasonable amount of consulting time' toeach,. Finally, when a Consultant is making recommendationsto an trepreneurhe_or_she_should do so in private sothat the client is not embarrassed bilaie-edb.tomorsployees. And in larger SSEs, the consultant must balance acertain confidentiality in listening to employees' problems-with the basic responsibility to the owner- manager. Further,in dealing with the firm's employees, the consultant shouldtake care in underlining the advisory role in the firm-anymanagerial decisions should come strictly from the owner ora senior employee.

In summary, the following guidelines should helpthe consultant in persuading a client:

-- Know the value of your services to theclient, and when appropriate, refer to yourexpert knowledge.

-- Know whom you are persuading. Is the clientsuspicious, gulli le, cantankerous? Byhaving an acute appreciation of the entre-preneur's character, you oan know best whenand how to persuade"him or her.

Establish a receptive atmosphere. Differentclients will be more or less receptive indifferent surroundings. One owner may feelcomfortable discussing ideas in the workshop,another may prefer home or office, while athird may prefer a local club. Proper tim-ing of your interview will also enhance theclient's receptivity. If the client is ina rush to process an order, he or she willhardly be in a mood to pay attention to youradvice.

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-- Let the client do most of the talking; lethim sell himself on a new idea.

-- Close the sale. Use of the abdve techniquesshould prepare the client for acceptance ofa new idea. Clinching his or her acceptanceis a question of proper timing and finesse onyour part.

(c)-Problem- solving

The way the consultant and client tackle agiven problem is helpful in generating a solution. Thecartoons in Figure 6 illustrate one method a consultantmight usefully employ in attacking' problems. The first twoprecepts suggest looking for patterns in the elements of aproblem and avoiding quick.ludgments, The second twole6n-cepts counsel considering4'a problem in its proper context"-and producing not just one, but two possible solutions. Thefifth concept which says that a consultant should critical-lyly-- evaluate

iievaluate s or_her own ideas while constructively assessr

ing those ofd others, is often difficult, The consultiriiTIstatus may dangerously deafen him or her to other's sugges-tions or to building on traditional practices, which may bethe best ones after all.

Precept six advises the consultant to shiftbetween concrete and abstract concepts in communicating tothe client. For example, a firm's liquidity problem couldbe depicted abstractly in terms of allow current ratio andpoor turnover of current assets. More Concretely, the prob-lem is one of an impaired physical flow of cash through thebody of the enterprise. Though different, both types ofexplanations may be helpful in communicating this conceptto the small business person.

r.

The seventh precept counsels oneto take abreak when stuck. Getting stuck frequently occurs in SSE'consulting. 'While a complete change of scene (taking avacation or embarking on an unrelated project) might help,a consultant may also take a less drastic break by shiftinghis or her concentration to a smaller, more readily-solvableproblem during the consultancy. Such a break will maintainmomentum and the client's confidence in the consultancy.It also allows the consultant to break away from the originalproblem and return to it later with a fresher perspective.

Talking one's problems over With someoneelse (precept number eight) is another helpful way for theconsultant to address a problem when stymied. A consultant'slocal supervisor, program coordinator, or close personalfriend may help in talking out a problem and giving useful

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-

788-Figure 6: The Problem-Scaving Process

Precept I; Ron over theelements, of the problemin rapid succession severaltimes, until a patternemerges which enccmpassesall these elementssimultaneously.

'

.Precept II: Suspendjudgment. Don't jumpto conclusions.

Precept III: !lore theenvironment.. Vary the tem-poral and spatial arrange-Trent of the materials.

71.

-,:srII till

*

106

Precept IV:Produce a secondsolution afterthe first. .

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Figure 6 (cont'd)

Precept V: Critically evaluate your own ideas. Cbn-structively evaluate those of others. 49

QDPrecept VI: when stuck, change your represen-tational system. If a concrete representationisn't working, try an abstract one, and vice versa.

Precept VII: Take a break when you are stuck.

alt

Precept Talk about your problem with

someone.

Source: "Solving Problems" by Ray Hyman and Barry Anderson, pp. 52-62,Organizational Psychology: ABook of Readings, edited by DavidA. Kolb, Irwin A. Rubin and James M. McIntyre (Englewood Cliffs,New Jersey: Prentice Hall, Inc:, 1974) . Reprinted with pc mission

of the author.

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advice. In certain special problem areas, the consultantshould call on local professionals to assist with a solution,such as lawyers, accountants, and bankers--again, with careto avoid violating client confidentiality.

4. Final Recommendations, Follow-up, and Evaluation

At the end of the consultancy, the consultant shouldleave a written record of recommendations to the client, inaddition to making a detailed verbal report. This actionmakesvthe consultant's final suggestions clear to the client;it also assists later evaluation of the consulting. Thewrittel report should be brief, usually no more than sixdouble-spaced pages. It should also focus clearlyon theclient-reader's interests, without repeating informationwhich he or she already knows. Ifthe consultant or programdirector desires a background report on individual consul-tancies, such a report might usefully be filed separately.

The consultant can provide further detail during his-or her verbal presentation to the client. The report shouldconsist of three basic sections: background and goals, re-sults so far of the consultan6r, and most importantly, thosemeasures which the owner should follow-up on in order to pre-serve progress. attained during, the consultancy. Follow-upvisits by the consultant (perhaps once or twice a month) canthen check on the former client's success in implementing anyfurther changes on his own. If the client still requires ad-'ditional assistance after the formal end of the consultancy,the consultant might try to enlist the aid of local accoun-ants or government management consultants in continuing to:orsist the f rm.

Evaluation is the final chapter in closing vit. a con-sultancy. But what is the measure of a successful consultancyor consulting program? How can i;7 be evaluated? Althoughthe heart of a consultant's job is ultimately to increase theSSE's profits; this result, especially on an interim basis,may prove elusive to achieve or quantify. Moreover, profitsare not ths only indiFator of success. Improved liquidity,better degyequity poSition, greater stability of earnings,and improved worker productivity are all results which arecrucial to the survival and developmel,t of the firm, even ifthey do not immediately affect earnings. How do we evaluatethese impacts? The task of evaluation becomes even more com-plex when we consider the social economic effects of SSEgrowth stimulated by management cbn lting assistance. Back -

ward and forward linkages, numbers of workers hired andtrained are all relevant indicators.

-91--,

Regardless of the evaluation methodology chosen, itis often difficult to acquire adequate data from SSEs. Forexample, it is often difficult to determine Just how muchsales, profits, or equity have increased during the con-sultancy if these quantities were not recorded adequately inthe base period. Consequently, one must often rely on in-direct means of evaluating management consulting successesand failures such as the number of accounting systems suc-ceisfully installed, or the number of entrepreneurs or em-ployees trained. Furthermore, evaluation of SSE consul-tancies is often inaccurate even when reliable accounting isavailable, since management assistance is only one small variable affecting client firms. General economic conditions,the health of the owner, and a variety of other factors canalso have an impact on a firm's growth.

_ Despite the challenges involved, every SSE managementconsulting program should be evaluited. Basically, threeareas should be measured in evaluating an SSE consultancy:effectiveness, efficiency, and significance. Effectivenessindicates, whether the main objectives of the consultancywere achieved. Efficiency measures whether the benefits tothe firm were sufficient to justify the 'costs incurred bythe consulting program. Finally,- significance relates tothe impact of the consulting program as a whole, vis-a-visbroader economic development goals in the community. Forexample, did growth of the assisted firms encourage the ex-pansion or establishment-of other businesses or increasedemployment of 'previously un.or underemployed people?

The sample evaluation form in the Appendices (AppendixIII, Exhibit E. ) is one possible format; the AZTEC and Harperprograms, for example, propose others. An evaluation formshould be simple enough for a busy consultant to-fill out,yet detailed enough to provide useful evaluation informationfor those planning or managing the overall consulting pro-gram. The appended format tries co achieve both. these ob-jectives. Its one-page length compels the consultant toprioritize observations and make them brief. The consul-tant may add to the form other information he or she believeswill be useful to program managers.

Much of the quantifiable progress-..achieved as a re-sult of the consultancy should be available at the end ofthe consulting period. However, the third block of the con-sulting.form should be completed six to 12 months later.Someone other thanthe consultant (perhaps the counterpart)should conduct this later evaluation.

At the end of a consultant's two or three-yearservice in a community, all the evaluation forms should be

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collected by the national program staff to assist with theoverall evaluation'of the program. Evaluating the consult-ing program as a whole is best performed by a team composedof national program personnel and outside technicians, per-haps from similar programs. However,if outsiders are in-volved in this process, the consultant should take steps tosee that the confidentiality of client relationships is notviolated. This might be achieved by requesting firms' per-mission to use evaluation data, or by leaving business'snames off the evaluation forms.

Such an evaluation should take place two or three yearsafter the program has begun. In addition to reviewing thenation-wide consulting program, it would examine the follow-ing indicators:

-- Did the consulting expand the local economy incommunities receiving consulting assistance?

-- Were investment promotion campaigns, trade fairs,and SSE associations successfully organized orstrengthened as a result of the consultancy?

-- Did the consultant leave behind a new or strength-ened local institution to carry on his or herwork with SSEs?

-- How financially self-sufficient did the nationalconsultancy program become?

5. Guidelines to Consulting on Specific Problems

Small entrepreneurs face a wide range of interrelat-ed tasks in running their.buSinesses. These tasks includeaccounting, finance, marketing and sales, purchasing and in-ventory, personnel, and production. And as the figure on thefollowing page illustrates, good planning and a balancedperspective can help the small entrepreneur focus better onall of these areas.

The many facets of small business management can alsopresent problems to the small entrepreneur--problems whichhe or she may be unable to classify. The distinctions be-tween finance and accounting, for example, are analyticalabstractions more familiar to the consultant than to theclient. Yet it is precisely such analytical concepts, if nottheir names, which the client should learn from the consul-tancy.

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Figure 7': FOCUS ON VARIOUS AREAS OF SMALL BUSINESS MANAGEMENT

ACCOUNTING

FINANCE

/ MARKETING

ING

111

SALES & ADVERTISING

A \PURCHASING &01INVENTORY

1mwmilMM

PERSONNEL

pRoDucTioN

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4. - 94-

A small business person will not have problems inall the areas depicted in Figure 7. And those managementareas which do need attention should be ranked in order ofpriority by the client and consultant, and thus provide afocus for the Consultancy. The following sections distillkey concepts in accounting, finance, marketing, and otherareas which are particularly relevant to the situation ofthe small business person. In addition-to reviewing thesesections, the reader should refer to Appendix III, ExhibitC., "How to Assemble a Management Consultant's Reference Kit",and appropriate publications annotated in the Selected Bib-liography, especially entries #37-52.

a. Accounting

Accounting is the consistent quantitative record-ing of where a business has been, where it is now, and whereit will be in the future. Sound decisions on marketing,production, and other areas are dependent upon a good his-torical accounting system. An excellent step-by-step expla-nation of how accounting entries help reflect real businessactivities is given in the Selected Bibliography #51, pages12-21. Appendix II, Exhibits B, C, and D also provide ad-ditional explanations of key accounting concepts such ascost of goods sold, inventory, and internal controls.

(1) General Guidelines on Installing AccountingSystems for SSEs

An accounting system suitable for a smallentrepreneur in a developing country may not always conformto generally accepted. accounting principles as understood inthe United States. It may deviate from such concepts asmatching revenue and expired costs by eschewing accrual ac-counting in favor of easier, more direct cash accounting.It may even avoid double-entry bookkeeping in favor of a.simpler single -entry approach. However, any business record-keeping system will require organization, consistency, anddiscipline by the entrepreneur in keeping entries up to date.

An accounting system's success depends onthree key factors: 1) the design of a simple, practicalsystem; 2) the presence of a good part- or full-time book-keeper within the firm to maintain -and check daily entries;and 3) the owner's appreciation of the importance of account-ing as well as his or her direct participation in the designand maintenance of the system.

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Ideally, consultant and client should agreeon an accounting system which will provide accurat* infor-mation on the following: the daily position of the firm'sassets, liabilities, and capital; and a record of its flowof income and expenses through time. Bookkeeping should alsofurnish data for loan applications and tax retu;ps. Dailyentries in the books should be done in as preabe a manneras possible, and the bookkeeper should use a fountain penwhich prevents easy erasure of errors. Any such errorsshould be crossed out in red and corrected, thereby leavinga record of the original error.

A complete, traditional double-entry account-ing system may be beyond the capabilities of many smallfirms. One solution for such SSEs is a partial system ofrecords:' a daily cash reconciliation, checkbook reconcilia-tion (if the firm possesses a checking account), and a jour-nal of debtors and creditors. If there are few debtors andmany creditors,the system may be simplified further by re-cording only creditors and leaving debtors to the owner'smemory. Such partial accounting is more easily maintainedby the small entrepreneur. Although it fails to generatecomplete financial statements, it provides a useful aid tothe owner's memory in managing the business.

The consultant -must- carefully plan the im-plementation or revision of any accountingrecords, and as-sess from,the start of the consultancy whether resourcesand/personnel exist within the firm for such recordkeeping.Designing and installing accounting systems As a gradualprocess. Given a client with no formal accounting system(a list of steps for the consultant in such a situation wouldinclude the following:

(1) Review existing formal and informalrecords; discuss their retention( modi-fication, or elimination with the owner-manager (be conservative).

(2) Explain to the entrepreneur and the se-cretary-bookkeeper the content, scope,and purpose of accounting in genera4l,and the relative advantages of alterna-tive systems.

(3) In consultation with the owner-manager,design an accounting system to meet theneeds of the firm; show the owner samplesheets with the proposed account ills-tribution.

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(4) Have the owner purchase accounting books.r-

(5) Design or purchase the additional formsnecessary to evidence transactions--salesinvoices, receipts, vouchers, etc.

(6) Train the owner and secretary in the re-cordkeeping mechanics of the system.

(7) Start the bookkeeper on daily cash reconciliations and monthly bank reconck17iations (make sure they balance).

(8) Supervise practice entries by the secre-tary (trial period of one or two weeks).

(9) Urge the owner to collect the informationnecessary to compile the initial balancesheet. (See Accounting Interview Ques-tionnaire in Appendix II, Exhibit A.The firm's capital is calculated by de-ducting liabilities from assets. Caution:this-information-gathering normally takes,time--especially if past recordkeeping bythe firm has been inadequate.

(10) Take physical inventory at the end ofthe month. The counting should be doneby the owner and his employees with aspot-check by the consultant.

(11) The secretary or bookkeeper starts theformal noting of entries in the books,with an occasional spot-check by the con-sultant. ,

(12) Teach the secretary how to prepare theFirst Monthly Trial Balance.

(13) Check over the Second Monthly TrialBalance.

(14) The firm takes physical inventory at theend of the reporting period--again with aspot-check by the consultant.

(15) Work with the secretary compiling finan-cial statements and discuss the resultswith the owner-manager. If necessary,explain once again the recordkeepingmechanics of arriving at those statements.

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(16). Counsel the owner on finding a local ac-countant (if affordable) to replace theconsultant and to serve as a continuingexternal check on the accuracy of thebookkeeper's recordkeeping.

(17) Advise the owner to formalize the firm'stax status, legally register the books,and comply with other legal requirements.In practice this means retaining an es-sentially real reporting system, but Si- :h

room to "adjust" certain accounts fortax purposes.

(18) Propose an effective system of internalcontrols for the business. For example,require the owner to sign all checks, andif possible, divide accounting functionsamong various employees as a check andbalance on their actions.

A number of points should be kept in mind whenfollowing the above guidelines. First, the consultant shouldnot proceed with implementation of the accounting systemuntil cash and bank statements begin to be reconciled regu-larly by the firm. Second, he or she must resist the greattemptation to do the bookkeeper's work. 'If the bookkeeperworks out his or her own bookkeeping problems, the account-ing process certainly slows down; however, the educationalvalue of learning-by-doing greatly outweighs the problemscaused by delays in moving the system along. The consultantand pwner-manager should make clear the bookkeeper's account -jng and broaden them as the employee learnsmore about the job:=F'The danger is when accounting functionsfall "between the cracksTM. The bookkeeper may notrFerformcertain tasks (e.g. trial balances) either because he or shedoes not know how, or because he or she thinks it is theconsultant's job. Conversely, the consultant may not perform.,such tasks through lack of time or through assuming that theyare the bookkeeper's responsibility. The end result is thatno one assumes the functions, and the accounting falls behind.This situation often requires starting over from scratch--aremedy which is, needless to say, not too popular with theclient.

Third, the owner will not trouble with monthlyinventories just for the sake of putting together monthlyfinancial statements. The consultant and owner are equallyeager to see the first financial-statements out of the systemas soon as possible. However, it is best to postpone thesecond inventory and consequent compiling of financial

116

results two or even three months after start-up of the sys-tem. Meanwhile,, more time and effort can be expended inchecking the correct functioning of the system. A key checkis monthly trial balances, which therselves provide timely,though partial, financial information.

Fourth, the consultant should address theissue of taxation only toward the end of the consulting per-iod and after the accounting system is functioning wellalong real reporting lines. The consultant, owner, and ac-countant must reach a compromise on the tax issue fh such away that the real reporting value of the system is not con-fused or damaged.

Apart from seeing that the accounting systemfulfills the client's tax needs, the consultant should alsobe familiar with other legal requirements governing thebusiness such as labor legislation, zoning regulations, andcompany registration with the government. A consultant'sknowledge of theie areas will apprise him or her of the needfor certain charge or reserve accounts in designing the firm'saccounting system. An awareness of their cost implicationswill also prove useful in performing financial analyses forthe business.

(2) The MICRON System: One Accounting Approachfor SSEs

In TaluS, the consulting program relied onthe Peace Corps' MICRON accounting system (Selected Biblio-graphy #31). This simplified system consists of three maincomponents: a multicolumnar journal for movement of cashand checks, with corresponding debit and credit entries; alooseleaf credit journal (accounts receivable, accounts pay-'able, employee loans, and bank loans); and a general ledger.'MICRON entries may be recorded in inexpensive notebooks; italso is simple enough that the bookkeeper needs no specialknowledge of accounting to maintain the books. The accountsrecorded in its daily journals provide enough informationfor compilation of periodic balance sheets and income state-ments. The frequency of such statements depends on theowner's available time for inventories.

MICRON is perhaps most appropriate for thetarget firm-sized SSE. Staller SSEs may find the disciplineof daily entries and monthly reconciliations taxing. Largerfirms, on the other hand, may-find the spread of accounts inthe system to be inadequate for .detailed tax purposes. The'system's cash vs accrual bias may also distort the firm'sfinancial reporting. Nonetheless, the MICRON approach is a

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useful one, and the basic steps involved in this system aredepicted in Figure 8 on the following page.

The author's experience in Tulug suggeststwo possible additions to the MICRON system. One would bethe daily reconciliation of all debit and credit transactionson a sheet of paper or in a separate notebook. This record'provides the secretary or accountant/consultant with a checkon the secretary's work. It also furnishes a handy summaryof accounts prior to their individual posting to the jour-nals.

The other suggested contribution to the MICRONsystem deals with the complex issue of post-dated checks.Though a common phenomenon in many Latin American =ountries,post-dated checks may not be so common in other parts of theworld. Nonetheless, such checks exemplify one of the prac-tices by small businesses which complicates the consultant'stask in installing an accounting system. The discussionbelow examines how the consultant might incorporate post-dated checks into a firm's accounting should he or she en-counter them.

The small business person may record post-dated checks in one of two ways. First, he or she may treatthem no differently from current dated checks. By thismethod,the owner deducts his or her own post-dated checksfrom his bank balance, and notes the corresponding debit toaccounts payable if such is the case. Post-dated checksreceived from third parties, however, are recorded initiallyas debits to cash (and noted as credits to accounts receiv-able if such is the case). They are then debited to thebank balance on deposit of the check at maturity. Thismethod of accounting for post-dated checks is the easier ofthe two, and is the best approach when the firm has littlesuch movement. A business with a large number of post-datedchecks, however, will show a misleading credit or red bankbalance under this method of accounting.

The second approach is to treat post-datedchecks not as true checks,but as notes. Consequently, whensuch a check is given or received it is not registered ini-tially in.the cash or bank accounts. Instead,it is recordedapart in special maturities journals (one for third partychecks flowing in, and one for the firm's own checks flow-ing out). These journals are organized with one page foreach month of maturities. A post-dated check is subsequent-ly recorded in the formal books as a credit sale or purchase.It is only added (or subtracted) to the bank or cash balance(and consequently debited or credited to accounts payableor receivable) on maturity of the check. Success of such a

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Figure 8

DIAGRAM OF THE MICRON ACCOUNTING SYSTEM

1st Step

Save all vouchers and receipts

Receipts and Vouchers

Account Balances

2nd Step

Vouchers

Daily Entries -0

3rd Step

Book of Accounts

Register moery month

Take inventory -

Balance Statement

E

.1Account Balances

14th Step

Trial BalanceEvery Month

Credit andAuxiliary books

Account Balances

5th Step

Fill out _monthly

.1.

40 YM1M MOMMIIIim

AccouncBalances

[

Profit and LossStatement

Source: Peace CbrFe' MICRON, Accounting for the Micro-Business: Al Teaching

Manual, Aid #16.

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method of handling post-dated checks requires two elements:first, a tradition'of complying with.the maturity dates onsuch checks by all the parties involved, and second, thetimely transfer of entries between the formal journals andthe special maturities journals. The advantages of suchrecordkeeping are also twofold. It gives a realistic bankbalance in accordance with cash actually in the bank, andthe maturities journal provides an excell4nt means for pre-paring cash budgets. This system was being used by one firmprior to any consulting under the Tuba& program. Eventualconsulting successfully integrated its post-dated check re-cording into a comprehensive accounting system. The firm'sbookkeeper encountered no problem in completing bank recon-ciliations (in fact they are simpler under this method), norin assuring the accuracy of debtor or creditor balances.

In addition to MICRON, other simplified ac-counting systems are available in the United States on a com-mercial basis. Many are complete with pre-printed journalforms and account headings tailored to fit various businesses.Further alternative accounting systems for SSEs are detailedin publications by Malcolm Harper, Fundacibn Carvajal/AITEC,PC,and VITA (see Selected Bibliography #13, 15, 21, 29 and 31).

b. Finance

Financial analysis interprets accounting data inaddressing a wide variety of problems in small business man-agement. The utility of financial analysis in reviewing abusiness's operations, profitability, financing, and invest-ment strategies is illustrated in Figure 9 on the next page.The financial analytical techniques listed below may beparticularly helpful in consulting to small businesses. Note,however, that most of these techniques require informationfrom a consistent accounting system.

(1) Break-even Analysis

This technique, also called cost-volume-profit analysis, allows the consultant to evaluate the pro-fitability or unprofitability of various levels of sales..The break -even point can be easily calculated by using agraph or by projecting income statements at various levelsof sales. This concept is especially useful 'in preparing'financial projections for a client to show him or her if newsales generated by additional credit will produce addedrevenues. Further treatment of break-even analysis is givenon pages 127-128 and page 229 in Malcolm Harper's consul-tancy manual (Selected Bibliography #15), or on page 218 ofJohnson's Financial 'Management textbook (Selected Biblio-graphy #47Y. An illustrative break-even chart is givenon page 103.

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Key Yardsticks:

Rate of Return

Operating Ratios

Payout Ratios

Interest Coverage

Debt-Equity Ratios

Debt Service

Present Value

- 102 -

Figure 9

THE BUSINESS SYSTEM: AN OVERVIEW 4

Ocisting nwesticznts*New and

Key Strategies:

COndUct of Operations

levelopmant)of assets*Market selection`Pricing strategy*Cost effectivenessOperating leverage

Disposition of Profitss

Dividends to curlersInterest io lendersReinvestment of profits

I

Financing Strategy

1 Deb-ts**1 *Types of equity*Types of debt*Financial leverage

IInvestment Strategy

*Types of investmentsflophasis,iand devel-opment

* Assumes an amount equal to depreciation reinvested here.** Assumes continuous rollover, with no reduction through repayments.

4 Although Figure 9 is a helpful illustration for the prospective0 consultant, it is a good example of the kind of abstract illustra-

tion which should not be used with small entrepreneurs in explain--ing.a financial problem.

Source: Taken from Helfert's Techni ues of Financial Anal sis,page 191. (Selected Bibliography Reprinted withpermission.

12.1

Costs(millionsof $)

11

10

9

8

7

6

5

4

-3

2

U

Figure 10

BMX-EVEN CHART

BreakevenPaint 'N

103 -

SalesLiBe

1 2 3 4

1

Total CostLine

"0/Variable CostLine

Fixed Cost Line

r I a a-I I i

5 6 7 8 9 10 11 12

Sales (millions of $)

(2) Financial Statement Analysis

If the firm has financial statements, theiconsultant should analyze movement in kgy accounts over time

o (hori.zontal analysis). For example, are the firm's salesand profits increasing at a rate faster then that of infla-tion? Likewise, he or she-should examine the ratio andpercentage-relationships within a given balance sheet or

' come statement: e.g. Whet proportion of debt to equity.the firm have? If pRosible, the consultant should attto compare any perceietages or ratios with those availablefrom similarly sized businesses, in the same field (seeSelected Bibliography #34). If these statistics are not

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available (as is the case in many developing countries), heor she may compare a company's profit-increases or returnson equity to generally available figures such as consumerprice indexes, or commercial interest rates.

(3). Aging of Accounts

This simple technique helps the consultant .

to evaluate the composition of either accounts receivable oraccoufits'payable. By highlighting the source and amount ofoverdue accounts, it,helps the consultant and client to pin-point slow-paying customers or to identify overdue suppliers.It also may encourage the entrepreneur to explore credit pol-icies to collect accounts receivable more rapidly and to paysuppliers more promptly.

Table VIZ below:An illustrative aging analysis is given in

Table VII

Illustrative AgincJ of Accounts 'Receivable'

Days Overdue

Days Current 0-30 31-60 61-90 Over 90

Month December November October September August

Accounts Receivable . -c

-Customer X $150 $150 .. .. =11.

-Customer Y 250 - - - f -

- Customer Z - 150 $200 $ 50 $ 50

$400 $300 $200 $.50 -$50

Percentage of Total 40% 30% 20% 5% 5%

The above analyiis,indicates that (1) most ofthe firm's accounts.are overdue, (2) customer Y is the most

,punctual client in paying his bills, and CO customer Z isthe least punctual in making payments. Other things beingequal, the business person should reduce his or her businesswith customer Z and acquire more buyers like customers X andY. The clear quantitative picture presented in.an aging ,

analysis of accounts receivable is often helpful in showing

411

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the business person the financial penalties inherent in somelong-standing customer relationships.

(4) Budgeting

Daily cash reconciliation is a prerequisitefor accounting and .cash budgeting by a small firm. TableVIII below illustrates one useful format in completing a dailycash reconciliation.

Table VIII

Sample Cash Budget

Date Description Deposit Withdrawals

June 16 Initial Balance $ 100

Cash Sale 80

Collection of AccountsReceivable 55

Purchase supplies $ 20

Loan to employee 10

Owner withdrawal 35

Bank deposit 100

End balance 70

Total $ 235 $ 235===== =

Reconciliations" sum up all the receipts evi-dencing transactions for the day. Such a cash reconciliationmust balance, and it is thus a good check on a firm's docu-meptation of all transactions. ideally, 'someone other than thesales clerk should make the reconciliation as a check onthat employee's honesty and ability to correctly make change.

Consistently balanced daily cash recOncilia-tions serve two additional purpo : they can provide aconvenient means of summarizihvitrinsactions prior to postingthem to a firm's accounting books, and they provide a goodformat for short-term cash budgeting.

Simple cash budgeting is perhaps the greatestunmet planning need .by the e-sMall business person. The

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consultant should begin to plan tomorrow's cash needs with theclient, then expand the budget to one and eventually two.weeks. The consultant may also employ more sophisticatedbudgetary and planning techniques, such as projection of pro-forma financial statements arid sources and uses of funds.However, such reports are complicated and time consuming andare perhaps most appropriate when required to support requestsfor bank or other financing.

(5) Investment Analysis

The consultant should also assist the ownerin evaluating capital investment opportunities. As the figureon the next page illustrates, a number of factors affect whethera given piece of equipment should be replaced or another oneadded. However, if the decision is made to replace or addto the equipment, rapid capital recovery and return.on in-vestment will be key factors in deciding which equipment tobuy. Two straight-forward methods will help in analyzingsuch a decision: average rate of return (annual cash flowgenerated by the investment divided by the average invest-ment), and cash payback period analysis (the,investment costdivided by annual cash flow). Discounted cash flow analysisis a far more sophisticated means of examining alternativeinvestments and may be difficult to explain to the small en-trepreneur.,

All of these financial techniques will helpthe consultant assist the small business personin implement-ing a general strategy. However, some of these tools, suchas proforma financial statements or discounted cash flowanalysis, should be used by the consultant only on a verylimited basis. In general, it is far better for the consul-tant to use simpler (and perhaps less accurate) means of analy-sis which the client can understand, than to indulge inmore sophisticated techniques which will only puzzle thesmall entrepreneur.

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PresentPoint ofDecision

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Figure 1.1

OPTIONS FOR EQUIPMENT DECISIONS

How law? Problenettc calsequenoes?

Are there better opportunities?Is the product life ("ming to an end?

4hat if volume increases?How sure are the markets?

Re Place/addor smaller

Should a margin of capacity beprovided?

14434`eCan we profit from new technology?What risks are there?

Etc.

Source: Adapted with permisSion from Helfert's Techniquesof Financial Analysis, page 93. (Selected Bib-liography #45.)

Although it is difficult to generalize, thefollowing are probably sound financial strategies for manysmall businesses.

(1) Control Costs

In the industrialized world, it is wise forthe small business to try to reduce fixed costs and to keepother costs variable. This lowers the firm's break-evenpoint, and thus enables it to withstand downturns in salesvolume. This may also be prudent advice for developing coun-tries, especially given such nations' volatile economies andSSEs' fragile equity cushions. However, inflationary con-ditions in many countries may make investment in land, build-ings, and equipment very attractive. And relative to otheropportunities, such ,a decision might be wise. Nonetheless,the consultant should examine with the client the source offinancing for such an investment, the savings it might gener-ate vs debt repayments, and alternative uses for such financ-ing in expanding working capital and operations.

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(2) Match the Debt to the Need

A common pitfall for the business person isto finance fixed assets with short term funds, or to purchasea non-revenue producing asset with borrowed capital. Thefirst decision is unwise since repayments for the loan willmature faster than returns on the piece of equipment. Thesecond is problematical since the purchase does not produceincome to liquidate the credit. This certainly applies tomany consumer or luxury purchases;- it may also apply to itemslike cash registers or adding machines, unless the businessas a whole can produce the added cash necessary to liquidatethe credit purchase.

The consultant should advise the client con-cerning the'insidious expense of bank overdrafts, and thehigh cost of installment purchases. Many banks will offer tocover a firm's check overdrafts. While the amounts may besmall on each month's bank statement, they reflect extremelyhigh annual interest rates which will accumulate over time.Moreover, habitually resorting to overdrafts often discouragescash planning or careful bank reconciliations by the owner:-manager. Installment purchases of equipment can pose similarfinancial burdens, since retailers in developing countriesoften offer extremely.liberal.repayment periods. However,the client usually pays for the privilege by paying doubleor triple the cash purchase price of the,item.

(3) Improve Liquidity

Although liquidity problems may be due tolack of credit, they often result from poor cash managementpractices by the small entrepreneur. Many of the techniquesdiscussed in this section--such as more stringent creditpolicies for accounts receivable and accounts payable, betterinventory management, and more consistent cash budgeting- -will enhance a firm's liquidity position. The cash flowprocess, illustrated on the next page, is discussed furtherin the following sections on Purchasing and Inventory.

(4) Enhance Capitalization

Poor liquidity often goes hand in hand withweak capitalization in many small businesses. It is notuncommon for SSEs in developing countries to have debt-equityratios of 2:1 or greater. By contrast, other SSEs may have alower debt-equity ratio than is necessary due to lack of cred-it opportunities, or due to the owner's aversion to the riskof borrowing (and eventually repaying) money to expand his orher business. In general, the client should prudently ac-quire debt, avoidingtboth of these extremes.

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Figure 12

THE CASH CYCLE FOR A SMALL-SCALE INDUSTRY

n days

Cash

Purchase Raw Materials(Account Payable)

n days

4n = Total days of cash cycle work inprocess

Sale

(Account Receivable)h days

(5) Improve Earning Power

Earning power summarizes many of the previousstrategies in one concise concept: higher net profit margin,times a higher turnover of assets, yields a greater rate ofreturn on assets. In mathematical terms this concept is:

Net operating in me = Net cReratins incase x SalesNet operating assets Sales Net operating assets

Earning power = Margin x Turnover

This expresses a powerful idea in budinessmanagement. Put another way, a maximum profit margin onevery dollar sold combined with maximum sales generated perevery dollar invested will yield the firm maximum return onits asset investment. This idea is a valuable one for theconsultant to explain to small entrepreneurs, most of whomoperate with only one half of the right side of the eqAation:i.e. high profit mark-up, but low'sales volume.

In pursuing the above strategies, the con-sultant should assist the client (upon request) with finan-cial analyses in making credit applications. However, theconsultant should restrict his:role to one of advisor andintermediary; it should be clear to both the client and thebanker who is responsible for soliciting and paying the'loan.

Many SSEs are unable to obtain commercidl orpublic sector credit. In such cases, loans from familymembers, cooperatives, or moneylenders may be the'only option.

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4

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By making initial deposits in a cooperative'or credit union,the small business person may,eventually be able to boriowa multiple of his or het deposit with little red tape orelaborate restrictions on the use of the funds. Despite theirhigh interest rates, moneylenders can also be a useful sourceof financing for small business. They often seek relativelylong term investment opportunities where they can receive asteady monthly interest income. Their credit requirementsare also usually much more informal than those of private orpublic sector banks. On the other hand, moneylenders mayabuse their position to obtain gifts or discounts On merchan-dise from the owner (thus raising the real cost of the loan),or to learn the entrepreneur's business in order to set up acompeting enterprise. Nonetheless, a reliable moneylendercan be a good credit source if the borrowed funds ale profit-ably invested bY.the owner.

c. Marketing and Sales

Marketing is that branch of business administra-tion which addresses customer demand. A firm's marketingstrategy should help it better address the potential demandfor its 'goods and services. The small business's marketingstrategy should consist of five areas: market definition,market research, product development and pricing, packaging,and sales and advertising.

(1) Market Definition

The small business person should make a con-scious decision about which market(s) the firm addresses.Customer characteristics, competition, seasonality, and sus-ceptibility to changes in general economic conditions.areimportant factors in defining one's market. In assisting theclient, the consultant should evaluate whether the firm ismeeting a growing market, and occupying a niche in thatmarket without serious competition. If not, the client shouldconsider switching product lines. If the consultant recom-mends such action, he or she should do so as early in theconsulting as possible and prOvide the client with financialprojections and other analyses supporting the new productline. If the SSE is a manufacturing firm, it is normallybest to recommend a product which can be made using as muchof the firm's existing equipment and human resources as pos-sible. For example, a metal bicycle frame manufacturer canuse similar equipment, skills, and raw materials in producingmetal-frame furniture.

Even if the small firm's existing productshave a promising future in the marketplace, the consultantand client might decide that a slight change in market focus

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r

could brighten prospects further. For example, a manufactur-ing firm might decide to sell only to wholesalers or direct-ly to the general public. A retailer might decide to dependOn only a few large customers, or to diversify sales among awider variety of smaller customers, perhaps offering specialcredit terms.

2) Market Research

As the entrepreneur defines the firm's mar-ket, he or she should research customers' needs and desiresand assess competing products and services offered by.otherfirms in the market. ^For the small business person, a goodway to initiate such research is to keep a card file oncustomers, noting their tastes, preferences, and reactionsto the product. Industry publications (where they exist)will help him or her to keep pace with changes in the market,And if the opportunity arises, the small entrepreneur shouldattend trade fairs in the field to keep abreast of new mar-keting trends; In addition, the owner or an observant em-ployee should periodically visit competing businesses in thecommunity to compare their prices and products with those ofthe firm.

(3) Product Development and Pricing

A small manufacturer's product developmentand pricing strategy is.an important step in assuring aproduct's niche in the marketplace. Quality control, andthe ability and willingness to modify designs to meet newdemands will help to sell more products. And proper pricingis essential to assuring a market and a healthy return forthe firm's product. Four factors influence how an SSE setsprices: competition, demand, costs, and legal controls. Thefirst two factors are usually familiar to the small businessperson. However, weak accounting records and a poor rela-tionship with local authorities may lead the owner to passover the other two factors.

In a retailing firm, accurate costs of prod-ucts are based on their purchase price; pricing can be ar-rived at simply by applying a margin large enough to coveradministrative overhead and a profit factor as high as thecompetition allows. Manufacturing companies, however, findit more difficult to establish a product's cost, especiallywhen inventory controls and accounting are lacking. A firm'spricing strategy can be further confused by tilt owner's pro-pensity to .variably negotiate the-sales price of many of his orher products._

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A

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While helping the client establish optimalpricing, the consultant should suggest that the client ex-plore varying price/volume relationships. Many small entre-

e preneurs prefer the security of a low volume/high mark-upmarket, rather than the greater risk and work, but greaterprofitability associated with a higher volume/lower mark-upmarket. The client should pilot test various prices for hisor her products with customers to see which range yieldsthe largest amount of sales and profits,otaking into accountthe client's ability to expand.

(4) Packaging

Packaging may be important in marketing afirm's productIdepending on the product and the market. Ina small hardware store, for example, stock items such asnails or ball bearings, will likely be sold from collectivecontainers and packaged in old newspapers. Economical prices,not sophisticated packaging, will sell more of these items.

' On the other hand, larger ticket items, such as tools and ap-pliances, should be packaged so as to enhance their appeal,highlight their uniqueness, and perhaps offer suggestions ontheir use.

(5) Sales and Advertising

A good .sales operation is the final link ina sound marketing strategy. The owner may wish to hire salespeople to increase the firm's turnover. However, many salespeople may be motivated to bring in,as many orders and commis-sions as possible, regardless of the customer's credit recordor the production capacity of the firm. Except for distantclients who might best be handled by traveling sales peopleor established dealers, the owner is often wise to resistdelegating all of the sales function to others. By retaininga personal role in making sales, the small business personstays in tune with his or her customers and with the strate-gies of competing firms. Tasks such as accounting or plantmanagement are probably better delegated to other's before apentrepreneur relinquishes his daily contact with sales.

A firm's advertising can range from a signoutside the building identifying the business, to labels onindividual products, to slide advertisements shown in localmovie theaters. Some of the many alternative ways to adver-tise products are listed below:

Photographs of merchandise: A catalog withphotographs of key products, includingcaptions indicating dimensions and colors)will allow the owner to show and sell the

131

alo

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product to a customer without actually hav-ing it on-hand.

Advertisements in the media: Ads in thelocal press, on the radio, or printed onLandbills (See Figure 13) can also bolstera firm's sales. Such advertising is mostappropriate when a mass market exists for

t.the company's good or service.

Shop layout and display: Care in this areawill impress the customer with the neat ap-pearance of the firm and can also be usedto direct attention to certain products.

Promotion of sales/specials: If a firmchooses to hold a sale of limited duration,it may want to use more attention- gettingtechniques to attract customers.' These mayinclude hiring promoters with loudspeakersor even using clowns with sandwich signs onstilts. .

Product quality and service: Good productsand .follow-up service to repair defects maybe an SSE's beSt sales strategy. Unfortu-nately, many firms neglect this important

'marketing tool.

d. 'Purchasing and Inventory

Just as a marketing strategy should precede actu-al sales, sofa purchasing strategy should come before actualbuying of inputs. The isolation of SSEs in small communitiesin developing countries may force them to rely on a few sup-pliers. However, other firms may traditionally use certainsuppliers and never actually calculate the costs and bene-fits of. these relationships. Therefore, in evaluating or re-evaluating a purchasing strategy the consultant might con-sider the following:

"(1) Source of supply: Should the firm buy aninput directly from the manufacturer or indirectly through aretail or wholesale outlet? Buying direct often occasionslarge economies. Moreover, should the company purchase fromseveral sources of supply or only from a few,principalsources? As another option, a small industry might considermanufacturing some of its inputs instead of purchasing themready-made from a supplier. A consultant will frequentlyconfront this situation and should be prepared to advise theowner on such make-or-buy decisions.

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Figure 13

EXAMPLE OF AN ADVERTISING HANDBILL 5

ECUARICROECUATORIANA DE NIQUELAQOS Y CROMADOS

EXHIBICION: Martinez 211 telt 823588PL AMA: km. 2 via Banos tel. 825428 -Ambato

Atendemos pedidos de ,Provincias con, Precios Especiales

JUEGOS DE SALA CAMAS CUM =RASESTANTERIAS MODULARES , MESAS PARA T.V.

JUEGOS DE COMEDOR DE WDRIO

VELADORES JUEGOS PARA OFICINA.

TUBOS CROMADOS

SILLAS MESAS PARA MUMS DE SONIDO

Peru Is Industda Metalmocauice: Send* do shade, pavonado,latonade, cobrizado, idquelados aroma& sic.

ECUANICROEcuadorean Nickel and ChromeStore: Martinez 211, telephone 823588Plant: km. 2 via Banos, Telephone 825428 - Ambato

WE ATTEND ORDERS FROM THE PROVINCES WITH SPECIAL PRICESLIVING ROOM SETS BEDS CRIBS PALLETS

MODULAR BOOKCASES T.V. TABLESGLASS DINING ROOM SETS

NIGHT TABLES OFFICE SETSCHROME TUBES

CHAIRS TABLES FOR SOUND SYSTEMSFor the Metalmechanic Industry: Zinc, bluing, tin, copper,nickel, chrome plating, etc.

5Sample handbill found in Ecuador.

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One relatively simple way is to calculate theyearly marginal savings (vs outside purchase) accruing to thefirm by making the input, and divide this into the addition-al cost of equipment and machinery needed to produce it.This calculation will yield the number of years necessary forthe firm to recoup its investment. The longer the investmentrecovery period, the relatively less attractive the decisionto manufacture the input.

(3) Assessment of suppliers: Before buying froma supplier, the entrepreneur should evaluate the followingcharacteristics of the supplier:

-- Quality of the product

-- Timely delivery

-- Honesty of claims for the product

- - Acceptable total cost of the item (i.e.including the cost of the number of defectiveitems and late delivery time)

- - Technical services following an item's deliv-ery to guarantee satisfaction with the sup-plier's product.

(4) Recordkeeping: The small business shouldkeep a careful chronological record of all its purchases.Entries should note the date of purchase, item(s) bought,name of supplier, unit price, total price, and credit termsor other conditions (e.g. promised follow-up servicing ofthe item). The owner or employee should indicate in therecord book which purchases have been ordered bat not re-ceived, which have been received (and in what condition),and for which orders has the final invoice been received andtransferred to the bookkeeper or cashier for payment. Goodpurchases recordkeeping, if performed by an employee otherthan the stock clerk,may also constitute a cheek on thestock clerk's accounting for inventory (see below).

(5) Controls: If an employee does most of thecompany's purchasing, the owner-manager should exercise pro-per controls over his or her actions. A larger industry witha separate agent, accounting clerk, cashier, stock room clerk,receiver, and plant foreman might use the following systemfor controlling purchases (and inventory).

Inventory (Kardex) Card: Keeps perpetualrecord of balance of merchandise in the stockroom. After glancing at an item's stocK

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balance, the stock clerk or plant fdremancan then prepare aurchase requisition.

Purchase requisition (two copies): One copyis kept on file in the stock room and thesecond copy is sent to the purchasing agentfor action.

Request for price quotations (two copies):Correspondence initiated by the purchasingagent with letters sent to each vendor andcopies kept by the agent.

Purchase order (at least four copies): Thisform, signed by the owner-manager, should'authorize all purchases over a given purchase.value. The purchasing agent should probablyhave. the authority to sign purchase ordersfor routine purchased in small amounts. Onecopy of the purchase order is kept by thepurchasing agent, one is sent to the vendor,one notifies-the receiving department of whatmerchandise to expect, and one notifies thestock control department that the merchandisehas been ordered.

Receiving list or report (at least three co-pies): Once a shipment is received, a receiv-ing clerk should compare the quantity and-quality of the merchandise received againstthe specifications in the purchase order. Ifsatisfactory, the clerk then sends one copyof the receiving list to the stock clerk, andone'to the purchasing agent.

Vendor's invoice (one copy): This is the"final bill from the supplier. It first goesto the purchaser for approval on the type,quantity, and price of the merchandise, andthen to the cashier for payment by check.

Once an item is purchased, it enters the firm'sinventory. As indicated above, the stock clerk should main-tain a, perpetual inventory record so that the firm knows howmuch of a given item it has at any one time. The first stepin organizirig such a system is to clean the stock' room, plac-ing all items in separate,labeled bins or shelves. Ideally,the clerk should release materials to workers over a lockedcounter. Items should not be released from the stock roomunless the worker has a written authorization from the owneror plant foreman to show the stock clerk. When the item is

135

4.

Item

Location

f 1

- 117-

released fromj.dhhe stock room, the clerk then noted this on aperpetual invtory.Kardex card;

Each item should have its own Kardex card (actualsize and format is shown in Figure 14). Apart om date ofpurchase and other data, the card essentially re rds receipof merchandise into the stock room ("stock in" wh shouldtally with the receivingolist), its release/from theroom ("stock out"), and a running balance. The card can.alsocontain controls as to the minimum or maximum amount of theItem desired in stock. The minimum amount can serve as anautomatic reorder 'identification for the stock clerk. Fur-thermore, the card can indicate the price of the it'm; how-ever, this complicates recordkeeping and a consistently ac-curate quantity check is easier to maintain.

Figure 14

SAMPLE KARDEX CARD

Unit binimust

Reference

'Maximum

Date0

/'Description Unit . Stock I.0 Stock Out balance

Value .1.1antity va ue quantity value uanti 'vaT.Te 4. (

. .

. _. .

$

(1.?

---,,

. .

----..--

L.

.

c

.

. .

.A.-,

- 118 -

In manufacturing firms, inventory control is morecomplicated than for retail firms since there are three ca-tegories of stock: raw materials, work-in-process, andfinished products. Stock records in small industries arealso more vital since they can assign portions of lump costssuch as overhead, labor time, or raw materials to individualproduct lines. Entries #15, 43; 46 and 51 in the SelectedBibliography provide further information on cost accountingsystems.

Good inventory control in a small manufacturingfirm seeks to prevent theft and waste of raw materials, inaddition to providing cost information. Yet cost accountingsystems are often very difficdlt for small businesses to ad-minister. For example, it is difficult for a small industry'sstock clerk to know when to record movement from work in

.process to finished product, unless he or she is speciallyinformed by the plant foreman. Special formulas for assign-ing overhead or labor time to individual products can also becomplex. The stock clerk may take advantage of the positionto steal, or be resented by fellow workers for doing the jobproperly, and eventually become ineffectivq.

As a result, the consultant should carefully con-sider the complications of cost accounting systems before sug-gesting one to the entrepreneur. Is information produced bythe system worth the time and expense of operating it? In somecases,a firm's inventory control needs can be met throughmuch simpler procedures: workers can,just sign receipts forraw materials withdrawn, and the owner or plant foreman canmake periodic checks on how such material has been used; theentrepreneur can make use of gross margins to estimateprod-uct costs; and he can perform periodic physical inventoriesto help detect theft and waste of merchandise on manufactur-ing inputs.

Periodic physical inventories can be used inplace of perpetual systems, or they can be used as an occa-sional check on the accuracy of such systems. Such an in-ventory should take place before a new accounting system isinstalled, and regularly thereafter--at least once; andpreferably twicela year. The taking of physical inventoryshould coincide with a slack period of business activity,and the firm should be closed to the public in order to takeinventory. The following steps are useful forthe consultant to follow in taking physical inventories:

-- Organize a team of employees to count inven-tory on pre-typed stock lists,

r6

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-- Tag all items counted to avoid double.counting.

-- If a manufacturing firM, include all unsoldwork in process and final products.

-- After the physical count,,an employee shouldapply costs to each stock-item and calculateits total value.

-- Inventory data should then be transferred tothe firm's accounting records, and used tocheck the accuracy'of a perpetual inventorysystem if the firm has one.

Purchasing and inventory procedures constitutea key link between a small industry's production of a productand its later sale and shipment. All ofthese steps areoften described in the context of a hudkness's physical dis-tribution ,system. Apart from purchasing and stock practices,such a system will include storage and shipping. For example,certain products may require special storage conditions:proper temperature, spacing, or freedom from dampness. Anddepending on the country, shipping alternatives may rangefrom sending products on beasts of burden to shipping themon trucks or busses.

By better understanding a small business's physi-cal distribution system, the consultant can assist the ownerin minimizing the space, time and money devoted to success-fully distributing a product. The interrelationship of thevarious elements in such a system is summarized in Figure 15.

e. Personnel

Personnel administration differs from culture toculture and the consultant will have to judge what kinds ofmanagement-stylps are acceptable in his or her country.Nonetheless, the small entrepreneur should address the fol-lowing key areas in personnel administration: hiring, firingand delegation of responsibility; compensation, tre.ning,and motivation; written employee records and company policies;and employee health and safety. By advising the owner in sunkareas, the consultant should help the entrepreneur overcomeemployee turnover and absenteeism, a common problem in manySSEs.

(1) Hiring, Firing and Delegation

One way to assure a stable and competentlabor force is to select employees carefully. The smallentrepreneur should first have a clear idea of the job for

138

Figure 15:

.

THE DISTRIBUTION SYSTEM ..

Reprinted with permission from the Handbook of Modern Marketing,edited by Victor P, Buell and Carl Heyel, McGraw Hill Book Company, 1970, pp. -52.

,

k

t

A

13

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which a worker is needed.- A clear conception of the taskwill often help the owner define the corresponding skillsand aptitudes required of the prospective employee. Theowner should then locate possible candidates by way of per-sonal references, or perhaps by,advertising in the localpress. In selecting an employee from this pool, he or shemight conduct a personal interview with the candidate, andperhaps test him or her at a given work task. It is alsowise to obtain letters of reference from the worker's lastplace of employment, as well as reactions from other indi-viduals in the firm who would work with the new employee.

The owner should make employees aware ofproduction quality standards and rules concerning personalconduct while on the job. The owner-manager should also keepa written record' of each employee's job performance. Suchrecords will assist the entrepreneur in deciding whether topromote, or perhaps fire an employee. If an entrepreneur isconsidering firing a worker, he or she should talk to theemployee and other workers concerning the-employee's perform-ance before arriving at a decision. If the owner wishes to dis-miss the individual, he or she should personally inform theemployee of the decision as soon as possible. Protracteddelay and uncertainty over personnel problems will only harmboth employer and employee.

Delegation of responsibility can reduce em-ployee turnover by creating ladders of advancement withinthe firm. it should also help the entrepreneur make betteruse of his or her time in managing the business as a whole.The entrepreneur of a small factory, for example, can dele-gate supervision of workers at a given production station toa senior worker, can assign purchasing and production plan-ning to a plant foreman, and can turn over bookkeeping andsecretarial duties to a clerk. However, given an SSE'ssmall size, the amount of work in a specific area often doesnot warrant creation or delegation of a full-time work slot.Consequently,'the entrepreneur will often have to delegatesuch work to a part-time employee, add to the responsibili-ties of an existing full-time employee, or retain the func-tions him or herself until expansion of the firm justifiescreation of a full-time job slot.

`It is usually difficult for a small entre-preneur to delegate responsibility. He or she is proud ofhaving the prominent position in the enterprise and oftenviews delegation of detailed tasks as surrendering authori-ty. The owner may claim that no employee could be trustedto carry out such tasks without abusing that trust. Finally,delegation often requires a basic shift from a paternalisticto a more teamwork-type management style. Despite thechallenges, delegation of responsibilities to workers and

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managers is necessary for the small firm to Increase itsproductivity. Moreover, the small business person does nothave the time to perform all tasks equally well. And con-trary to common fears, it may be 'demonstrated that delegationwould give the owner more, not less, control over the enter-prise and allow continued expansion of the firm.

In delegating a task to an employee, theowner should take care that it is delegated precisely, andwith adequate authority to carry it out. Once delegated, theentrepreneur should allow the employee to exercise the respon-sibility. If the employee does need discipline or instruc-tion, the owner 'should do this away from the other workersover whom the employee has delegated authority.

(2).Compensation, Training and Motivation

Workers must be paid adequately and regularlyif they are to continue to work for the enterprise. If thebusiness produces a quality product, an hourly wage is oftenmore appropriate,whereas if the product is lower in qualify,a piece-work rate might achieve greater production and great -er- incentives to workers. For example, a producer ofhandcrafted copperware for export will produce a relativelysmall volume of high-priced goods. He or she is more inter-ested in the time and skill of workers in producing qualityproducts, and thus an'hourly wage is indicated. However, amanufacturer of inexpensive wooden packing crates is far moreinterested in quantity than quality to make a profit. There-fore,such a business person would be well advised to payworkers so much for every crate built, thus motivating themto maximize their production during a given work day.

Market conditions or the law also often re-quire a number of fringe benefits for employees such associal security, vacations, transport to and from work, anduniforms. Workers may also expect to be able to periodicallyborrow small amounts of money from the owner to meet personalexpenses.

Employees need training to perform a jobeffectively. A worker must know how to operate a machineproperly, a clerk needs to strengthen his or her accountingskills, and a new plant foreman requires guidance in super-vising employees. The owner-manager should devote time toreceiving and passing on such training--often a first stepin delegating responsibility (discussed above). In othercases, government agencies or private commercial schoolsprovide training outside the work-place. If such schoolingtakes place after working hours, the small business personshould consider paying the employee's travel and tuition costsfor the classes.

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The entrepreneur will not retain loyal, hard-working. employees just by paying and training them. He orshe must also treat workers sensitively--in essence, strivingto operate under the same principles the consultant uses inIdealing with him or her.

A

As noted earlier, adequate compensation andother benefits, relevant training, and sensitive supervision -all enhance worker motivation. Other incentives might in-clude the following:

Job enrichment. Varying employee's workroutines, upgrading equipment, and ex-panding responsibilities can all increasejob satisfaction.

Group Activities. Production contests inthe plantlor company picnics for employeesand their families, can inspire a greaterfeeling of teamwork on the job.

Employee merchandise discounts. Suchdiscounts add to the employee's compen-sation and also make him or her more self-interested in producing a quality product.

Awards. Employees might receive plaques,caps or badges (all bearing the company'slogo) in recognition of superior perform-ance.

Profit-sharing. The small entrepreneurmight offer workers a share in increasedprofits as an incentive to expandingtheir production. Larger enterprisesmight also enable employees to buy com-pany stock at discount prices.

(3) Written records and policies

Written records--concerning delegated tasks,records of employment, and company procedures and policiesare another element in good administration of personnel inthe small business. The informality in small business oftenleads to confusion and conflict over what actions are a4-able. For example, can an employee.leave work on histo borrow a tool from the workshop next door to comple.L, ajob, or should he or she ask permission from the foreman orthe owner-manager before doing so? Written company proceduresand perhaps notices on a company bulletin board can make clearto workers their rights and responsibilities on the job. More-over, simple organization charts can guide the owner in divid-ing functions among employees.

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(4) Employee health and safety

Employee health and safety is a neglectedarea in many SSEs in developing countries. Yet improvementsoften cost very little and simply require a changed attitudetoward health and safety by the entrepreneur and the laborforce. Use of protective clothing, careful storage of. tools,cleanliness of work stations, and proper ventilation in asmall factory not only improve workers' welfare but increasetheir productivity. Prudent practices concerning handlingand storage of flammable or explosive materials will alsobenefit individual employees and the plant as a whole..

f. Production

The management consultant should attempt to learnas much as he or she can about the production side of thosesmall businesses which are manufacturers. Selection andmaintenance of equipment and materials, plant layout, quali-tylcontrol, and manufacturing budgets are some areas wherethe consultant can apply both management skills and commonsense in helping the owner-manager.

When the plant closes for inventory, the con-sultant should suggest that the owner use the downtime toperform neglected maintenance such as repairing the building,painting the p)ant, or moving tools and equipment to improvework flow. The consultant should also assist in seeing thatthe raw materials and equipment are properly stored andprotected.

The consultant will probably not know enoughabout the industry to help the owner.with the application oftechnical criteria in selecting equipment or raw materiali.46However, he or she should advise the owner to consider al-ternative inputs and equipment from other suppliers so as toget the best quality for the lowest price. The-advisorshould also ask the entrepreneur if adequate financing isavailable, especially for purchases of fixed assets. If anequipment purchase is considered, the consultant should askthe owner exactly how the new machine will fit into and helpimprove the production process. In addition, he or sheshould assist the owner in considering other options such as

6 As noted in Chapter Two, the consultant would ideallybe able to draw on the advice of an industrial engi-neer or an experienced local craftsman in assisting thesmall business person. Such cooperation would broadenthe impact of the consultancy on the firm, and help ad-dress the deficiency indicated above.

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buying an older piece of equipment, 'hiring additional workers,or scheduling extra work shifts with the same number of em-ployees.

A rudimentary floor plan can also help the con-.

sultant and client to better understand the production pro-cess and note areas for improvement. With such a plan theycan readily identify areas for storage of raw materials andfor stocking the final product ready for delivery so as topermit greater control and more efficient work flow. Figure16 on the following page provides a sample floor plan drawnfor a cheesemaking plant in rural Ecuador.

An owner-manager can also lay out his plant topermit closer supervision of employees and greater delegationof responsibility to managers. A metal furniture maker, forexample, might profitably divide operations among one plant,to assemble the metal frames, another to upholster them, andperhaps a third separate location to retail the final product.'Such dispersion groups workers into smaller, more easilycontrollable units. Moreover, breaking the plant into threePhysically separate units provides openings for three dif-ferent managers. Different business locations allow thesemanagers greater relative freedom in running their operations.Different locations also make it more difficult for any onemanager to master all aspects of the owner's business andlater quit to set up a competing firm.

Quality control involves efficient production ofa quality product, with a minimum number of rejects in theplant or returns by a customer. Efficient production impliesthe economical use of labor, time, and raw materials inproducing the product. By patiently observing how a productis made, the consultant can often make common-sense sugges-tions for making the process more efficient. For example, doworkers make many independent measures of materials insteadof using patterns or models? Can the purchase of small powertools make workers more efficient, and thus enhance produc-tion? And how closely are workers supervised and productsinspected, thereby strengthening quality control? By posingsuch questions, the consultant and the client can work to-gether to help improve the technical productivity of thebusiness. If the consultant wishes to refine advice in thisarea, he or she can conduct time-motion studies of employee'swork habits. Such studies can result in recommendations formore standardized operations by employees in order to improvetheir productivity.

The consultant can also improve production byhelping the owner to organize manufacturing budgets. Suchbudgets enable the entrepreneur to forecast his or her needs

144

145

FIGURE 16 : FICORPLAN FORA 600-LITE M,CAPACITY CHEESEMAKING

4.00 600 250 .4._

11

MADURACION(Aging :man)

(Brine)

fa

Mesa deLaboratorio(Laboratory table)

ELABORACION(Processing)

BODE GA(Storerocni)

=

OFiCINA RE CEPCION(Office) (Reception)

7The cement floor is inclined to allow runoff of wastewater. Storeroom must be shaded with temperatures of12° C.

Source: Reprinted with permission from. JoseEubach's booklet, El ABC para la QueseiaRural del Ecuador.

146

rrts?

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for raw materials and labor to meet a given production tar-get. And if budgets allow the owner to meet the target, heor she can then assure customers of delivery times withgreater confidence. The production budget estimates thenumber of'units of each product whidh will be produced inthe coming budget period, say one month. The budget shouldestimate the quantity of the finished good presently avail-able in inventory, plus the added production which will benecessary to both meet anticipated demand and to yield an ade-quate inventory at the end of the period. The productionbudget (expressed in units rather than money values) is basedprincipally upon projected sales. In addition to sales, thebudget must consider such factors as the production time (andequipment and labor skills) required to produce a unit ofproduct, the storage facilities which are available, the"cost" of unfilled or out-of-stock orders, and perhaps eventhe perishability of the product. Once assembled, the produc-tion budget may result in plans to acqyire added productivecapacity, or revising sales budgets to keep them in linewith productive capabilitipes.

A budget for costs of production is a neces-sary complement to the production budget. It contains esti-IP'mates for raw materials, labor,and manufacturing overheadnecessary to meet the targets in the production budget. Oncecompiled, the costof-production forecast will help measurethe affordability of the production goal. Moreover, bothbudgets will provide valuable data in completing the company'sprojected cash budgets.,

g. Planning

As Figure 7 at the beginning of this sectionindicated, planning should be the lens through which thesmall business person organizes all business activities.Chapter One noted the small entrepreneur's reluctance toplan. Yet planning is crucial in equipping the owner-managerto deal with an uncertain future, and in forcing him or herto evaluate current operations. In essence, planning en-courages the small business person not only to look to thefuture, but to design step-by-step strategies for achievinghis or her objectives.

In general, the consultant should work with theclient in performing two different kinds of planning: stra-tegic and operational. In strategic planning the clientshould take a long-term view of the firm; one or two yearsin advance is probably a reasonable period. He or she shouldask him or herself how the firm's_market may evolve overthat period. What new equipment may be necessary? Wherecould financing be obtained to acquire such equipment?

147

128

FIGURE 17: STEPS IN THE PLANNING PROCESS

Define the

PROBLEM

7.?Look for

INFORMATION

Formulate aUI 011111" AMMO PLAN OF ACTION

Mill I

6

Put your

PLAN IN MOTION

Analyze and Evaluate

RESULTS

148

aD

(5)

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And what major changes in personnel might occur over thenext year? As with any planning exercise, the client shouldcommit questions and answers to paper, perhaps discussing.them with the consultant.

Operational planning assists the owner-managerwith the daily, weekly, or monthly running of the business.PerLaps the simplest form of such planning is for the entre-preneur to keep a pocket calendar in which he or she notesimportant delivery times, appointments, and other key dates.The owner might supplement this system by taking twentyminutes at the beginning of each workday to write down theday's projected activities on a sheet of paper. This exercisewill help him or her to choose which tasks can be'done todayand which must be postponed until tomorrow. It will alsocompel the entrepreneur to sit down and prioritize the day'sactivities.

Budgeting or quantitative forecasts are anothermeans of planning a firm's operations. Previous sectionshave discussed cash, financial, and manufacturing budgets.Other areas of small business administration, such as per-sonnel and purchasing, can also be aided by the use of bud-gets.

In planning for the future, the small businessperson should also consider the need for insurance and.invest-ments. Although insurance can cover a wide variety of needs,fire and automobile (if the entrepreneur owns one) insurancefor the' businessoand life and health insurance for the owner-manager are essential. The consultant should encourage theclient to review insurance needs and urge him or her to con-tact a local insurance agent.

Given the shortage of capital common in many SSEs,the small business person may have difficulty in perceivingthe need for depositing savings or making investments. How-ever, unless the business is failing, the entrepreneur shouldperiodically deposit cash in a bank savings account. Suchsavings can accumulate cash which can be used,for predictablylarge, one-time expenses such as ppyment of special salaryincrements and incentive bonuses to.workers at the end of theyear. They are also valuable in providing the firm with acash reserve which can be' drawn on in an emergency.

'149

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D. Work Related to Management Consulting

)The heart of any consulting program consists of manage-

ment assistance to individual firmiland support to localinstitutions which can carry on, SSE promotion activities af-

, ter a Consultant's departure. Nonetheless, a consultant canalso promote three types of community activities which mightideally complement the above two objectives: small business:cooperatives, trade fairs, and external investment, promotion.Since all of these actions require community support to beeffective, the consultant should carefully consider whetherthis will be forthcoming before encouraging such activities.

1. Small Business Cooperatives

By joining or:creating cooperatives, small entre-preneurs can cooperate in purchasing raw materials, market-ing output, or, through a credit union, obtaining loans. Un-like sole proprietor ips, the equity of cooperatives is held

itby many individuals their activities are managed demo-cratically.' Cooperati S also normally produce goods andservices only for their members, usually at low prices.

Cooperatives vary widely in their degree of sophis-tication. For example, the informal "solidarity groups" ofthe Federation of Credit Agencies (FEDECREDITO) program inEl Salvador are groups of five to ten entrepreneurs whoguarantee each other's borrowing fkom the Federation. (SeePISCES; Selected Bibliography #9.) On'the other hand, somecooperatives may be large organizations offering a wide rangeof-services to members and the general public. A good p,ac-tical manual on cooperative and credit union management isfound in Peace Corps' Cooperatives resource packet. (Se-lected, Bibliography #29.)

-

Although a cooperative may appear to be an idealsolution to small entrepreneurs' problems, such an organiza-tion may be difficult to establish among competitive and in-dividualistic owner-managers. Government controls and shar-ing of equity also usually make a cooperative's bookkeepingmore complex than for a sole proprietorship. In addition,the more comprehensive the services proposed for the cooper-ative, the more complex it may be to administer and financeit. As a result, it is often wise to initially restrict anew cooperative organization to a narrow service benefitingdifferent and not directly competitive businesses. Oneexample, might be a purchasing coop to buy steel tubing for .

the many types of manufacturers that use this raw material.

Generally, the consultant should gain experience ,consulting with small entrepreneurs individually prior to

- 131 -

assisting them in group enterprises. He or she might alsoconsider the following questions before helping to create orstrengthen ,a cooperative among small business people.

(a) Why a cooperative?

Does the task require a formal, permanent co-operative organization? Some activities, suchas purchase of a raw material in bulkfmay re-quire more informal types of association.

(b) Would a cooperative Venture be a good businessopportunity?

In addressing this question, the consultantshould consider the same factors he or she wouldin evaluating a small enterprise opportunity:i.e. market, location, capital, personnel, andother factors.

(c) Now will the cooperative be financed?

Will member business people finance the venturewith equity capital, or will external credit alsobe necessary? Arrangements must be made so thecooperative's financial affairs will be accuratelyand honestly accounted for. Measures should alsobe taken to prevent decapitalization of the co-operative by members who insist on goods andservices below cost.

(d) Where will the cooperative be located?

It may be wise to locate the cooperative in itsown, separate building. Though it may be cheaperto site it in an unused portion of one share-member's plant, such a location might inspiresuspicions among the rest of the membership thatthe host is gaining favorable treatment.

(e) Now will the cooperative be managed?

Unlike a sole proprietorship, a cooperative hasmany owners. Its activities are directed byelected officers in accordance with written bylaws--all approved by the membership. Thus, the con-sultant should have a good appreciation forgroup dynamics. He or she should also assistthe coop's officers in consciousness-raising ac-tivities designed to increase present and

151

prospective members' awareness of the meaning.and purpose of a cooperative, still an unfamil-iar concept in many countries.

2. Trade fairs

If demand is a problem for SSEs, one way to increaseit is to sponsor a trade fair with a focus on small-scalebusinesses in the region. Such an event would facilitatesales by bringing together many buyers and sellers in a com-mon location. Since attendance of prospective customers iscrucial to a fair's success, it is best if the SSE tradefair occurs at the same place and time as another popular es-tablished fair or religious observance in the area (e.g. anagricultural fair).

Organization of a trade fair is a major undertakingand requires a great deal of advance planning. Before or-ganizing a trade fair, the consultant and local sponsorsshould assure themselves that SSE exhibitors will have ade-quate stock on hand to meet a hopeful surge in demand. Loca-tion of banking facilities on the fairgrounds should alsohelp finance these sales.

The consultant might also consider the followingpoints before organizing a trade fair:

(a) Content and focus: Will the fair be local, na-tional, or international in scope? Will it hostfirms from one or several business sectors? Willit be linked to an agricultural or other fairwhich might draw wider crowds? Who will be at-tracted to the fair (customers, suppliers, bank-ers, tourists, government officials)?

(b) Location and support facilities: If the communi-ty has existing fairgrounds, this would be thebest site. If not, a public park or vacant lotmight do. In any eventipublic utility hookupswill probably be necessary to service refresh-ment concessions, exhibitors' stands, and per-haps a first aid station. Once the general lo-cation is determined, the organizers should plotthe arrangement of the exhibits, walkways, andcther facilities to encourage a steady flow ofvisitors around the grounds.

(c) Financing and organizing: A steering committeeshould be established to carry out the varioustasks associated with the fair. The committeemight collect funds to finance advertising, to

15?

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contract entertainment and to partially subsidizethe cost of exhibit-stand rental to small entre-preneurs. The organizers might also charge thepublic a modest admission fee to the fairgroundsto help cover these costs.

(d) Publicity: The fair's sponsors could print hand-bills and programs, or purchase local press andradio advertising (where available) to publicizethe event. Local or national dignitaries mightalso be invited to help inaugurate or conclude thefair.

3. External Investment Promotion

te consultant can also complement his or her SSE ranage-ment assistance by mobilizing local investment resources forsmall business. Private commercial banks, local landowners,or government agencies may all possess resources which couldbe productively lent or invested to SSEs. However, often aThird World community's local resources are limited, as areits reserves of technical and managerial talent. Consequent-ly, external investment by business outside the communitymight help address these constraints and promote a develop-ment climate in which existing small firms should also pros-per.

If the community is receptive to outside investors,then it should organize a campaign in which the followingquestions are addressed:

(a) What kinds of businesses are the focus of thecampaign? Should companies be national, foreign,or restricted to a given type of trade or indus-try?

(b) Who will conduct the campaign? Which members ofthe community will support it, especially afterthe departure of the consultant?

(c) How will external investment be attracted? Avariety of means are available, including dis-tribution of promotional brochures, inviting andescorting investors during visits to the communi-ty, and organizing exhibits or presentations atnational trade fairs.

(d) Who will follow up investors' interest in establish-ing operations in the community? Once the lettersare mailed, the fair is over, and the visitinginvestor is seen off, persistent follow-up is

153

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needed to close the sale to potentially interest-ed companies. Such follow-up will consist ofletter-writing, telephone calls, and perhaps alocal citizen's traveling to personally convinceundecided investors. Individuals in the communi-ty should be prepared to commit themselves to thetime and expense of such follow-up even beforean investment campaign gets under way.

(e) How will the investment campaign be evaluated?The community should decide on quantifiable tar-gets by which the campaign will be evaluated .

(e.g. amount of outside money invested, numberofinew jobs generated), and then apply them,

15

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CHAPTER IV

CONCLUSION

This manual has addressed three basic areas: the prob-lems of ssEs and their role in Third World development, var-ious kinds of management consulting programs which might ad-dress such problems, and specific tools and techniques whichthe management consultant can employ in assisting the smallentrepreneurs. The readershould also refer to AppendicesI and II for aids in consulting and teaching small entrepre-neurs, and to Appendix III for guides to various other pub-lications and information sources*on small-scale enterprise.

Although this manual offers much material of interest toSSE programmers, its primary audience consists of managementconsultants in the field. The text and appendices of thisbook should prove a useful general guide to the consultant.He or she, in turn, should feel free to change or expandupon these guidelines in adapting them to the needs andrealities of a particular country.

In summary, the job of the management consultant to small-scale enterprise can be divided into four roles: observer,expert, teacher and catalyst. Although no consultant willpossess all of these qualities, he or she should considerthem as worthwhile goals.

First, the consultant is an observer--of individual peo-ple iNff-af the community as a whole. where he or she works.The advisor will likely differ from the client entrepreneurin cultural background, education and age. By being a pa-.tient listener and observer, the consultant will learn muchin overcoming these obstacles to better understanding' theentrepreneur. A key first step in transferring knowledgeto others is to appreciate the wisdom and knowledge whichothers already possess.

Second, the consultant is an expert. He or she shouldpossess academic training plus some experience in businessadministration (especially accounting, planning and generalorganizational skills). The advisor should also haves soundgrasp of human relations. Skills in persuasion and groupdynamics will help the consultant to better "sell" his orher advice. to the client. The entrepreneur may also wish todirectly emulate such skills in improving his or her ownsales or personnel management abilities.

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Third, the successful management consultant is a capableteacher. With the patience of the observer and the knowledgeof the expert, as a teacher the advisor can also transfer newideas. He or she should be able to translate abst*actionssuch as liquidity and rate of return to practical conceptsfor the small business person. And in teaching groups, theconsultant should be able to deal with audiences indludingnot only owner-managers, but small business employees, ac-countants, lawyers, bankers, and other professionals.

Fourth and finally, the consultant is a catalyst. He orshe is a self-starter ready and willing to.motivate others.Though aware of smal business clients' economic and culturalconstraints, the advisor will advocate change when appropri-ate. He or she will also expand the consultant's role beyondassisting individual small enterprises. By helping with com-munity activities such as cooperatives, trade fairs or ex-ternal investment promotion,and by strengthening local SSEassistance institutions, the consultant will lay the basisfor continuing efforts by the community to assist small-scaleenterprise.

156

..

I,

APPENDICES

157

..

I.

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APPENDIX

Exhibit A

SAMPLE TABLE OF CONTENTS FOR A SEMINAR

FOR SMALL ENTREPRENEURS

(Drawn from a seminar given by the authorto small entrepreneurs in TuluS, Colombia)

General Information about the Seminar

A. The seminar forms part of the "How to Develop YourEnterprise" Program of the Chamber of Commerce ofTuluS, and the Foundation for Industrial Developments

' of the Cauca Valley (Colombia).

B. Total length of the seminar: 19 hours (9 classes oftwo hours each, the last "class" being graduation).

C. Time: August 8 through August 28, 1978 (three nightsa week, from 7:30 until 9:30 pm).

D. Value of matriculation in the seminar: Col.$330.00(US$9.00) per person. 1We cordially invite two peo-ple from each firm to attend--if you wish, onemight be the owner-manager, and the other might bethat person charged with bookkeeping or other admin-istrative tasks in the company.

E. Seminar Presentation: The instructor will make ex-tensive use of posters and photocopies to facili-tate a clear and practical presentation Of material.Participation of class members in discussions willalso aid in the learning,process. There is no needto take many notes; nor will the classes require extensive homework or examinations. Furthermore, itis not necessary that seminar participants have pre-vious knowledge of accounting. Refreshments willbe made available to class participants during a tenminute rest period in the middle of each class.

P. No participating firm in the seminar is under anyobligation to later request the management consult-ing. At the conclusion of\the seminar, those firmsinterested in receiving consulting assistance shouldfill out a brief applicatidn form. Three firms willthen be selected for an intensive consulting period

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APPENDIX I

Exhibit A

of three months at a cost of Col.$1,200.00 (US$30.00)per firm. All monies collected by the Program arereserved exclusively to defray the operating expensesof the Program.

G. Seminar Director: Gary L. Vaughan, Economist, USPeace Corps Volunteer.

II. Seminar Contents

A. First Class - Tuesday, August 8, 1978:BASES ON WHICH TO EVALUATE THE ADMINISTRATION OFSMALL AND MEDIUM-SIZED INDUSTRY IN COLOMBIA

1. Introduction: Background on the seminar/consult-ing program in Tultd - "How to Develop Your En-terprise."

2. Discussion of the general situation of small andmedium-sized industry in Colombia today.

3. The small or medium-sized entrepreneur as a"jack-of-all-trades" with respect to the manage-ment of the business.

4. Discussion of internal and external factorswhich favor success of the enterprise.

B. Second Class - Wednesday, August 9, 1978:BASIC CONTROLS IN BUSINESS MANAGEMENT

1. Discussion of Case #1: "The Cachaco Tailor Shop."

2. The concept of control.

3. Examples of some practical controls.

4. Detailed prtsentation of three common controls:daily cash reconciliation, monthly bank state-ment reconciliations, and inventory control.

C. Third Class - Friday, August 11, 1978:BEGINNING ACCOUNTING PRINCIPLES

1. ,What is accounting? Why is it useful?

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"0,

APPENDIX I

Exhibit A

2. Explanation of financial statements - -the balancesheet and income statement.

3. Class exercise: Case of Juan Gomez, the TaxiDriver, to see how, in practice, various trans-actions affect the balance sheet.

D. Fourth Class - Wednesday, August 16, 1978:REVIEW OF ACCOUNTING RAD BASIC PRINCIPLES OF FINANCE

1. Review of the Balance Sheet and Income State-ment--concept of "cost of goods sold" and itsrelation to inventory of raw materials--reviewof important accounts.

2., Practical Aspects of Financial Analysis: finan-cial ratios of liquidity, indebtedness andprofitability; analysis of fixed and variablecosts; setting a price for your product--use ofpractical cost studies; the problem of workingcapital--its definition, management and financ-ing.

E. Fifth Class - Friday, August 18, 1978:DISCUSSION OF FINANCIAL CASES

1. Review of Basic Principles of Financa.

2. Discussion of two cases with the class: "Con-fianza Industries" and the "Bonanza Workshop".Analysis of common problems presented in thesetwo cases.

F. Sixth ClassPLANNING

1. Concept

- Monday, August 21, 1978:

of Planning and its Adkrantages.

2. Why people do not plan.

3. Co:-.2rete examples of practical planning tech-niques for the small industrial enterprise:

cash budgets.

160

I

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APPENDIX I

Exhibit A

G. Seventh Class - Wednesday, August 23, 1978:PRACTICAL ACCOUNTING SYSTEMS FOR SMALL AND MEDIUM-SIZED INDUSTRY

1. Characteristics of any good Accounting System.

2. Explanation of the books and general systemused under the Peace Corps MICRON method forsmall and medium-sized industry.

3. Final questions concerning material presentedin the seminar.

4. Distribution of consulting application forms tointerested firms.

5. Distribution of seminar evaluation forms to theparticipants.

H. Eighth Class - Friday, August 25, 1978:

1. Special presentation by a Guest Speaker

2. Period for questions after the presentation.

I. Ninth Class - Monday, August 28, 1978:GRADUATION

1. Closing ceremonies for the seminar at the Cham-ber of Commerce; closing remarks by Alonso Lo-zano Guerrero, Secretary of the Chamber of Coimmerce of Tulug.

2. Presentation of Diplomas to the Participants.

161

1

.:.

Illustrative Diagram: How Profit,. or a New Loan Affect the Balance Sheet

;55'///PEBT V

ASSETS ...--- ACAPITAL.

162

Appendilt i....*

Exhibit D.1

ASSETS

..V/ / / /_.DE BT.//,.7

A

CA P ITA I-

NEW LOAN

I/

ASSETS

ta

A

CAPITAL V163

IELUSTRATIVE DRAWING: THE CHEESEMICEIC P,POCESS *

ESQUEMA DE LA TRANSFORMACION DE LECHE EN QUM

1. Leche cam)

4. PasteurizaciOn(Pasteuization)

7. CoagulaciOn(Coagulation)

.p4

Agreger 2.1/2 grs. de cuajo 0150 litres le/bstidora Urn

(add 2.5 grams of whey to150 liters) (cutter) (beater)

* This exhibit illustrates haw sin le drawings can be used to explain concepts to a relatively unsophis-ticated audience. The drawings on this and the following page are reprinted with permission frail JoseDubachts booklet El ABC Para la Queseria Rural del Ecuador, pp. 24-25 (Selected Bibliography #22). Thepictures graphically depict the series of steps involved in making cheese in a 600-liter-capacity plantin a rural area in Ecuador.

164

5. Enfriamiento(Qzining)

8. Corte(cutting)

3. Anal Isis(Analysis)

6. Maduraci6(maturation)1% lacticfecalau.ion)

116 ferments Make

9. Batido(Beating)

163

ILLUSTRATIVE DRAWING: THE CHEESEMAKING PROCESS (oont'd) Appendix I. Exhibit 8.2

ESQUEMA DE LA TRANSFORMACION DE LECHE EN QUESO

10. Desuerado(Rolioval of Whey)

Oilue#6n de imose

13. Moldeo(molding)

11. Adicion de agua(Addition of

water)

Aumento temperature

14. Volteo(Turn over)

16. Maduracion(Maturation)

7 12-15°C.

-ti

166

17. Despacho(selling)

12. Batido(Beating)

15. Salmuera.(Soaking in Brine)

(Preservation/Storage)

18. ConservaciOn /Dispendio

11 . .

Conservaciont temperature de 4° - 1 co° C.

DIspundio: 2 floras e la temperature dal ambient. para.°burner el maxim° deserrollo del ether.

Preservation: taperature between 4°-10°C.Storage: 2 hours at roam temperature toobtain maximum development of flavor.

167

- 147 -

APPENDIX I

Exhibit C.1

ILLUSTRATIVE CASE MATERIALS WHICH THE CONSULTANT

CAN USE IN SEMINAR PRESENTATIONS FOR SMALL ENTREPRENEURS

(Drawn from a seminar given by the author to smallentrepreneurs in Tulul, Colombia)

Case 1. The Cachaco Tailor Shop'

Mr. Miguel Caballero is the owner-manager of a smalltailor shop. with 12 employees, 11 women and one man; theshop mainly produces men's shirts. The one male employee,Enrique, is 20 years old and has been working in the'Shopfor two months. He happens to be the best worker, in theopinion of Mr. Caballero, and he sews more shirts than anyother employee.' Of the 11 female workers, three are between16 aria 18 years old, and the other 8 women are between 25

and 35 years of age. Their length of service with the firmranges from one to ten months. The owner's wife, Dona Mar-ta, keeps the company's books and supervises 41, workers inthe absence of Mr. Caballero.

Twice a week or so, Mr. Caballero has to leave theshdpin order to purchase special materials available only In thecity of Cali. He also travels to collect on accounts withretail clients in Tulul and the nearby town of Bugs. Hesells most of his shirts to these retail shops on a whole-sale basis. When Don Miguel leaves the shop, Dam Marta hasthe following problems. Although Enrique is a very produc-tive worker, he is a bit of a flirt. And especially whenthe owner is away, he likes to tell jokes and tease his fe-

male co-workers. Although this teasing does notaffect,En-rique's productivity, it really destroys the efficiency ofthe women in the shop--so much so that one day one of theyounger girls sews a shirt with three sleeves.

'This case is fictitious and does not represent a realsmall business in Tulul. However, some of the char-acteristics of this theoretical firm are common tomany small busindsses in TuluS.

168

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APPENDIX I

Exhibit C.1

Apart from the problem with Enrique, the shop has alot of employee turnover. Consequently, there is a need toconstantly train new women how to use the sewing machines,how to follow patterns, and how to work smoothly with theirco-workers. This training process takes about three to fiveda-ys (depending on the trainee) for the workers to attainat least an average level of production. Another problemconcerns the need for supervision of employees in Mr. Caba-llero's absence. The workers lack guidance on questions ofmeasurements, cuts, color selection, etc.--questions whichonly Don Miguel is capable of answering.

Senora Caballero has complained to her husband almostdaily about these problems for some time. Since the situa-tion involves a delicate issue of personnel, Don Miguel hasput off any decision. Finally, in desperation, he runs intoyou on the street (you are a close friend of Don Miguel) andbegs your advice. He asks you how he could solve these pro-blems at his shop, and-in so doing bring back harmony bothto his work and his marriage. How would you advise SenorCaballero?

Before you answer, consider the following issues;

1. What further information not given in the case doyou need in order to better advise Sr. Caballero?

2. Is Don Miguel's problem with Enrique, or is itwith the female employees? What alternatives areopen to Don Miguel? What is the best alternative?

3. How would you deal with the problem of worker turn-over?

4. How would you remedy Dona Marta's lack of techni-'cal ability in supervising the workers in herhusband's absence?

5. What are the possible solutions for the problemscited above? Is there a general change in per-

. sonnel management of the shop which might solveall these problems at once? Which of the aboveproblems are difficult to solve given the natureof the environment here in Tulua?

163

.

- 149-

Note to the Instructor

1

APPENDIX I

Exhibit C.1

) r

This case is typical since it illustrates the partici-pation of family members in running a business, and how suchparticipation may lead to personnel problems.' It is a use-ful teaching aid since it places the student in a familiarrole--that of the owner-manager--in trying to advise Don Mi-guel on how to address his problem.

The first question is one that Don Miguel's. friendmight well ask him: What other information can you give meon the problem? Insufficient information is also a typicalsituation with many small entrepreneurs--one which they maynot realize until they have to analyze a'case like the pre-sent. Such a question might also be a good way to startthe group talking without pressing them for specific answers.Then again, it may stifle any discussion. In writing thiscase or any other, the instructor should be careful to in-clude all essential data needed for its'solution, and leaveout only a few details to whet the students' curiosity. Inresponding to the first question, students might request thefollowing information: What is the cost of training new em-ployees (in salaries for days not worked, and in Don Miguel'stime in training them); and how does this compare quantita- .

tively with Enrique's greater productivity?

The second question tries to focus the class on theproblem and its cause. The cause of the problem here is notall that clear: Is it Enrique, the owner's wife, or the fe-male employees? Or is it Don Miguel himself and his tripsaway from the business? Nor are alternative solutions clear-cut. Should the owner fire Enrique, let some of the womengo, or start new personnel management policies?

In responding to the problem of worker turnover (ques-tion 3), the student might suggest higher salaries to retainemployees, more mechanization to decrease reliance on them(a popular measure with small entrepreheurs if they have themoney), or more informed supervision by Doha Marta whichleads us to question 4. The final question in the case triesto hint at an optimal solution. It also relates the casedirectly to similar situations in the local community, hope-fully after such similarities have been mentioned in theclass discussion.

..

170

APPENDIX I

Exhibit C.1

Case 2. Industrias La Confianza2

"Industrias La Confianza" is a small factory which pro-duces plastic bags in TuluA. The firm has been operatingfor the past five years under the direction of its owner andmanager, Carlos Cumplido. The company's ten employees manu-facture the bags and sell them to a variety of retailers,small clothing manufacturers, and other businesses in thecity. The credit terms for Mr. Cumplido's small businessare normally thirty days for credit purchases, and sixtydays for credit sales. In the past, the owner's problem hasnot been demand, but rather lack of raw material (polyethy-lene sheets) for the factory. This scarcity has largely beendue to controls on the importation of unprocessed plasticfrom overseas, and on insufficient production of this rawmaterial in Colombia.

Don Carlos has two bank accounts--one with the Bank ofTulufi, and the other with the Industrial Bank. Both accountshave a similar average amount of deposits and movement. Twoor three times a month, however, Senor Cumplido draws a checkwith insufficient funds on one or both of his accounts, andthe check is then returned to him (together with an angrycall from the "paid" supplier:). This situation often comesabout because the owner had been counting on depositing apost-dated check (when due) which he had received from a cus-tomer. However, many times these pi:1st-dated checks "bounce",and may consequently throw Senor Cumplido's account into thered.

Don Carlos rents the building in which the businessoperates. However, he owns a new Japanese motorcycle (val-ued by him at $ 50,000 pesos) and shares ownership of asmall farm near TuluA with his brother (he calculates hisshare at roughly $ 100,000 pesos).

2 This case is fictitious and does not represent a realsmall business in Tulufi. However, some of the char-acteristics of this theoretical firm are tommon tomany small businesses in Tulul.

7.1

APPENDIX

Exhibit C.1

After examining his financial statements (which wereprepared by his wife and reviewed by his accountant) for the,last year (see attached), Senor Cumplido believes that thebusiness is doing well. Consequently, he decides to requesta bank loan of $160,000 pesos to purchase a new machine(with a purchase price of $60,000) and additional stock ofraw material (priced by a supplier at $100,000) in order toincrease his production.

You recently arrived from Bogota as the new manager ofthe Indubtrial Bank branch in Tulua. Just last week, Mr.Cumplido dropped by your office and spoke briefly about hisenterprise and about his interest in obtaining a thre-yearloan at 18 percent interest. As a banker, your principalconcerns are the safety and profitability of your loans.The home office of the bank currently has a lot of extra mon-ey to lend and it is pressuring branch offices to make asmany loans as possibl.e. The only information which you haveconcerning Senor Cumplido's plastic bag factory is what hasbeen presented in this case.'

Would you give a loan to Senor Cumplido or not? Ifyour answer is yes, how much, under what conditions, andwhy? And if not, why not? Before answering these questions,consider the following points:

1. What other information would you like to have con-cerning Senor Cumplido's business and his requestfor financing?

2. How much in additional sales could the loan gener-ate for the entrepreneur's business? How much inextra profits?

3. Which positive and negative factors might affectyour decision on whether or not to approve theloan? What business practices should be correct-ed by Don Carlos before he -receives any credit?

4. Review the financial statements of "IndustriasLa Confianza""(refer to the figures on the fol-lowing page). What is the financial conditionof the company with respect to liquidity, indebted-ness and profitability?

172

- 152-

APPENDIX I

Exhibit C.1

INDUSTRIAS LA CONFIANZA

(Balance

Assets

811.

Sheet of

!

December 31, 1978)

Liabilities,

Cash and Bank Account $ 50,000 Accounts Payable $, 200,000

Accounts Receivable 150,000 Short-Thrm Loans 300,000

Inventory 100,000 airreqp Liabilities 500,000

Current Assets 300,000' T.Ang-TerM Loans 200,000

Fixed Assets 500,000 Total Liabilities 700,000

Total:Assets $800,000 capital 100,000

Total Capital andLiabilities $800.000 1

INDUJTRIAS LA CONFIANZA

(Profit and Loss Statement for the twelvemonths from January 1, 1978 to December 31, 1978)

Net Sales $- 1,200,000

Raw Material Consumed(Cost of Goods Sold) 720,000

Gross Profit 480,000

Wages and Salaries 150,000

Owner's Withdrawal 120,000

Other Expenges 150,000

Net Profit $ ===621.000

173

cZ,

41

- 153-

APPENDIX 1,

Exhibit C.1

Note to the Instructor

This case is very different from the previous one. Itplaces the small entrepreneur in an unaccustomed role--thatof a banker examining the application of a small entrepreneur(like him or herself) for a loan. The questions the bankerasks in the case are also similar to those the consultantmight pose in assisting an SSE under the program. The caseis also more adv'anced than the Cachaco case because it usesfinancial statements. Howeven, few accounts are includedin the statements, and all numbers have been convenientlyrounded off. Nonetheless, this is a challenging exercisewhich shoul&be tackled only by local accountants or by en-trepreneurs who have recently completed a basic accountingcourse.

What other information would the participant like tohave concerning the case? If he or she considers potentialloan collateral, the student should question how Don Carlosarrived at the valuation of his motorcycle and his propor-tional ownership in the family farm. He might also wonderhow accurate the owner's statements are (have Don Carlos Andhis accountant "cooked the books" for tax purposes as do somany small entrepreneurs?).

The second question invites basic analysis of the fi-nancial statements in estimating a possible sales and profitincrease if the loan is granted. If the student assumesthat the inventory balance is representative for the year,inventory turnover would be 7.2 times, or once every 50 days.Consequently, an added $100,000 could conceivably double netsales (if the rate of turnover remains the same), and doublenet profits (if profit margins remain the same). Emphasiz-ing the "ifs", of course, should be a key point in any Alla-lytical discussion of the case.

The third question asks what positive 1 or negative fac-tors should be considered before approving a loan to DonCarlos. Also, what business practices should be changed?On the positive side, Don Carlos is making a profit andselling to a growing market. On the negative side, he bounceschecks at the banker's bank, he withdraws a lot of moneyfrom the business (almost as much as the paychecks of allhis employees), and he has unfavorable terms of trade withsuppliers and customers. Turning to his financial statements

174

- 154 -

APPENDIX I

Exhibit C.1

(question 4), Don Carlos also has a negative working capitalposition (- $200,000), a very high debt/equity ratio (7:1),and a net profit margin (5%) which may be low relative tothat of other manufacturers. However, a liberal valuationof Don Carlos' motorcycle, his share in the farm, and theinventory which he will acquire with th&loan might providehim with adequate collateral for the financing.

The facts of the case may thus persuade some studentsto grant the loan and others to deny it. During the casediscussion, the instructor might find it useful to play therole of devil's advocate--one he or she will also tend toplay in many SSE consultancies.

17,5

- 155 -

APPENDIX I

Exhibit C.2

SAMPLE HANDOUT WHICH CAN BE USED WRING A

SEMINAR FOR SMALL ENTREP EURS

1The Calculation and Signif 4 ance ofCost of Goods Sold and 1 ventory

The profit and loss statement consists of various stan-dard blocks of income and expenses. The block or section ofincome which is most important is that of th(net sales ofthe company's products. Likewise, the most important blockof costs is directly related to cost ofthose goods sold- -and hence its name, "cost of goods sold". In a small manu-facturing firm, most of this cost consists of the value ofraw materials.

$

We st calculate indirectly the value of cost'of goodssold. A usiness's sales are calculated almost automaticallysince we simply sum up the sales prices for the day as indi-cated on the accumulated sales slips or on the cash registertape. By contrast, the cost of those goods sold is not nor-mally recorded as each good is sold (it is often difficultenough for the sales clerk to remember or record prices, letalone the different costs of each item sold).' Many firms donot have "perpetual" or "Kardex" inventory systems which re-cord the movement of raw materials in and out of the businessevery day. Therefore, such firms must indirectly calculatethe value of cost of goods sold by taking physical inven-tories. As we shall see below, the ideas of cost of goodssold and inventory are related ones.

The following example assumes (as do many practicalaccounting systems) that cost of goods sold is equal to theamount of raw material invested in them (for. purposes ofsimplicity we are not assigning other costs such as over-head). Based on this assumption, the calculaption of costsof goods sold for a given period would be calculated asfollows:

176

4 °L.

Initial Inventory:

Plus:

Subtotal:

Less:

Total:

- 156 -

APPENDIX I

Exhibit C.2

(Of raw materials in the threestages of production: raw materials,work in process, and finished pro-ducts; inventory is determined by aphysical counting and valuing of afirm's goods on a given day) $ 2,400

Purchases of raw material duringthe period 35,100

Raw material available for sale 37,500

Final inventory at the end of theperiod (based on ti- z1 physical in-ventory of raw,material, work inprocess, and finished products,and carried out at the end of theperiod) 2,500

Cost of goods sold for the period $ 352.000

We might note here that even with a perpetual inventorysystem (or "Kardex"), there is a need for a physical inven-tory at least once a year to check on the proper functioningof the system.

The above example shows the complementary and f.nter-dependent nature of the concOpts of cost of goods sold andinventory. Apart from waste or theft, what is not soldshould remain in inventory- -and what does not remain in in-ventory must have been sold. As we will discuss later, thereis a problem in estimating the vaiue of inventory and thecost of goods sold due to changes in prices over time (theyusually go up!) Consequently, if we badly estimate the value

177

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APPENDIX I

Exhibit C.2

of inventory, then we will damage our calculation of cost ofgoods sold for the period. A poor estimation of cost of goodssold also means that we overvalue or undervalue gross profit.

The problem in figuring. out the cost of goods sold comeswhen various identical items were purchased on different datesand at different prices. When these items are sold, whatprices do we use as the cost of goods sold? Since the itemsare all identical, how do we know which item(s) sold was pur-chased earlier at the cheaper price? The example below helpsaddress these problems:

Example: Let's assume that during the past year threeraw material "X" were available to be pro-

the factory. And at the end of the year,.igOlantory, we find out that only one

the stodkroom. During this period we alsoour purchases of item X:

Number of

units of the samecessed-and sold fromafter taking a physica-unit remained inkept a record of

Date of Purchase Transaction Units Cost of Units

January 1 Initial 1 $ 9Inventory

March 4 Purchase 1 13

May 9 Purchase 1 14

Total =3 $ 36.

Average Cost per Unit $ 12

During this period, we used or consumed two units inmanufacturing our products, leaving one unit of raw materialX in the final inventory. However, since all the X itemswere identical, we have no idea which items were sold andwhich has remained. Therefore, we have to adopt a consist-ent method in order to determine which cost from this flowof costs we will use in assigning a value to inventory, andlikewise to cost of goods sold for item X. The value of ourInventory of raw material X at the end of the period couldbe $9, $13, $14.... or the average of $12! How do we decideon a value? One method i§ to use the average cost method,

178

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APPENDIX I

Exhibit C.2

totaling the purchase piices of a given item and dividingthem by the number of items purchased over a certain period.The cost of final inventory using this approach would,be $12.Another method is last-in-first-out or LIFO which is calcu-lated just as its name indicates: we assume that the lastitem purchased is the first item sold. Consequently, thecost of the first item(s) purchased is assigned to the in-ventory. Applied to our problem, this formula gives us $9as the value of final inventory of raw material X.

LIFO often understates earnings in the face of Infla-tion, and goes against the normal purchase-sales flow (thatis, we generally expect that items purchased first will be'sold first, and not the other way around). The first-in-first-out method, or FIFO, is yet another way to value inven-tory and cost of goods sold. It, too, means just what itsays: the item first in, or purchasedlis assumed to be firstout or sold. As a result, the last purchased item remainsin inventory. In an inflationary situation this valuationmethod may overstate earnings; however, it does conform tothe normal flow of purchases and sales. Using this method,the value of end inventory in our example would be $14.

Note to the Instructor

This handout may be used as an aid in explaining theconcepts of inventory and cost of goods sold. It also mightbe more appropriate for larger enterprises (or accountantswho work with them) since the time and effort required forconsistent inventory valuation may be unrealistic for thesmall entrepreneur. Obtaining any kind of realistic state-ments at all, let alone fine-tuning them with inventoryvaluation methods, is often the best a consultant can hopefor with many SSEs.

179

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APPENDIX I

Exhibit C.3

SAMPLE HOMEWORK PROBLEM WHICH CAN TEST SSE SEMINAR

PARTICIPANTS' KNOWLEDGE OF ACCOUNTING CONTROLS

Example 3.. The Y Company has come to you with the following

problem.

It has three clerical employees who must perform thefollowing functions:

a. Maintain general ledger

b. Maintain accounts-payable ledger

c. Maintain accounts-receivable ledger

d. Prepare checks for signature

e. Maintain disbursements journal

f. Issue credits on returns and allowances

g. Reconcile the bank account

hr. Handle and deposit cash receipts4

Assuming that there is no problem as to the ability ofany of the employees, the company requests that you assignthe functions above to the three employees, in such a manneras to achieve the highest degree of internal control. It maybe assumed that these employees will perform no other account-ing functions than the ones listed and that any accountingfunctions not listed will be performed by persons other thanthese three employees.

1. State how you would distribute the functions amongthe three employees. Assume that, with the excep-tion of the nominal jobs of the bank reconcilia-tion and the issuance of credits on returns andallowances, all functions require an equal amountof time.

3Material from "Uniform CPA Examination Questions andUnofficial Answers", copyrighted 1977 by the AmericanInstitute of Certified Public Accountants, Inc:, isadapted with permission.

180

ti

- 160-

APPENDIX I

Exhibit C.3

2. List four possible unsatisfactory combinations ofthe listed functions. Try to anscer the questionsbefore consulting the following solution.

The major feature of the suggested division of duties isthe'separation of powers so that one individual does not havesole control over all recordkeeping and physical handlingfor any single transaction. Not only does this limit the

q chances for fraud, but more importantly, it provides for auto-matic checks on efficiency and accuracy.

Source: Charles Horngren'S Cost Accounting, A ManagerialEmphasis, page 672 (see entry #46'in the Selected Biblio-graphy). Reprinted with permission of the AmericanInstitute of Certified Public Accountants.

Note to the Instnictor:

This internal controls problem is relatively advancedand is also appropriate only for those entrepreneurs with anaccounting background. While brief enough to be assigned ashomework, it could also be used for class discussion.

Like many problems or exercises drawn from textbooks,it may be overly theoretical for a pragmatic audience of smallentrepreneurs. However, the problem may be useful in launch-ing a general discussion not only of accounting controls, butof other small business controls such as building securityand delegation of authority to employees. The answers to theproblem are indicated below:

SOLUTION 1. Assignment of functions:

Employee No. 1:

a. Maintain general ledger

b. Reconcile bank account

c. Issue credits on returns and allowances

Employee No. 2:

a. Prepare checks for signature

181

- 161 -

APPENDIX I

Exhibit C.3

b. Handle and deposit cash receipts

c. Maintain disbursements journal

Employee No. 3:

a. Maintain accounts-payable ledger

b. Maintain accounts-receivable ledger

2. Undesirable combinations are as follows:

a. Cash receipts and account& receivable\

b. Cash receipts and credits on returns andallowances

c. Cash disbursements and accounts payable

d. Cash receipts and bank reconciliation

e. General ledger and cash receipts

f. Accounts receivable and credits on returnsand allowances.

182

- 163-

APPENDIX'

Exhibit C.4

ILLUSTRATIVE EXAMINATION TO TEST SSE SEMINAR

PARTICIPANTS' KNOWLEDGE OF BASIC ACCOUNTING ENTRIES

(Drawn from a seminar given by the author to smallentrepreneurs in Tulud, Colombia)

Indicate the impact of each of the following transac-tions .on assets, liabilities and capital of a small businessby use of the following signs:

Increase

Decrease

Remains the same o

Transactions Asset Liability Capital

a. Lottery winnings are investedin a new piece of equipment

b. A partner buys share capital

c. Purchase of machinery oncredit

d. A°bank loan is received

e. Repayment of the loan

f. Paymdnt of workers' salaries

g. Rental payments accrued (al-though the cash payment isnot.made until the end ofthe month)

h. A credit sale

i. The firm's product is bar-tered.to a supplier lfor somerAw material

- 164-

APPENDIX I

Exhibit C.4

Trans.ctions Asset Liability Capital

j. Payment of taxes incurredduring last year's tax year

k. Amount of depreciation onfixed assets for the month

1. Half the firm's equipmentis destroyed by fire

m. A trade debtor goes bank-rupt

Review of the Basic Sections of the Balance Sheet

In the Balance Sheet, an Asset is anything of value inthe firm--for example, cash and bank accounts, accountsreceivable,' inventory, prepaid expenses, and "fixed assets"(that is, lane. buildings, office equipment, machinery, ve-hicles).

A Debt or Liabllity indicates what is owed--for example,bank loans, accounts payable, accrued expenses (e.g. sala-ries, utility bills, rent).

Capital quantifies the value of the owner's investmentin the business. This section of the Balance Sheet is nor-mally subdivided into two parts: the original and subsequentinvestments of the wner and any partners ("paid-in capital")and the earnings accumuLited by the business over the years("retained earrings"). The Profit and Loss Statement willaffect Capital positively if there is a profit, and nega-tively if there is a loss.

Always remember the following formula:

ASSETS DEBT + CAPITAL

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APPENDIX I

Exhibit C.4

Note to the Instructcr:

This examination tests participants' understanding ofthe concept of double-entry bookkeeping. Questions may bemade easier or more difficult (in this example, questionsg, i, and j are relatively more difficult). The test alsoincludes a capsule definition of the balance sheet and itsprincipal accounts as a reminder to the student.

Such a test not only reviews a student's accountingknowledge, but also provides a convenient way to introduceother important topics to class discussion. Questions b,1, and m, for example, illustrate the value of partners to abusiness (they bring in new car"tal), the prudence of insur-ance (a fire would otherwise w_ out property assets), andthe utility of stringent credit policies (a debtor's bank-ruptcy otherwise liquidates the assets of accounts receiv-able).

SOURCE: Based on material by Dr. Jose Manuel Arenas, INCOLDA,Cali, Colombia.

185L

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APPENDXX II

Exhibit A

PRE-SCREENING INSTRUMENT FOR SELECTING TARGET FIRMS

(Drawn from the author's work with SSEs in TuluA, Colombia)

1. Name and age of the owner.

2. Name of the firm.

3. Specific products and services offered by the firm inorder of importance.

4. Date of the founding of the business (or years of ex-perience in the current business if the present ownerbought the firm from a previous owner).

5. Does the owner'have other businesses? How many and inwhich lines of activity?

6. Is the owner-manager satisfied with his or her accountingsystem or other records which assist in the administra-tion of the business?

7. Is there a secretary or a family member who has the timeand interest to do bookkeeping? Is he or she doing itnow? Part-time or full-time?

8.i Does the firm,have an accountant?

9. Has the firm received consulting assistance in the past,whether visits by private c :sultants, accountants, orgovernment extension agents

10. Has the firm, now or in the palt, borrowed money frombanks or finance companies?

11. Does the owner-manager own the plant or rent it?

12. The program cannot provide or guarantee access to credit.However, if at the end of the consulting assistance acredit may be feasible, for what end would the owner usesuch a credit?

purchase raw materials

cest new products

180

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APPENDIX II

Exhibit A

purchase machinery

purchase vehicles or build a new plant

increase labor force

other (speCify

13. If the owner were to receive consulting assistance underthe program, toward which administrative areas would heor she target such assistance? What results would theowner expect from the consulting assistance?

18;

- 169 -

APPENDIX II

Exhibit B

SAMPLE LETTER OF INTENT

A letter of intent is a form which the consultant canuse to clarify the purpose and scope of the consultancy tothe small entrepreneur. Unlike a contract, which is a legallybinding document signed by both consultant and client, theletter of intent is a less formal document which can be is-sued unilaterally by the consultant and his sponsoring orga-nization. An example of a letter of intent, drawn from theauthor's world with small businesses in Tulua,"Colombia, isgiven below.

The present document evidences a consulting service tobe offered th,:.. business of (name of company , whichstarts formally on (date) and will last until

(date) , including a preliminary period of "DiagnoTigror a free initial examination of the firm in order to orientand lay the foundations for the future course of the consult-ing. This Diagnosis extends from (date) to (date) .

All of these activities fall under the program "How to Devel-op Your Enterprise", sponsored by the Chamber of Commerce ofTulul and the Foundation for Industrial Development of theCauca Valley. If at the end of the Diagnosis the Consultantor the Owner is unsatisfied with the progress of the consult-ing, the latter may be terminated at once without prejudiceor cost to the Owner, the 0,nsultant, or the Program.

The consulting will be provided by (name'(profession) of (sponsoring organization'

during this period for a cost of $ which willbe paid by check to the Chamber of Commerce of Tull:a on

(date) This money will be allocated exclusiely forexpenses related to the Program "How to Develop Your Enter-prise" and. will not ford a part of the personal income ofthe Consultant. The Enterprise should pay separately any costof accounting books, records, or other materials and equipmentneeded by the 'firm as a consequence of the consulting.

The general objectives of the consulting include: im-prove the profitability of the Enterprise, enhance its cashflow, and ,support the general administration of the Enter-

. prise, with attention to other aspects such as marketing,management, etc. The content and exact course of the con-

,-

188

- 170 -

APPENDIX II

Exhibit B

suiting will be determined jointly between the Consultantand Owner or Pr4cipal Partner of the Enterprise. In orderthat the Consultant advise the firm ift`an efficient and pro-ductive manner, it is necessary that he or she have accessto all documentation and records of the firm, relying alsoon the cooperation of the Ow ,ner for the provision of thatinformation required by the Consultant. It should be abso-lutely clear that all information provided to the Consultantis completely confidential.

The consulting assistance will be offered to three (3)enterprises simultaneously, with each one being visited ap-proximately two (2) times per week. At the end of the con-sulting period, a confidential financial evaluation will bemade of each Enterprise, with recommendations for its,futureadministration--recommendations which the Owner is completelyfree to accept or reject. Each firm is also requested tocomplete an evaluation of the consultancy at the end of theconsulting period.

The following certifies that the Enterprise (nameof the business) was duly selected for the consulting pro-ram through its previous participation in the Seminar "Basic

forms -for the Organization of Small and Medium. Industry."

(Signature) (signature)

Gary L. VaughanConsultantPeace Corps Volunteer

Alonso Lozano GuerreroExecutive"Secretary"Chamber of Commerce of TuluS

(date) (date)

18.1

"171-

APPENDIX II

Exhibit C

ACCOUNTING INTERVIEW

QUESTIONNAIRE

(This questionnaireldrawn from the MICRON account-ing manual, can assist the consultant in assemblingthe information necessary to install an accounting

system in a small business.)

Company Owner

Address Telephone

1. How did you start your business?a. How, many years ago?b. What previous experience had you had?c. With how much capital did you begin?d. What factors have had positive and negative effects

upon your business?

2. Accountinga. Have you paid an accountant in the past? How much?b.. What books, files, or account lists do you use?c. What paper work'do you use (receipts, vouchers, etc.)?d. Do you save receipts, vouchers, orders, etc?

3. I am interested in'knowing the financial state and busi-ness policies of your company to have an idea of its con-dition and manner of,doing business.

a. Where do you have your bank account? More than one?-How much money is in the account at this moment?-Have you borrowed money from this bank?

b. Is there a petty cash system?-Who controls it?-How much cash is kept on hand?-Do you ..:$e personal cash for expenses?

c. Is there a savings account? Where?-How much do you have saved?-Do you take funds out of the account? Why?-Amount of annual interest?

A.

190

-3.72-

APPENDIX II

Exhibit C

d. Clients-Receivables-How many firm clients do you have?-Where are they located?- Whoipays transportation costs?- Credit. terms?-What percentage of sales are credit sales?-Disgounts?-Payment period?-How does this compare to the industry?-Do you receive post-dated checks?

-Wait.till dpe-date?-Pay suppll*r?-Sell them to broker? Rate of commission?

-Do you receive orders?-Is money advanced?-What percentage?-Are orders met on time?

-Are there sporadic clients?-All locals or from farther away also?-Orders?-Post-dated checks?

-Is there production without firm orders?-Why?-What percentage?

-Are the orders in small or large quantities?-Do you have salesmen?-Commission policy?

se wage?:avel expenses?

-Percentage of all sales due to salesmen?

e. Do you loan money to friends?-How much?-For how long?-At what interest )ate?

f. How many employees are there?-When are they paid?-What social 4...enefits do they receive?-Is there much turnover?-More than one shift?-What are their hours? Overtime?-Paid by the hour or contract?-Do you loan them money?

-Of ten?-Are these loans reduced from their salary?

si

-'173 -

APPENDIX II

Exhibit C

g. Do you have investments?- Stocks, bonds, certificates, etc?- Parts of other business?

h. Fixed Assets- What machines are there? Value?-Plant

- Mortgage ? Monthly payment?-Rented or loaned? Monthly payment?

- Do you have a house, car, farm, motorbike, etc?

i. Suppliers-Have you firm suppliers? How many?- Where?- Who pays transportation?-Credit terms? Limit?- Do you pay them with post-dated checks?- Are there sporadic suppliers?

- Can you obtain credit?- What percentage of purchases?

- What materials do you purchase? % of total?- Which are scarce?- Which have risen dramatically in purchase cost?

j. Do you have bank loans? More than one?- Name of Bank- Amount?

k. Other financial obligations?- Finance Companies? Amount? Term?- Private loan? Amount? Term?

1. Are there reserves to pay social benefits?How much do you owe your workers?

m. SalesWhich months have more sales?-The least sales?- Your monthly average?- Can you immediately increase your selling priceto meet rises in purchasing costs?- Why not?

n. Personal expenses?-Do you have a salary?- How much do you spend per week? Month?

192

3,74 -

APPENDIX II

Exhibit C

o. Are there income or expenses outside of your normalbusiness?-What kind?-How much per month?

SOURCE: Peace Corps' MICRON, Accounting for the MicroBusiness: A Teaching Manua]., Aid #1.1 - 1.3(see entry 431 in the Selected Bibliography).

"As

193

- 175 -

APPENDIX II

Exhibit D

HOW TO BUILD AN EFFECTIVE CONSULTING

RELATIONSHIP BY BECOMING A BETTER LISTENER

Reception techniques at the "beginning" stage

Reception techniques involve listening and observing,whicl- have to do with receptivity and assimilation. Theymight be thought of as "passive" exercises, but this would beentirely' wrong, since full concentration is called for, andexpected, during this crucial stage. Most people can absorbfour times more information than can be delivered verbally;thus there is the ever-present danger of distraction.

Measures to facilitate information gathering includes

soliciting permission to write down importantfacts (especially figures);

using the pregnant pause, i.e. when the speakerstops_talking, don't hurry to speak yourself, butlook as if expecting further information--when itcomes it maybe most revealing;

encourage elaboration of points by asking "any-thing else?" or "yes, go on please";

ask for examples to illustrate generalities thatare offered;

try not to be involved in speculation, or answer-ing questions in the fact-finding stage; advisethat you will certainly give your opinion at alater stage,but that you would first prefer tohear all other impressions;

if necessary answer a question with a question,e.g. to a question put to you, reply with "whydo you ask that?" or "behind all"good questionsusually lies an answer--I would like to know youranswer to your own question".

Because so much time is involved in listening andobserving and the consultant may be impatient to proceed asrapidly as possible, it is quite possible that bad habits

194

- 176-

APPENDIX II

Exhibit D

will develop. Some elementary precautions that might betaken to prevent this are indicated in the table below:

PRECAUTIONS TO FACILITATE THE LISTENING PROCESS

Bad habits Possible remedies

Becoming distradted

Taking too many notes

Making snap decisions

Lack of concentration

Selective listening

Interrupting the speaker

Try to analyse individual state-ments and evaluate them (awardtheoretical marks, e.g. 7 outof 10)

Select key points and write digest-style telegram notes

Record pertinent data

Draw your conclusions after themeeting or interview

Try to anticipate the next idea,sentence or phrase

Look for new or hidden meanings

Wait until there is a, naturalbreak in the delivery

Source: Management Consulting: A Guicle to the Profession,1980, p. 357. Copyright 1976, 1977, 078, 1980,International Labor Organization, Geneva. Reprintedwith permission.

1 95

o

..TYPe Indicator _

-177

Evaluation Form for SSE Consultancies.===..0 N=veM hwas,len.==.1. CCM 2.-f.INCe

Firm_

:____A_..Nama of Consultant

',!,_ .8.. Business Data:71; _Narte of ownero

:

103dress of firm4

1 .

f_ ,-._411ephone _ __._ ..S I'

_ . .

_APPENDIX II

/, -1-771777t1

----- -f - i F .. ,I

r-61-

---Typeofbusinwac Baseline Data at Start:

r 4- Average Monthly Sales_

Rueter of Stployees

47- Other IndicatorI.

9 i

77,

11

Juan Gcrie_, .1 L;

0?usiress)r.hinsfmnaki4

. . I.

51,000

7-171 -1I

b --i1 L4

11

7 I; I f

11 ; Ifi :4 4-.1 71 7 1:1

I 'I I ;

-D.. During Consultancy: .. _,,.: ..i

-- . -.-- Date Conscy began ;5/15/80 i

.-- No hours of inter r ... 4.1-

14 sive consulting 35 hours ..

Is

16

/

:9

IS

I

19

31

No. _hours. sifE. .Fred Consultancy;

Con'cy (intensive) 1.. . 5

_ . . 4 9/15/80:!

1. .

1/30281Accruntirsg SysteminstalledTighter Credit

Policies effected

- Still need to hire

,I 4 i . . ; 'I

1

'

... i .`.1.4....- I .-k-- -r - 7;- 1 -; j.; .j; 1 ;. 1 *

. :I I ,1 T

I - ...Il -; i : ...

*''11.1

4- Date follow-up cen-__.sultancy_eaded

Aaninistrative changes:

Those achieved .

__Those

11

1

# ONeems=

- 1 .

'

plant. managerII .

;- f.,nantifiable Changes:, -- Monthly sales

20'it from

(preferably per cent . baselino .

1.31

. ;

.. ___or_olasolute_.chartge_hm -- Iwo TIOX-c workers 1 r Malticolumerisccounting sheets; . hired will permit the evaluation of 'as

Is baseline data) . ." y.as 7 firms on the sane sheet.-r- Finn was denied I :I

i$20,000 bank loan Ia

II

40 Jpse Valle I. 1,1 . ..

i 2/30/81_,. 1 , I- .-_-..,.-.--,,....t4,..,.._.,,,,

19

F .Name of Evaluator

- Date of EvaluationJ4.4* C04/04.0.1. 41'SOS odium

196

- 179 -

APPENDIX III

Exhibit A

A REVIEW OF SELECTED SSE MANAGEMENT

ASSISTANCE PROGRAMS

1. Malcolm Harper's Methodology for Assisting MicroBusinesses

a. Background: Malcolm Harper, a consultant for Inter-mediate Technology of London and an associate of the CranfieldSchool of Management in Britain, collaborated with- Partner-ship for Productivity's small enterprise program in Kenyastarting in 1970. PfP is a Quaker-sponsoradonon-profit foun-dation based in Washington, D.C., and has played a leadingrole in developing technical assistance programs for very-Oman, often rural firms in the Third World. By 1974, thework of PfP, Harper, and local institutions in Kenya had pro-vided the basis for the model elaborated below; the approachwas subsequently tested in countries outside Africa such asSri Lanka, Indonesia, and Brazil.

b. General Program Methodology: The program emphasizescomprehensive rather than selective consulting assistancewithin the SSE sector. It focuses primarily on small vil-lage shopkeepers in the poorest developing countries or inpoor, isolated areas of wealthier middle-income countries,sach as Brazil's northeast. The program's'aim is to offerbasic management advice to small enterprises with a viewtoward self-help and an increase in profits and employment.The approach relies on numerous, locally based rural people,often with little education, who act as intermediaries be-tween professional business specialists and entrepreneurs by

providing practical, field extension services.

In Kenya the consultants themselves were often highschool drop-outs who were recruited to work with small busi-nesses in their own regions. The program allocated limitedfunds for consultants' salaries (approximately US$100/monthin 1976).

c. Pro ram Content: Program administrators initiallyscreen small groups of young people in local communities forconsulting work. After asking for written applications fromthose interested in being trained to work as consultants,the administrators give a brief "consultancy aptitude test"

- 180-

APPENDIX III

Exhibit A

(consisting of a few simple arithmetic problems) and a shortpersonal interview to each applicant. This process yields aselected group invited to live at a training center (ideallyrurally based) for a three-week program designed to traintheorccruits for small business consultancy. The trainingis outlined in detail in Malcolm Harper's manual; it consistsof 40 percent lectures, 35 percent exercises, 20 percentfield trips and assignments, and five percent tests. Thetraining seeks to graduate 20 consultants from each course.

The program emphasizes close supervision of consul-tants by supervisors. The consultants work on a continuingbasis with a variety of clients, with a goal of 30 clientsassisted per consultant per year. Both supervisors and theprogram director (both at a higher level of education andexperience than the young consultants) are expected to main-tain their own SSE clients. Such extension work enablesthem to keep in more realistic touch with their subordinates,as well as to provide assistance to larger SSEs whobe needsoutstrip the lower-level skills of the field consultants.

d. Observations on the Program: The Harper model is animaginative one and seeks to meet the managemen.: assistanceneeds of unskilled, labor-intensive SSEs from an abundantpool of unemployed young people. Its comprehensive and noa-selective approach to small rural firms is very different fromthe selective management consulting strategies proposed byStaley and Morse in the 1960s 1, or from the selective, tar-get firm approach discussed in this manual. Nonetheless,Harper's approach and the target firm model may well comple-ment each other in a country with diverse regional and pro-gram needs.

The Harper methodology possesses a number of advantages.It offers numerous, low-cost consultants who can meet theneeds of widely scattered rural SSEs. The program also pro-vides mass training of both consultants and small entrepre-neurs in countries where skills of both types are in shortsupply. A possible weakness of Harper's approach is that itattempts to aid all entrepreneurs regardless of their

1 See entry #6 in the Selected Bibliography for furtherdetails.

isa

- 181-

APPENDIX III

Exhibit A

motivation or success potential, opting to give all clientsthe benefit of the doubt. The approach also relies on young,unskilled consultants who will inevitably make mistakes. Nomatter how small or "simple" a business, its affairs are of-ten qdite complex, and key decisions such as switching prod-uct lines often require experienced advice. The program doesreach a relatively large number of firms per low unit ofconsultant input (700 businesses were covered by 20 consul-tants in PfP's program in Kenya in 1976). However, given thefirms' small size, their scattered location, and the neces-sarily cursory nature of the consulting offered, the impactof such assistance on national economic development may belimited. Moreover, this program places a heavy emphasis on re-tail as opposed to industrial consulting (perhaps becauseretail firms are less complex for the young, inexperiencedconsultant), and there is little integration between themanagement consulting program and the credit availabilitiesof private or government banks. Finally, the Harper modelappears to overburden:the work of supervisors by adding therequirement that they have their own clients.

2. Partnership for Productivity and the Government of Libe-ria: The Yekepa Model-2

a. Background: This project took place-in the unusualenvironment of Yekepa, a small iron-ore mining town locatedclose to the Liberian-Guinean border. The town's economyhas been dominated by LAMCO,..1 largeSwedish-American miningconsortium with Liberian government participation. Over theyears', the company built up an-extensive economic and socialinfrastructure in the town. By 1969, however, company of-ficials foresaw an end to intensive mining in 20 - 25 yearsand a consequent need to assist Yekepa's more than 20,000inhabitants in the transition to a non-iron ore-based economy.

2More detail is available on the Partnership for Pro-ductivity study, Realizing the Development OpportunityCreated by an Iron Ore Mining Concession in Liberia:The Yekepa Model, 1978. (See Selected Bibliography#10.)

- 182-

APPENDIX III

Exhibit A

In 1969 and 1970, the company began to divest itself of itsactivities in housing, transport, and electrical contractingby turning them over to local Liberian entrepreneurs. Thesetransfers, however, were largely unsuccessful. The towns-people had little experience in managing blisinesses, and a'"company town" mentality prevented them from viewing thefirms as their own investments. Consequently, in 1974 LAMCOsought out a development organization to take over its falter-,ing effort to redirect Yekepa's economy for the future. -NW

b.! General Program Methodology: PfP negotiated an agree-ment with LAMCO and the Liberian government for a comprehen-sive development program. Specific goals included a targetnumber of self-sustaining local enterprises, jobs, and newinvestment generated over a three-year period. The program'sgoals were challenging, especially in view of the lack ofinfrastructure and entrepreneurial skills in the area andtthelimited local resources apart' from mining.

In general, PfP's small business promotion effortswere oriented toward firms in Yekepa which:

used local raw materials.

- produced needed products or services, or substi-tuted for imported goods. -

- were well suited to available local land andouilding

were labor rather than capital intensive..

- did not require unobtainable technical andmanagerial skills.

could survive after depletion of the iron ore.

- had a reasonable chance of success.

_- Although management consulting played a keyrole inths'Yekepa program, the program hardly confined itself'to anSSE consulting effort. Rather, it fostered an integrated ap-proach to small business promotion which included technicaland managerial consulting, credit, industrial estates, andsector surveys. Thus,small business promotion was but part

20Q

.APPENDIX III

. Exhibit A

of a general regional development program, including commu-nitydevelopment, agricultural research and extension, andlarge-scale industrial projects.

c. Program Content: During its first three years, theprogram drew onsix foreign staff (three PfP technicians andthree Peace Corps Volunteers) and six Liberian professionalsand extension agents. Program funding came from PfP, theGovernment of Liberia, and private international sources;LAMCO provided technical help, equipment loans, and donations'of machinery and facilities. Program finding for the firstthree years from all sources totaled US$860,000.

PfP's general philosophy in Liberia was to spend timeestablishing projects and actually tackling problems ratherthan on long, drawn-out feasibility'studies. In the smallbusiness area, the program offered individual management con-

. suiting, nightly management seminars, and in some cases,provision of buildings or equipment for a variety of commer-cial and industrial enterprises, including a large transportcompany, a one-man electrical contractcr, restaurants, atheatre, a supermarket, a sawmill, a bricA-maker, and abakery. The program also promoted a variety of agriculturalenterprises (including poultry farms and a piggery) and com-munity projects such as a YMCA-sponsored handicraft centerfor women of the community.

d. Observations on the Program: PfP's report on theYekepa project is instructive as an anthology of case his-tories of the trials and tribulations of small business as-sistance. Its description of the practical problems of con-sulting--mismanagement, financial overextersion, tbeft, andeven drunken accountants--is a familiar story. OWthe other'hand, some of the program's successes with novice small en-trepre'eurs are encouraging. For example, one ex-LAMCO elec-trician successfully started a small electrical contractingbusiness. By the end of its first year, the business em-ployed the owner and five employees and had won a number ofcontracts. The success of the firm was due to the combina-tion of a feasibility study performed by PfP, a loan ofvehicles and communications equipment from LAMCO, and theowner's personal management of and investment in the enter-prise. In another case, PfP provided an advisor to strength-en an existing furniture-making enterprise by supervising_work flow and the maintenance of machinery and tools. PfP

20j

- 184 -

APPENDIX III

Exhibit A

alSo loaned the business. US$15,000 to help pay for more ex-perienced Liberian managerial. talent. As a consequence, thefirm expanded its eMployment from five to 30 workers andprofits rose dtgmaticalW. Despite the firm's success, arole was seen for the foreign woodworking advisor for an ad-ditional one to two yearsbefore Liberians could assume totalmanagement of the busindis.

The needs of Yekepa seemed to logically invite thekind of integrated development strategy sponsored by PfP.Similakly, the problems the many new enterprises seemedto draw the program's external consultants deeper and deeperinto all phases of the firms' 'operations. At times, consul-tants even assumed direct managerial roles instead of concen-trating on training Liberians to fill such positions. It iseasy to criticizd this"situation, but Over-involvement bythe.consultant is often hard to resist when confronted withthe array of problems faced by the small businessespecial-ly in Yekepa where assistance dealt primarily with new en-trepreneurs and enterprises. While perhaps the program at-tempted too much too fast, the Yekepa model is 'to be commend-ed for its bold, hands-on attack on the problems.

The Small Enterprise Development Program of the FundaciOn:Carvajal and ACCION International/AITEC in Cali, Colombia

a. Pro-ram Methodology and Content: Since 1977 the Fun-daciOn Carvaja , a charitable foundation, and ACCION Inter-national /AZTEC, a private voluntary organization based inCambridge, Massachusetts, have cooperated in organizing theSmall Enterprise Development Program (DESAP) in the largecity of Cali, Colombia. AITEC provides technical assistanceto the DESAP program. The program offers an interesting link-age between a nonprofit, management assistance agency (DESAP)and local private banks in providing small entreprenuers withconsulting assistance, training, and credit.

The program involves three basic steps: a businesscensus to pre-select interested SSEs, an analysis,lof theselected businesses' profitability, and assistance with acredit request to a private bank for those firms which haveshown themselves to be profitable. Only businesses with netmonths f sales of up to US$5,500, net equity of less thanUS$20,000, no more than ten employees, and at least one anda half years of existence qualify for assistance under theprogram.

202,

VW!

185

APPENDIX III

Exhibit A

DESAP itself has twelve professional and technicalstaff, one AITEC resident advisor funded by Private Agencies

0 Collaborating Together (PACT, a U.S.-based donor agency),one secretary, and one messenger, and operates on an annualbudget of about US$70,000 (mostly for staff salaries). The °program's three technical departments--Selection and Training,Financial Analysis, and Projects andollow-Up--carry out atightly organized program which reaches'a wide number ofclients with an eccnopical use of staff time. In any givenmonth, approximately //240 firms are surveyed to assess theirgeneral interest in,0ESAP. The more motivated and experiencedfirms are then given a detailed interview by one of the Selec-tion and Training Department's promoters. If the interviewis successfulthe promoter then enrolls the client in DESAPclassroom instruction in appropriate accounting systems. Thereare then two or more visits of a technician from the FinancialAnalysis Department to check on implementation of the account-ing system the entrepreneur has adopted for his or her busi-ness. Of the roughly 240 firms surveyed each month, aboutlfreventually became eligible for credit. Firms are not re-commended for credit by the Financial Analysis Department un-til they have upgraded their profitability and recordkeepingthrough attendance at DESAP-sponsored courses on administra-tion, planning, projects (i.e. preparation of credit appli-cation) a"d costs--each course averaging ten hous each.

The entire. program ie. run on a partially reimbursablebasis. Forekample, installvtion of an accounting system(two visits by a consultant) costs US$3.20, class instructorscharge one dol)ar per student'per hour, and two percent ofevery 16a obtained with the help of DESAP is paid to theprogram. nce credit is obtained from private banks, creditterms are fairly strict, and require either a mortgage, ac-ceptable collateral, or a reputable guarantor. From the ,program's inception in March 1977, to June 1980, DESAP sur-veyed 2,700 SSEs Cali, of which 109 or 4 percent actuallyreceived credit (loans averaged US$1,300 per borrower).Evaluations of the firms receiving credit show that employ-ment increased .hy 30 percent, sales improved by 107 percent,and the loan' default rate was only 0.36 percent.

Since June 1980, the AITEC Resident Advisor has movedto Bogota where he is providing 'asslstance to similar micro-enterprise efforts in Bucaramanga, Medellin and Bogota. .DESAPis also drawing down on a $500,000 Interamerican DevelopmentBank loan and with these funds should grant close to 200 new

- 186-

APPENDIX III

Exhibit A

loans a year. So-ar, the same impressive increases inemployment, sales and the same low default rate have beenmaintained. DESAP is also being called upon to providetechnical assistance to other.icroenterprise efforts.

b. ObserVations on the Program: DESAP is certainly aninteresting model for a combined program of-credit and man-agement assistance to SSEs. Its focus on firms seems tofall in the middle between Harper's micro-businesses and the-target firms discussed earlier.The quantitative indicatorsof the program's results also appear to make it a success-ful effort. Furthermore, the division of management assis-tance and credit between DESAP and private banks seems tobolster clients' confidence in the consulting and makes themtake their responsibility for paying loans more seriously.Finally, many of the program's consulting forms, accountingsystems, and teaching techniques should be useful in any SSEconsulting program. Further information is contained in themanual jointly produced by Fundaci6n Carvajal and AITEC en-titled Descripci6n de un Programa de Desarrollo para Micro-empresas (see Selected Bibliography #13)..

Along with its positive aspects, the program has thefollowing limitations:

(a) The program works on a volume basis, processinglarge numbers of SSEs for eventual credit. Al-

.though practical in a large city like Cali witha population of over one million, such an ap-proach would have limited potential in a smalltown or rural area.

(b) If the total DESAP budget is divided by thefirms actually receiving; credit, selection andprocessing costs are approximately 25 percentof the value of the average loan. This ratio,of course, does not take into account otherbenefits such as., seminars offered, accountingsystems installed, or cost analyses performed --all of which may be useful to the small entrepre-nemreven if he does not receive credit. None-theless, this figure is probably typical of thehigh processing costs of programs which focuson providing credit to SSEs.

2 0 4

- 187 - APPENDIX III

Exhibit B

DIRECTORIES OF SELECTED SSE DEVELOPMENT

ORGANIZATIONS AND INFORMATION SOURCES

A number of nonprofit organizations provide assis-tance to SSEs or to SSE development programs in the ThirdWorld. Such organizations offer information on organizinghost country SSE assistance programs, funding to start suchprograms, or consultants to help train small entrepreneurs orthe local advisors who work with them. The first directorybelow gives a selected list of nonprofit and governmentalorganizations based in the United States which' work withSSEs in developing countries. This list excludes a varietyof private, profit-making consulting firms which specializein assisting small businesses. It also leavps out manyother private voluntary organizations for which SSE develop-ment is only one portion of a much broader range of activi-ties.

The second listing or directory in this exhibitindicates additional directories of nonprofit organizationsin the United States and other countries which work withSSEs. It also provides mailing addresses of organizationsand information services which can provide the reader withadditional information on small businesses. The addressesof other SSE information sources also appear throughout theSelected Bibliography as references to individual publica-tions.

A. Directory of SSE Development Organizations)

1. ACCION/International-AITEC10-C Mount Auburn StreetCambridge, Massachusetts 02138

Provides consulting assistance and funding for SSEprograms, mainly in Latin America.

2. Agency for International Development (AID)320 21st Street, N.W.Washington, D.C. 20523

U.S. Government official foreign assistanceagency.

1Based on TAICB DIRECTOR? (1978) (U.S. Non-Profit Organizations

in Development Assistance Abroad, see listing No. 7 on page 192.

205

- 188-

APPENDIX III

Exhibit B

3. Appropriate Technology International (ATI)1724 Massachusetts Avenue, N.W.Washington, D.C. 20036

Supports local organizations that try to solve prob-lems with innovative, low-cost solutions using localskills and resources. Technical assistance is of-fered, and financial help is provided in the form ofgrants, loans, or investments.

4. Institute for International Development360 Maple Avenue, WestSuite PVienna, Virginia 22180

Provides technical assistance in small business de-velopment using resources of private business sector.Makes financial investments and loans to local enter-prises unable to obtain local financing. Providestraining courses in small business'management, market-ing, accounting, and personnel administration, aswell as offering consulting services for day-to-dayproblem solving.

5. Inter-American Foundation1515 Wilson BoulevardRosslyn, Virginia 22209

Provides funding and consulting assistance for ruralenterprises (especially cooperatives) in Latin Amer-ica.

6. International Executive Service Corps622 Third AvenueNew York, New York 10017

Recruits experienced executives (mainly retired) forshort-term a3signments as volunteer advisors to lo-cally owned firms that request managerial or tech-nical assistance.

2 0 6

- 189-

APPENDIX III

Exhibit 13

7. International Voluntary Services, Inc. (IVS)1717 Massachusetts Avenue, N.W.Suite 605Washington, D.C. 20036

Recruits skilled technicians internationally towork on rural self-help projects at the request ofhost governments and institutions.

8. New TransCentury Foundation1789 Columbia Road, N.W.Washington, D.C. 20009

Technical assistance to small private enterprisesfor development of new marketing networks and ex-pansion of existing markets.

9. Opportunities Industrialization Centers Interna-tional, Inc.240 West Tulpehocken StreetPhiladelphia, Pennsylvania i.9144

Provides on-site technical assistance in planningand implementing small and medium-scale enterprises.

10. Overseas Private Investment Corporation1129 20th Street, N,F.Washington, D.C. 2027

Quasi-governmental corporation which insures U.S.companies' investment in developing countries. Alsofinances small to medium-sized joint ventures betweenU.S. companies and public and private enterprisesin the Third World.

11. Partnership for Productivity Foundation/USA, Inc. (PfP)2311-18th Street, N.W.Washington, D.C. 20009

Provides consulting assistance, training and fundsfor SSE programs, especially in Africa.

207

- 190 -

APPENDIX III

Exhibit B

12. Private Agencies Collaborating Together, Inc. (PACT)777 United Nations PlazaSuite 6BNew York, New York 10017

A coordinating body for private voluntary' organiza-tions in the U.S. Sponsors handicraft pt grams,develops appropriate low-cost equipment for foodproduction, and sponsors management and organiza-tional training.

13. Technoserle11 Belden AvenueNorwalk, Connecticut 16852

Provides technical, managerial, and financial as-sistance to SSEs and trains participants in such en-terprises and related local institutions.

14. Volunteers in Technical Assistance, Inc. (VITA)3706 Rhode Island AvenueMt. Ranier, Maryland 20822

Provides a variety of technical cooperation services- -by -mail technical design and problem solving, pro-ject planning, needs assessment, information systemsanalysis, on-site consulting to groups and individ-uals. Special interest in information systems andappropriate technology.

15. Young Men's Christian Associations of the UnitedStates (YMCA)International Division of the National Board291 BroadwayNew York, New York 10037

Provides assistance to self-supporting businessenterpkises.

16. Young Women's Christian Association of the U.S.A. (YWCA)World Relations Unit of the National Board600 Lexington AvenueNew York, New York 10022

Development and promotion of cottage industries;skill development; management training within YMCAand in coordination with other agencies.

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APPENDIX III

Exhibit B

B. Selected List of Organizational Directories and DataSources Concerning Small-Scale Enterprise

1. Editor of AID Research and Development Abstracts(ARDA)ST/DIU Information DivisionU.S. Agency for International Development (AID)Washington, D.C. 20523

Publishes the ARDA quarterly catalogue which listspublications according to development subject (in-cluding SSEs). Publications available at Subsi-dized prices to Third World organizations.

2. Resource Utilization DivisionOffice of Development Information and Utilization(ST/DIU)U.S. Agency for International Development (AID)Washington, D.C. 20523

Publishes Directory of Development Resources (June1979): a listing of on-call technical support ser-vices, information clearinghouses, field researchfacilities, newsletters, data banks and training fora variety of development needs, including SSE pro-motion programs.

3. American Management AssociationsThe American Management Associations Building135 West 50th StreetNew York, New York 10020

Sponsors training programs and conferences for allsize businesses, primarily in the U.S. Alsopublishes variety of books on management availablethrough its AMACOM publishing division. .Write themfor course and book catalogues.

4. General SecretaryInternational Council for Small BusinessUniversity of Wisconsin-Extension929 North Sixth StreetMilwaukee, Wisconsin 53203

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APPENDIX III

Exhibit E

Publishes a number of publications on small business.Write to the"above address for list of availabletitles and prices.

5. National Technical Information ServiceU.S. Department of CommerceSuite 620425 13th Street, N.W.Washington, D.C.

Publishes reprints of publications on wide varietyof subjects, including small business. Write aboveaddress for catalogues.

6. Peace CorpsInformation Collection and Exchange, Room 701806 Connecticut Avenue, N.W.Washington, D.C. 20525

Publishes Resources for Development (September, 1981),Appropriate Technologies for Development Series,

'4,a0Manuil No. M-3. Booklet reviews a variety of organ-izations and publications which address a variety ofdevelopment needs including SSEs. Listings by areaof the world.

7. Wynta Boynes, EditorTechnical Assistance Information Clearing House (TAICH) ofthe American CounJil of Voluntary Agencies forForeign Service, Inc.200 Park Avenue SouthNew York, New York 10003

Publishes U.S. Non-Profit Organizations in Develop-ment Assistance Abroad (TAICH) Directory 1978. Bestcomprehensive directory and .description of activitiesof U.S. private voluntary development organizationsoperating overseas. Contains countty-specific indices,as well as several sector-specific listings.

193 -

APPENDIX III

Exhibit B

B. Technonet CentreRELC International House30 Orange Grove RoadTanglin P. 0. Box 160Singapore 9124Republic of Singapore

Information network and training center made up ofparticipating SSE development organizations in Asia.Write for newsletter and other information.

2110

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APPENDIX III

Exhibit C

HOW TO ASSEMBLE A MANAGEMENT

CONSULTANT'S REFERENCE KIT

A management consultant is not equipped merely by atraining course and some field experience; a packet or kitof useful reference materials can greatly assist the consul-tant in his or her work. The size of this reference. kit willdepend,on the relative sophistication of both the consultingprogram and of the individual consultant. A fairly compre-hensive kit might include books or pamphlets in the follow-ing key reference areas (individual programmers or consul-tants should pick and choose which references seem most es-sential to their particular needs).

1. Consulting: A practical general manual, covering bothprogram approaches and field methodologies, on the subjectof management consulting might be useful. This/manual couldserve as one example. Malcolm Harper's Consultancy 'forSmall Business is another excellent general reference on thesubject. (See entry #15 in the Selected Bibliography.) Al-though it focuses on consulting to primarily large-scale en-terprises, The International Labor Office's Management Con-sulting: A Guide to the Profession is also a useful generalreference for the small business consultant (entry 1127) .

2. Teaching: A consultant may be called upon not only toadvise clients individually, but also to instruct them as agroup. Therefore, it might be useful to have a guidebookon teaching techniques and individual aids. Perhaps the bestbook on this subject is the Food and Agriculture Organiza-tion's (FAO) Audio-Visual Aids for Cooperative Education andTraining (entry #23 in the Selected Bibliography). TwoPeace Corps publications, The Photonovel: A Tool for Devel-opment..(entry #33, and Visual Aids: A Guide for PeaceCorps Volunteers (entry #33), may also be very helpful, as isArthur Andersen's short pamphlet entitled Manual for GroupDiscussion Leaders (entry.#17.).

3. Human Relations: One good way to sharpen your humanrelations skills is to read personal accounts by other ex-tension agents who have worked in developing countries. Oneexcellent book, dealing with a Peace Corps Volunteer's expe-rience in trying to bring change to a rural coastal village

212'

-.

196 -

APPENDIX III

Exhibit C

in Ecuador, is Moritz Thomsen's Living Poor (see entry #36).It may also be valuable to skim through some popular psycho-logy handbooks such as I'm OK, You're OK (see note *) or Car-negie's How to Win Friends and Influence People (entry #20).Two other books which provide some interesting analyses ofPeace Corps-type experiences are Hapgood's Agents of:Change:A Close Look at the Peace Corps, and Textor's CulturalFrontiers of the Peace Corps (see entries #25 iNaMin theSelected Bibliography).

4. Accounting: The consultant should be a competentbusiness professional as well as a sympathetic counselor;The core of the advisor's business skills should be a soundknowledge of accounting, both of generally accepted account-ing principles, and of simplified recordkeeping systems at-tuned to the needs of SSEs in developing countries. Avariety of excellent standard accounting texts are available;one example is Niswonger's and Fess's Accounting Principles(entry #51). Simplified accounting systems include PeaceCorp's MICRON (#31), VITA's Single Entry Bookkeeping System(#21), iWa-Yicordkeeping systems developed by Malcolm Harper(#15) and the Fundaci6n Carvajal - AITEC program in Cali, Co-lombia (entry #13).

5. A Series of Practical Brochures on How to AddressSpecific Small Business Problems: Although general

manuals and textbooks are useful references, a 'consultantneeds real (not theoretical) answers to SSE's concrete prob-lems in accounting, marketing, planning, and other areas. Aseries of practical leaflets which suggests concise answersto these problems may be a tremendous asset to the consultantin his day-to-day work with clients. Such brochures may alsosuggest useful topics for group training sessions.

Many developing countries may already have such publi-cations available through a government development bank, vo-cational training program, or a private business group. InColombia, for example, the Popular Finance Corporation (CFP,a credit and management assistance organization which catersspecifically to SSEs), issues a short monthly bulletin withhandy tips for small entrepreneurs and consultants. It alsoprovides a technical information service which gives more in-depth mail-order information-on selected technical and busi-ness management topics at a reasonable cost.

* I'm OKYou're OK, by Thomas A. Harris M.D. (Avon Books,paperback, 1973).

213

197 -

APPENDIX

Exhibit C

If a local series of management aids is not available,several such packages exist in the U.S.: The Bank-of Ameri-ca's Small Business Reporter (entry #18 in the Selected Bib-liography); various series by the U.S. Small Business Ad-ministration (entries #38 and #39)..; and for Spanish speakers,AID's translation of a Small Busiiss Administration seriesentitled Programa del Aviso de Diccidn Administrativa: Ado-ministracion de la Pequeha Empresa (entry #37).

6. Other Business References: For the consultant who isinterested in analyzing small business administration ingreater depth, the following types of references might beuseful:

--A textbook on small business administration: Excel-lent books on small business administration in the U.S. areSteinmetz's and Kline's Managing the Small Business (entry#52), and Cohn's and Lindbergh's Survival and Growth: Manage-ment Strategies for the Small Firm (#42).

--A book in a given specialty of small business admin-istration: Although every consultant must be a generalistin meeting an SSE client's diverse needs, he or she willlikely gravitate to one area or another of small business ad- ,

ministration as being of special interest--whether that hemarketing, personnel, finance, or some other discipline. Atextbookor study of that particular area might be useful.Helfert's Techniques of Financial Analysis, for example, of-fers an excellent review of important topics in financialanalysis, plus valuable problems and case studies for class-room instruction (see entry #45).

214

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SELECTED BIBLIOGRAPHY

APPENDIX III

Exhibit D

*

The bibliography below is divided into three sections,each section corresponding to a chapter in the manual. In-dividual entries in each sect:;.on are arranged alphabetical-ly, and the references of special interest are briefly an-notated.

At the end of each entry, publications are furtheridentified as paperback books (PB), hardback books (HB),leaflets or brochures (L), or unpublished papers or manu-scripts (UP). It is also possible that some hardcover booksmay be available in paperback; thus the prospective readershould check with a bookstore or publisher before makingany purchase of a hardback publication. Most of these ma-terials may only be available from libraries and bookstoresin the United States, or from public information sourcessuch as the U.S.. Agency for International Development'sResearch and Development Abstracts (ARDA),,the U.S Depart-ment of Commerce's National Technical Information Service'(NTIS), or the World Bank's information center in Washing-ton which distributes many publications at reasonablecost to the general public. Those publicationsin Spanish translation are probably available from privatebookstores or government sources in many Latin Americancountries. Some of the references listed below can be ob-tained through Peace Corps' Office of Information Collec-tion and Exchange (ICE), 806 Connecticut Avenue, N.W.,Washington, D.C., 20525. Those materials which are avail-able through ICE as of the date of this printing are as-terisked (*) below at the end of each entry. Peace CorpsVolunteers can obtain copies of these materials by request-ing them from ICE through their APCD/Project Manager.

3These and other organizations which may provide in-formation or assistance to'SSEs are listed (with theiraddresses) either in this Bibliography or in AppendixIII, Exhibit B. Some information services (such asARDA and NTIS) may also provide materials at a subsi-dized cost for development organizations in the ThirdWorld.

215

200 *-

APPENDIX III.

Exhibit D

I. CHAPTER ONE: THE SMALL-SChLE ENTERPRISE: DEFINITIONAND ENVIRONMENT

1. Daines, Samuel R. Agribusiness and Rural EnterpriseProject Manual, Washington, D.C.: PracticalConcepts Incorporated, 1979.

A contracted study for AID whichillustrates a range of possible programmingand policy options in the area of small-scale enterprises (PB)

2. Gordon, David L. Guidelines for SSE Project Devel-opment. Washington, D.C.: The World Bank,Industrial Development and Finance Depart-ment, February 14, 1978.

Paper presented at the "Meeting ofDonor Agencies in Small-Scale EnterpriseDevelopment",sponsored in Berlin by the Ger-man Foundation for International Development,October 23-26, 1979. (UP)

3. Industrial Development and Finance Department, theWorld Bank. Employment Creation and SSEDevelopment. Washington, D.C.: The WorldBank, March, 1977.

Avery useful macro-economic exposi-tion on the subject of smallrscale enter-prise. (UP)

4. Neck, Phillip A., ed. Small Enterprise Development;Policies and Programs (Management DevelopmentSeries #14). Geneva: International Laboi Qr-ganization, 1977.

An anthology of articles on SSEprograms in a variety of developing coun-tries. (PB). Write to ILO Publications,International Labour Office, CH-1211 Geneva22, Switzerland,concerning this and otherILO publications.

21

a

- 201 -

APPENDIX III

Exhibit D

5. Schumacher, E.G. Small is Beautiful: Economics asif People Mattered. New York: Harper 7E7:1--Row, publishers (Perennial Library),, 1973.

Well-known thesis in favor ofosmall-scale economics--argued on both economicand metaphysical grounds. (PB). *

6. Staley, Eugene and Morse, Richard. Modern SmallIndustry for Developing Countries. NewYork: McGraw-Hill, 1965.

A standard and comprehensive refer-ence on the subject of small-scale industryin developing countries. (HB)

.7. The World Bank. Employment and the Development ofSmall Enterprises: Sector Policy Paper.Washington, D.C.: The World Bank. Feb-ruary, 1978.

A good summary reference on the ma-cro-economic impact of small-scale enter-prise in developing economies, as is the en-try below concerning SSEs in rural areas.(PB). This and other World Bank publicationsavailable from the World Bank, PublicationsUnit, 1818 H Street, N.W., Washington, D.C.20433.

8. The World Bank. Rural Enterprise and Nonfarm Employ-ment: A World Bank Paper. Washington, D.C.:The World Bank, Jztnuary 1978. (PB)

II. CHAPTER TWO: MANAGEMENT ASSISTANCE TO SMALL-SCALEENTERPRISES: PURPOSE AND PROGRAM

9. Ashe, Jeffrey, PISCES: Program for Investment inthe Small Capital Enterprise Sector Phase I:Assisting the Smallest Scale Economic Acti-vities of the Urban Poor. Cambridge, Mas-sachusetts:' Accion Internacional/AITEC,1980. (PB)

217

- 202 -

rc

APPENDIA III

'Exhibit D

'10. Butler, George P. italizing.the Development Op-portunity Created by an Iron Ore Mining--Concession in Liberia: The' Yeke a-Model.Monrovia, Liberia:. Partnership for Pro-ductivity, Sobanok Printing Press, Ltd.,1978.

An'eXcellent, down-to-earth casehistory of an SSE assistance program in Li-beria. See Appendix III, Exhibit A. forfurther discussion. (PB). Available fromPartnership for Productivity Foundation inWashington, D.C.

11. Davenport, Robert W. Financing the Small manufac-tureriz:Countries. New York:McGraw-H , 1967.

A classical study of the relation-ship between small business growth andcredit in developing countries. (HB)

12. 'Fraser, Peter; and Tucker, William R. Program forInvestment in the Small Capital EnterpriseSector (PISCES Phase 1): Assisting theSmallest Economic Activities of the Urban

Partnadies,LatinAmer-aca. CaMbridge, Hassachusetts: ACCIONnternational/AITEC, 1980.

See discussion in the text,' ChapterTwo, Section B. (PB)

13. Fundaciem Carvajal and ACCION International/AITEC.Descripcift de un.Programa de Desarrollopara Microempresas. ACCION InternatioAal/AITEC: Cambridge, Massachusetts, June 1920.

An'excellent manual describing themethodology of the DESAP Program in Cali,Colombia. See discussion in Appendix III,Exhibit A. (PB). For further information,write to Desarrollo para Pequeftas Empresas(DESAP), Fundacift Carvajal, AvenidaRoosevelt No. 26-29, Cali, Colombia.

218

41

.e`

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4

APPENDIX III

Exhibit D.

14. Gladhart, Peter Michael and Gladhart, Emily Winter.Northern Ecuador's Sweater Industry: RuralWomen's Contribution to Economic Development.WID Working Paper 181/01. East Lansing,Michigan: Office of Women in International'Development, Michigan State University, June1981.4. An interesting account of socio-economic change brought about by promotionof sweater-making in a rural area.

15. Harper, Malcolm.. Consultancy for Small Business:The Concept - Training the Consultants.London: Intermediate Technology Publica-tions, Ltd., 1976.

See a discussion of Harper's con-sulting program model in Appendix III, Ex-hibit A. This book is excellent, with awealth of case studies, problems, exercisesand other teaching aids. Its focus is onmerchandising and services, rather than onmanufacturing. (PE). Can be obtained fromPartnership for Productivity Foundation,2311 18th Street, N.W., Washington, 4D.C.20009; from International Scholarly BookServices, Inc., P. 0. Box 555, Forest Grove,Oregon 97116; or from Intermediate Technol-ogy Publications, Ltd.,- 9 King Street,London WC2E8HN, United Kingdom. 0...*

16. Kahnert, Friedrich A. and Kozlowski, Janet. Assistance to Extension Services for Small-ScaleEnterprises. wasnington, the War] dBank, February 5, 1979.

Paper presented at the "Meeting ofDonor Agencies in Small-Scale EnterpriseDevelopment",sponsored in Berlin by theGerman Foundation for International Devel-opment, October 23-26, 1979. The paperpresents a number of interesting insightsto organizing SSE extension services. (UP)

219.

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APpENDIX III

Exhibit D

III. CHAPTER THREE: MANAGEMENT ASSISTANCE TO TARGET FIRMS:TOOLS AND TECHNIQUES

Reference Materials which may be applied directly toteaching or consulting small-scale entrepreneurs:

17. Arthur Andersen and Company. Manual for Group Dis-cussion Leaders (Staff Training Seriesi.Chicago: Arthur Andersen and Company,January, 1965.

This brochure provides a lot of handytips on how to organize and conduct groupdiscussion: e.g. seating arrangements, classscheduling, class participation, and thepros and cons of sponsoring a seminar,lecture or some other classroom format. (L)

18. Bank of America. Small Business Reporter. SanFrancisco: Bank of America, 1970.

An excellent series of brochureswhich addresses the problems of differenttypes df small businesses (mostly in ser-vices and merchandising), and discusses dif-ferent functional areas of small businessmanagement, such as accounting, financeand marketing. (L)

19. Burley, R.J. Supervisift de Personal. Translatedby Nuria Cortada de Kohan. Bogota: FondaEducativo Inter-Americano, 1966. (Origi-nal title in English: An Introduction toBasic Supervision of People, published byAddison-WesI6i, 19661.

An elementary, programmed learningtext in human relations. The book hasgood illustrations and is appropriate forteaching small-scale entrepreneurs. (PB)

20. Carnegie, Dale. How to Win Friends and InfluencePeople_. New York: Pocket Books, 1964.

Carnegie's ideas on techniques ofpersuasion and salesmanship still, ring verytrue today. (PB)

1

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APPENDIX XII

Exhibit D

21. Caye, Derry. A Single Entry Bookkeeping Systemfor Small-Scale Manufacturing Businesses.Washington, D.C.: VITA, Inc. 1977.

A simple handbook showing how thissystem may be applied in developing coun-tries. Less complicated than MICRON.(PB).VITA, 3706 Rhode Island Avenue, Mt. Ranier,Maryland, 20822.

22. Dubach, Jose. El ABC para la Queser/a Rural' delEcuador. Quito, Ecuador: CooperaciOnTcThr= del Gobierno Suizo, June, 1980.

An informative, step-by-step hand-book on how to establish and operate 'a ru-ral cheese-making plant. Based on a Swisstechnical advisor's experience with:suchprojects in Ecuador. (PB)

23. Food and Agricultural Organization (FAO). AudioVisual Aids for Cooperative Education andTraining. New Yorks FAO

Excellent handbook depicting a widerange of appropriate audio-visual aids.(PB). Distributor of UN Publications in theU.S. is UNIPUB, 345 Park Avenue South,New York, New York 10010.

24. Fundacift Carvajal, Programa de Desarrollo para laPequefia Empresa (DESAPP). Ejercicio deSimulaci6n_para Pequefios EmpresariQs. Cali:DESAPP, January, 1978. Adapted from theoriginal "SIMPRO" by Robert M. Duncan.

An innovative exercise in which par-ticipants make paper airplanes as part ofan SSE production simulation. The exerciseteaches such concepts as quality control,basic recordkeeping and break-even analy-sis. (UP) . * 4

25. Hapgood, David and Bennet, Meridian. Agents ofChange: A Close Look at the Peace Corps.New York: Little Brown and Company, 1968.(HB)

4 Request photocopy from ICE technical referencefiles.

22.1

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APPENDIX III

Exhibit D

26. Industrial Development Division, Engineering Experi-ment Station, Georgia Institute of Tech-nology. Employment Generation throughStimulation of Small - Scale, Industries;Guidelines for Extension Personnel. Atlan-tA, Georgia: Georgia Institute of Technol-ogy, 1976.

For information on this and otherpublications write International DevelopmentData Center, Office of International Pro-grams, Engineering Experiment Station,Georgia Institute of Technology, Atlanta,Georgia, 30332.

27. Kubr, M. ed. Management Consulting: A Guide tothe Profession. Geneva: InternationalLabor Office, 1980.

Describes how consultant frommanagement consulting firm should assistlarge-scale enterprise. However, sectionson fact finding, fact analysis, proposalsand implementation offer practical adviceuseful to SSE consultant. Also containsgood case histories of sample consultingassignments, good summary guidance onfunctional areas of business administra-tion (especially production), and exhaus-tive bibliographic references (includingfilms) on all these subjects. To obtainthe book write to ILO Publications, Inter-national Labor Office, CH-1211, Geneve 22,Switzerland or 300 East 44th Street, New YorkCity, New York' 10017 (He)

28. Meade, Patrick. Technical Assistance for Small-Scale Industry. Bogota: "Reuni6n Latino-americana y del Caribe sobre la Pequerla yMediana Industria", November 1973.

This paper, presented at the 1973Bogota Conference, contains some very prac-tical tip. for management consultants.

29. Peace Corps. Cooperatives (Appropriate Technologiesfor Development Series, Resource Packet No.P-5). Washington, D.C.: Peace Corps/ICE,1978).

An excellent handbook, divided intosix sections concerning cooperative concept,organization, management, training and re-sources. (PB).

222

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APPENDIX III

Exhibit D

30. Peace Corps. Guidelines for Development of a HomeIndustry (Appropriate Technologies forDevelopment Series, Reprint No. R-14).Washington, D. C.4 PC/ICE.

Practical hints on organization andadministrationiof a small business based on'the experience of a rural textile coopera-tive.in Ethiopia. (PB). *

31. Peace Corps. MICRON, Accounting for the MicroBusiness: A Teaching Manual. 'Washington,D.C.: Peace Corps/ICE (Appropriate Tech-nologies for Development Series, ReprintNo. R-23 (Spanish) and R-23b (English).

An excellent,. simplified accountingsystem based on the author's experiencewith SSEs in Colombia. The manual isavailable in both Spanish and English.(PB). *

32. Peace Corps. The Photonovels A Tool for Develop-ment --(Appropriate Technologies. for Devel-opment Series, Manual No. M-4). WashingtonD.C.: PC/ICE.

Illustrated how-to brochure on thepromotional technique of the photo:sovel(PB). *

33. Peace Corps. Visual Aids: A Guide for Peace CorpsVolunteers (Appropriate Technologies forDevelopment Series, Reprint No. R-2).Washington, D.C.: PC/ICE.

A good handbook showing how simplematerials can be used in preparing visualaids in developing countries. (PB). *

223

1

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APPENDIX III.

Exhibit D

34. Robert Morris Associates. Annual Statement Stu-dies, 1974.

A compilation of industry averagefinancial ratios for small, medium andlarge-szed businesses in the United States,and useful for at least a crude comparisonwith SSE financial ratios in developingcountries. Since publication is periodi-cally updated, consult latest eCttionavailable. APB)

35. Textor, Robert B. Cultural Frontiers of the PeaceCorps. Cambridge, Massachusetts: MITPress, 1966. (PB)

36. Thomsen, Moritz, Living Poor: A Peace CorpsChronicle. Seattle and London: Universityof Washington Press, 1969. (HB)

37. United States Agency for International Development(Centro Regional de la Pequena Empress).Programa del Aviso de Direcci6n Administra-tive: Administracion de la Pequefia Empre-sa. Mexico and Buenos Aires.

Excellent series of twenty bookletsin Spanish dealing with separate topics insmall business administration. Translatedfrom a series by the U.S. Small BusinessAdministration, the booklets' ample illu-strations and step-by-step approaches makethem an ideal reference source for organiz-ing seminar presentations for small businesspeople. (PB). For U.S. Small BusinessAdministration (SBA) Publications contactthe Superintendent of Documents, U,S.Gov-ernment Printing Office, Washington, D.C.20402, or the Office of Management Infor-mation and Training, U.S. Small BusinessAdministration, Washington, D.C. 20416,or any regional office of the SBA in theU.S.

224

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APPENDIX III

Exhibit D

38. United States Small Buiiness Administraltion (SBA)-Small Business Management Aids for SmallManufacturers.

-Small Marketers Aids.-Small Business Bibliographies.Washington, D.C..; Government Printing Of-

.

fice.Excellent free series of pamphlets

addressing all aspects of small businessadministration, with additional referencescited. Over 200 different brochures areavailable under these series from the SBAin Washington, or frGm its regional officesthroughout the United States. (L).

39. United States Small Business Administration (SBA).Small Business' Management Series. Washing-ton, D.C.: Government Printing Office.

A series of small books on finance,management and other topics, and availableat reasonable prices from the gm. Someof the more useful titles in this seriesare noted below: (PB)

A. "Financial Control by Time AbsorptionAnalysis", Small Business ManagementSeries #37.

B. "Financial Recordkeeping for SmallStores", Small Business ManagementSeries #32.

C. "Strengthening Small Business Manage-ment", (unnumbered)*

,

D. "A Handbook of Small Business Finance",Small Business Management Series #15.

E. "Guides for Profit Planning", SmallBusiness Management Series #25.

F. "Improved Material Handling in SmallBusiness". Small Business ManalbmentSeries #14.

225

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APPENDIX III

Exhibit D

G. "Personality and Success "', SmallBusiness Research Series #4.

H. "Profitable Small Plant Layout", SmallBusiness Management Series #21.

I. "Cash Planning Small ManufacturingCompanies", Small Business RelearchSeries #1.

J. "Cost Accounting for Small ManufactROW0ers", Small Business Management Se-r-ies #9, by R. Lee Brummet and Jack C.Robertson, 1972.

Textbooks on Business Administration useful as generalreferences for teaching or consulting small-scale en-trepreneurs:

40. Anthony, R.N. Fundamentals of Management Account-ing. Homewood, Illinois: Richard D.Irwin,1477.

An excellent intermediate text inaccounting and finance. Also availablein Spanish with title La Contabilidad en laAdministracionode la Empresa. (Ha)

41. Buell, Victor Poe and Heyel, Carl, eds. Handbookof Modern Marketing. New York: McGrawHill Book Company, 1970.

Contains more than you ever wouldwant to know about modern marketing. Someuseful principles and points to look forin consulting SSEs. However, the handbookhas a large company focus. (RB)

42. Cohn, Theodore, and Lindberg, Roy A. Survival andGrowth: Management Strategies for the'Small Firm. New York: AMACOM, 1974.

An excellent analysis of managementstrategies for small bxwInesses in the U.S.Also contains a number of brief, practicalexamples of small business situations toillustrate its points, (HB)

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APPENDIX III

Exhibit D

43. Griiisman, Bernard, ed. J.K. Lasser's BusinessManagement Handbook. New York; McGraw-Hill Book Company, 1968.

Good, common-sense advice on smallbusiness management in the U.S. (HB)

44. Hargedon, Bernard J. Principios de la Contabili-dad. Bogota: Norma Editores.

Simple, basic accounting textbookwritten by.a former AID technician in Co-lombia. (129)

45. Helfert, Erich A. Techniques of Financial Analy-sis. Homewood, Illinois: Dow-Jones-Irwin,Inc., 1977.

Offers a concise review of selectedfinancial topics, with excellent problemsand case studies. (HB)

46. Horngren, Charles T. Cost Accounting: A Manager-ial Emphasis. Englewood Cliffs, NewJersey: Prentice Hall, Inc., 1972.

An advanced cost accounting text-book with illustrative problemS and cases.(10)

47. Johnson, Robert W. Financial Management (FourthEdition). Boston, Massachusetts: Allynand Bacon, Inc., 1974.

Useful general finance textbook.(HB)

48. Klatt, Laurence A. Managing the Dynamic SmallFirm: Readings. Belmont, California:Wadsworth Publishing Company, Inc., 1971.(HB)

49. McGregor; Douglas. The Human Side of Enterprise.New York: McGraw-Hill Book Company, 1960.

A pioneering study in personnelmanagement, and a good introduction tobasic theories in this field. (HB)

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APPENDII III

Exhibit D

50. Moore, Russell F. AMA Management Handbook. NewYork: American Management,Association,1970.

Good general textbook review ofmanagement topics. However, has largecompany focus. (HB)

Niswonger, C. Rollin; and Fess, Phillip E.Accounting Principles (Eleventh Edition).Cincinnati, Ohio: South-Western Publish-ing Company.

General accounting text. Some goodstep-by-step explanations of basic account-ing principles. (HB)

52. Stegall, Donald P.; Steinmetz, Laurence L; andKline, John B. Managing the Small Business.Homewood, Illinois: Richard D. Irwin, Inc.1976.

An excellent textbook review ofvarious aspects of small business'adminit.stration in the United States. (HB).

228wee. 002 *4311

Since 1961 when the Peace Corps was created. more than 80.000 U.S. citi-zens have served as Volunteers in developing countries. living andw orking among the people of the Third World as colleagues and so-workers.Today 6000 PCVs are involved in programs designed to help strengthenlocal capacity to address such fundamental concerns as food production.w ater supply. energy development. nutrition and health education andreforestation.

Peace Corps overseas offices:

BELIZEIF7D7-6ox 4B7Belize City.

BENINVT-371Cotonou

BOTSWANA"V7-07-17i 93Gaborone

BURUNDI7711717ricanEmbassyBujumbu-a

CAMEROONITErr--Yaounde

CENTRAL AFRICANAPU1LICIT-TDID-Bangui

COSTA RICApares tado Postal1266San Jose

OOMINICAN REPUBLICApartado Po,,tal1414Santo Domingo.

FIJI7717 Box 1094Suva

GIP-7698Libreville

GAMBIA TheV707Iii-382Banjul

GHANAP.O. Box 5796Accra (North)

GUATEMALATITGiFTWal-46Zona 2Guatemala

MAURITANIA.BP 222NousAChott

MICRONESIA17-07737-736Saipan. MarianaIslands

MOROCCOT7-77Wivat BenzerteRabat

NEPALT3-Box 61?Kathmandu

NIGERIP 10537Niamey

OMANHONOURAS 1707 Box 966pa do Postal Muscat

C.:51

Tegucigalpa

JAMAICAuse Avenue

Kingston 10

KENYAT737-Box 30510Nairobi

EASERN CARRIBBEAIncluding; Antigua.Barbados, Grenada.Montserrat. St.Kitts - Nevis. St.Lucia, St. Vincent.Dominica ErinCourt" BishopsCourt HillP.O. Box 696-CBridgetown. Barbados

ECUADORrii17771 6354Ouito

LESOTHO15757-15x 554Maseru

LIBERIA177787Monrovia

SOLOMON ISLANDSP.O. -Box 547wpniara

PAPUA' NEW GUINEAB.O. Box 1790BorokoPort Moresby

PARAGUAYEmbassy

Asuncion

PHILIPPINESIr.1571ix71313Manila

SWAZILAND777-17i362Mbabane

TANZANIAVox 9123Dar es Salmi*

THAILAND-17-37-SomPrasong 2Petchburi RoadBangkok 4 .

TOG 0Vim: 44Lome

TONGABP 14 T

Nuku'Alofa

TUNISIABP 961002 Tunis -BelvedereTunis

UPPER VOLTAVP 5177SematleinOuagadougou

RWANDA777rnerican Embassy WESTERN SAMOAKigali B.O. Box 680

ApiaSENEGAL

MALAWI 1V-237TOT-7U . DakarLilongwe

STvCHELLESMALAYSIA P 697ratan VictoriaRaja MiidaKuala Lumpur

MALIBP 85Box 564

SIERRA LEONEIITIVITIFITT BagFreetown

229

YEMEN1177Box 1151Sana'a

ZAIREWITZKinshasa