Financial Decisions by SMEs - survey of companies in Haryana, India.

Profile of the Company: Lakshay Food Plaza.

Lakshay Food Plaza is a franchise of the famous chain Dosa Plaza in Rohtak, Haryana. It was established in the year 2011, and continues to grow at an exhilarating pace. It has a deep commitment for societal benefit and has sponsored IIM Rohtak’s initiatives of Swabhav-- autorickshaw project of helping the girl education and Marathon—India for the Girl Child. It has annual turnover of approx Rs. 30 crores and net worth of approx Rs. 4 crores. Dosa Plaza offers the world's widest menu in Dosa and is perhaps India's single most popular foodservice retailer. It has international presence with outlets in Dubai, New Zealand etc. and also a widespread national presence with outlets in Bangalore, Mumbai, Gurgaon, New Delhi, Patna, Ranchi, Nagpur, Nashik, Bhopal, Jaipur, Lucknow, etc.  

Respondents’ Profiles.

Kamal Kant Bhutani is the General Manager – Marketing and accountant at Pall & Co. He is  son of Mr. Bhutani, the Managing Director of Pall & Co. He is a Bachelor of Commerce and currently is in his final year in Chartered Accountancy.

Jitesh Lohchab is the CEO of Lohchab Motors Pvt. Ltd. He has done his Post Graduation from IIM Kozhikode and graduation from Delhi College of Engineering in the field of Mechanical Engineering. Prior to working at Lohchab Motors, he has worked as a senior consultant at Deloitte Touche Tohmatsu.

Ranbir Shonak is the managing Director of Lakshay Food Plaza. He has done his graduation from JRN University, Rajasthan.

Findings

Inferences

Small firms have their prime objective as maximizing customer satisfaction and believe that this objective alone would lead to other objectives directly getting fulfilled. Societal commitment comes at the end once the business has attained stability. Lakshay Food Plaza was an exception to this.

Small firms have few conflicts of interest and all the employees are deeply involved towards achieving growth through maximizing customer’s satisfaction.

Timing of cash flows and opportunity costs are considered to be the most important factos when making investment decisions.

None of the firms surveyed use any of NPV, IRR, MIRR methods. Accounting rate of return and payback period are the most preferred methods used. Time value of money concepts are not used in evaluation of projects.

Scenario analysis is the most preferred risk assessment technique used.

Estimation of cost of equity capital is done through judgement and investor’s required rate of return. Though not directly used, the CAPM model is always there at the back of the mind when calculating equity cost of capital.

Current average interest rate on outstanding debt is used as the current pre tax cost of debt by all the firms

The risk free rate for the firms depends on the duration of the project

Beta estimation is considered to be a difficult task and is safely outsourced to consultants.

Internal accruals and debt are used most frequently as sources of long term funding.

Factors considered important for assigning the debt to equity ratio vary from firm to firm and depend on the perception of the management.

Supplier’s credit wherever and cash credit limit provided by banks are most important short term sources of funding used by the firms.