Financial Management in Private Enterprises in Hunan Province

M & D FORUM
Financial Management in Private Small and Medium-sized
Enterprises in Hunan Province
ZHANG Weimei
School of Economics and Management, Hunan City University, P.R.China, 413000
Abstract: Private small and medium-sized enterprises (SMEs) have become an important component in
the social and economic life of Hunan province and play a decisive stimulating role in economic
development and social stability. However, Quite a large majority of SMEs are faced up with a variety
of problems in financial management. In order to better conduct the financial management in private
SMEs, we have to take corresponding countermeasures. Firstly, we should update the idea of financial
management. Secondly, we should set up the idea of honesty culture in private SMEs. Thirdly, we
should establish a sound internal accounting control system. Fourthly, we should intensify construction
of the team of accounting personnel.
Keywords: Hunan Province, SMEs, Financial Management, Countermeasures
1 Introduction
With rapid development of Hunan economy, private small and medium-sized enterprises (SMEs) have
become an important component in the social and economic life of Hunan province and play a decisive
stimulating role in economic development and social stability. However, development of private SMEs
is also faced up with a variety of problems. According to statistics, the elimination rate of private SMEs
in Hunan in the recent five years reaches as high as 70% and approximately 30% of private SMEs are at
a loss state. Quite a large majority of enterprises are in such a condition as a result of weak financial
management.
2 Primary Problems Existing In the Financial Management in Private Smes In
Hunan Province
2.1 The idea of financial management lags behind
For the time being, among private SMEs in Hunan Province, the phenomena of concentration of power
by enterprise leaders and family-based management are serious. The position of financial accounting is
mostly held by family members of the enterprises or people who have genetic connection with the
enterprise leaders. Deficiency of a sound and effective financial management mechanism and deficiency
of an internal control mechanism for mutual constraint and mutual checks and balances lead to
confusion in financial management, relaxed financial supervision and inauthentic accounting
information, etc. It is generally believed that since it is an enterprise of the family, the position of
accountant and cashier should be necessarily held by members of the family. There is no need to
supervise these positions, which directly leads to problems of confusion of duty and responsibility,
exceeding the due authority and lack of effective financial supervision in the financial management of
the enterprises.
2.2 Difficulty in financial collection caused by lack of credit concept
It is a general phenomenon that private SMEs in Hunan Province are lacking in abundant capital
foundation, so it is extremely critical for the enterprises to circulate necessary funds. Nevertheless, the
problem of difficulty in loan and difficulty in guarantee also exists in most private SMEs, and the major
reason is that some enterprises repudiate a debt and dodge a creditor in business transaction and make
fraud financial reports. There are also some private SMEs that dodge a loan debt with malignity, which
causes the lending institutions to perceive of great risk and thus reduces their enthusiasm in loaning to
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these enterprises. In addition, most private SMEs don’t disclose their financial management and
financial information which is non-transparent, and reliability is lacking in their accounting information,
so the creditworthiness and recognition of these enterprises by the society is relatively low, which leads
to such a series of problems as difficulty in guarantee, difficulty in funds collection and lack of capital
turnover, etc.
2.3 Lack of financial risk management
The financial investment analysis lacks scientificalness and anti-risk control, yet with great blindness.
Lack of standardization in management, non-transparency of the financial condition and incomplete
financial management procedure and system, it adds to difficulty in loan from a financial institution.
Besides, most enterprises have low credit rating and weak capacity of burdening the risk in credit funds,
which are deficiencies of the enterprises per se, these enterprises might encounter with more risks in the
process of operation and management. Yet, usually, private SMEs put their major concentration on the
production and marketing business of their products, and seldom pay real attention to existence of the
risks, lacking in risk management and control mechanism, let along throwing special personnel to
control and reduce the risks.
2.4 Incomplete internal control system
The internal control system is imperfect, the accounting control is fragile and the supervision is
insufficient. The internal control system refers to a series of internal management system of the
enterprises formulated and carried out, which is aimed to protect the security and completeness of the
assets, improve the quality of accounting information, ensure implementation of the laws and
regulations and the strategy and policy of operation and management, avoid or diminish all sorts of risks,
enhance efficiency in operation and management and fulfill the target of operation and management.
Accounting control and internal auditing control are the major content. Generally speaking, the internal
accounting system of SMEs, especially private SMEs, is incomplete. Some enterprises have defective
basic systems, such as financial checking system, cost accounting system and approval system of
financial income and expenses, etc.
2.5 General low quality level of accounting personnel
At present, quite a lot of private SMEs have ambiguous accounts, resort to deception in making accounts
and have distorted accounting information, which, on one hand, is caused by the system, management
and structure of the enterprises, and, on the other hand, highlights the general low quality of accounting
practitioners. Generally speaking, although the financial personnel in private SMEs have mastered
certain professional knowledge and skills, their concept and method of the financial management lags
behind, and they tend to comply with their superiors whatever they do. Thus, they are deficient in the
initiative to master new knowledge and in the innovative spirit. The consciousness of supervision among
accountants is weak, which leads to weak foundation of these accountants. Specifically, accountants do
not use standard accounting subjects, have incomplete original certificate, don’t do accounts in time, and
don’t set up the account books in a complete way, etc.
3 Countermeasures to Resolve Problems Existing In the Financial Management
In Private SMEs In Hunan Province
With regard to the above status quo of financial management in private SMEs, we have to take
corresponding countermeasures, make strict the financial management and enable development of
private SMEs enterprises to further go towards standardization and marketization.
3.1 To update the idea of financial management
First of all, we have to update the idea of financial management of enterprises, fully come to be aware of
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the strategic core status of the financial management in the corporate management, change the financial
management of enterprises from a process of reproduction of passive obedience to a process of
reproduction of active domination and management to enable it satisfy the need of value added of the
funds. Active financial management not only includes recording and processing of financial data, but
also includes how to carefully study on how set up an accounting standardization system to ensure
accuracy of the initial data of the finance and improvement of accounting efficiency. At the same time,
the financial management of accounting should also be based on full use of the budget tool for
management. An overall budget based on the entire operation target of the enterprises is an important
means for financial management and plays an important role of target stimulation, process control and
effective reward and punishment.
3.2 To set up the idea of honesty culture in private SMEs
As a matter of fact, market economy is a kind of credit economy. Credit is the most fundamental social
relation, the foundation for all economic activities and is also the most vigorous major weapon for
enterprises to strengthen their competitive force. Credit is able to bring funds, open the market and
strengthen competitive force. However, any economic activity without support of credit may let one lack
the sense of security, which greatly obstructs the normal development of the market economy. Conflicts
between interests of all parties involved may cause private SMEs to lack honesty or even violate the
laws and disciplines in their activities of production and operation, the root cause of which lies in
ignorance of these enterprises in the idea of honest and law. Thus, in order for private SMEs to diminish
and eliminate dishonest operation and behaviors of getting out line and violating the laws, private SMEs
have to set up the idea of honesty culture, strengthen the concept of law, attempt to enhance the
consciousness of law and quality of honesty in managers and employees, re-mould the image of
enterprises in the honesty and trustworthiness and observing the disciplines and obeying the laws.
3.3 To strengthen management of risk in investment
Private SMEs may refer to the general practice of large-sized enterprises to standardize the procedure of
the projects, carry out supervision on investment, and conduct meticulous design and implementation on
all stages of the investment activities. In addition, in terms of the financial management, enterprises
have to strengthen their awareness of the risk, pay attention to giving full play to the early warning and
prevention role of accounting in the risks, and predict in a scientific way the uncertain factors and
influences brought about by the environmental changes.
3.4 To establish a sound internal accounting control system
Internal control system of the accounting of an enterprise is the basis for internal control of the
enterprise. First of all, private SMEs should make clear the necessity to carry out internal accounting
control system, establish the target of internal accounting system by paying attention to improving the
quality of accounting information, securing the security and completeness of property and ensure
implementation of laws, rules and regulations, abide by the principles of legitimacy, efficiency,
comprehensiveness and timeliness, principle of separation of incompatible duties and principle of cost
efficiency and employ the methods of separation of incompatible duties, authorization and approval
control, accounting system control, budget control, property preservation control, risk control, internal
report control and electronic information technique control to conduct overall accounting control over
the economic business of the following: the monetary resources of the enterprises, real assets,
investments in foreign countries, project items, purchase and payment, funds collection, sales and
receipt of payment, cost expenses and guarantee. In such way, the enterprises can attain their purpose of
strengthening financial accounting, improving the quality of financial information, intensifying the
internal management and enhancing the economic benefit.
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3.5 To intensify construction of the team of accounting personnel
Feature and characteristics of financial accounting determine that the accounting personnel have to have
high policy level, perfect occupational ethics and comprehensive business knowledge and skills.
Considering the status quo of accounting personnel, private SMEs have to make efforts in strengthening
construction of the team of accountants and improving the quality of accounting personnel. These
enterprises ought to get accounting personnel familiar with and understand all relevant laws and
regulations of the country and the industry through legal education and ideological and political
education; they should establish and update the idea of accounting personnel in financial management
through regular on-job training and continuing education and improve the professional skills of
accounting personnel in doing accounting business; they should cultivate the good occupational ethics
of accounting personnel who are passionate in their jobs, earnest and down-to-earth, able to deal with
concrete issues and fulfill their duty through occupational ethical education.
4 Conclusion
To sum up, in order to better conduct the financial management in private SMEs, we have to attempt to
resolve problems faced up in the financial management in private SMEs according to characteristics of
status quo of the financial management in private SMEs in Hunan Province, grasp the initiative in
financial management of private SMEs, and enable private SMEs in Hunan Province to develop towards
a faster and more scientific direction. Then, we may make greater and more contributions to
construction of economy in Hunan Province.
Acknowledgement:
This article is a sponsored project of Hunan city economic research base.
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