Impact of Working Capital Management and Funding on Omani SMEs' Growth

This report provides an in-depth analysis of the crucial role of Small and Medium Enterprises (SMEs) in the Omani economy, emphasizing the significance of effective working capital management and access to funding for their success. It highlights the decline in SMEs operating in Oman and attributes this to challenges in working capital management, which includes managing accounts receivable, accounts payable, cash flow, inventory, and overdrafts. The report details the importance of timely debt payments, profitable operations, and avoiding bankruptcy through sound financial practices. Furthermore, it addresses the difficulties SMEs face in securing bank loans, including a lack of collateral, stringent payment schedules, and the absence of professional financial statements and management. The report also explores strategies for improving working capital management, such as cash flow forecasting, supplier payment optimization, operating cycle adjustments, and inventory management techniques like First In, First Out (FIFO) and Just In Time (JIT). Finally, it examines the contributions of the Omani government, through initiatives like the Al Raffd Fund and the Oman Development Bank, and the private sector in supporting SMEs through financial assistance, training, and development programs, underscoring the collaborative effort to foster SME growth and economic diversification in Oman.

Introduction:
"The sooner that SMEs are created, the better for the economy. I don't think we can sustain the
surplus situation for too long," said Abdulwahid Al Heraki, an independent economist (The National,
2017)
Mr. Abdulwahid forcasted back in early of 2013 that the economy of oman will go down in the near
futur and clearly stated to focus on SMEs. As GDP Of Oman was at the highest back in 2014 (81.034
Billion USD) but it was decreasing to in the following two years and reached to 66.293 Billion USD
According to World Bank Statements (Data.worldbank.org, 2017). The reason behind this reduction
is the falling of Oil Prices in the world and oman was mostly depending on Oil for it's income and that
what lead Oman economy to fall with the oil prices.
Oman needs to focus on other sources of income, one of the best and the strongest source is SME
Sector. The SME influence every party involves in this sector (Government, Business Owners and
consumers). That’s why it is the best solution to energize the economy in Oman.
In the other hand, SMEs needs the support to be initiated and also successfully operated, such as
support of financing and also Working Capital Management.
Task 1
There is a big decline in the SMEs operating Oman from last year. As SMEs Declined by 31.2% in first
quarter of 2017 National Centre for Statistics and information (Report, 2017). There are many
factors that causes the loss of theses SMEs and the of the biggest influences is Working Capital
Management.
The working capital management is a Prime reason for success of any business. As it insures the
money loops inside the firm without any liquidity crunches. WCM involves the management of five
important aspects in every firm, Account Receivable, Account Payable, Cash in hand, Inventory and
Overdraft. I will explain below in details the Importance of working Capital Management:
1. Paying Debts on Time:
WCM helps the business owner to minimize the Credit period that is given to the company's
customers (account receivables) and on the other hand it will maximize the Account payable
period to the supplier. This will help to equalize the payable and receivable period so the
business owner will be able to collect the money fast and pay the debts without any delays.
2. Profitable business operation:
The business operation will be healthy without any crunches, receivables will be early in, and the
payables will be early out. Stocks will be bought based on demand with no overstocking and will
be sold at the earliest. This kind of situation is caused of good WCM and will lead to success and
profitable smooth business.
3. Business Breakeven:
Breakeven means when the business covers it costs with the revenue. It is always known to be 1:1
ratio. Business owners should cover the costs without over drafting or taking loans from banks
to insure the success of the business. WCM ratios tells the business owner the ideal purchase

amount to cover the revenue, so there won't by overstocking the business which will eventually
lead to extra expenses in purchases and storing. If the expenses reduced and revenue is still
intact, the breakeven will be achieved sooner.
4. Avoiding bankruptcy:
Good money liquidity in the company is an outcome from a good Working capital management.
In this situation, taking loans and overdrafts from banks to cover up the costs and expenses
won't be necessary. The reasons of going bankrupted is the inability to pay debts to the suppliers
and to the bank.
5. Cheap Financing:
To avoid debts and overdraft which always comes with bank interests, it is cheaper and better to
go for the personal financing (using self-funds) to cover the expenses sometimes or expanding
the business. This also avoids the risks of delaying debts payments or even bankruptcy.
Task 2
The capacity to get to fund is a main consideration influencing the development and
accomplishment of SMEs. In this manner, the accessibility of adequate access to fund
guarantees the capacity of SMEs commitment to the financial development of Economy.
Numerous organizations confront a great deal of difficulties securing advances from banks and
SMEs are the most influenced. (Moro, Fink and Kautonen, 2014)
Banks and finance companies is a gate way for the people who wants to open a business or
finance day to day operation. But the finances won't be given easily due to the high-risk of the
investment. The SMEs lacks Security to be given to the bank, the banks are usually asking for
high securities to be ceased if the business is unable to pay to the bank.
The banks will give a difficult or expensive scheduled compulsory payment to the SMEs that they
are funding, so it will be very difficult for the business to pay the compulsory expense to the
bank, it will paralyse the business and lead it to bankruptcy.
Most of the SMEs who starts their business not have a proper Financial Statement, due to the
fact that they do not need one when they start their business. The assets that they receive in the
beginning is very minimal and they usually use basic Accounting to calculate the income, and
when the Business owner approach the bank to request for a loan or overdraft, the bank will ask
for the Financial statements to check the cash flow of the business and whether it's profitable or
not to invest in. and also, most of the SMEs lack professional management which even scares
the financial institutions and the banks to give the funding to unprofessional managed business.
This factors all create a disconcerting situation to the banks and financial institution to fund the
business and sometimes give the idea that the firm won't be able to repay the funded amount
on the scheduled time.
There are other reasons that also make it discouraging for the SMEs to take loans from banks
due to the long procedures that takes just to process the loan plus the high interest rates that is
offered by the banks.
Task 3

Working Capital Management as mentioned before depends on Five Components within the
current assets and current liabilities and in order to improve the business and lead it to healthy
operated firm, the business owner need to focus and improve these five components.
Cash flow Forecasting:
For effective WCM, it is very essential to do proper Forecast Cashflow. Forecasting considers the
effect of fundamental elements like activities by your rivals, unexpected occasions, loss of prime
client and market cycles. Income anticipating will enable your firm to reinforce and balance out
your money related state and Strengthen your balance sheet. This outcomes in picking up
control and adaptability that gives a focused edge.
Supplier Payments (Account Payables):
Organizations that make their instalments on time have a tendency to have a superior
association with Suppliers. This further encourages customers to arrange better contracts (for
instance, secure good and better terms in credit facilities with suppliers). And when the time
comes when the need of extending the credit period between the supplier and the firm, the
trusted relationship benefits this kind of situations and helps in gaining the adjustment deal.
Operating Cycle (Account Receivable):
The operating cycle Starts when buying the inventory and end with the change of your Account
payable into Money or Cash in hand. The longer operating cycle in the business, the bigger
amount of unusable Credit in it. Of course, the best solution is to shorten the operating cycle by
selling fast, collecting money from clients faster. This will improve the short-term liquidity of the
company and will free up more cash.
Inventory Management:
There are many methods that helps the firm to reducing stocking inventory and lock up assets.
There are softwares used that keeps count of the inventory available in the business, this helps
to measure whether to order more stock or not based on the sales volume on that time, this
software also helps so use the method First in, First out, which also means that the first item
that came in to your inventory is the first thing to be sold, this method is used to clear out the
stocks faster without neglecting old stocks. Other methods can be used like Just In Time (JIT) this
actually eliminate the inventory and order stock needed just in time for manufacturing or
reselling on exact demand without keeping anything in inventory.
Alternative Source of Financing (overdrafts):
Bank Loans can frequently be precarious SMEs owners. Business owners can find better
alternatives in financing, such as Overdrafts or Invoice factoring, these options help to get the
cash faster for avoiding any liquidity crunches and increase the cash flow in the business itself.
Overdraft preferably should be paid back as early as possible to avoid any extra interests from
banks.
Oman Governments Contributions on SMEs:
His Majesty Sultan Qaboos establish "Al Raffd Fund" back in 2013 which was Sanad before that
year. Al Raffd Fund is a government based organisation that helps the community to start their

own business by funding and give a proper guidance in opening and managing established
business. And based on the statistical reports, Al Raffd Fund financed 1730 up until the end of
2016 spending almost 69 Million Omani Rials on SME Funds (Alraffd.gov.om, 2017), this also
helped the employment numbers increases open more job opportunities.
Other Financial institution that helps to develop the SMEs like Oman Development Bank. As the
bank won an award for Best bank of supporting SMEs in early 2017, this also a proof strong
funds that was by the ODB. All the above measurements estate that Oman Government Support
SMEs with the maximum effort and dedication, because in return the SMEs will benefit the
country's economy.
Private Sector Contribution on SMEs:
Private sector companies support SMEs not only in financing, but also supporting the SMEs with
Training and development (like Zubair SEC, Aramex, Al Wathba Bank Muscat, AL- Namaa, Sell-
Live wire, etc). Big companies and banks in Oman Sought for Social Responsibilities in which they
established a big variety of SME Funds organisation which funds and develop the business
owners with different kind of training courses on Business management and also Working
Capital Managements. This indicates the big help and support that the SMEs can get from the
private sector and got a big variety of doors to enter an investment in the SME sector.
Conclusion:
In conclusion, SME sector is very important to invest in. As the above assignment clearly shows
how the government and private sector support the SME with a clear guidance from first step of
starting the business till the operation starts, and Working Capital Management plays an
important role of SME success. If the Omani youth sought for the opportunity that they have to
open the business, multiple doors will open in front of them to demonstrate their creativity in
their business and benefiting all the society.