Entrepreneurs

Are Entrepreneurs sure about their compliances?

It is no secret that India has stirred huge interest among various domestic and overseas investors wanting to enter the Indian SME market. You surely understand the opportunities, and therefore the urgency to stay ahead in your business. However, one of the most challenging job is to stay updated on compliance and regulatory requirements.

How many entrepreneurs today can confidently say that they are 100% compliant? What are they doing to mitigate the risks associated with compliance?

The Government policies are evolving, new laws enacted, and amendments to the existing ones are done, etc. They are all not very simple to understand, at times ambiguous creating confusion and even more difficult to implement them. How prepared are you to handle all this?

There can be a tendency to either ignore it completely or enforce partially depending upon the entrepreneur’s discipline, enthusiasm and the will to follow through it to the last minute detail. And, whoa! Compliance becomes a huge risk!

Given the way SMEs operate their businesses, with unstructured processes, loose financial discipline and improper documentation leads to a high risk on missing compliance. Most times the accounting team aren’t able to provide the financial statements in time before the compliance deadlines so there will be no time to evaluate or discuss the same. In lot of cases even the financial statements may not reflect the correct financial performance of the business and in hush-hush the statements are filed to meet the deadlines just making sure that you keep dealing with notices from the departments and paying lawyers’ fees.

With more automation and rigor on compliance on regulatory side, there’s isn’t any choice with the today’s organization but become compliance ready. Deploying right financial process, having fiscal discipline and creating rugged documentation within the accounting team will ensure you are on the right side of law and save on severe compliance risks.

Are you compliant ready? Well, team 10CFO is just a call away in case you need help.

When your business needs a CFO ?

When do I know that I need a CFO? asked a client CEO. Tt's not that difficult I said. Here are a few words and if you feel any or few of these words are your inner voice, then writing is on wall :

1. My business has great potential and is growing, but at times am not 100% confident about my business decisions, not knowing the financial impact of these decisions

2. There’s always a confusion on which direction of growth should I take? And what would be the financial outcomes?

3. I never get to see my financial dashboard ON TIME or in a manner that tells me which Product, Service, Geography or Department is making how much money.

4. I'm never able to plan my Cash Flow Cycle in ways that gives me peace of mind

5. I miss most business opportunities since am unable to raise funds at the right time

6. Growth is fine but it always comes at the cost of increase in working capital and finally my profit takes a hit

7. My Accounts & Finance team always struggle to do financial closure in time

8. I have a good team and they are close to me, now how do I put them into Performance matrix? People Performance at the top always remains a challenge.   

Now you will say that these are the concerns of every Entrepreneur. Yes, you are right. So here comes another set of questions – whether your business can afford one? At what size of business one should get the CFO ? 

When it’s a question of affordability that’s where Shared CFO firms helps you to deliver value at a lesser cost since most Small & Medium size business won't be at a stage where you need a full time CFO. You need a CFO for few hours or days a month to help you with key critical business decisions and manage your financial risks. Shared CFO brings this value at a significantly lesser cost. Regarding Size – there’s no fix definition at what size a CFO is justified, as they say – earlier the better and hiring the first CFO will always be an Investment decision for any Entrepreneur.

The only flip side is once you hire and realize the benefit of the CFO you are most likely to curse yourself for taking this decision so late. Jokes apart, if business growth with financial fitness is your priority, don’t blink. 

In-spite of growing top line your financial performance scare you?

In a meeting with a Client CEO running a successful venture in Technology hardware space, whose business was growing at a good pace in terms of the Sales, Products offerings, customers, market share and people size but his financial performance didn’t reflect that; I asked, at with what frequency do you review your financial dashboard; and to my surprise he said every month. He said, I have the best accounts & finance team who present MIS every 5th of the month without fail. That was a great practice and as I looked at their MIS and almost burst into laughter (though didn’t showed that:) this was the same Profit & Loss Account, Balance Sheet that they used to submit to income tax department and other regulators for their compliance purpose. It showed Sales, Cost of Sales, Gross Profit, few expense head and net profit.

I mean, this MIS was good for Regulators to determine your profitability and tax but how does it give you any dope into how your business is moving. The business had 3 offerings – Sales of Materials, Sale of Equipments and Service division. I asked

– Does this MIS tell you which product offering is growing at what % ?

– Does this tell you the gross and net margins of each Product exactly ?

– Do you know the funds deployed in each of the product category ?

– Do you know the return on funds deployed from each product ? Say for example you had additional 50 million invested in working capital then in which product you would deploy to get maximum yield ?

– Do you know your cash flow cycle of each Product to determine cost of funds deployed for each Product category?

And, he was zapped and looked blank. Without the right financial dashboard how can you plan and measure your business performance? Like in the game of Soccer, while you keep measuring the total goals but can't be completely blind to who is producing those goals and which moves are yielding you results. In business think your players as your products and your moves as your strategy. Your Dashboard should tell you which product and moves are contributing to the ultimate financial goal. I have seen most entrepreneurs have an acute eye on top-line and gross margins but your financial performance is reflected in bottom-line and healthy cash flow as well. The efficiency in producing MIS on time is fine but what about competence? Is your Dashboard a mirror of your business strategies? That’s where a CFO differentiates from your Accounts Finance team or your CA.

Here is the Sharp 7 for your financial dashboard:

1. Product wise top-line and growth %

2. Expense allocation to each product and for joint costs such as administration, top management salaries, etc an ideal ratio of distribution over products/Services that you feel reasonable

3. Gross Profit and Net Profit from each product and services

4. Funds/Capital deployment in each of business products and service

5. Cash-flow cycle of each product/ Service category in days

6. Cost of capital Product and Service wise

7. Return on Investments on each product or services

Financial performance is not about the over all business growth but finding opportunities to enhance performance that’s hidden in the details. Who knows you'd be loosing money on delayed customer payments, non performing product lines, indiscipline in collections, inefficient cash-flow cycle, piling up inventory and increasing cost of capital. In details you will find a demon who’s eating your smart bucks to fund your struggling Products and unwanted Customers which drags down your financial performance.

I have seen that most Entrepreneurs are dashboard driven but big question that you should ask is does your dashboard drive decision-making? Does it tell you what you should do more and what you should cut down? Does it give you early warning signal or intimate you in advance before you are in the deep hole? If not then that MIS is just a piece of paper meant for your garbage box don’t waste any more time on that.

Healthy business performance may not be equal to healthy financial performance unless you have a Dashboard that pins the gap.