Flexi CFO Services: Boon For Startups, MSME and Emerging Businesses

                    Flexi CFO a boon to MSME / Startups/ Emerging businesses

 

In the initial phases of a startup or business, the primary attention is given to business/market development, while crucial aspects like compliance, internal control, financial control, etc. are often neglected.

In numerous instances, this becomes the primary cause for startup failure or business closure, despite a highly favorable economic environment.

For example not properly managing cash flow can cause severe liquidity crisis leading  to closure of business. Likewise, if the working capital is not managed properly it can lead to funds crisis further leading to severe problems for the businesses. Therefore, it is important to lay strong foundation of robust accounting, financial, commercial systems in the organizations.

 The chances of occurring above issues are less where the promoters are financial literate. Where the promoters are not financially literate, which happens in most of the cases, such bottlenecks are very common.

Lack of financial literacy and resultant problematic scenario discussed above could further worsen the situation. It can spoil the relation with bankers as there could be irregular repayment of financial obligations leading to risk of account being declared as NPA. (non- performing asset). The criteria used by banks to disclose accounts with certain repayment pattern. A bank would declare their customer who they have lent money as NPA where even the interest is not received from the customer/ borrower in the last 90 days)

Where the books of accounts compiled do not have certain features or certain strengths, they may not be inclined to continue their lending or may not consider them for lending purposes at the first instance itself. For Example, inadequate routing of cash flows from the designated account, Inadequate debt equity ratio, Inadequate current ratio, inadequate promoters margin in working capital assessment, long term solvency, ROI etc.

One of the easiest option to avoid above described situation is to take the services of some financial expert. But as all good things comes at a price, so is the services of a financial expert. Typically a financial professional with 10 to 15 years of experience would cost anywhere between 30 lacs to 50 lacs per annum. The revenue stream of a MSME or startup during the initial stages could not sustain such costs. Therefore, it’s a catch 22 situation.

The services of a flexi CFO provides solution here. A flexi CFO is a finance expert with years of diversified experience who make their services available on need basis. The cost of a flexi CFO is variable and not fixed, and therefore, provide flexibility to the small businesses. Usually, the services of a flexi CFO is taken for short duration such as 3 months, 6 months etc or once/ twice in a week or fortnight or month.

Following are the advantages of hiring the services of a flexi CFO:

1.     Benefit of years’ of experience.

2.     Optimized Cost of services.

3.     Robust foundation of accounting, financial, commercial systems, well defined

 work flow.

4.     Better Cash flow management & better liquidity in the business.

5.     Clarity =>Better Decisions=> cost savings and economies.

6.     Efficient decision making.

7.     Better relations and negotiations with banks.

How the services of a Flexi CFO are useful to MSME or a Startup:

1.     With a Flexi CFO comes not only the years of curated experience, but also a network of investors, banks, consultant, advocates, reach in Government departments, access to markets, contacts with vendors etc. The businesses can take advantage of the same.

2.     In setting up robust system of accounting, Supply Chain Management (SCM), Inventory Control system, commercial management and working capital management system

3.     Setting up of a good MIS system that help day to day decision making.

4.     Timely Compliance of various laws and regulations

5.     Books of accounts and records that are in compliance of various statues.

6.     Books of Accounts that comply the requirement of banks

7.     Professional advice in strategic matters.

8.     Setting up of a judicious capital gearing.

9.     Optimum cost of capital.

10.  Helps funds mobilization.

 

Conclusion:

The concept of a flexi CFO due to its inherent merits is being widely accepted by the Startups and Small and Emerging Businesses. On the one hand the services are lighter on the pockets and on the other hand the befits are immense.

 

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