Apohan Corporate Consultants Private Limited

Where businesses realize their dreams!!!

Aspects of an Indian SME’s Financial Strategy

Apohan Corporate Consultants Pvt. Ltd. > Financial Strategy > Aspects of an Indian SME’s Financial Strategy

Introduction to Apohan’s strategic financial services:

Apohan’s most important line of business is strategic consultancy on mergers and acquisitions or equity funding of small and medium enterprises. However, a business cannot make most out of a merger and acquisition activity unless it has a long term financial strategy in place. Not only this, the equity investors required that the investee business has a properly laid down financial strategy. There are three very important activities that can make most out of the mergers and acquisitions: 1. Business strategy, 2. Financial strategy and 3. Corporate management. Apohan provides this entire gamut of services the Indian small and medium industries to propel them on the path of growth or to achieve a business turnaround from the situation of financial distress.

We provide a wide variety of strategic consultancy services in the finance domain. Our major strength is our understanding of a business as a business. Apohan doesn’t provide any statutory compliance services. Apohan also is not into the business of these services by certified professionals. We do not carry out any of our services for any certification or any compliance purpose. We make a business financially stable, sound & attractive by creating a framework of financial strategy, financial plan, financial policies, financing strategy, financial performance management, strategic business decisions, management of strategic alliances, modernization of finance function, practical financial training, etc.

We have listed the basic topics for the conceptual clarity of strategic finance. It is desirable to go through these concepts to be able to manage finance without any misconceptions. After the set of links for all these concepts, we have listed all our strategic financial services on this page.

Objectives of financial strategy of a business

Following are the objectives of financial strategy of a business:
1. Estimation of the accurate amount of required capital and its timing
2. Raising all the necessary capital with acceptable terms and the lowest possible cost
3. Efficient and effective application of the capital in various functions of the business
4. Generations of higher profits on the revenues
5. Timely settlement of all the liabilities of the business
6. The timely payment of all the creditors of the business
7. Timely repayment of the the loans and other debt instrument
8. Generation of attractive returns on investment for the shareholders
9. Management of all the risks in the business environment
10. Undertaking growth initiatives and executing them
11. Ensuring the stability and sustainability of the business in long-term
12. Realisation of the dreams of the promoters in terms of advancement of the company
13. Making all the stakeholders of the company happy and satisfied with it
14. Increasing the credit rating of the company to avail larger and cheaper funds from all kinds of investors

Root causes of financial distress in SMEs:

One of the important reasons for financial distress in small and medium enterprises is too few people looking after to many functions. Even if a business is very small, it has to carry out all the activities on smaller or larger scale that are carried out in the large companies.
Following are the corporate activities that a business has to carry out:
Group/ Corporate structure
Shareholder relations
BOD performance
Investor/bank relations
Strategic management
Mergers & acquisitions
Business alliances, JVs
Corporate management
Corporate governance
Risk management

Following are the technical, operational and sale related activities that a company has to carried out:
Project plan
Project management
Supplier development
Inbound logistics
Production, manufacturing
Operations & Maintenance
Quality management
Business development & sales
Distribution channel
Research & development

Following are the support functions in a company that the management has to look after:
Human resources
Financial management
(Business) Investment
Knowledge management
Public relations
Industry memberships

These are around 30 different kind of activities are executive directors of this small and medium businesses to carry out. In most of the companies in SME sector, there is only one executive director. He serves as the base of the company. There is hardly any middle management to support him in carrying out these activities. The worst part is that in all the companies the initial setup of all the departments for functions has to be formulated from zero. The small and medium enterprises do not have prior experience of creating effective departments and functions. They learn the functions of all the departments by experience. Many of them do not have the experience of having worked in large and professional companies. So, this creates following of problems:
Since these functions are not setup professionally in the beginning, the Businessman has to pay personal attention for many routine activities the other people in the business do not have ability or authority to take appropriate decisions.
These are too many functions for 1-2 persons. They cannot improve them even if they want.
Most of these functions remain unattended the problems of various kinds and start accumulating and start exacerbating in the due course of time.
To run a business successfully it is required to run all these functions and departments effectively and efficiently. But to take down the business, adverse development in any one department are sufficient.

Business environment of an Indian SME

Complexity of business: Increasing every day & leading to stress
The complexity of a business is increasing everyday on all fronts. It has not remained simple to smoothly carry on with a established business as well. Even if we keep aside the challenges of a new business with unproven business model, running a business in the modern environment has become extremely challenging. There are unpleasant surprises everyday. The problems that have surfaced in the past don’t see their simple end but become more and more complex every coming day. A business by definition is a very complex thing. It had so many aspects. One needs experts understanding to handle these aspects. There are new and complex development on each front every time which lead to stress in the life of a businessman.

Compulsory new learning: An intellectual compulsory tax
To keep a business stable, a businessman has to continuously learn what is going on in the market, what is going on in the financial world, what is going on on the technology side, etc. They also have to learn the new compliances, laws, restrictions, orders, etc that are applicable to their business. None of these new development are simple to understand. The value chain of the final delivery of the product including the post sales services is very very complex. The Businessman has no choice but to keep on learning all the developments and be up to date. This is a kind of compulsory intellectual taxation.

Brainstorming on long-term strategy: Rarely undertaken as time is left for the same.
The work of operational routine is very hectic. In the small and medium enterprises, the management does not get time to do strategic brainstorming for the development of the business. Any strategic activity is highly Complex in terms of planning it, detailing it, finding the right kind of agencies to execute it, engaging with these agencies, supervising dear work, getting in depth knowledge of that work, and making a fruitful use of the money for new initiatives. All of this is too time taking and is typically avoided in the hectic schedule. So working for one’s own company becomes boring, drudgery, unattractive and demotivating. Many times, the middle management doesn’t show sufficient enthusiasm and energy to take the initiative taken by the top management to its logical and.

Absence of systems: Prevent increased scale of operations or required more personal attention
Many small and medium enterprises are played by absence of proper systems. If the systems are in place for each of the function of the business, it can run smoothly on autopilot mode. Otherwise the Businessman has to intervene in every small and an important activity. Because of absence of systems, there is inconsistency in decisions which further leads to friction in the management or employees. Creation of professional systems in the form of policies for each department, standard operating procedures for each function, professional and Technical training of the staff, monitoring and measurement of work and output, etc always leads to a situation of chaos. The company never looks like a happy, stable, organised and clear-cut in treatment company. Due to absence of systems, management has to spend substantial time in resolution of disputes between the employees. There is no clarity of role and hence there is a gap between the employees notion of performance and the management’s acknowledgement of the same.

Risks: Exposure to unknown without mitigation measures in place
Indian small and medium enterprises, as Apohan has seen in its survey, not equipped for any unfortunate event or any unfortunate market development. There is a “what if” to each of the functions that take place in a company. The management should identify the things that may go wrong from time to time. It should prepare a list of the adverse events that may harm the existence and profitability of the company. SMEs are not seen identifying their risks, quantifying them, putting in place the measures to mitigate them, etc. So what happens? Till the bad event has not happened, the businessman remains in a tension that such and such event may happen. And one such event happens, he just discovers that he is completely unprepared for that, and this is not the event he was anticipating, for this was not the format of the misfortune he had expected. Wisdom by experience is okay in personal life, but it is too costly in business life. Impromptu methods adopted to manage the risk event generally do not yield the desired results and may spoil the situation further.

Dissatisfactory growth: Despite growing market, possession of technical/operational competence
Many businesses witness that the other businessmen that started along with them have reached a very advanced stage of progress. But they have remained behind. The attribute this lack of progress to many reasons most of which are external circumstances beyond their personal control. A business is no more fun when it is not growing. That is the difference between a business and a shop. A business must grow in volumes. The growth in revenue because of inflation has no meaning. A businessman is not a businessman who doesn’t have a growth dream. We see many businessmen ruing for lack of growth in the business for many years despite several types of attempts. Taking a bold step in a business and doing a substantially new thing is as good as doing a new business. It may have a little lesser initial friction in comparison with 100% startup, what it is no lesser than doing a new business afresh. The grief of business stagnation becomes pungent and shark when the sector and industry in which the businessman is, start scaling new heights. It looks too risky to put in precious management time, resources, brain and the reserve capital of the company to undertake new growth challenges for the companies not supported by professional management. Business is also a business of courage.

Decline in returns: As working on capital structure & financing strategy is unattended
As the business stabilizers and most of the learning is done, a businessman start seeing a new phenomenon. Decline in profit and decline in returns on investment! The costs of all the inputs in the business move up gradually many number of years and the prices remain relatively table or grow less. This may happen due to saturation in the market, entry of competition, technology becoming common, imports and globalisation, substitution of product, efficient use of product by the customer, etc. The business become dependent on unidentified set of customers, it becomes very difficult to bargain for higher prices with them. On the other hand, there seems to be no control on the cost of inputs. One has absolutely no bargaining power in determination of the trends in real estate market, employment market, commodity market, utility market, etc.
If any unfortunate event happens when the profits are already declining, it gives a horrible shock to the business. All these things over a period of time, drain down the energy and enthusiasm of the promoters. They kind of start disliking their own business and want to get rid of it. If there is erosion of the wealth earned in the past and if the liabilities go on piling up, the small and medium entrepreneurs even start envying their employee peers who did not take risk of doing a business.

Consultants: No satisfactory experience with problem
A businessman has many strengths and typically most of his strength are concentrated around technical and marketing areas of the business. He needs assistance of expert professionals to take critical management decisions. Small and medium enterprises typically do not have a network in the Consulting world. Apohan in its market survey has observed that small and medium entrepreneurs always resort to an advice by their chartered accountant irrespective of what is the nature of the management problem. 90% of the chartered accountants are experts only in accounting, audit, taxation and other statutory duties. They lack the perspective of a CFO who understands the business, who understands the problems of the business and also who understand how to solve those problems. Small and medium enterprises either do not appoint company secretaries or even if they appoint, beer role is kept limited to the compliances of the Ministry of Corporate Affairs. The SME businesses do not know how to identify the type of consultant required for a business problem, how to locate such consultant, how to cross check the expertise of this consultant to verify whether he will be able to solve the business problem, how to engage the consultant who a professional service contract, what should be the scope of work for him, how the output of the scope of work should be reviewed, how the consultant recommendations should be implemented, etc. Apohan has observed that small and medium businesses do a lot of due diligence when it comes to checking the price quoted by a consultant, but they Pay absolutely no attention towards the details of scope of work and the expected quality of output. Typically in the Consulting industry, the costs of compliance Consultants are very very low and in comparison, the charges of strategic consultants are very high. That is why the SME businesses get puzzled with their quotes.
So one can observe a very bizzare phenomenon in the “SME Consulting” space: 1. The Businessman is almost always dissatisfied with the services of the consultant. 2. The SME businessman is generally of the opinion that the appointment of any kind of consultants is wastage of money and time. 3. Consultancy is more about jargon than about any actual useful work. 4. Whatever fast engagement with consultant that can be recollected was unfruitful.
This leads to a very peculiar situation: 1. The business has potential to grow and the business man has ability to grow it. 2. The Businessman does not have time, money and morale to undertake any challenging growth initiative. 3. The Businessman does not have knowledge and expertise respect to many areas for the new initiative or a successful business decision making. 4. He cannot afford permanent high cost management to carry out these types of activities. 5. Logically, he needs support of professionals and Consultants, either individuals or company. 6. With The Legacy experience, the Businessman concludes that there are no affordable and approachable Consultants in the market for this activity and hence it is not possible to you undertake any such activity.
Now, when this Businessman approaches the consultants that have proven themselves by carrying out strategic growth activities, as that is the only recourse left, he finds that it is beyond him and his budget to engage them. In case of SME businesses, it is not only availability and the price but also the tantrums of the established and successful consulting companies is something that one requires to tolerate. This is mostly because the small and medium enterprises are looked down upon at by the reputed consulting companies employing professionals educated from highly reputed institutions. They are considered as low ticket size, unattractive, unprofessional, unorganised and charmless last priority opportunities. Consulting services typically involve preparation of custom documents and numerous personal interactions. And who would like to cite the credentials and experience of SME companies than of large reputed national and international corporate brands? Hence,
traditionally the focus of the most expert people in the consultancy companies has been away from SMEs that can actually grow into transnational companies.
So what is the net observation? It is a broken relationship! Apohan wants to join this bond. Apohan will be choosy in selecting its SME clients, but it desire to be a delightful Consulting experience for SMEs in India

Personal life of a SME businessman:

Personal pursuits: No quality time to expend the earned wealth
Apart from so many functions and eight lines in the business, a businessman has to manage his personal and social life. In catering to the the numerous requirements on numerous fronts, a businessman doesn’t get sufficient time to pursue his personal hobbies and interests. He may have a lot of television sets with high cream size, subscription to many HD channels but he is not in a position to enjoy any serial the way the employees can do.

Family life: Heavy sacrifice due to business commitments
The family life of a small and medium entrepreneur is heavily compromised. He has to give first priority to the business appointments.

Social, philosophical, spiritual side: take a second seat.
A businessman has to compromise with his social philosophical and spiritual inclinations. He is driven by a passion for personal excellence, fulfillment of social cause through provision of essential services, etc. Other aspects automatically become relatively less important.

Financial & reputational security: Not there dues to volatile business environment.
A businessman must run the business and must Run It successfully and profitability. If this does not happen, lives of a lot many stakeholders are affected. But a business is intrinsically risky. It is not about only running the business sustainably but also about keeping all the stakeholders happy. If there is any error on any front, there is a serious implication on the reputation of the business and the businessperson.

Physical health: poor due to haphazard business schedule
A business person required to to give a lot of time for carrying out all the business activities. He has to travel a lot and he does not have a routine schedule. This has its own impact on his health.

Business relationships: test limit of psychological sensitivities.
A business involves a lot of relationships with human beings including business partner and employees. Many of these relations, due to the inherent human nature, might be sensitive. In a very competitive environment, may it be retention of employees or may it be satisfaction of the clients, the Expectations could be unreasonable. The behaviour of the stakeholders of a business test the limit of psychological strength of a businessman.

Frictional relationships: with business stakeholders such as employees, suppliers, clients, lenders, etc
A business is all about transactions. They are zero sum games. They involve sharing of risks and liabilities. They involve sharing of benefits. They also involved in the process of taking credit for a great development. There are many areas in which a misunderstanding can develop. Sometimes it becomes difficult to Reconcile a relationship. A businessman has to live with all these kind of frictional relationships in his life.

Now, what is the solution?
Of course, many Businessman achieved required degree of behavioural maturity with the passage of time. But that is always not sufficient. It is important to create an effective and efficient organisation led by a policy framework and expert internal and external support professionals.

Three types of business decisions:
A business is all about transactions. Each transaction is nominated in terms of money or at least it appears so. The business transactions are result of business decisions. All the business decisions must be taken within the framework of laws of land. However, everyone in the company cannot take every type of decision. There is a clear segregation of authority to take certain types of decisions. Every human resource of a company should take decisions within his powers according to the policies of the company. If the people of wrong competencies and in correct authorities participate in the decisions beyond their competency, it poses a danger to a company.
Incorrect allocation of decision powers in the following kind of situation: 1. Source of time of the top management is wasted in in in significant business matters. 2. The focus of the top management is lost from its main strategic duties. 3. If the works requiring the skills that are available at a very cheap rate in the market are carried out by the top management, results in heavy input costs and makes an effect on the prices of goods produced.

Following are the three types of decisions that a businessman must be aware of.

Strategic business decisions:
These are the business decisions at the highest level. Sometime it doesn’t appear that they have any monetary side to them. Instead, they have an immediate effect of financial outgo. But they have an ultimate highly desirable financial effect. For example, helping a worker in difficult times results in financial expenditure without any corresponding return. This looks like a drain on the wealth of the company. However, this may create a goodwill among the employees and their output may go up substantially. Similarly, if a discounted for free consignment is provided to a client as a goodwill, it may result in in cash outflow. But when the same customer becomes aware of the quality of the product and its utility, this activity result in securing a volume of business. Signing of a memorandum of understanding with a player in the industry does not have any financial angle to it. But when it comes to bidding for a tender when we are not able to qualify standalone, the credentials of this partner may help in becoming eligible.
Strategic business decisions are unique in nature and they require application of mind. The steps involved may be very high. They have a very long term financial and relationship implications.
Apohan recommends that the business leaders should be involved in strategic decisions for the maximum amount of time. To you have the systems to keep them free and get the work done by the middle management is also a strategic work that a company should undertake at some point of time or other. It is not necessary that all the strategic decisions are proactive. Strategic business decisions might be required to be taken due to dynamic internal and external events created in the business environment. If a business management is not used to have time for strategic management decisions, then it makes in correct decisions or no decisions resulting in substantial loss for the company.
Apohan has observed that many businessman provide very less time for strategic decisions then is actually required. Is result in a superficial, superfluous and shallow treatment of a serious subject. The deficiencies in the decision do not make any impact right then and there. They surface their heads at a distant point of time in the future. Apohan has observed that businesses with long history spend a substantial amount of their top management time on handling the strategic errors in the distant past. Since they are errors of distant past, they aren’t even treated as strategic business errors. It is considered to be very normal to keep on spending a lot of present time in correcting the past in errors while creating new errors today why not paying adequate attention to the strategic decisions only because they are not going to have any immediate ramifications! This is a very weird and inefficient style of functioning which has all negative impacts on the business. At Apohan, we advise our clients that the strategic decisions may be complex and time consuming and they may feel that it is not worth while to pursue them among the electric current priorities, but they can be completed satisfactorily and they might be new to the business but very common in the industry. Resorting to appropriate external timely consultations in taking strategic decisions, a company can focus on the current work rather than rectifying the past errors.

Managerial decisions:
Managerial decisions are the decisions within the policy framework of the company taken by all levels of managers. The managers having strategic vision and a knack for understanding the business environment should always be welcomed by the board of directors. Manager Civil Court of decision power which is range bound. They need to consult the director and seek their opinions and approvals if they think their decisions are going beyond the threshold. Managers are expert in their own functions and typically, their vision is limited by the department in which they work or the function they carry out. The strategic mandates are brief in nature and descriptive of the objective then the process. It is the managerial wisdom that executes the strategic mandate effectively and efficiently within the implied boundaries. While the middle and lower managers execute individual components of the total work, the top most managers control and integrate them for presentation to the board of directors.
The small and medium enterprise leaders must be aware exactly how many managerial layers are there in their company, defined or undefined, what is there reporting structure, in how much detail net they need to be
told about the total task, how much monitoring they need, how efficient effective and innovative they are, what are the main weaknesses in the order of the command, etc.
An SME businessman need not himself know how to take managerial decisions, he need not waste his time in acquisition of managerial skills, he need not negatively compete with his own management in proving that his management skills are better, but he should only know how to manage managers and their output.
While the strategic decisions have a very serious and long term impact on the business in terms of its profitability, financial attractiveness, growth, stability, sustainability the managerial decisions have impact on effectiveness and efficiency. The directors of the SMEs always feel that the salaries of managers increase every year without any change in their nature of work. It should be noted that managers have advanced understanding of the function and their skills need to be enhanced with professional trainings. Organisation should always try to convert the managers into experts of their Respective domains. Manager should not be asked to do the clerical work as the same demotivates them. It is also a cost inefficient way of working.

Clerical decisions
Clinical decisions are be low level decisions in an organisation. These works can be carried out by an individual of ordinary educational & (business) intellectual capacity. As more and more work becomes standardized, it can be delegated to the lowest level of the clerks and labour. At clinical level can be hired at a very cheap rate. Hence, an organisation should always try to standardise as many processes as possible. Some individuals doing clerical work have potential to rise to management level. They should be identified and promoted. Having worked at the lowest level, they have complete idea of the smallest and minutest aspects of that business function. In India, many individuals with very high intellectual calibre who have to work at a very low level because they could not complete education or could not afford professional courses. If these people are given chance to grow along with organisation, they provide an results long term loyalty and affiliation for the company.

Apohan has been in its market survey that in small and medium enterprises, there is no proper segregation of these three levels of competencies. The mode of allocation of work has a certain degree of randomness in it. More time is spent on building for failure than selecting right people, planning it, and communicating the execution framework of the work.
So what is the lesson? To grow or to sustain or not to fail formal competency mapping is essential. Apohan carries out the financial competency mapping for an organisation.

Three categories of financial knowledge:
Many owners of small and medium enterprises are seen to be lacking the knowledge of finance department and in India they are candid enough to openly acknowledge their lack of awareness of how the finance function works in a company. The most unfortunate part is that they mix up all kinds of knowledge of finance and take it for granted that being weak in most of the areas is okay and it has worked. They have a lot of knowledge of finance acquired during the course of business, especially the financial work that has to be done every year. But upon has observed in its market survey that most of the small and medium enterprises owners lack the exact knowledge that the need to have “as a businessman”. We have made an attempt here to classify the knowledge in the finance function so that the businessman understands where is not supposed to waste his time in learning unnecessary things and where he is supposed to know the topic perfectly to take correct Strategic financial decisions. Following is the classification of financial knowledge based on which professional should possess it:

Accountant’s financial knowledge:
Accountants are typically commerce graduates or chartered accountants. Typically, in Indian small and medium enterprises setup they do the work of post-facto measurement. This means they measure for account whatever has happened after it has happened rather than getting involved in planning What should happen. The chartered accountant community to have a very very high degree of affinity for their charter from the Institute of Chartered Accountants mostly they are seen doing accounting work then Strategic financial management.

Chartered Accountants:
Small and medium enterprises engage Chartered Accountants for accounting, audit, taxation, compliances, reportings, filings, and any other statutory work. Being a noble profession, chartered Accountants don’t seek appointment for provision of Strategic financial services. The chartered accountant are highly intellectual, potent, capable people who do have the concepts of strategic financial management very clear in most cases. Small and medium enterprises should actively appoint chartered accountants for strategic works and should compensate them separately for this work. If additional piece of strategic advice is treated as a free add on of the routine engagement, no quality output will be obtained. Chartered accountant should not be engaged for strategic management activities is mergers and acquisitions for the purposes other than accounting and taxation if they do not have the strategic business perspective.

Manager’s financial knowledge
Managers are from operational for technical functions or from support functions such as projects, manufacturing, marketing, human resources, information technology, procurement, etc. They do not have any formal education in finance. However, their decisions have a direct effect on the cash flow and profitability of the company. Hence, they should be provided advanced training on how to increase the cash inflows, how to realise the cash flows quickly, how to reduce the the cash outflows and how to delay the cash outflows without causing any other adverse effects. They should be given sufficient freedom to play around their decisions to increase profit or to decrease costs. They should be involved in budgeting & planning and review of financial performance.

Businessman’s financial knowledge
Finance is a specialised function and there is a lot of advancement into various domains and subdomains in finance. A typical small and medium enterprises owner, need not bother about the complex developments in the financial world. He needs to have the basic minimum simple concepts very clear. It is not at all difficult to understand the basic concepts of finance for a businessman if they are explained in simple language. It requires only a very basic knowledge of school mathematics to understand the finance function from business perspective. One of the most important areas where a small and medium scale industry owner is expected to have very good knowledge of finance is strategic financing and cash flow management. Businessman needs to be networked with chartered accountants who have traits of a chief financial officer. A businessman is supposed to to keep very good relationship with the bank and other lenders. He is not supposed to waste his time in learning the Tally software or the ERP software all the rules of accounting entries. He also did not worry about how to prepare the financial statements.

So, what is a businessman supposed to know and do on the financial front of his company?
Well, he should be able to know what activities to carry out in the business, what are their relative priorities, what is the requirement of amount for them, when are these amounts required, how to raise these funds and from whom, on what terms and conditions and at what cost, when are these amounts to be paid back, how to pay back these amounts, what to do if there is a shortfall, where to place the surplus cash, etc. In addition, a businessman is expected to know the interpretation of the projected financial statements of his own company in terms of profit and loss statement, balance sheets and most importantly the cash flow statement.

Three types of financial functions:
There are three stages of working with money in a company. These are three distinct types of works that take place in the Finance Department of a company. They require entirely different kinds of skills by the respective financial managers in the finance function of a company.
To put it in very simple words, these three functions can be described in the following fashion: 1. Bringing in money for the company (financing) 2. Using and managing the money appropriately in the company (financial management), 3. Doing the correct use of the excess money with the company (investment).
The organisation of the finance function of a company cannot be described in simpler words than these. While the small and medium enterprises pay huge attention to financial management, they ignore the financing and investment functions which subsequently become a serious hurdle in their corporate growth. Inadequate and poor attention to the financing function main lead the company to financial distress and occasionally to corporate death by destroying all the wealth of the shareholders sometimes including the wealth not belonging to the business as well. A company can afford occasional errors in the areas of financial management or investment but the errors in the financing function main cost huge fortunes including the existence of the company itself.
Ability to provide the best Financing Management services is the forte, the greatest strength, of Apohan Corporate Consultants.

Financing (Funding):
Financing means bringing money into the company. The word financing can be used from the perspective of the receiver of the money (and exactly the same process is called as an investment by the person who puts in the money from his perspective). It is the most important activity in the finance function of a company. A businessman is supposed to know exactly how much fund is required the company and when these funds are required. It is very risky to to mobilize the funds at the last moment. It is also very costly to procure them in unnecessary advance and keep them idle. What is most important is that a businessman should be able to procure all the requirement of funding to run the business profitable. If adequate funds are not available, a company may lose business opportunities. Also, inadequate funding may result in loss making operations as a business must be provided the minimum required capital to work efficiently. Most of the small and medium enterprises are seen fighting with the problem of inadequacy of the funds. They are eligible to borrow less based on their financial strengths from the banks and other types of institutional lenders and what they need is much more. Also, so they are capable of many new initiatives for growth of the company but there is no money to undertake these initiatives. This small and medium enterprises are played by the problem that there is no correlation between how much money they can borrow from the financial institutions based on the rules and how much money they need which they can deploy profitably. Small and medium enterprises are always eligible for for lesser amounts then they have plans for.
The process of bringing money in the business is very complex. There are issues number of parameters that have to be kept in mind. It is not only about eligibility and the amount but also about the terms and conditions and cost of finance. Even more important than cost of finance there are two more implications: 1. Interference in the management and operations of the company. 2. Ability of the company to repay these financial liabilities along with the committed returns on them in timely manner prevent the ramifications if a financial default happens.

Apohan has observed in its market survey that this small and medium enterprises are not aware of the existence of various kinds of financial institutions and the process of approaching and getting money from them.
And Apohan has also observed that the SMEs are not aware of the equity funding venues and carry a lot of misconceptions about them. This is where Apohan helps these businesses in securing the adequate amount of funding for the routine operations, for the growth initiatives, for the new projects and for financial turnaround.

Financial management
Financial management means deployment of the money by the various operational and support functions of a company under the supervision of the finance department as per the policies laid down by the board of directors. A business required to procure a lot of goods and services to manufacture the final product or service or to fulfill the work contract. The financial aspects of all these procurement contracts need to be supervised well. Apart from procurement of inputs, financial Management is required for the appropriate management of revenues. To put it in simple words, financial management, as implied here, means effective management of expenditure, revenue and other activities such as their accounts, audit, tax, budgets, projections, compliance, reporting, control, etc.
Apohan provide strategic services for creation of a financial management setup in a small and medium enterprise. Apohan provides services for only creation of the organisation structure, policy framework and other listed items on our website. We do not provide the routine accounting services are compliance services.

Investment management
After the break even point a business starts generating surplus money. Management of this surplus money is also a very very important function in a company. Following three things can be done with the excess money:
1. Creation of a depreciation fund to be able to replace the outdated machinery
2. Creation of various funds to be able to meet the the future large liabilities.
3. Payment of the financial obligations to various types of investors
4. Early redemption of the long term financial liabilities if the contract permits so
5. Financing the new internal growth initiatives
6. Financing new Greenfield and brownfield projects
7. Financing of acquisitions
8. Modernization, digitisation and similar kind of initiatives
9. Payment of dividend to the shareholder in line with the liquidity requirement, scope of growth, rate of return, dividend policy of the company and the laws of India.
10. Parking the money temporally in a liquid investment forum
11. Lending the money to the other corporates in one or other form
A businessman should know that it is not only the operational margins but also the incremental amounts available from the correct investment decisions increase the financial net worth of the company. The right kind of investment decisions also help a company in cash flow management and in timely honouring of its financial obligations.

So, what is the learning?
A businessman should have an integrated understanding of all these three functions from the strategic perspective. He should be able to identify the people of direct skills to manage the corresponding kind of function. The business man should not any work to any person only because a person is from financial background. Apohan has and expert’s perspective of the integrated functioning of the finance department. Oppo phone will not let a financially viable business fail on account of financial mismanagement or poor financial management.

Role of the technocrat promoter:
Ideally, a business should be managed by one technocrat promoter and one financial promoter. When we look at the various competencies available with professionals, financial competencies and Technical competencies typically form mutually exclusive sets of individuals. The people who have financial knowledge don’t have technical knowledge in depth, the people who have technical knowledge don’t have the financial knowledge in depth. It is better to have these two functions managed by two different individuals. This can be achieved by the mergers and acquisitions between a small and medium enterprise and a financial investor.

Increasing Volume of Sales/Supplies
The volume of sales can be increased in the following ways:
Increase in production capacity
Adding new production capacity
Acquire new production capacity
Use all existing and new production capacity
Produce what sells
Produce what sells with more margin
Market all the production
Reduce the span (in months/weeks) of cash conversion cycle

Increasing Prices of Goods/Services

Increase quality for a price
Increased features for a price
Identify unique selling points
Target the niche Market
Identify right buyers
Market properly
Reach the high affordability markets
Carry out product basket rationalization
Provide value added services
Attack the most attractive elements in the value chain
Get rid of something that doesn’t make money
Incorporate indexation clauses in the sales contracts
Clarify what is not scope of work
Compress the margins of wholesalers and retailers
Get marginally lesser money quickly then getting the entire money very late from the client

Reducing Cost of Production/ Delivery

Reduce volume of inputs using Technology and management skills
Reduce cost of all inputs using proper recruitment policy
Identify contribution of each project/ product
Work with less but sufficient inventory
Increase quality of inputs to avoid rejection
Increase quality of processes to avoid rejection
Increase efficiencies to avoid rejection and wastage
Identify the effectiveness of each of the marketing avenues
Drop the inefficient marketing expenses
Look to reduce life cycle costs instead of up front costs
Include the internal costs including differential in cost of manpower to achieve the same work
Avoid all kinds of delays
Take benefit of scale of operation

So what should be the operational philosophy of a company?
The operations form the bread and butter of a company. There is nothing more important than profitable operations of a company. Even during the process of merger and acquisition, the investor likes to see whether the operations are profitable and whether they have the strategic advantages and flexibility.

Increase in companies wealth = (product price + incentive per product- production cost per unit- marketing cost per unit- financial cost per unit- asset replacement cost per unit- regulatory cost or tax per unit) * maximum sales volume possible with the available capital* number of cash conversion cycles in a year

The Financial Promotor’s Role
In India, it is famously said that the Goddess Saraswati and Goddess Lakshmi don’t go together. Those who have knowledge of producing complex products don’t have money and those who have money don’t have the technical knowledge to produce profitable products. These two competencies need to come together and create an ecosystem. For the technical people, it is not only about not having money but there is a lot in terms of not being able to understand the world of finance. In case of the people who have money and who understand the world of finance, the knowledge of production processes and the knowledge of markets is typically poor. Hence, merger and acquisition which brings together one financial person and one technical person creates a very potent force. They should have the working knowledge of each others departments but they should take precautions that unwarranted, unwanted, unnecessary and destructive interference is not created. The financial promoter of a company should stick to his role of financial management.
In the way of operational director generates wealth for a company through production of goods and services, financial director can also create a wealth over and above the operational wealth. And this should be the main focus of the director finance in our company. Following are the three areas of work in which financial wealth of a company can be increased by the financial management without any involvement of the operations people:

Financing: Making available capital
A business is all about making more money, and especially more about with the others’ money without suffering from limitation of once on financial networth. The market is full of 800 billion customers and there are huge number of business opportunities. To reach the final product or service to the final customer, it requires complex and long value chain. It is very difficult to have control over the products market and the value chains but yet, the business environment keeps on throwing in front many new business opportunities.
For Small and medium enterprises, they notice there are lot many business opportunities around them in the areas of their own business activity or in the areas similar to their business activity. Mostly they wish to tap that opportunity, but typically they don’t. What is the reason? The most profusely cited reason is lack of capital and not lack of technical competence (and also not ability to take risk of market.).

Financing role of financial director:
It is not only the new opportunities, but also the existing business operations require external capital from time to time. The basic function of the director finance of a company is to be able to raise all this capital. The financial promoter of the company is expected to know the various kinds of investors and their investment preferences. He must be networked with the investor world and he should be knowing which investors invest in the pink of the company which investors can invest in the most difficult times of the company. He should have the financial projections of the company ready with him which should include the requirements of all the departments. He should have the list of possible risk events of the company. He should have built the various scenarios and the various courses to avail capital in those kind of times.

Reducing the cost of capital
After ensuring that there is adequate capital available, the next work in the direction of increasing companies wealth, is to reduce the cost of capital from the perspective of the existing shareholders. The first activity in this direction is to to understand what is the optimum capital structure for a company. Capital structure means the various components in the capital, their ratio and future trends in these ratios. Following are the ways of reducing the cost of capital:
Lower rate of interest on all types of loans and dead securities issued by the company
Lower or no requirement of mortgage
Better credit rating
Optimum level of financial leverage
Lower damages and penalties in the contract
Favorable T&C in the financial contract
Disbursal of the amount and start of payment of the interest only when money is required
Safe Debt service coverage ratio
Lesser requirement of personal guarantees
Lesser requirement of Corporate guarantees
Room for enhanced credit
Lower proportion of unstructured high interest rate loan
Lower dividend rate for preference shares
Prefer the capital in which return or interest can be treated as an expense and lower tax has to be paid
Carry out early redemption if internal funds are lying idle
Transfer the loan to a new bank with lower interest rate
Refinance the loan when the project is completed and risk of business is substantially reduced
So long as possible, lower tenure of a loan
Reduce the risk perception of the company in the eyes of the investor
Charge higher premium for the new equity participants

Reducing cost of raising capital
For the same amount of capital raised, the cost of raising capital is different. Whether it is cost of capital or whether it is cost of raising capital, finally it has to be borne by the business. Following are the ways and means to reduce the cost of raising capital:
Avoid or reduce the bank loan processing charges
Reduce the amount of MCA fees for issue of new equity capital
Reduce the amount of stamp duty for the issue of new equity capital
Reduce statutory, compliance charges
Reduce the certified professionals’ fees (company secretaries and Chartered Accountants)
Reduce the fees payable to the valuation experts
Reduce the fees payable to the certified valuers
Reduce the fees payable to the merger and acquisition consultants, strategic consultants like Apohan (us).
Reduce the fees payable to the brokers
Reduce the fees payable to the investment bankers

On the Similar lines as raising capital, make investment off the excess business money. Following are the ways to do this:
Get higher rate of return
Get fire interest rate
Reduce the cost of investing
Invest the maximum amount possible
Keep in mind the importance of liquidity
Seek higher amount of security from the borrower
To have maximum number of flexibilities in the contract for you

So what is the learning?
It is not only the operations but also the finance department who can contribute to the wealth of the company. The extent of increase in wealth by financial optimisations might be lesser compare to the operational contribution. But many times marginal differences make a lot of difference.
Suppose you started a business with rupees 400 of which 200 is a bank loan. Suppose your revenue is rupees 500 with 10% net profit. Assume that your loan repayment is equal to depreciation in the books of accounts. You have generated rupees 50 of an additional business wealth through operations for that year. If you are able to save 0.25% financing cost of the outstanding loan by all means, you will make rupees 5. This is 10% increase in your profit when financing was not done in a good way.

Role of Apohan:
Apohan is an expert company in Strategic financial advisory. You can rely on it for its skills in raising adequate finance at the lowest cost, negotiating the best terms of contract & ensuring full confidence of repayment without any default.

Internal reasons for financial distress in the nature of unprofessional management
The circumstances of a business can be described in three ways:
1. Exponential or stable growth
2. Stability or stagnation
3. Business decline or financial hardship or financial distress or business failure

A failure of a business causes a lot of hardship in the life of the businessman many stakeholders around him. Business failure cannot be always claimed to the external environment of the business. Even within those failures which can be attributed to the business environment there is a category in which partial plane can be put to the management of the company. Company by nature is expected to be prepared for at least for the typical kind of shocks that many businesses space from time to time. It can be understood if a business fails on account of a completely novel business shock such as the COVID-19 impact on business. But the businesscannot presume that all will be well all the time. We have classified the internal errors or negligence that you need to tell your of a business into three types.

Lack of professional management in the finance functions:
There are some areas in which the Indian small and medium enterprises do not take any action. There are some other areas in which they take an action but it is not correct and sufficient. But the larger is an his complete negligence for certain essential activities of financial nature. The reason for not undertaking these activities is lack of knowledge about them, lack of knowledge of the serious effects if they are not carried out, etc. Many times, SMEs do not undertake these activities only to save a paltry sum payable to the chartered accountants or financial experts.

No financial planning
No financial analysis
Poor cash management
Insufficient capital provisioning
Shortfall in working capital
Delayed recovery of receivables
Reducing profitability every error.
No risk mitigation measures
Price war, stagnation
No computation of overheads
Improper allocation of overheads
No provisions for contingencies
Poor credit rating, CIBIL
Poor bank relations

Lack of professional management in the operational and Technical functions:

Please there are very very few instances of companies having failed because of incompetencies in the technical and operational areas. Even within operational areas, almost 99% failures can be attributed to the market movements. Operations is the core strength of any manufacturing company and is least expected to fail it. But many operational errors and Measurement cause financial hardship at least for temporary time. Below is the list of the major operational decisions that can go wrong and cause financial distress.

Absence of project plan
Delays in project completion
No necessary certifications
Absence of marketing infrastructure
Poor contracts with clients
Loss of key customers
Ineligibility for tenders
Absence of efficient procurement
Low capacity utilization
No product basket rationalization
Frequent shutdowns
Rejection due to poor quality
Absence of innovation
Unexpected regulatory development
Poor documentation, communication

Lack of professional corporate management:
Logically a business should be all about getting money, putting up plant, selling the products and making money. But all these activities are carried out by human beings. There are no standard rules of managing human beings. So the one problem area is Managing the work culture of a company. Management has complete command over all the employees and can issue policies from time to time to better the work culture and to increase the employee output. A businessman is seen as the leader by the employees and it would be fair to say, in most circumstances, they like to or they have to, follow him. But what about the the board of directors, shareholders, promoters, lenders, strategic suppliers, strategic clients, mentors, government officials and highly experienced proven expert managers?? All of them belong to the same league of status. The employees are afraid of job security and they end up falling in line willingly or unwillingly. This is not the case with the topmost stakeholders in the company. Their life is mostly already secured. Their individualistic & aspirational ethos, affectations and volitions take the first seat, even before a rational financial behaviour. People generally come together in a good mood with good intentions. But after a period of time, it can be seen that a lot of differences have propped up. There is disharmony and fiction. A lot of it can be directly attributed to the situational parameters that are beyond anyone’s control. But not everything can be blamed to the external circumstances, changes in people’s attitudes, unfortunate events, etc. A company can ensure that the happy, harmonious, healthy, effective, efficient and motivating relations between the top people are preserved for many years together. This is enabled by creation of a setup of documents which describe the nature of treatment of various events and circumstances, authorities, rights and obligations, risks, duty, incentives, exceptions, assets, liabilities, principles, entry routes, exit routes, dispute resolution, etc. All this is called corporate management. Mostly the Indian small and medium enterprises do not pay any attention to all these corporate management requirements and get associated on good faith basis. No documentation is done, or it is done only for compliance, or it is done very shabbily. We have listed below what all things and development happen in the company which may ultimate lead to its failure if not addressed in time.

Office politics
Friction in the management
Loss of business partner
High attrition of employees
Loss of key employees
Frauds & corruption
Absence of policies
Poor reporting structure
No professional training
Poor working culture
No use of modern technology
No business data to analyse
Absence of compliances
No participation in industry activities

So, what is the learning?
It requires everything to grow and to excel, to prosper and to sustain and you cannot leave anything behind; but negligence on only one front might be sufficient to completely fail the business.

Apohan’s role:
Apohan provide end to end services in all about three areas right from the planning stage to full implementation.Availing strategic services from Apohan means staying farthest from the business failure on account of financial management and corporate management reasons.

Gradual journey to bad financial state for a business
1. Companies growing at an extraordinary pace with an extraordinary degree of profitability with high PE ratio.
2. Companies growing at an extraordinary pace with an ordinary degree of profitability.
3. Companies with an ordinary growth rate and a respectable degree of profitability
4. Companies with an ordinary growth rate and a low degree of profitability
5. Companies with hardly any growth and a very low degree of profitability
6. Companies that are able to generate cash flow only to operate marginally beyond the break-even operating capacity
7. Companies that are making neither net accounting profit nor net accounting loss
8. Companies that are making some net accounting losses
9. Companies that are not able to pay full principle but can make all the interest payment.
10. Companies that are not able to pay any principle and not even the full interest on the debts
11. Companies that are not able to redeem the liabilities under various financial instruments
12. Companies that are not able to serve the debt & all other financial liabilities at all
13. Companies that making neither operating profit nor operating loss
14. Companies not able to generate sufficient cash flow to meet all the non-financial running costs
15. Companies making permanent operating losses
16. Companies eroding the capital in the current operations
17. 10. Companies rapidly eroding the capital in the current operations
18. Companies not doing anything for financial restructuring
19. Companies where shareholders’ net-worth in the company is zero as per market valuations
20. Companies where the shareholder has negative net-worth
21. Companies where the stakeholder value has eroded to the maximum possible level or at least has completely evaporated
22. Companies impossible to run as going entities even with infusion of capital
23. Companies headed towards insolvency, bankruptcy, and liquidation
24. Companies where the personal assets of the promoters, directors, guarantors are being attached
25. Companies where there are civil or criminal litigations against the management apart from financial bankruptcy

What is an unviable business?
Many businesses or business ideas, with the exception of R&D businesses, are not viable because the products and services they envisage cannot be produced with existing methods or technologies or at least cannot be produced economically using the existing technologies. Some other businesses are unavailable because they do not fit into the legal and regulatory framework of the host country. There are some businesses which are not viable because their operations are not practically feasible. Many businesses are not viable because there is no market or hardly any market for what they manufacture and they can’t reach profitable scale. Many other businesses are not viable because their products and services are not available at economic prices. There are some businesses that are not viable because there is no feasible marketing way to approach and seek the potential customers. Some businesses are not viable because they can’t procure different kind of resources & expertises required for production. Some other businesses are not viable because the management is not capable of stitching together all these required elements to run a business successfully. Many businesses are not viable even if their structures and models, howevermuch refined, fine tuned, would fail because they intrinsically unviable. There is no point in pursuing any kind of these businesses.

Difference Between Financial Viability And Capital Availability:
You might have wondered why I have not spoken of the the financial angle of the viability. Capital is a very important resource to run a business successfully. Is it possible that a business is viable on all above accounts but is not viable because of lack of capital? Yes, off course. Inability of the management to raise adequate capital in time is also considered as one of the reasons for unviability of a business.
Here, we must make a distinction between two aspects: first that a business is not financially viable and the second that the management is not able to raise adequate amount of capital. These are two are entirely different problems and they need to be addressed in different ways.
A business is said to be financially unviable when it is not able to generate satisfactory returns through the operations at par with the expectations of the people who provided the capital in different forms. In case of some other businesses, it is possible to make the operations more efficient to turn them financially viable. In case of some other businesses, it is possible to make the business financially viable by renegotiating the terms and conditions of the various stakeholders that have provided capital in one or other form. However, some businesses maybe intrinsically financially unviable irrespective of any financial or operational wizardry.
Now, what about those businesses which are not able to raise the adequate capital in first place, forget generating adequate returns as per the expectations of the capital providers? The million-dollar question is can the inability of the management to raise adequate capital be termed as financial unviability? The answer is no! A vehement no!!
Then what this situation can be called? There is nothing wrong with or unviable about the business or its idea but there is something wrong with the actions if not competencies or philosophy of the management. When everything else is alright, shortfall of capital is a very easy to solve problem for a company.

What Is Capital?
There are a lot of misconceptions about the term “capital” among the businesspersons who are not from finance background. This is one of the major reasons why they are not able to estimate the right quantum of capital required for their businesses. many businesspersons misconstrue it as the capital expense made in the beginning at the time of setting up a production facility. The word capital has a long-term connotation. Hence, many businesspersons treat capital as their equity capital & bank loans in the books of accounts ignoring the size of net working capital have any proportion to the capital block. This leads to a major confusion in interpretation of the capital that has been invested in the business. Additionally, the amount of capital in the business always changes. A prudent business person always must know the the existing invested capital and the future required capital.
So what is capital? In general course of business, capital is the amount of money that cannot be withdrawn and always remains in the business to keep operating it.

How To Compute Capital Requirement?
Apohan provides strategic financing advisory services to compute the capital required for a business. Roughly speaking, it would be some of the net asset block, various provisions such as gratuity PF, and the net working capital including the minimum required cash and bank balances. A business must make provision of capital before a liability is due for payment. It also should make provision for additional capital to make provisions for expenses on on the business initiatives.

Capital Shortfall!
Every business has its own intrinsic capital requirement and it is completely unrelated to how much money the promoters have their hand. For every business to be successful, growing, thriving, profitable, rewarding, and scalable (or at least to be barely surviving), it does need a basic minimum amount of capital. A business just can’t do without that threshold minimum capital. It is not necessary that the capital brought in by the promoters or the institutional lenders is adequate to meet the minimum requirements of a business. If this is the situation in the beginning, the business wouldn’t simply take off. If this is the case at some intermediate point, the business would suffer from financial distress. In almost all the cases of small medium enterprises, the capital available with the the business through all the conventional means and lenders is far lesser than the actual requirement.

Access To Capital
We can see that there are a plethora of options for capital funding available with business. Not all the options are available with each of the businesses. If you rank all these options in the order of preference, one would find that most of the practical, feasible and available options are already exhausted. many measures suggested above are not practical for small and medium size of businesses. Also, the management of these small companies is not experienced in carrying out this type of “capital creation activities”. They may not have sufficient time for these activities as the leadership team is very very small. The remaining options either do not provide adequate amount of capital or are having unreasonable conditions in terms of cost of capital, interest rate, term of repayment, requirement of security, etc. Financial institutes such as banks are simply incapable of understanding the quality of management and the financial merit of a business. They simply go by the rule book and refuse capital to small businesses. Each of the financial resource has its own criteria of selection of the borrower or customer and they have their own procedures for availing the funds. Small businesses are not aware of the complexities of the financial world. Note that in the opinion of the management of the business, the business is an attractive investment, but this argument is not bought by the financial institutions. It is the reality of the world that deserving businesses also remain deprived of capital.
Now, this is a serious time to explore equity funding. Apohan shall provide you end to end customised service in availing equity funding.

Options For Raising Capital
The options for raising capital are numerous. Some of them are from internal initiatives. Some other are from external resources. Apohan is listing here various sources & initiatives of capital that are available to a business for various activities it can undertake to make available a question of capital.

Promoters’ equity capital
Equity capital from non-promoter initial shareholders
Equity capital from directors
Equity from general public fruit initial public offer (IPO) for follow-on public offer (FPO)
Private institutional equity
Private individual equity
Investment trusts
Family offices
Wealth management companies
Purpose specific equity funds
Seed funding, angel funding, venture capital, crowdsourcing
All other forms of equity

Bank loans
NBFC loans
Other institutional loans
Loans from friends and family
Credit from various types of funds that lend businesses
Preference equity capital
Corporate bonds
Interest free loan from directors
Inter corporate loans from related companies or and related companies
Interest free advances from several stakeholders
Project Finance with minimum margin money
Working capital finance
Unsecured personal loans by the directors
Loan against pledged shares by the shareholders

Grants & schemes:
Grants from government or private institutions
Financial benefits from several schemes of the government
Export incentives
Area specific incentives by shifting operations
Tax exemptions

Foreign Funds:
Foreign currency loans through external commercial borrowings
Foreign currency bonds
Foreign direct investment
Financial restructuring
Business restructuring
Refinance benefit through shifting loan to a bank with better terms
Changing the nature of capital instrument
Enhanced credit from the same bank or different bank
Getting moratorium
Extending repayment period
Ballooning repayment

Rights issue to the existing shareholders
Preferential allocation
Private placement

Discipline Actions:
Reduction in dividend payouts
Reduction in overheads
Reduction in compliance consultancy costs
Reduction in directorial remuneration
Reduction in remuneration of key managerial persons

Mergers and acquisitions and other types of business transfers
Demergers and divestitures some verticals of the business
Sale of strategic assets or fixed assets
Slump sale
Share transfer

Breathing Easy:
Dropping Greenfield and brownfield projects
Shutting down unviable projects and product lines and project locations
Stopping the research and development works

Disposal of inventory
Liquidation of investments
Selling the real estate and leasing back
Leasing plant and machinery instead of buying them
Leasing key tools
Asset sale
Selling the brand or similar intangible assets
Monetizing rights
Franchising or reducing the role in value chain

Past internal profit accruals or reserves
Revenues or payments from clients or income from operations
Advances from clients
Bill discounting
Increase in prices
Increase in operating volumes
Bidding through joint ventures if the company is not eligible standalone
Shortening the cash conversion cycle
Exploring more profitable markets
Engaging in contract production by outsourcing the capacity to other brands
Exploring exports and international business
Exploring new businesses new products replacing the existing ones

Increased credit amount & period from suppliers
Employee stock option plan
Finding alternate economical competing suppliers
Just-in-time procurement
Balancing between cash flow timings and net life cycle cost of procurement

Cost cutting
Layoffs and salary cuts
Supplier renegotiation
Reducing the marketing costs
Suppressing the supply chain margins
Lowering the quality standards removing the unnecessary features in the products and services
Outsourcing management services to reduce corporate overheads
Outsourcing labour services to reduce long term liabilities
Many others

Comparison of debt and equity
Strategic transactions having financial impact
Analysis of financial performance
Performance and reward mechanism
Importance of data collection

Aspects Of Capital
The fruitfulness of revenues of a business are captured in terms of profitability and the fruitfulness of and business investment is captured in terms of returns or yield. These two terms need not be confused with each other. The money is seen as capital from the business perspective and as an investment from the investor perspective. It is important to bear in mind these two perspectives while analysing aspects of capital. It is desirable that the terms and conditions of availing capital are written down in an explicit contract rather than later bickering on them. Apohan helps a business in jotting down a professional balanced investment contract with its investor such that all of its interests are taken care.

Following is the list of the aspects or questions of the key considerations in the the financing contracts:
1. Whether the investment opportunity is analysed on the basis of standard institutional rules or on financial merit of the business; does the investor have ability & mechanism to understand business?
2. Whether the investor is reasonable and flexible enough to accommodate unimportant shortcomings in the processing of application;
3. Whether the investor is open for negotiation of the terms and conditions in the investment contract or are the conditions very rigid;
4. Whether or not a certain minimum guaranteed return, such as interest, is promised by the recipient;
5. Whether the rate of return to the investor is fixed or it is dependent on business performance; whether there is an upper limit on profit shared;
6. Whether the recipient business is required to repay the capital amount or not at all as in case of common equity funding;
7. What is the amount of time required for the disbursement of the funds from the first contact time or application date;
8. Whether the recipient requires to provide some property or asset as security at some ratio of the amount of capital; what percentage of margin money is required;
9. Whether the business is required to furnish one or more guarantees including other corporate or personal guarantees;
10. What is the one-time cost of raising the funds as a percentage of the amount raised;
11. Is there corruption in the capital supplier institution?
12. What are the flexibility is available in the repayment of the instalments of the original amount and the returns;
13. Whether the investor is flexible to change the contract in due course of time looking at the circumstances of the business;
14. Whether the investor requires the business to be flexible in terms of expectations capital infusion activity?
15. Whether the business requires to carry out a lot of statutory compliance activity to be eligible to avail the capital;
16. What are the various types of penalties in the financing contract;
17. What is the risk appetite of the investor? Would he invest with known high risks? Unknown risks?
18. Is the capital provider ready to take the entire risk of performance of the business? Or he wants to secure some lower side?
19. What is the financial recourse to the investor if there is incurable financial default, business failure, insolvency, bankruptcy, etc? Would it take away the control and ownership of the shareholders?
20. What is the difference between treatment of wilful default and performance related default;
21. What is the duration for which the capital is provided;
22. What is the degree of due diligence at the time of sanction of amount;
23. What is the documentation involved;
24. Is there scope for individual discretion in the investment decision;
25. What is the amount that is being sanctioned vis-a-vis the requirement of the business;
26. Whether there is dilution of control of the previous shareholders;
27. Whether there is dilution of ownership of the previous shareholders;
28. Whether there is going to be interference in day-to-day operational management;
29. What is the expected rate of return or the interest rate; whether it is normal, reasonable, acceptable and achievable;
30. Whether there are synergetic benefits of the association with the capital provider; Would the financial expertise of the investor be useful for the business;
31. How many variants of the instruments of funding are available;
32. Whether the instrument can be converted from one form to another form in due course of time as per requirement;
33. Would the investor appreciate a peculiar situation or a hardship of a business.

These are the aspects of business should analyse before selecting a type of capital source. Every fund source has its own advantages and disadvantages. Depending upon the circumstances of the business, confidence in profitability and growth, confidence in ability to repay or give satisfactory returns, affordability, amount of capital required, probability of default, etc, a business should carefully select fund resource. Apohan will compare debt and equity options in a separate section to guide a business the specific situations in which it should go for equity funding.

Why equity funding is not popular among small and medium businesses?
We have seen that there are numerous advantages of equity funding over debt funding. But still in Indian market debt funding is more popular than equity funding. We typically see that apart from the the founders promoters there is hardly any third party private equity funding in traditional businesses. Private equity funding is a rage among the startups. Even if the failure rate of startups is as high as 95%, abundant private equity is available for them. What is the reason that equity funding is not common among the long established small and medium-sized business?
One of the major reasons for very small number of deals in equity funding is lack of awareness among the SMEs. Most of the first generation or second generation businesses are simply not aware of institutional equity funding. The wave banks have physical presence and a wide network of branches, there is no similar market for equity funding. The deals happen in isolated pockets. The large multinational strategic advisory companies have their own filtering criteria. They do a rigorous risk assessment before engaging with the client. Hence, their services are not available for small and medium enterprises. Most of the first generation entrepreneurs technocrats and have very poor network in the financial advisory industry. They are always occupied with finding new clients, managing operations they are not aware of existence of a wide variety of equity investors. This leads them to believe that business capital is a rare commodity and there is no point in pursuing equity capital or business partnership.
One more reason for absence of prolific equity funding activity is the wide publicity given to failures of business partnerships, joint ventures, mergers and acquisitions and many other varieties of inter-corporate associations. What are the failures of business partnership their own reasons including absence of contract or poorly written contracts, the general market perception in India is that business partnership intrinsically is a difficult activity.
If we classify businesses based on their psychological orientation, we can see that there are two types of managements. One category of management is growth oriented and the other category of management is control oriented. The control oriented management chooses to remain stagnant, to grow slow and to remain introvert. The probability of suffering from a financial distress event of such businesses is very high. Except for the case where the majority from the other (or opposite?) shareholders’ group likely to take wrong strategic decisions in a stubborn way that would erode the value of the company, control of a business has only psychological value. The consultants to small and medium businesses are generally seen to be failing in explaining the accurate significance of control leading to to many misconceptions. Growth oriented management would dilute its control but then simultaneously would achieve rapid inorganic growth. It is always wiser to eat a relative smaller fraction of a very very large pie than eating a substantial fraction of a very very small pie. Apparently, there is no reason to believe that an equity partnership will destroy a business because the parties have come together with the basic intention of growing together exploiting synergies of each other. There is a positive side to dilution of control as well. A lot of top management work, especially related to to financial management can be delegated who is the director nominated by the investor making the life of technocrat businessman easier. It can be attributed only to the ignorance and misconceptions that businesses choose to remain unstable, small, and slow in growth rate without equity funding even if they have very very bright potential.
Another reason of lack of popularity of equity funding is requirement of disclosure of critical business information to the external parties which occasionally might be the competing companies. Indian businesses don’t seem to believe that mere signing of a non-disclosure agreement would guarantee security of the Year confidential information.
There is one more peculiar observation regarding mergers and acquisitions in Indian market among the small and medium businesses. Many businesses are found to see that availing equity funding is a kind of compromise with their image, reputation and ability to run a business. Having to sell a business, in full or part, due to financial distress or to make capital gains is seen as a weakness of a business. Many business persons take it below the dignity to answer the questions put forth by the investors during the process of due diligence, contract negotiation and valuation defense.
Equity funding requires hectic documentation and communication. And medium enterprises typically lack elaborate business plans, financial models, investor presentations, term-sheets, investment contract draft, etc. It might be a wonderful business with the wonderful management with wonderful growth potential, but how would an investor come to know all of this? Apart from the documentation for the process of mergers and acquisitions, accompany also must have all the internal documents of all its departments especially the key contracts. If our business is running in absence of well documented stakeholder contracts, an investor would perceive that the enforcement or continuation off the current terms and conditions may become difficult in the future. Another problem is that the business has to compile some new information by collecting widely scattered data in the company to answer the questions raised by the investor. Documentation is a serious hurdle in M&A initiatives.
A lot of closely held private businesses always tend to show losses by manipulating the books of accounts save taxes or to keep away from the statutory requirements of compliances. This makes very difficult for the investor to buy the claims of high profitability or performance by the management.
One more interesting observation is made in case of Indian SME businesses. They do not seek equity funding because they think that the probability of getting equity funding is very very low or almost nil. Businesses witness that when a businessperson retires or resigns or exits from business life, the business is purchased by a similar business through a buyout agreement for share transfer agreement. The instances of dilution of control and ownership through issue a additional equity to unrelated third parties is relatively rare phenomenon. Investment by financial investor, equity funds, foreign businesses for expansion of business is relatively less.
Another reason for lesser popularity of equity funding is the constitutional setup of companies. Many proprietorship form of businesses sudden growth opportunities and aspire to grow through equity funding. At this time, bihar required to get converted to a private limited company. This has huge implications to continuation of experience, credentials, certifications, brand and stakeholder relations and contracts. A proprietorship technically cannot get converted into a private limited company. Hence, they have to obtain all the approvals, certifications, empanelments again in the new setup. Such kind of lost of legacy is not a very comfortable idea for any business man. As if this was not enough, the assets of proprietorship are transferred to the private limited company liable for payment of capital gains tax at the hands of the proprietor. If the proprietor is not able to give the transaction the form of a slump sale, the buyer private limited company would have to pay the GST on the entire current market value of the assets. This is a reason why mergers and acquisitions are not popular among the proprietorships.
In case of closely held or family owned Private Limited business, it becomes difficult for or a third party investor to trust the financials and past history of professional conduct of the company. Most of the Indian businesses to have very high resistance in inducting neutral, professional, competent, reputed, paid third party independent directors on their board. There is absence of allocation of duties and performance measurement methods. A Private Limited business where the second shareholder and director is the spouse of the business person with no active role in the management or operations for decision making is treated as good as a proprietorship by an investor. The institutional private investors are required to be compliant with numerous types of regulations under various acts. If they are part of management of a company, they would like that other directors of the company do not create problems that would put the investment business itself in danger. In many or case, this requirement of professional corporate conduct and fulfillment of compliance requirements is not happily greeted by small and medium enterprises. They want to keep it simple: make, sale, and earn profit!!!
Many a time, the directors of private limited company have not made sufficient preparation for how the the proceeds of the equity funding will be utilised for growth initiatives and new projects.
Small and medium enterprises rely on their Chartered Accountants for financial decisions in which they have little orientation. Unfortunately, in India, the chartered accountants don’t act as a force of their client company. They carry out a postmortem role: Accounting, audit, taxation, compliances, reporting, filing, etc. They have lesser orientation in understanding the financial standing and financial potential of the business. The role is limited to basic minimum compliances. Even the businessman don’t tend to to you strategic financing assignments to Chartered Accountants to save consulting charges. Further, many Chartered Accountants don’t have all the requisite skills to carry out their role in merger and acquisition transactions.
Many SME businesses mistake the the brokers for merger and acquisition consultants. Brokers are not able to carry out any scope of work in the hectic process of M&A. They have an invisible expectation of success fee instead of finding fee or referral fee. This increases the cost of M&A transaction. Further, brokers delay the process by engaging in prolonged negotiations for their own fees contract. Many a time, the chain of brokers, M&A Consultants, representatives of Companies and investors becomes so long and complex that they can’t reach an agreement on how they will share the Consulting charges and fees charged to the investor to the business. They have no standard templates of contracts and no principles governing sharing of scope and fees. Most of these brokers are knowing only one or two investors who might not be interested in the deal does completely halting the process. Brokers agree for a completely success based contract with the business even for small size of investment. Since they have no role other than attending a few meetings, they are never at a loss. However, this leads the business person to believe that the merger and acquisition consultants seeking retainership fees are pricey and unaffordable.
The mergers and acquisitions consulting business require multiple kinds of skills: MBA finance professionals food Court night all the activities, evolve a strategy, arrive at a deal structure; mBA marketing professionals who would understand the market, the marketing ability of the company, the network of the company, and the marketing infrastructure of the company; chartered accountants who will carry out the accounting, taxation, compliances, valuations, financial models; company secretaries who will carry out the process of board approvals, shareholder approvals, corporate process; business lawyers who would carry out the process of obtaining Court approvals, legal due diligence, investment contract; certified valuers food carry out valuations for different purposes and from different perspectives; engineers or technocrats or sector experts who understand the plant, machinery, process to name a few. Typically, a single agency carries out many types of rolls. But the business person gets bogged down by sudden involvement of so many variety of experts. In India, it is not a practice to explain the entire process in detail right at the outset. Hence, something that is very common ordinary for the investor is a burdensome surprise for the businessman. Small and medium enterprises does not have sufficient manpower to coordinator scopes and outputs of all these kinds of experts.
Mergers and acquisitions are very communication intensive. This kind of activity happens only once in the life of a business and at the same time it is the routine course of life for an institutional investor. Every communication acts as good as a legal document. Since most of the Consultants stress what is your scope of work, a lot of work has to be done by the business man himself. This process goes on for many months. Also, it is not necessary that the first attempt to approach an investor would be successful. A business might have to approach many investors to get a good deal. Experiences with the initial investors may set in certain kind of misconceptions in the mind of the businesspersons, especially psychological ones. Businesses seeking investment behave as if the transaction is between two unequal parties. Asking for money or seeking money his perceived inferior side of the table for absolutely no reason. This is not a very good example to cite but the investment seeking businessman acts as the Indian wedding attendant from the bride’s side though the parties are equal. This also results in premature death of many deals, and more prominent please so where businesses are seeking turnaround finance.
Merger and acquisition Consulting fees is generally Pursuit to be much higher than bank loan processing fees.
Why bank provides the capital as well as the documentation for quasi-consulting service. The merger and acquisition consultants provide only Consulting service and no capital except for the investment bankers.
Businesses fail to appreciate that the bank does not collect all its processing costs processing charges. A lot of processing cost is also built into the interest. Also, the bank documentation is extremely standard whereas the documentation created by the M&A consultants is highly customised. Businesses are put off when they hear the success fee levels of of equity transactions.
On a lot of occasions, a competent M&A consultant is hired successfully. The investor is identified, and both the parties seriously like the transaction proposition. Also agree upon the valuation, amount of investment, phasing of investment, extent of dilution of control, roles of the parties, etc. The deal gets stuck or fails altogether only because the parties cannot agree the rights and obligations under the investment contract.

Types of financial Consultants

Businessman & Consultant: The two wheels of a chariots
A businessman has many strengths and typically most of his strength are concentrated around technical and marketing areas of the business. He needs assistance of expert professionals to take critical management decisions. Small and medium enterprises typically do not have a network in the Consulting world.

The SME consulting environment:
In most cases, the SME businesses do not know how to identify the type of consultant required for a business problem, how to locate such consultant, how to cross check the expertise of this consultant to verify whether he will be able to solve the business problem, how to engage the consultant who a professional service contract, what should be the scope of work for him, how the output of the scope of work should be reviewed, how the consultant recommendations should be implemented, etc. Apohan has observed that small and medium businesses do a lot of due diligence when it comes to checking the price quoted by a consultant, but they Pay absolutely no attention towards the details of scope of work and the expected quality of output. Typically in the Consulting industry, the costs of compliance Consultants are very very low and in comparison, the charges of strategic consultants are very high. That is why the SME businesses get puzzled with their quotes.

The image of consultants:
So one can observe a very bizzare phenomenon in the “SME Consulting” space: 1. The Businessman is almost always dissatisfied with the services of the consultant. 2. The SME businessman is generally of the opinion that the appointment of any kind of consultants is wastage of money and time. 3. Consultancy is more about jargon than about any actual useful work. 4. Whatever fast engagement with consultant that can be recollected was unfruitful.

The vicious cycle of consulting experience in SME:
This leads to a very peculiar situation: 1. The business has potential to grow and the business man has ability to grow it. 2. The Businessman does not have time, money and morale to undertake any challenging growth initiative. 3. The Businessman does not have knowledge and expertise respect to many areas for the new initiative or a successful business decision making. 4. He cannot afford permanent high cost management to carry out these types of activities. 5. Logically, he needs support of professionals and Consultants, either individuals or company. 6. With The Legacy experience, the Businessman concludes that there are no affordable and approachable Consultants in the market for this activity and hence it is not possible to you undertake any such activity.
There are a lot of types of consultants. Apohan has tried to make a classification based on SME perspective.

Statutory compliance Consultants
Mostly they are registered partnership firms and not companies. All the professional working in them are certified by their regulatory institutions. They have formal education in that field. They have a a certificate of practice and of code of conduct. They are not supposed to open his solicit business. It can be stated that they sort of represent the government in connecting it to the business world it but are hired by the businesses and paid by the businesses. They carry out the work of filing, reporting, representing, compliances, certifications, verifications, etc. His work cannot be carried out by any professional without a charter or without a registration even if he is very expert in the area. The number of statutory compliance consultants in the market is very high. It is a buyers’ market even if services of some types of statutory consultants are mandatory by law. In most of the cases, when did Consultants work for statutory purposes, they cannot work for the same client for any other strategy consultancy or any other representation to avoid conflict of interest. Below are the most important categories of statutory consultants:

Chartered Accountants:
Apohan in its market survey has observed that small and medium entrepreneurs always resort to an advice by their chartered accountant irrespective of what is the nature of the management/financial problem. 90% of the chartered accountants are experts only in accounting, audit, taxation and other statutory duties. Most of them lack the perspective of a CFO who understands the business, who understands the problems of the business and also who understand how to solve those problems. A small and medium enterprise should appoint oh very reputed accounting firm for statutory audit. The equity investors look at the reputation and record of the statutory auditors in deciding how much to rely on the financial statements of a company. Apart from this, the chartered accountant serve as financial managers, accounting consultants, tax consultants & internal auditors.

Company Secretary:
Small and medium enterprises either do not appoint company secretaries (unless required by law) or even if they appoint, beer role is kept limited to the compliances of the Ministry of Corporate Affairs. Most Indian SME businesses that are closely held, conduct the meetings of the board of directors very superficially. Many small and medium businesses even don’t know that proprietorship is not even a form of business there is no registration anywhere as a proprietorship. In order to grow, raise capital from more number of people through in-person interactions, and to raise money from general public, business to comply more and more norms and regulations. There is no better professional than a company secretary to guide on this path. A business must understand significance of a company secretary for many more purposes than merely filing the annual return.

Cost accountants:
Appointment of a cost accountants is mandatory when a business crosses a certain size. Cost accountants compute the profitability by product, by project and in many similar ways and help to eliminate the financially an attractive activities.

Business lawyers:
Business lawyers help a business in dispute resolution and litigation works. Small and medium enterprises generally do not realise that almost every corporate document is a legal document. Hence, the corporate policies of a company are either not in place or have a lot of loopholes. The companies either do not draft professional contracts for strategic alliances or these contracts are not legally vetted leading to two problem of interpretation in the future. Absence of consultation with a business lawyer leads to no incorporation of the important clauses dealing with special situations (special in the context of awareness of a SME businessman, but otherwise standard clauses) and the custom aspects of the business. Involvement of lawyers not at the prevention stage but at the resolution stage typically leads to a lot of issues of legal nature draining the precious management time. In India, most of the lawyers do not have business management, finance, strategy, engineering or similar kind of business related background. There is no culture among Indian business lawyers (or you can say the SME businesses the are not used to it), to explain the applicable legal framework, the subject, the context, the aspects and the treatment a systematic presentation to the client.
The lawyers have to follow the code of the bar, laws of the court and many other laws applicable to their profession in representing the business to the court. Funnily enough, the legal and policy framework of India from the perspective of understanding what is allowed and what is not allowed in a business, what is legal and what is not legal, what is the process, who are the concerned authorities, what are their powers, what are the rights of the businesses as consumers, what is the precedence the of the conflicting statutes, what would be the verdict of which court and how it will be turned down by which higher court, where to to get the information in simple local language, where to ask the further questions on some aspects of the policy on which there is no clarity, etc is very backward. Further, it is in a very complex language and in a language that is not native to India. This creates a lot of scope of work for the business lawyers, but mostly the Indian SME businesses do not proactively approach the lawyers. They prefer to hire a lawyer when the authorities find some fault.

Certified valuers:
Private businesses can decide the value of transaction at any value in compliance with the Contract Act. This valuation has a lot of impact on the revenues of the government. And irrespective of the personal / corporate judgement of values of businesses or business asset, the government likes to pay them a minimum tax as per its own assessment of value exactly in the same way as it happens in the real estate sector. The individuals certified to do this valuation are called certified valuers. The theoretical framework for computation of a value provided by the law to the certified valuers is nearly ideal but very standard. It fails to understand the exact reasons, especially the strategic reasons, in which a investor or business is seeing value. So there is typically substantial departure between the value agreed between the private parties and the one derived by the certified valuers. Large scale businesses afford to do and do both of these types of valuations. The Indian small and medium scale Enterprises are typically not aware of this context and also they are not in a mood to pay the valuation fee twice.
There is one more development in the valuation market. All the indirect tax acts are null and void and so are the certified valuers under them. Now, for the purposes of Companies Act, IBC and some SEBI guidelines, IBBI registered valuers can be hired. For Income tax depending on section / rule, a CA or a merchant banker need to be hired. For valuations under FEMA, again a CA or a merchant banker can do the valuation. It is said that ultimately all the types of certified valuations will be carried out by the IBBI certified professionals.

Certified engineers:
Certified engineer hired for certifications of technical nature of the products, processes or the projects.

So what is the net observation?
It is a broken relationship! Apohan wants to join this bond. Apohan will be choosy in selecting its SME clients, but it desire to be a delightful Consulting experience for SMEs in India

Merchant bankers:
Essentially, investment bankers are corporate financial advisors. Investment banking is a specific division of financial services business regulated by SEBI related to the creation of capital for other companies, governments and other entities. They assist in large, complicated financial transactions. Investment banks’ clients include governments, companies, funds, banks, etc. The services they provide include Private Placements, Mergers and Acquisitions, sales & trading services, fairness opinions, structured finance, securitization, risk management, merchant banking, Public Trading of Debt and Equity Securities, Equity Research, asset Management, Security Analysis, Wealth Management, Alternative Investments advisory, Public / Government Finance advisory, International Investment banking.

Insurance brokers:
They advise the companies in getting the cheapest and best insurance from a a General Insurance Company. They also manage insurance contract on behalf of the business. The small and medium enterprises fire Insurance insurance brokers comply with the Insurance requirements of the Government and the lenders. Insurance consultant should be more involved for the risk mitigation purposes of a company then for compliance purposes.

Non-statutory consultants:

Technical Consultants:
They advise on the technical and operational aspects, quality, product and process certifications, etc.

Training Consultants:
They provide soft or professional skill to the human resources. A company should have a good balance between training session for soft skills and the relevant professional skills of advanced level.

Market experts:
These consultants provide a businessman the advanced level understanding of his industry, sector, sub-sector, market segments, competition, etc. Based on the recommendation made by the market experts including those who carry out market surveys, a businessman takes the a decisions of making more investment in the business, undertaking new projects, exiting that business, etc.

Marketing Consultants:
Marketing consultants help the company in achieving its target on fixed charges basis or or by sharing revenues or by sharing profits. The work of marketing Consultants may include all the activities from evolution of the marketing strategy to even successful closure of individual sales.

Investment advisors:
Most of the investment advisers represent the institution whose product they sell to the investor businesses. They remain to silent on the efficient in the the schemes that they are proposing, and profusely talk about the advantages of investment with them. A businessman should involved in strategic Consultants do you want an appropriate investment strategy then select an investment advisor for the completion of the process.

Business brokers:
Business brokers make the buyer and seller in a merger and acquisition deal meet. They are typically registered or affiliated with business house or investment fund and get a commission from them. While the other categories of Consultants charge fees, the brokers charge Commission. Bobby merger and acquisition activities, a small and medium scale business should try to avoid giving the mandate to a broker as far as possible. The mandate should be given to an M&A consultant, an investment banker for a single joint mandate should be given to their combinations. The brokers should be paid the finding fees, meeting fees or referral fees.

Strategic consultants
These are typically Private Limited companies who can advertise their business and who can explicitly solicit business. They are not bound by any charter or certification for a licence. Advice is strategic and the client company has to bear the full risk & cost of it. Strategic consultancy companies are typically led by people who are both engineer and MBAs. They look at the business from business perspective and not from the perspective of any compliance framework. They are not permitted to carry out any statutory activity. In addition to advice from strategic Consultants, a business has to engage the certified or chartered professionals. However, strategic Consultants carry out the most important part of identification of the problem, finding various options for solutions, selecting a solution, developing a strategy for implementation, etc, there is hardly any work left for the statutory Consultants. Bus services of strategic consultants are relatively costly. They are very well organised, experienced people with highest level of professional standard. Strategic consultants in forms a mixture of talent pool against the statutory Consulting firms which are led by only one variety of professionals.

So what is the net take away?
A business should hire the specialised strategic Consultants for the one time time work creating activities, policy creating activities, major business alliances, mergers and acquisitions, preparation of Financing strategy, preparation of financial strategy, for the corporate management of the company, and for preparation of a long-term business plan and business vision including for the the professional training of the staff.

Apohan’s Role:
Apohan is a strategic management company with specialised skills in in all the activities listed above to the Indian small and medium scale Enterprises.


Strategic financial Service portfolio

Financial strategy
Includes 3 – Fin fi m & Inv

Financial plan
Elements of financial plan

Financial models

Financial contracts

Analysis of financial performance
Alignment of profitability & returns on investment as per financial markets & peers
When company’s own financial performance is not similar with the industry.

Business Valuation

Financial Software

Capital structure advisory
Composition of long-term funds having effects on control, ownership, voting, etc.
To ensure stability, long-term sustainability & growth of company.

Financing Strategy
Cost of finance should take second seat with respect to…
Capital structure: (capital ratios, long-term implications, liabilities)
Ability to repay: (Schedule, moratorium, DSCR, cash flow projections, etc)
Terms & conditions: (drawdown, convertibility, voting power, etc)
Cost of finance: (interest, cost of equity, processing fees, etc)

Logical process of preparation of Financing Strategy
Assessment of appropriate investment amount to be mobilized and its phasing
Assessment of possible internal sources (accruals, promotors, shareholders, ESOPs, rights, etc)
Selection of external source type (debt, equity, grant, mix, their types, etc)
Selection of the specific instrument/contract (DVR, preference equity, bond, ECB, etc.)
Selection of funding entity type (Private individual, PE, VC, Bank, FDI, etc)
Approaching of a specific funding entity that meets the criteria

Dividend policy

Product pricing advisory
Prices should make returns corresponding to risks & manage competition
When management needs to know revenue requirement & ways to explain prices to clients

Working capital management advisory
To minimize requirement & cost of working capital
When starting WC is ill-planned, cycles are long, growth is stunted, limits reached

Budget management advisory
Forecasting the revenues & expenses, inflows & outflows & their times
Budget with provisions for probability of lower or late inflow saves business

Allocation of overheads
Identification, calculation, classification & allocation of all generic expenses
When corporate & manufacturing overheads don’t let us see exact worth of each product

Tax structure

Government schemes

Management of bank guarantees
Adequate guarantees & credits should be available for tendering, WC & impex
When quantum & T&C of BGs, L/cs are inadequate.

Bank or NBFC loan advisory
Raising & repaying finance from institutions for low cost leveraged growth
When the business needs more amount, less cost, less security & matching repayment, etc

Government schemes & subsidies
Knowing all possible financial benefits from all govt schemes, departments, etc
When the scheme benefit may give superior competitive advantage.

Project finance
To undertake a new project based on its own cash flow viability
When adequate security is not available for an asset based viable project idea

SME finance
SME finance such as bank, NBFC, other loans, grants, subsidies, equity, strategic investment
When the existing bank loan is insufficient to cater the needs for turnaround or growth

Lease finance
Getting plant & machinery on lease
When there is no sufficient capital raise loan to buy assets

Import export Finance

International Finance

Mergers and acquisitions
Business Transfers (M&A):
What is being sold, purchased, transacted, transferred, combined or divided in M&A? The companies or the body corporates or the legal entities called companies! Mergers and acquisitions (this is the correct use of the term) is the business of buying and selling companies themselves!
In mergers and acquisitions, the registered and incorporated legal entities are purchased, sold, transferred, combined into a few or divided into many. There are several variants of mergers and acquisitions. The type is decided depending upon the relative size of the companies, which legal entity remains and which legal entity gets dissolved, whether a altogether new entity is created or not, and whether the post-deal on-ground integration is carried out or not, whether the legal entities are divided into more or combined into a few, whether any shareholders are exiting from business permanently, what is the mode of compensation, whether the purchase is full or partial, etc. Broadly, these activities are divided into combinations and divisions.

Asset sale and slump sale
In asset sale, every asset is sold individually. That is, if many assets are sold, individual prices are attached to each of the assets. The selling company has to collect the indirect tax (GST) on the sales from the buyer. The proceeds of sale from asset sale are shown as other income in the profit and loss statement; and corporate income tax is paid on it. Sometimes the intangible assets of the company such as goodwill, network, guarantee, brand, network also can be transacted.
When is asset sale carried out? An asset sale can be carried out to raise emergency funds or to replace old technology, machines with new ones.

Slump sale means selling the complete set of assets of a business which can produce a product in independent way as if it is an assembly, without assigning any individual price to any machine tool or any equipment. This should also include transferring (making available) the human resources. But the name of the selling company or the legal entity is retained by the original owner. Sometimes, a production line for a product vertical can be separated and sold under slump sale. No GST has to be paid on slump sale. Instead of income tax, capital gains tax has to be paid on slump sale.
When is slump sale considered? Slump sale is carried out to spin off a vertical, or to get rid of a product, or to get rid of a geographical production centre, etc.

Strategic business alliances
None of the following activities can be called as merger and acquisition activity. However, they are highly important strategic business activities which which can give an effect which may seem as good as the effect of a merger or of an acquisition. Following is the list of such strategic relations, associations and contracts:

Business alliance through MOU:
Two businesses can associate with each other through a memorandum of understanding. MOU is not legally enforceable but it narrates the intent of future association and paves a way for a definitive final contract.

Business alliance through Contract:
Two businesses can associate with a business contract for any purpose of executing joint projects, joint marketing, long term supply, long term seller buyer relationship, technology transfer, etc.

Joint venture:
Joint venture is a mechanism in which two companies associate to carry out a project. The scope of work and the and the liabilities of each of the parties are very well defined beforehand. Depending upon what is the expectation of the investment for the role in the joint venture, the parties agree a proportion of ownership in the venture. Typically, there is a independent administrative mechanism, especially accounting mechanism and office set-up. This is to appropriately know & share the costs and profits. Joint ventures are typically meant to be unincorporated. The costs for expenses that cannot be attributed to any specific scope of work for a specific party are shared in a pre decided proportion.

In the franchise agreement, a company provides all the machine tools, capital equipment, technology, training, brand, etc to the third parties to realise some fees other on fixed period basis or on volume basis.

In this mechanism, a company allows another company to use its brand, for resources in the form of intangible assets for a payment called royalty.

Lease Hire:
In this mechanism, a company sells its give fixed assets to achieve more liquidity. It leases back the same Assets on rental basis from the party to whom the sale was made on long term basis.

Special purpose vehicle (SPV):
Special purpose vehicle is a form of joint venture which is typically Incorporated for a specific purpose and is dissolved after the purpose is fulfilled. This is typically undertaken in the public private partnership projects.

Apohan has expert level understanding of all the available avenues for achieving a business objective. Apohan ensures that its client chooses a appropriate strategic path in formulation of a business alliance – equity or non-equity. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.

Corporate restructuring:
In this, the company changes its management, board of directors and their ways of functioning. There may be restructuring of the group of the companies, mergers or divisions. The legal form of the company might be changed. The constitutional documents also might be changed. Various shareholder groups may nominate their directors in a certain proportion, allocate responsibilities to them, decide the mechanism of evaluation of their performance, etc.

Business restructuring:
In this exercise, the company changes its business model, in terms of how it generates revenue. This can be achieved by changing the products or the role in value chain or the terms and conditions of sale.

Contract restructuring:
A contract between two business entities captures the scope of work, risks taken by the parties, their rights and obligations. A company can change the key contracts with the business stakeholders aur it can enter into new variety of contracts keeping the physical operational setup same.

Financial restructuring:
In this exercise, the company changes its capital structure, substitutes the high cost, high commitment, high risk components of capital with suitable alternatives. It made convert one type of capital instrument into another. It may change the rate of return on any instrument downward. It may extend the tenure of the loans creating more liquidity. It may refinance its loan by transferring them to other banks. It may raise additional capital to overcome critical times. All of these initiatives can avoid a default and subsequent loss of control or liquidation.

Finance training for non-finance staff
People taught calculations of financial impact of their decisions & areas of improvements
It should be completed or ongoing. No question of when.

Financial Turnaround
Following are the forums where a strategic investor main acquire a company:

Asset reconstruction companies (ARCs):
The ARCs acquire distressed assets from banks when the long term loans of the bank turn into non performing assets and the banks sees that the recovery of its capital is difficult.

Bank auction:
A Bank may choose to auction the assets provided as security for the loan. Typically, apart from the other personal assets of the businessman, the manufacturing assets and the corporate assets also become available to the bidders.

Lok Adalat:
Lok Adalat is one of the alternative dispute redressal mechanisms, it is a forum where disputes/cases pending in the court of law or at pre-litigation stage are settled/ compromised amicably.The cases under Lok Adalats relevant for the businesses are partition Claims, Damages Cases, Mutation of lands case, Land Pattas cases, Land acquisition disputes, Bank’s unpaid loan cases, etc.

Debt recovery Tribunal (DRT):
The Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) provides speedy redressal to lenders and borrowers through filing of Original Applications (OAs) in Debts Recovery Tribunals.

It provides access to banks and financial institutions covered under the Act for recovery of secured debts from the borrowers without the intervention of the Courts.

CIRP under IBC process /NCLT
The National Company Law Tribunal is a body that adjudicates issues relating to companies. All proceedings under the Companies Act, including proceedings relating to arbitration, compromise, arrangements, reconstructions and the winding up of companies are disposed off by the National Company Law Tribunal. It is the adjudicating authority for the insolvency resolution process of companies and limited liability partnerships under the Insolvency and Bankruptcy Code, 2016.

High Court/ Supreme Court:
As a result of court litigations, an investor main get position of the disputed equity in a company.

Apohan understands the jurisdiction of various corporate forums. Apohan assists its client in management of the proceedings going on there in terms of strategic advisory. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.

Financial Distress
Supplier payment defaults
Working capital defaults
Bank NPA
Lok Adalat
Company Law Board
Strategic debt restructuring
Asset reconstruction
CIRP under IBC process /NCLT
High Court/ Supreme Court
Viable loss making business
Unviable business
Business under liquidation

Financial growth

Growth Financing Requirement
WC for 100% capacity utilization
Capacity expansion
Product portfolio expansion
Geographical expansion
Vertical – forward & backward expansion
Horizontal or lateral expansion
Inorganic growth
New greenfield or brownfield project
New product development, technology, R&D
New business structure, contract structure
International expansion

Ratio of capital and working capital

Finance as a support function

Organisation of a finance department