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.
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:
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.
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.
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 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.
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 engineer hired for certifications of technical nature of the products, processes or the projects.
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.
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.
They advise on the technical and operational aspects, quality, product and process certifications, etc.
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.
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 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.
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 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.
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 is a strategic management company with specialised skills in in all the activities listed above to the Indian small and medium scale Enterprises. Apohan wants to create a new chapter in the relationship between businesses & consultants in India. Apohan will be choosy in selecting its SME clients, but desires to give a delightful Consulting experience for SMEs in India.