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:
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.
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.
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.
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.