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 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 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 provides 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.
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. Apohan provides consulting for allocation & prioritization of these decisions to Indian SMEs.
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. Apohan will not let a financially viable business fail on account of financial mismanagement or poor financial management.