Financial Management for MSME
During our SaaS product marketing, we met many prospective customers from MSME segments and we ask them one standard basic question. “According to you, what are the three activities important in your business?” One of being Financial Management prudent.
Everyone had different answers based on their situation and conditions like Finding Customers, Increasing Sales, Managing Taxes and on time reporting, Increase profits, Ensure that their daily operations are handled, Receive the money from Customers (Some are not paid their dues for more than 180 days), manage and get right Resources etc.
But none of them spoke about maintaining proper Accounting Books or how to manage Cash flows efficiently as one of the important activities.
According to Research, 60% of Business fail in the first 2 years and one of the five major reasons is not following a Financial discipline and managing Cash flows. So why Business owners don’t believe in this important work? (For more answers, please refer to MSME challenges)
MSMEs are important for the Countries Growth and building the Job market
Today nearly 95% of the business are in to Micro segment that’s been generating jobs and others. The definition of “Micro segment” is less than 5 employees. In India, the total MSMEs are around 50 millions business and Micro industries have become a backbone for the Indian SMEs. They build an ecosystem and also support large companies to meet their objectives.
Personally I felt this problem is not just in MSME segments, but across all the Business verticals. If a MSME doesn’t have sufficient cash flows, the first thing it would do is to delay the “Vendor payments” and this vicious cycle continues.
We debated internally and arrived at some possible reasons including how to manage Financial Management? (These are based on our experiences and understanding of the MSME market)
- Many MSMEs, do not consider Accounting and Book Keeping as Core business activity and mostly it is done for the fear of Govt or to keep records to collect the past dues etc (One Accounting Auditor told me “If Accounting dept doesn’t function then senior management curses them, but never remembers to say “Thank you” when its delivering its work against all the problems”).
- Accounting activity can be outsourced to an Accountant or a Book Keeper. It works out as Resource Cost is cheap, especially in India and some other Asian countries. But same may not be true for the future.
- Some Business owners traditionally manage their own Books in their “Own Style”. This may not meet Accounting Standards and formats required by Governments.
- Indian and Asian MSME’s are not used to the Western culture of “Do It Yourself” (DIY).
- Many Private and Govt institutions, conduct “Entrepreneurship” programs and train people on “how to Develop and Market a product”, “How to Sell”, “How to train your Resources” etc. But I have not seen many such Organisations speaks about how to do an Invoice, How to keep a transactional record / stock ledgers etc. May be these organisations believe that this work is easy and Entrepreneurs can manage themselves without their help.
- In Western Countries there are Certified professional Book keepers (who are neither Accountants nor CPAs). But in India and Asian countries, anybody with an Accounting package knowledge can become an “book keeping expert” to manage the books. So the lack of professionalism leads to more confusion and data corrections.
- Keeping the records of spent money is a boring job and not as exciting as Selling or Meeting some new customers. So this is outsourced to someone else.
May be you can add more to this list…
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