Entrepreneurs are a very smart, skilled & hard-working breed of people driven by their passion.

In my two decades of experience of working closely with several businesses, I have witnessed several promoters having a great business model (i.e., great quality product, esteemed clientele, diligent team & well-aligned distribution channels), but still find it difficult to pay salaries and rent at the end of the month. Inspite of collecting GST from their clients, they face challenges in depositing that GST by the 20th of next month (as required by Indian laws). Similarly, even though they deduct TDS while paying their customers, they don’t have funds to deposit this TDS by the 7th of next month.

These are just the symptoms; the moot problem here needs careful diagnosis by experts.

The problem could be a loss-making business model resulting in sustained erosion of net worth (i.e., wealth) over long periods of time, or it could be due to mismanagement of cashflows. There is a popular belief that 95% of SME failures are due to poor financial management. A lot of businesses still use the traditional/primitive ways of managing their finances.

I have come across several promoters who have eroded their wealth in business with the hope that someday their businesses will start yielding huge returns. I feel very strongly for those promoters who mortgage their homes, personal properties, and their wife’s jewelry only to sustain their business. They get so attached to their business that they start treating their business as their identity and the sole purpose of their existence. They fail to realize that business is just a “vehicle” for them to achieve their goals in life.

While working on our assignments, we start by having brain-storming sessions with the promoters where we assist them in identifying (in a structured fashion) their long term goals with respect to the wealth they wish to accumulate in the future, the possessions they intend to acquire, the standard of living they desire, the passive incomes they intend to earn and the legacy that they wish to leave for their loved ones.

We then help them convert these goals into long-term business targets, further broken down into Annual goals & quarterly milestones. These are later used to design Business Scoreboards & MIS Dashboards – with a lot of focus on tracking cashflows periodically. Detailed KPI’s & KRA’s are designed for every department/function in the business. Separate bank accounts are opened for GST & TDS payments to ensure timely compliances, thereby eliminating the risk of interest and penalties being levied for late payments.

Lastly, we conduct weekly / monthly review meetings so as to track sales, profitability & cashflows; and compare them with the above-mentioned benchmark parameters. This exercise not only empowers the promoters with a lot of clarity, confidence & control over their business but also aligns each department & employee to the organizational goals.

Thank you so much for investing your time in reading this article. I sincerely hope you found it useful. Please feel free to share it with other entrepreneurs in your network.

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The above article is penned by one of our finance mentors CA Vikram Menda to disseminate the best practices followed by some of the best businesses across the globe.

CA Vikram Menda handholds businesses in implementing new-age tools & techniques of financial management, thereby ensuring cash-rich businesses and timely compliances.