Costs of Outsourcing Controller Services for Small Businesses

Think about your company for a second. It’s thriving and revenue is coming in, but amongst all the growth, there are questions about your future. You find yourself wondering what to do about financial decisions like are you pricing your jobs right. Is it time to hire more staff?

You have the cash flow but should you spend the money? When is it the right time? Which clients and services are the most profitable? Which teams should get more people? What marketing spend will provide the most ROI and drive growth?

There are a lot of tough questions to answer. Successful businesses need to see beyond just selling more business and hiring additional employees.

Before you make big decisions, are you receiving meaningful, timely and accurate financials about your business? If not, you are probably wondering whether the foundation is already get to the next level by being set to make smart business decisions.

Your business might have a person with the title of controller who’s in charge of creating reports and analyzing data that helps guide the business through critical changes. If they are a true controller, they review information that a bookkeeper or accountant provides to predict future information for a business or company.

If you don’t have a controller, or the person with that title isn’t providing you with the relevant information you need to make data driven decisions, outsourcing controller services might be a smart move for your business. By outsourcing your controller services, you could gain much higher levels of reporting and analysis.

Outsourced Controller Services vs. Traditional Controllers

A traditional Controller is different from what an outsourced controller services offer your business. Either way, a true controller is a degreed accountant who manages accountants and bookkeepers on their team. For a small company where a full charge bookkeeper is the sole member of the accounting team, managing data entry, account reconciliation, and providing reports to their CFO or CEO, there’s also a material weakness in internal controls. One person should not pay the bills and reconcile the bank account.

Outsourcing your controller services allows a company to pick and choose services that a controller would provide. It’s important to distinguish between the CFO and Controller function. The CFO looks forward, the controller looks back.   But a good team works together to use the history to predict the future.

Sometimes the business has needs that require someone to be in-house who knows everything from the ground up. Then you need to find a flexible outsourced provided to complement your in-house staff. You don’t need to outsource everything. However, outsourcing allows for increased accounting expertise in areas such as job costing, month-end accruals, revenue recognition and more.

Why Your Business Should Outsource Controller Services

The four primary reasons companies are choosing to switch to outsourced controller services are confidentiality, turnover rate, single-point-of-failure, and cost. Outsourcing controller services can help consolidate tasks, increase efficiency and produce more accurate results for your business.

1.     Outsourced Controller Services Allows for Confidentiality

Most small business experience is a lack of separation between departments. When employees work close to the accounting department, confidential information has the capability to get in the wrong hands. If this happens, information could get shared that is detrimental to an employee or the business.

Avoid the potential risk and liability of data sharing by outsourcing your controller services.

2.     Control Turnover Rate by Outsourcing Controller Services

Many companies have regular turnover in the bookkeeping, accounting or controller positions. Why? It’s not a core competency of the management team.  The time and money that goes into finding and training someone to fill a position really adds up if you are filling a position every two years. By outsourcing, you eliminate the hassle of posting the job, interviewing, and training a new employee.

Outsourcing controller services allows you to focus on making money because you have someone you can rely on day in and day out. You can trust the results they produce and have comfort knowing you always have access to financial intelligence.

3.     Outsourcing Controller Services Stops Single-Point-of-Failure

A single point of failure is when one person is in charge of a function or process, and when they aren’t there, the duties don’t get accomplished. And when the bookkeeping isn’t completed, billing doesn’t get done and cash flow suffers.

If your accountant or controller goes on vacation for two weeks, who will complete their work when they are gone? If they were to quit, is there a system in place for someone to pick up where they left off? By outsourcing your company’s controller services, there’s no risk involved. It all just happens.

Controller services go beyond just bookkeeping and accounting, they provide critical oversight and account management ensuring the right policies and procedures get implemented and timely accurate financials are produced. A good accounting system with a good controller should help you make more money.

4.     Outsourcing Controller Services Cost Less Than a Full-Time Controller

Employing a controller is expensive.  If you have an in-house controller providing the desired results for your company, then you might not need to make any changes by outsourcing their duties. Just make sure it makes financial sense, and you have the right person in that seat.

However, make sure you aren’t paying your full time controller for part time controller work. You don’t want to pay a controller salary to do the bookkeeping, accounting, and controller duties. You will end up paying too much for the routine jobs they are performing.

If your company doesn’t have enough work for a full time controller, outsourcing can be a solution. Outsourcing allows for as much or little work to get accomplished per your company needs.

Outsourcing controller services fees typically start at Rs 25,000 per month. The oversight provided and the improved reporting package delivered will usually be well worth the price. Fees are dependent on the needs and size of your business. At the end of the day, outsourcing will be cheaper than a full charge in-house controller for most businesses.

PAYG Strategic Consulting is well equipped to serve as your outsourced controller service department. We provide outstanding client service with a India based team of a bookkeeper, staff accountant and accounting manager who provide the expertise you need to run your business. Put your numbers to work!

The Role of the CFO in Small Business

Whose job is it to make sense of all of the business numbers?

It isn’t the bookkeeper’s job. This is a clerical function. It isn’t the accountant’s job. That is to make sure that the bookkeeping is accurate, that records reconcile and financial reports are completed on time. It must be the Chief Financial Officer’s (CFO), whose primary responsibility is to manage financial risk by analyzing the data, developing proactive strategies and tracking performance outcomes.

But who really needs a CFO? Everyone knows that only large companies have CFOs.

Actually, this perception is not true. In fact, there are few businesses of any size that can afford NOT to have a CFO! Having a CFO on your management team will help you with:

  • Creating Your Business Strategy
  • Financial Modeling and Analysis
  • Performance Monitoring
  • Maintaining the Business Dashboard
  • Budget Deviation Analysis
  • Refining Strategy and Managing Change

Each of these functions must be performed on a routine and timely basis regardless of what size your business is. These functions also require specific skills, knowledge and experience to be effective. For most smaller firms, they are not functions that are performed on a full-time basis.

Securing this level of talent is going to cost a lot – – or is it?

Welcome to the age of the part-time CFO, a talent pool of senior level strategic planning and financial management expertise that is available when you need it, how you need it and where you need it. In addition, because the CFO’s primary contribution results in improved business performance, the cost is often more than covered by the resulting savings and increased profitability.

Did you know?

“…that PAYG Strategic Consulting offers part-time expertise in helping organizations with financial modeling, performance measurement, expense control, acquiring funding, risk management, mergers, acquisitions, divestitures and business management information systems?

Launched in 2012 and expanding throughout India the firm specializes in working with small and mid-sized firms that will benefit from the finance and strategic planning expertise without the full-time staffing expense. Contact PAYG Strategic Consulting for more information at ajit@mypayg.com.”

 

https://www.toptal.com/finance/business-plan-consultants/how-great-business-plan-consultants-create-value

Impact of mismanaged finance for SMEs and Entrepreneurs

Good financial management is the bedrock for profitability in any business. But as start-ups or smaller businesses begin to grow, it is common for their accounting systems and processes to fail to scale and evolve at the same rate.

When your internal accounts processes don’t grow alongside the rest of the business, mismanaged finance will almost certainly be just around the corner. And this ineffectual management of your financial procedures can have a highly negative impact on the future success and prosperity of your business.

So how do you spot a mismanaged finance issue? And when you have, how do you put resolutions in place to cure the problem and minimise any negative impact?

What’s causing mismanagement of your finances?

As with any business issue, your first step is always to identify the root cause of your mismanaged finance and to understand how it has happened.

Every business has its unique organisational quirks and specific ways of setting up a financial model. But there are some common causes of mismanaged finance that you should consider when reviewing the cause of your financial mess.

  • Are you too busy? – When you’re drowning in the everyday minutiae of running the business, it is tempting to put off your finance responsibilities until another day. Pushing back those accounting tasks and reviews ‘until the weekend’ may sound tempting, but the more you push back, the slower and less responsive your financial management will become.
  • Are your resources constrained? – If you cannot afford to hire senior financial people for your the team, you will not have the personnel or the resources to deal with the bigger financial picture. And if your external accountant is focused primarily on hygiene and compliance tasks, they won’t be proactive enough to help you provide a resolution either. Contact PAYG for a cost efficient solution.
  • Is there a lack of discipline in your processes? – Your financial model and system has to be clearly defined to work effectively. If there are blurred lines between your business and personal finances, for example, this makes the job of managing your company financials far more complex and difficult.
  • Is there a lack of know-how? – Finance can get complicated, so it is vital to have the right experience and capability to deal with running an evolving financial system. The number of cloud-based accounting solutions and FinTech tools on the market is also growing, so a familiarity and understanding of your chosen software is also a fundamental need.

What effect can mismanaged finances have?

Why is mismanaged finance such an important issue to resolve quickly and effectively? In short, if you and your management team are not in full control of your finances then you are not truly in control of the business as a whole.

So, how does this lack of financial control manifest itself?

If your financial information is poor, you don’t have the hard data you need to manage your business and key drivers effectively. Without these numbers at your fingertips, you cannot make informed decisions, your forecasting and projections are incomplete and you will fail to act on potential opportunities.

You are also more likely to have cash-flow problems when mismanaged finance rears its ugly head. Negative cash flow is one of the biggest causes for new or smaller businesses failing within the first couple of years. In recent research by CB Insights, 29% of failed start-up founders blamed their failure on a lack of good cash flow. So improving your overview of liquidity, and having the required cash in the business at the right time, helps to secure your long-term future.

A poor grasp of your financial management can also impact directly on you as a director of the company. If compliance rules are not stuck to, and financial deadlines are not met, this will mean fines for the business (and possibly for you personally) as well as a huge amount of stress and worry piled onto your shoulders.

In an online age where information is so readily available to banks, investors and creditors, poor compliance results and fines can have a destructive effect on your credit rating and attractiveness to investors – so making sure the financial compliance boxes are ticked is a vital part of your director responsibilities.

And finally, there is the potential for your mismanaged finances to lead to a lack of agility, and a consequent inability to grab the opportunities that are out there in the market.

With all the advantages of the cloud, automation and software control, there has never been a better time to run a business. But if your business information is not timely and accurate, you simply cannot act quickly enough to make the most of the opportunities that present themselves.

How to get back in control

We have seen how mismanaged finance can happen, and how this impacts on you, your business and your potential longer-term success.

So, if your business is experiencing any of these integral finance issues, how do you go about resolving the problem and getting back control of your accounting and financial destiny? Contact PAYG Consulting now!!

  • Put a price on your time – know your worth as the MD or CEO and weigh up the cost (both in time and money) of you dealing personally with the business’ financial issues. If you get involved in executing a complex financial resolution, this will eat into your business time and may well be something your not qualified to do well. Engaging a finance professional to sort out the problem is likely to be a better option.
  • Look forwards not backwards – a cloud accounting system is an excellent way to improve your financial overview. Put the right systems in place from the start, before you get too busy, and you can avoid getting into a mess, while also getting access to incredibly detailed financial reporting and forecasting. Use your data well and get projects and forecasts to help your future strategic decisions and planning.
  • Take stock and fix the mess – if you’ve been through your finances and found a mess, it is vital to take control and fix any issues. Do not be tempted to just ‘fix and move on’: it’s vital to also review and update the processes that lead to this mess and to ensure it cannot happen again.
  • Invest time now to save time later – to get the machinery of the business working like clockwork, you need to schedule a realistic amount of time to work on the problem. Setting aside a big enough window from the outset will save you a lot of time, stress and hassle later down the line. And ensure you have the best systems, tools and people in place to crack the problem, or it will cost you more when extra resources have to be brought in later.

Solve your mismanaged finance issues

At PAYG Strategic Consulting, we know the financial challenges you face as a business owner. So we can help you to strengthen your internal processes and controls, make better use of cloud accounting and provide the help and guidance needed to turn around those mismanaged finance problems

Reach us at ajit@mypayg.com | +91 9819 2200 26

SME Finance

Finance is generally called the ‘Lifeline of Business’. Virtually nothing works without being able to finance the business. This when criticality viewed alongside the state of SME financing, it isnt a surprise that the SME’s economic growth engine is often found crackling.

To start, let’s consider how a SME funds itself. The three main sources of financing for a business are: a) accruals from the business, or profits; b) owner’s equity; and c) external borrowings or business loans.

While all sources are equally important, the significance of loans, especially for small businesses, cannot be over-elaborated – accruals/profits have their seasonality and equity funding is expensive as well as uncommon. Availability of loans, thus, helps a SME business tide over short-term constraints and helps it in planning a long-term strategy that can help make best use of returns for the business owner.

SME funding scenario

Given that the 36 million SMEs in India employ over 80 million, this represent 8% of the GDP, and contributes towards 40% of India’s total exports. Thereby, it would be reasonable to think that SME financing should be a priority for banks and financing institutions. The statistics however do not bear this out.

The total credit to the MSME segment of Rupees Eleven Lakh crores spread across 2.06 crore loan accounts as on March 2016! This disparity in credit availability is due to numerous factors but the following two reasons stand out as most important: banks find SME Loans cost ineffective and too risky. The former is because a large part of the fixed organizational cost incurred per exposure – such as paperwork, site visits, document verification, etc. – is the same whether the borrower has a relationship of INR 5 lacs or INR 5 crs. So, a bank officer would much prefer to complete his targets with a couple of large clients rather than service dozens of smaller businesses. The latter is part perception and part reality. Smaller businesses tend to depend more on cash dealings and many usually are poor record keepers. This makes accurate credit scoring difficult. Unfortunately, all small business borrowers then get clubbed under the same perspective.

Optimism denied

After the flood of deposits that followed the demonetisation move, banks were anticipated to expand lending and lower interest rates on SME business loans. Also, borrowers expected RBI to get aggressive with its rate cuts as a measure to offset to the growth shock that demonetisation caused. So far, both hopes have not been met. Banks have chosen to lower deposit rates to a far greater extent than lending rates and RBI has chosen to hold off on rate cuts in its policy meetings following the resurgence of inflation and ambiguity over global macro factors.

If the above two factors where not enough, the other dampener for expectations of more funding at lower cost comes from badly stretched bank balance sheets. Here also there seems to be no relief in sight. Untenable levels of debt in large problem exposures combined with low operating profits that in some cases do not even cover interest payments means that there is no quick solution around the corner. Though these problems mainly relate to large corporates, even viable MSMEs will end up suffering due to adverse selection.

In this situation, small businesses often need to depend on informal sources of credit, such as private moneylenders, who charge high rates of interest. According to a recent report by International Finance Corporation, 78% of the MSME debt demand is either met by self-financing or through sources like moneylenders, whereas a mere 22% comes through formal lending sources.

Addressing the gap

In recent times, we have begun to acknowledge the extent of the financing problem for MSMEs. This problem extends beyond the just low availability of finance or high-interest rates. Small businesses also need the right advice on what form of financing and which source of borrowing is best suited for their requirement. Most traditional lenders are not able to fulfil this critical role, which can help small businesses in a big way. Digital lending firms regularly work with its clients to improve the odds of getting the right loan using a three-fold approach – improving the risk profile of the borrower, engaging with relevant lenders, and convincing them of the soundness of the borrower and the business. This has helped many of the clients with credit scores that do not fully reflect their repayment capacity.  They help a borrower to get a business loan for a large, upfront capital investment in his start up despite the absence of a track record. What these cases show is that good advice should precede the drafting of a loan application.

Way forward

Given the reluctance of banks and the adverse business scenario they are operating in, Indian MSMEs sorely need alternatives. In this, they have made a slow but sure move towards alternative lending channels, which include online NBFCs, Loan Marketplaces, P2P platforms, besides other formats. These channels offer a much wider choice of borrowing options, thus offering loans that are tailored towards a specific purpose as against the off-the-shelf collateralised loans or loans against property that banks typically offer to MSMEs. This could include E-commerce Merchant Cash Advances, Unsecured Business Loans, Seasonal Working Capital Financing, various forms of Short-Term Funding, Equipment Loans and Business Line of Credit.

Moreover, in many cases, these channels also offer advisory services in guiding business owners towards the right options. When a loan product is tailored for a specific need, not only does it improve the odds of obtaining the loan, but it also minimizes the cost of borrowing.

Convenience and efficiency levels are also shooting up because of alternative platforms. Borrowers can view options online, ask for advice on which one suits their needs best, upload necessary documentation, and receive approvals…. all in a matter of minutes thanks to technology. Even borrowers who do not have a credit score are becoming bankable with multiple off-beat sources of information being used to triangulate repayment capacity.

With GST expected to increase formalisation of the economy, it is vital that small businesses have continued and adequate access to their lifeblood, finance, in order to compete effectively. It would be disappointing to see a business fail merely due to a market failing, and that is the need fintech firms aims to serve.

Digitization of SME Finance

Globally, access to finance remains one of the most significant constraints to the growth, productivity and even survival of SMEs – and to the critical jobs they create. The SME credit gap is both a demand and supply side problem. On the demand side, many SMEs cannot get access to credit because bankers cannot see the critical information they require to assess creditworthiness. To most bankers, this means they lack financial documentation, business plans, collateral, etc. On the supply side, banks thus consider SMEs as high-risk and unsuitable to serve at interest rates they’re able to charge. For these two reasons, banks often prefer to lend to larger firms. Limited SME conventional documentation and through paperwork and through conventional credit reporting service providers makes this a big problem everywhere, but particularly in emerging markets.

The increasing digitization of SME finance, and of the potential supply of alternative data it provides, offers an opportunity and solution to both the demand and supply side of the credit gap. By 2020, the world’s stock of digital data will double every two years. Rising mobile usage, cloud-based services, big data, electronic payments, and exponential use of social media will fuel this increase. What is important to note is that by 2020, 60% of the global stock of digital data will be contributed by developing economies. So what can this mean for SMEs in emerging markets that currently face constraints in accessing finance?

Digitizing SME finance can lead to greater and better opportunities for banks as well as SMEs, and nowhere will this be more apparent than in emerging markets. On the supply side, lower costs and rising use of smartphones are helping SMEs produce transactions and accounting information in a cheap and timely fashion. New apps make financial management, customer management and supply/value chain management tools affordable to smaller and smaller firms. On the demand side, that new data plugs into advances in analytic and processing capabilities for the bankers, fueling the spread of new data-driven intelligence for initial decisioning and for portfolio management. This lowers transaction costs to acquire SMEs, and to serve them.

The greater digital footprint of SMEs also leads to a proliferation of technology-focused alternative SME lenders using this treasure trove of digital data. These alternative lenders focus on new data and analytics to decrease costs associated with loan origination and collection, showing the profitability of the SME market. They show banks that, without innovation, they can lose this SME market.

At the same time, we are starting to see an alternative to being disrupted by the alternatives – new partnerships between banks and FinTechs. These partnerships allow banks a fast and convenient way to innovate their product offerings and better serve their SME customers. Banks can vastly improve their customers’ experience with lower capital expenditures if they can learn how to “plug in” FinTechs into ongoing operations. The FinTechs also benefit as they gain access to the banks’ large customer base, existing infrastructure and lower costs of capital.

As we can see, digitizing SMEs’ finances holds immense potential, both for SMEs and for SME lenders. By leveraging the opportunities fully from greater digitization, we can help 180-220 million SMEs in developing markets that currently have unserved or underserved credit needs totaling trillions of dollars. At the Global SME Finance Forum 2017 taking place November 1-3 in Berlin, Germany, we will be discussing the various opportunities the digitization of SME finance offers, and how banks, FinTechs, DFIs, credit bureaus, regulators and others can benefit from this revolution in finance.

This blog post was originally published by Let’s Talk Payments in the run up to Global SME Finance Forum 2017, which will take place in Berlin, November 1-3.

Alternative Data Transforming SME Finance

Many traditional commercial banks consider small and medium enterprises (SMEs) to be high-risk clients, as well as high-cost clients to acquire, underwrite and serve. There is limited SME coverage by credit reporting service providers especially in emerging markets where SME informality is high.

While being able to analyze SME financial data was difficult in the past, digitized finance that makes use of transactional and alternative data is offering a new opportunity to address opaque credit and financial histories of SMEs. Every time SMEs and their customers use cloud-based services, conduct banking transactions, make or accept electronic payments, browse the Internet, use their mobile phones, engage in social media, get rated online, buy or sell electronically, ship packages, or manage their receivables, payables, and recordkeeping online, they create and deepen the digital footprints they leave behind. SMEs’ own, real-time, and verified data — unprecedented volume, variety, and velocity — also means more data can be used for credit decisions.

A rapidly growing group of technology-focused SME lenders are putting the use of alternative digital data, customer needs, and advanced analytics at the center of their business models, thereby setting forth new blueprints for changing the SME finance market. These new lenders are also often providing more transparent, faster, easier, and better-tailored financing solutions that today’s increasingly tech-savvy SMEs seek.

The report titled “Alternative Data Transforming SME Finance” looked at 800+ innovative digital SME lenders and digital commerce, payments and service providers in more than 60 countries. Here are some of the key findings:

  • Banks have valuable data, but are often not using it: Banks have a highly valuable repository of SME data, including SME owners’ customers’ daily transaction data that provides reliable real-time visibility into SME cash flows and credit capacity. However, most banks lack the ability to create innovative SME lending models from it. The data often resides in a patchwork of legacy systems and data silos that make it difficult and costly to access. This gap has created an opening for digital SME lenders to capture this market segment and/or partner with banks to take advantage of these new models.
  • Digital SME lenders are developing new relationships with SME customers and their data: In some cases, non-bank digital SME lenders insert themselves between banks and their SME customers, and forge fundamental changes in SME customer expectations. SMEs are embracing the digital world more and more every day. Increasingly, many SMEs are more tech-savvy, more sensitive to slower service and paper-intensive loan applications, and more willing to shop around for unmet and unserved financing needs.
  • New SME digital data streams are becoming more readily available and accessible: Digital SME lenders leverage vast and expanding stores of data, including from electronically verifiable, real-time sales, bank account money flows and balances, payments, social media, trading, logistics, business accounting, and credit reporting service providers, as well as a wide range of other private and public data sources used in the SME credit assessment process.
  • There are a wide range of digital SME originator lending business models: The new digital SME lending originator business models that take advantage of the expanding universe of SME digital data vary widely. This report highlights these business models, selected players, and the digital SME data they use. It includes marketplace lenders, tech, e-commerce, and payment giants which are extending SME lending into their non-banking digital ecosystems where they are already dominant. It also includes supply chain financing firms, mobile micro-lenders graduating to SME lending, and innovative banks.
  • Digital SME lending is becoming more of a global trend: That these innovators are sometimes simultaneously launching nearly identical products in developed and developing markets alike demonstrates just how profoundly alternative data and technology are leveling the playing field. As such, they are enabling new digital SME lenders in many parts in the world to leapfrog traditional bank SME financing barriers.
  • Digital SME lender-bank collaboration is also a growing part of the future of SME finance: Banks may have been blind to digital SME lenders at first, and digital SME lenders may have said they would replace banks. However, both parties now have come to a simple conclusion: there are limits to what each player can do on their own and there is strength in collaborating. Apart from partnerships with banks, some non-bank digital SME lenders are instead partnering with each other, tech giants, cloud-based SME service providers, or alternative lenders in other sectors. In other cases, they are securing their own banking licenses, suggesting some new non-bank digital SME lenders still plan to forge an alternate path, thereby bypassing traditional legacy banks altogether. A vital characteristic of these collaborations is a sharing of each partner’s SME digital data. This facilitates the development of new and innovative SME credit decision models and expanded access to credit.
  • Access to data is no longer the problem in SME lending: Digital SME lenders have dispelled the long-held notion that SME lending is not achievable in a scalable, efficient, and profitable manner. In an increasingly digital economy, these lenders are beginning to demonstrate that access to data is unlocking many of the earlier challenges to expanding SME lending. The digital economy has also given rise to an ever-evolving set of value-added cloud-based services to help SMEs with their finances, business planning, productivity, legal issues, data backup and security, file sharing, web conferencing, website builds, online marketing, business training, e-commerce, payments, loyalty programs, business intelligence, and more. To increase customer engagement and help their SME customers be more successful, banks and other SME lenders have started partnering with these platforms to offer SMEs these applications individually, together, or wrapped up with other core products and services.
  • However, access to data for SME lending brings new challenges: With the abundance of alternative data, there are new issues of what to use, how to use it, and how to do this responsibly — while also respecting privacy and other important rights of SMEs. These new entrants bring new complexities, risks, and ways of thinking about the SME financing value chains, as well as new agenda items for policymakers and regulators.