'Financial accounting & management is an evolutionary process' | SupportBiz

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'Financial accounting & management is an evolutionary process'

Any enterprise has to go through various stages of business growth, from being a startup to the ultimate climax of a large scale enterprise – which is the dream of every entrepreneur. Financial Accounting & Management (FA&M) of businesses; and also managing the personal finances of the entrepreneur are among the major challenges staring SMEs in the face. This article walks you through FA&M evolution for your business, as it grows.


Start-up / Business Idea (Indicative turnover up to Rs. 2 crore)

This is when the businessman starts his journey with great expectations. Initial focus is only on validating his / her idea on a product or services. The major characteristic are:

  1. Businessman / entrepreneur is generally a technocrat and / or 1st generation
  2. FA&M background is generally not there
  3. Focus and priority is on validation of product and identification of market
  4. There is generally a severe resource constraint; lack of any second line and skilled support
  5. Money for business is raised from personal finance, family and friends.

Under the circumstances FA&M involvement is purely need and compliance based. However, the entrepreneur will starts acknowledging the things required in times to come. It is always a good thing to start getting acquainted with the various aspects of FA&M at an early stage.

Small Scale (Indicative turnover from Rs. 2 crore to Rs. 20 crore)

In this stage the businessman gradually starts getting to terms with the product as well as the market. The turnover slowly starts increasing, as also the level of activities. An increasing shortage of finance is felt almost on daily basis. There is increasing time pressure to handle varied activities. The most critical aspects of FA&M here are:

  1. Start in right earnest, appreciating the importance and need to understand FA&M
  2. Differentiating between personal and business finance
  3. Understand the critical aspects of FA&M – and address the same in his / her own business
  4. Learn about schemes and funding options available with pros and cons
  5. Appreciate and concentrate on what the lenders require.

Medium Scale (Indicative turnover from Rs. 20 crore to Rs. 200 crore)

Now, the business is gaining momentum – products and markets are well established and growing. The volumes are all set to increase. There is a quantum jump in activities. Simultaneously, there is also a quantum jump in funds requirement. This is when the entrepreneur has to ensure that sufficient funds are made available for business (day to day operations as well as expansion). Following are the important aspects from a FA&M perspective:

  1. Slowly start identifying key aspects of FA&M and ensure right systems are in place as organization grows bigger
  2. Design and implement financial accounting systems for regular business performance reviews
  3. Create sound financial reporting systems which are transparent for all interested parties;
  4. Keep constant contact with financial markets for raising funds at competitive rates; and
  5. Ensure timely statutory compliances.

Do not forget that it is your own business and you know best as to what is needed in the overall context. Hence, always keep a close watch on various requirements – the absence of which can have serious repercussions. Know what you expect from everyone – communicate. Do provide a conducive environment and ensure each one delivers.

Chaitanya Shah is an SME financial and growth navigator. He can be reached at csshah01@yahoo.co.in / +91-9322232039