Virtual CFO- Helping MSME elevate to next level

 

In the words of Mr. Bill Gates, "An important Re-Engineering Principle is that Companies Should Focus on their Core- Competencies and Outsource Everything Else." 

Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian Economy. They contribute around 6.11% of Manufacturing GDP and 24.63% of GDP from service activities. As per report published by IBEF, India has over 63.33 crores MSME. Further, registered MSME has recorded Compounded Annual Growth Rate  (CAGR) of 18.5% from 2019 to 2020. However, the contribution of MSME towards GDP has increased only marginally from 30.2% in FY2014 to 30.74% in FY2020. 

We understand that in order to increase the overall GDP of the country, we need to strengthen the backbone, which is in line with government target of increasing MSME contribution to 40% of GDP. 

In order to achieve the objective, we need to follow the words of Mr. Bill Gates and encourage MSME to focus on the core competencies and outsource other areas to the experts of the respective areas.

"In this post we analyze how CFO Service Providers or Virtual CFO can help MSME through handling areas of non core competencies"

Overview of CFO Service Providers (CSPs)

A Chief Financial Officer (CFO) plays a very important in managing an organization. A CFO has primary responsibility, for planning, implementation, managing and running the finances of the company. He is also responsible for ensuring compliance with rules, regulation and laws related to finances. 

CFO plays a key role in improving and maintaining company's financial health and organizational stability. 

However, MSME generally tend towards being promoter driven, with promoter or his family members handling major business operations including accounting and finance. This results in diversion of their precious time from their core competencies. Further, MSMEs are not able to appoint a CFO because of cost constraint. 

This is where CFO Service Providers or Virtual CFO can help the organizations with their expertise at substantial lower cost. 

A Virtual CFO is an individual or entity comprising of professionals offering Virtual CFO services as a team. CSPs are focusing on whether a company's business model and financial processes are fit for purpose today and more importantly if it is fit for the future goals.

Benefits of CFO Service Providers

Some of the Key Benefits of Appointing Virtual CFOs are follows:

1. Independence- As Virtual CFOs are consultants and not employees, they shall be more independent while guiding and navigating the management.  
   
2. Higher Skill and Experience- As Virtual CFO works in a team, they offer more skills and experience than a single individual
3. Continuity and Stability- As CSPs are provided by professional firms, they provide more stability and continuity to the business. 
4. No Geographic Limitations- CSP can function from any region, there are no geographic boundaries. So companies can hire best resources without any limitation. 
5. Superior Resource at reasonable cost

Key Risks for Companies without CFO/ Virtual CFO

The organizations which have no CFO are vulnerable to following risks which can be covered by appointing a Virtual CFO

1. Lack of adequate control system and weak processes. 
2. Wastage of resources, time and efforts
3. Missed opportunities for business
4. Loss of stakeholders, investor and client confidence
5. Exposure to unnecessary legal or tax risks
6. Lack of critical resource at required time. 

Key Reasons for Slow Growth Of MSME Contribution to GDP

The key challenges faced by MSME include the following

1. Low Availability of Finance and Credit Facility
   
2. Time spent in ancillary functions like Compliance, Accounting etc. 
3. Poor Infrastructure and Outdated Technology
4. High Cost of Production
   
5.  Unavailability of Skilled Manpower
   

Conclusion

Stepping Up and rising to next level of business is the need of the hour. Business looking for moving towards needs to have the experience and knowledge of field experts and appointing a virtual CFO can be first step in that direction. 

 

About Us

PSBS & Co. is a Chartered Accountants firm based in Mumbai. The firm is engaged in providing business consultancy services and has been carrying out various professional assignments in several specialized fields like- Assurance, Internal Audits, Risk Advisory, Direct and Indirect Taxation, Regulatory Compliances, Accounting and Management Consultancy.

We also offer collaboration for seamless transition of business through technology and transaction services.

PSBS & Co. takes pride in giving prompt, efficient and quality-based services to all our clients. Contact Us

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