Growth of Micro business.
Everybody dreams to be an entrepreneur. If have never come
across a student who has an ambition of working in 9-5 Job. But there are very
few who can really pursue that, and become entrepreneurs. Most of them fail and
give up, instead of learning from failures they accept it as their fate and
compromise with their dreams. As they say if some one 150 years back has not
dreamt for aero plane we would not have airplanes today. We go through growth
of budding entrepreneurs. These common traits they have determine their future.
Micro-businesses get much of their advice from family, friends, customers and suppliers.
Accountants are more commonly consulted for business advice than lawyers and
bankers.
1. Completion of high school was cited as a factor for growth
in the micro-business.
Perhaps surprisingly, college or university education was
discounted as a factor for
success. Age or sex of business owners did not affect
business growth. Nor was being an
immigrant a significant factor.
2. For
growth, being willing to delegate, assume risk, and share ownership all seemed
to be factors for success.
3. Expansion
of the local market was more important for growth than the export market
for the micro-business.
4. Willingness to innovate, invest and take risk in
automation and find innovative ways
of increasing their efficiency.
5. Having faced all weathers and storms
in their young age they slowly but surely establish their consistency and
presence in market and then move forward on growth trajectory. In the whole
process they get opportunities, investors and partners which further accelerate
their growth exponentially. In the initial stage of their startups, most of
them employ part time accountants to keep their books of accounts in place. It
is more from a statutory perspective than MIS perspective. Their priority is to
get the break even first. They have a PC which is initially used more for
letter drafting and sending crisp quotations as it is now a necessity to send computerized
print out. The PC brought has a pirated accounting system that is given by
their hardware vendor. The accounting starts being maintained in this system. This is their first step towards computerization.
As the business grows they go in for the license of the same system sensibly
since every body is aware of the system. Their flexible accounting system is capable of doing all accounting juggleries at
the year end. Tax evasion is one of the best business practice for them. This
may not be true all the time but this is what I have experienced. This hold
true till the business is personally looked upon by him in day in and day out administrative
levels. As the company grows, the owner has lesser time to look into these matters
daily. All this results in lesser controls and more of mistakes are done by
their employees. At the same time their business out grows a mere general
ledger system they need a better system that can handle their growing needs and
have controls at the same time. After couple of tax audits and queries when the
company ends up in paying penalty for tax evasion, most of them realize the
risk they have taken in terms of their credibility in maintaining window
dressing accounts. It is also possible that that business gets spread over
locations, they have factories or job workers at various locations. All the
locations maintain their own individual books of accounts and then integration
of all is a mammoth task. With audits and statutory reports frequency increased
you need a centralized system. The existing financial system is not meant for
disciplined they are more meant for arbitrary accounting with controls as the
last priority. This system is more from statutory presentation perspective and
not of personal guidance. With the growth in volumes you need to have only one
system. This is where you feel the need for a sophisticated system. Having
reached this stage one is out for a search of a better system.
He has following queries in mind.
1. What would be the cost of system?
2. Who will guide me for this kind of system?
3. What are the level of operators required to use these
kind of system?
4. What would be my hardware investments?
5. What would be one time costs and recurring costs.
6. Will it work at my place?
7. Will Big brands consider even demonstrating at my
place.?
8. How can I buy at best prices?
9. How do I negotiate?
A peek into major problems with existing systems.
As one grows there is a sudden realization in limitations
of existing systems. Let us go
through each of them.
1. Limited and Rigid: It is very limited and rigid.
You cannot have your information
fields which are required to be captured and hence you
have to refer to all documents every now and then. Many times it is required to
have a lot of information in your sales data and register which is asked by
authorities when it comes to scrutiny. Since the information is not captured
you have to depend on hard copies of documents, Now storing all documents is
not an easy task. So you end up wasting lot of space just to guard those
documents and retrieving it manually. It is not that in ERP you can just dump
those documents but you need them rarely as most of the information is
captured. In fact with the technology you can also scan the entire document and
link that with your entry. Secondly the time taken to retrieve this documents
is very huge and normally authorities don’t give you time. It is a nightmare
when you cannot provide information in time. Secondly one the authorities
realize you don’t have sufficient information you are dragged more in suspicion.
2. Compliance with old data: Many times vendors
come out with new versions which are rather fix or patch they missed out in the
old version. Not only they charge for the new version but they don’t even take
care about old data. Like one of our clients has been converted old version
data to new version and then later realizes that it doesn't have option to view
the FBT taxation option, when asked to their so called experts they were
answering that only new entries can calculate FBT. Creating new version is not
a big deal it should have a high compliance with old data. The new versions must
have a value addition on their existing data. Things which should have been
there in the first place are given later on as upgrades at costs. This is a typical
problem we have noted in most of systems.
3. Discontinue Support for Old versions: This is one
of the main malpractice that is
being followed by industry there are companies who stop
support for old versions and new versions are at cost. This is not clarified
when you buy a system. So the users ends up compulsorily pay prices for
upgrades whether they need or they don’t need.
4. Proprietary database: Most of the financial
accounting systems software data is proprietary. You cannot view the
data or use your own data for analytical purpose. Since the database is not in
legible format, it is of no use for you other than stick to the standard
reports that the generated by the system. Now you know better if everything was
perfect and fine you would never have felt a need for a better system.
5. Speed and data handling: It slows down as the
data increases. It does not support latest tools like email, SMS servers,
e-commerce compliant, etc. Since the technology is already available why not
make to precise and efficient to ensure minimal loss of time is passing
critical information most of latest systems have mechanism to send SMS
instantaneously from the data. Imagine a share broker sending stocks sales and
buy call to 500 plus clients just a minute before market opens.
6. It does not handle inventory in precise. This is more a fault of your own decision in buying the
system. The system which cannot tackle inventory can never give you powerful
reports that would help you out in day to day problems. The system you have
takes care of accounting only. In any business around 8o% of cash flow is
blocked in stocks and materials, so you need to maintain a strict control on inventory.
If you can just bring down your inventory levels by 20% then ERP has its money
back in first year itself. Example say your capital blocked in material is 50 lacs
per year. If you can just bring down that by 10 lacs. The interest costs on the
same and return on the same capital is manifold compared to the costs of ERP
itself. Not only from finance perspective it can be a life and death situation
in critical applications like a blood bank notice which we often find they are
running short of
blood of certain factor. Now needless to say all blood
banks are computerized but if this is a normal phenomenon it can save a life if
you have re-order levels report. You cannot imagine your business to perform at
top class if you don’t know the stocks or inventory information up to date.
Many times it can happen you cannot complete an order because raw materials
where not there. Or delay in shipments and deliveries because of improper
inventory levels. You have certain materials unduly stocked and important and
critical ones missed out.
7. There is little or no MIS, most of the MIS is from
Accounts perspective. As
explained above accounting function is just a fraction of
over all business. Accounting reports can be counted on finger tips like
registers, daybooks, ledgers, trial balance, and balance sheet. Now what MIS
you can get out of this 5-6 reports is limited. There is a lot of information
that is required for your day to day efficient process. It should be always
remembered that there are lot of hidden costs associated with in efficiency.
There are losses of customers, orders, and delay in completions delayed collections
which strains your cash flow and delayed payments which spoils credibility. So
we have come out of loop of accounting MIS and focus more on core functions of
businesses. You must have on demand information of inquiries, funnels, sales
men performance, outstanding orders, dispatches, production planning, stocks
status, deliveries outstanding, goods below re-order, goods above maximum
levels, etc.
8. There is no one who can train and implement the same. :
In India in popular
financial software are sold at prices not more than 10000
INR. They boast that as ERP also. Now all these systems are not sold by the
companies directly they are sold by channel partners or resellers, who in turn
have 20%-30% margins on the sale cost. Now if a vendor is not earning more than
3K per customer what sort of service and support and knowledge will he impart?
He cannot afford to spend more than aday at your premises. In many cases we
have found sellers themselves have little knowledge of the product they behave
more like delivery boys who install the system and go away. In the whole
process the only gain you have is bought a financial system at dirt cheap
price, but you would not be able to use the same to the fullest for ever since
you have brought a product and not a solution. The solution may be there in the
system but there is no one who would explain and teach you the same. This is a
common mistake which is made by buyers of a product. Software has to
brought more a solution and not as a product. The problem
is not with mere buying decision only, you cannot now afford to evaluate of
look for better systems and services
available in the market today. There is a tendency of buying cheapest and the
best. But one forgets that that in case of business system technological participation
is very less. It has more to do with the effort of Vendor and user.
Training and implementation of the same system plays a
critical role in getting desired outputs. Most of the time users are not able
to explain their needs, there is huge gap that has to be filled by some one who
just spends enough time with you and listens to your problems and then
translate the same into a solution.
9. With ISO procedures, there is a lot of systematic
recording of data that would be required and there is no trace of such
capabilities. If an organization plans to go in for ISO certification or
similar certifications of those standards then a lot a proper documentation and
record capturing is required. This is one of the prime requisite for any
certifications. Now the existing systems are not capable. You cannot have two
systems one for systematic data and another for statutory data. This is one of the
prime reasons out of box accounting systems fail miserably in delivering
sensible solutions as they are very limited.
These are not the problems with the old systems rather you
have outgrown that
system. You have a separate need of requirements which
never existed when you
started your company.
