Virtual CFO Services – Need of the Hour

Virtual CFO Service provides businesses which have a finance / accounts team but does not have an in house CFO, who is the financial partner in the growth.

Having a full time professional CFO may not be in the budget of SMEs, start ups or sometimes the founders may not be confident of hiring the right kind of person for a CFO role due to lack of knowledge in the finance field. With the constant developments in the finance fields and the financial environment becoming more and more dynamic, start ups and SMEs are increasingly recognizing the need to have professional CFO services as they realize that managing accounts, finance, compliances, payrolls, corporate governance, reporting are a strategic value addition and not a mere compliance function.

The services Virtual CFO may provide are:

  1. Tax and Law Compliances:

As a start up or SME, company many times falter or overlook the miniscule law compliances which prop in day to day transactions. Such non-compliances make the accounts team relaxed due to inaction such non compliances start compounding over a period of time. Huge penalties and prosecution stand in the face of the management who have no clue whatsoever at that time and as a matter of fact also don’t have much choices or options to do anything else.  The common law compliances that most companies have to abide with are:

       a) Companies Act:

  • Statutory Audit;
  • Maintenance of Statutory registers;
  • Filing of various forms with the ROC
  • Related party transactions and their implications
  • Loans taken / given from / to Directors and implications thereon;

       b) Income tax Act:

  • Filing of Tax Return;
  • Tax Audit;
  • TDS – deduction, payment and filing of return;
  • Transfer Pricing Audit;
  • Related Party Transactions and their implications.

       c) Service Tax:

  • Recognition of liability to pay Service tax;
  • Taking of input credit in a proper manner and expiry period of input credits.
  • Maintenance of CENVAT register;
  • Filing for Refund of Service tax in case of exports:

       d) State VAT:

  • Recognition of the state where the VAT liability arises especially in case where the registered office and warehouse are in 2 different states;
  • Availing of input credit in proper manner;
  • Filing of Returns in timely manner.

       e) FEMA & RBI compliances:

  • In case of foreign investment;
  • In case of transactions with a related foreign party;
  • In case of Imports and Exports.

       f) Payroll processing:

All the labour laws like Provident fund, ESIC, Labour Welfare fund, Bonus act, Minimum Wages Act, etc.

       g) Profession Tax:

  • Annual payment of Profession tax by the company;
  • Annual payment of Profession tax by the directors;
  • Monthly deduction of profession tax from the employee’s salary.
  1. Management Information System (MIS) on monthly basis:

MIS is the bread and butter for the management when they want an overview of the financial health of the company. For most of the owners and entrepreneurs, accounting is more of a compliance rather than value addition. However, CFO gets behind all the numbers, analyze them in depth and offer reports to the management to give them insights on profitability, cost, various trends, payables, receivables and billables of the company.

A detailed MIS gives a executive report in the areas of:

       a) Profitability;

       b) Segment wise drivers of revenue and cost

       c) Debtors;

       d) Creditors;

       e) Cost;

       f) Other Balance sheet items.

It assists the management in taking the decisions on good solid facts and analysis and less on feelings, emotions and gut. They are able to channelize the resources and energies towards the avenues which are yielding them true profit and contributing towards the growth of the organization.

MIS offers the company report card for the past month and a road map for the month to follow.

  1. Setting up of Internal systems:

Setting up of Internal systems and having adequate internal checks and balances is very important so the management can trust that once a work order is in pipeline the same will be completed in a defined manner and any hassles in the same will be duly reported. Further it also helps in avoiding revenue leakages and have an efficient and effective accounting framework.

  1. Revenue Improvements:

This is a very important area of interest for the management.

       a) Firstly, all the areas of revenue are identified. The first area of revenue is your customers. Does your business target new customers or it works on customer retainership model. Do you want your old customers coming back or you want to spend more (say advertising) to bring in new customers.

       b) Analyzing your business model – high volume or high margin!

       c) Improving your revenue margins:

  • Pricing of your products;
  • Trends in profits margins;
  • Cost of labour;
  • Labour efficiency or inefficiency ;
  • Is it possible to increase the price of a product or lower the cost of resources?
  • Monitor the negotiating area with the suppliers. Once you start growing, the window of negotiation with the suppliers starts growing even bigger.

       d) Effect of new technology on your business – is it viable to transform your business to a new technology in revenue terms?

       e) Insurance:

This is one of the most ignored area in an organization. The management either tends to spend too much or too less on unwanted insurance policies.

       f) Cost of Labour:

This is usually the highest contributor of cost in an organization especially in technology driven start ups. The management tends to hire more and more in bid to present a rosy picture to the investors in respect to the size of the company and its potential. This results in more people doing a job of few. Also management in its foray to hire young staff turns up hiring inexperienced staff and end up paying them huge salaries with hardly any returns and sometime even negative returns.

However, in the long run the management must keep in mind that ultimately bottom line is what matters and should try and keep the organization as lean as possible.

Our team at LedgerPro provides solutions to all these problems and helps in optimizing profits to the companies. It is the need of the hour, especially for start-ups and high growth businesses.