{"id":279,"date":"2020-09-02T04:53:23","date_gmt":"2020-09-02T04:53:23","guid":{"rendered":"https:\/\/www.cac.net.in\/blog\/?p=279"},"modified":"2024-10-11T16:16:10","modified_gmt":"2024-10-11T10:46:10","slug":"concerns-of-msmes-start-ups-post-covid-19","status":"publish","type":"post","link":"https:\/\/www.cac.net.in\/blog\/concerns-of-msmes-start-ups-post-covid-19\/","title":{"rendered":"Concerns of MSME’s & start-ups post Covid-19"},"content":{"rendered":"\n

At the closure of last quarter of 2019, most of the small business owners in India were bullish about their businesses, they were thinking towards expanding and growing in coming months. I remember sitting with one such owner by far the biggest manufacturer of white goods in Northern India, he was looking to relaunch one of the products with much fanfare in 2nd quarter of 2020, but that was his plan but with COVID-19 cases on rise, Indian government decided to have a total lock down and everything was put on hold, lock-down was like a bullet piercing through all the plans for MSME\u2019s in India.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

This year multiple MSME firms with less than 500 employees have already\nseen a huge shrunk in their business revenue. Small and midsize businesses are\nworking hard to grow their businesses, but analytics have shown to companies\nthat there are gaps in company\u2019s accounting or operational processes that in\npast have led to problems such as revenue leakages. Lost revenue is not\nsomething that MSME, can afford to ignore. For example, an organization\nmaking INR 50 Lacs in revenue can experience leakage of up to five percent, or\nalmost INR 2.5 Lac in preventable losses.<\/em><\/p>\n\n\n\n

Most of the business owners (MSME\u2019s) manage their costings single\nhandily and rely on their close coterie of family and friends who have helped\nthem while they were building up their business, but they do not cross check\nwhat are they loosing. Importance of developing a fraud detection and\nprevention system is very important. In most companies, fraud is identified\nonly after it had occurred, and the management was unable to prevent it on\ntime. Fraud detection is the best bet for eradicating it from the environment\nand preventing a recurrence and sending a strong message within the small\norganisation.<\/p>\n\n\n\n

Knowing your employees personally and feeling you can trust them with a\nlevel of autonomy is often key to small business success, growth, and\nliberating the business owners, from the day-to-day running of the business. As\nemployees who feel empowered by responsibility, are more likely to be\nproductive and have higher engagement with their work. However, the (often overlooked)<\/em> flipside of these trusting\nrelationships is the potential for fraudulent activity. Small businesses\nunfortunately, can be particularly vulnerable to falling foul of these trusting\nrelationships. The more informal systems of small businesses, with lower levels\nof checks and balances, are vulnerable to exploitation and misuse by employees.<\/p>\n\n\n\n

Fraud against small business almost falls into one of five categories:<\/p>\n\n\n\n

  1. False invoicing<\/em><\/li>
  2. Transferring money\nto another bank account<\/em><\/li>
  3. Cheque fraud<\/em><\/li>
  4. Payroll fraud<\/em><\/li>
  5. Theft of cash.<\/em><\/li><\/ol>\n\n\n\n

    Most of these breaches of trust are unsophisticated and carried out by a\nsingle person from within an organisation.<\/p>\n\n\n\n

    Small-business owners wear many hats at one time and push themselves and\ntheir employees to multi-task, and small companies are unlikely to have an\ninternal audit department. But these MSME\u2019s can take below mentioned small\nsteps which can minimize their risk and can highlight anomalies to identify\nfraud.<\/p>\n\n\n\n

    • Conduct\n crosschecks and audits<\/em><\/li><\/ul>\n\n\n\n

      MSME\u2019s should put crosschecks in place for deposits, bank withdrawals,\ninvoicing, and other key financial transactions. They should schedule regular\ninternal audits. If MSME\u2019s can afford they should hire an external\nprofessionally qualified auditor to undertake such audits. Employees are less\nlikely to consider or commit fraud if they are aware that the company conducts\nregular audits. It is always better still to conduct such audits specially if\nthat is a surprise one.<\/p>\n\n\n\n

      • Divide\n responsibilities<\/em><\/li><\/ul>\n\n\n\n

        Never let a single employee handle all or majority of financial\nresponsibility. Separate the financial functions between your team so that no\nsingle employee has complete financial access. Create and follow a concept of\nmaker and checker, where one person is making and another person is checking.<\/p>\n\n\n\n

        Most of the MSME’s keep their personal and professional accounts with\none person, most likely office accountant. It is always better to separate your\npersonal accounts from your business accounts.<\/p>\n\n\n\n

        • Use\n technology wisely<\/em><\/li><\/ul>\n\n\n\n

          Technology can be used and abused, even within a business. In my\nexperience I have observed numerous instances where a trusted employee\/s who\nhas access to the business owner\u2019s bank login details, including his personal\naccounts, to pay bills have misused them. All the major banks have the\ntechnology to separate payment creation and authorization functions. They do\ncharge a small fee, but using this system is cheaper and less stressful than\nrecovering in case you lose money to fraud.<\/p>\n\n\n\n

          • Due\n diligence of potential employees<\/em><\/li><\/ul>\n\n\n\n

            Even when you are excited about bringing someone new into your team, do\nyour homework. If you are hiring someone that will have access to company cash,\ncredit cards, bank accounts, company books and sensitive data, do a complete\nand thorough background check. Take help of a professional (if required).<\/p>\n\n\n\n

            • Monitor\n employee behaviour and annual holidays<\/em><\/li><\/ul>\n\n\n\n

              In my experience I have observed that most of the employees working with\nMSME’s seldom take a leave or ask for one. A loyal employee who has not taken a\nsick day or leave in years may seem ideal. Unfortunately, this can be a sign of\nhiding some form of fraudulent activity. Be aware of those who always start\nearly or work late and are reluctant to take time off. This is an alarm bell\nfor business owners, and they should take help of professional firms.<\/p>\n\n\n\n

              • Create\n a clear corporate culture<\/em><\/li><\/ul>\n\n\n\n

                Every MSME company dreams of becoming a big corporate but for doing that\nthey should have created a code of conduct, and a clear statement of company\u2019s\nattitude to fraud (including that employees found doing illegal activities will\nbe prosecuted). This sends a strong signal to everyone that you are proactive\nin the prevention of fraud for your business.<\/p>\n\n\n\n

                Although it is not possible to completely protect your business against\nbreach of trust, taking these steps is a good place to start. Being aware of\nyour vulnerabilities and creating robust systems is not only useful for\ncompliance, it is a great way to minimize the risk of loss through fraud.<\/p>\n\n\n\n

                Take\nthese small tips with you to become a smarter consumer and avoid fraud:<\/em><\/p>\n\n\n\n

                1. Inculcate KYC so\nthat you know who are you dealing with:<\/em> In any transaction you conduct, make sure you do a basic KYC and\nto cross check about the supplier partner, company, or organization and if they\nare credible and trust worthy. Be especially wary if the entity is unfamiliar\nto you. Always call the number found on their website\u2019s contact information to\nmake sure the number legitimately belongs to the entity you are dealing with.<\/li>
                2. Always make\npayments the safest way:<\/em> Usually\ncredit cards are the safest way to pay for any online purchase because you can\ndispute the charge if you never get the goods or services or if the offer was\nmisrepresented. And if someone makes unauthorized charges from your account, most\ncredit card issuers will blacklist them and will remove them completely if you\nreport the problem promptly with proof.<\/li>
                3. Always safeguard\nyour personal information<\/em>: In today’s\nevolving world personal information is like money kept in vault but someone needs\nto open the vault and take the money. Crooks pretending to be from companies\nwith whom you do business, may call you or send you a personalized email,\nclaiming that they need to verify your personal information. Do not fall into\nthe trap and provide your credit card or bank account information unless you\nare actually paying for something and know whom you are sending the payment to.<\/li><\/ol>\n\n\n\n

                  Always\nbe suspicious if someone claiming to be from a company with whom you have an\naccount asks for any personal information that the business already has.<\/em><\/p>\n\n\n\n

                  1. Stay safe while\nbeing online:<\/em> Do not share or send any\nsensitive information such as credit card numbers by messaging services such as\nwhatsapp or messenger or email because they are not secure. Look for clues\nabout security on web sites when you are asked to provide your financial or\nother sensitive information, the letters at the beginning of the address bar at\nthe top of the screen should change from \u201chttp\u201d\nto \u201chttps\u201d or \u201cshttp.\u201d.<\/em> Your\nbrowser may also show that the information is being encrypted, or scrambled, so\nno one who might intercept it can read it. But while your information may be\nsafe in transmission, there are no warranties that the company with whom you\nare sharing the information will store it securely. One needs to check what\nsuch web sites say about how your information would be safeguarded in their\ndata.<\/li>
                  2. Be cautious about\nunsolicited emails<\/em>: They are\noften fraudulent. If you are familiar with the company or charity that sent you\nthe email and you don\u2019t want to receive further messages, send a reply asking\nto be removed from the email list or just click on \u201cunsubscribe\u201d. However,\nresponding to unknown senders may simply verify that yours is a working email\naddress and result in even more unwanted messages from strangers. The best\napproach may simply be to delete such emails.<\/li>
                  3. Resist pressure<\/em>: Legitimate companies and charitable foundation will be happy to give\nyou time to decide. It is probably a scam if they demand that you act\nimmediately or won\u2019t take \u201cNo\u201d for an answer. Some scammers may also demand you\npay off a loan immediately or damaging consequences may occur, always take time\nto investigate who is requesting the money before you pay up.<\/li>
                  4. Avoid Shoulder\nsurfing<\/em>: Most of the startups work from cafes and use\nunsecured WiFi networks for their day to day work, fraudsters always keep an\neye and are look out for such individuals who are easy targets. Fraudster will\nsimply take a seat next to your and will monitor your moves and keep an eye on\nwhat are you doing. Shoulder surfing is a type of data theft where cyber\ncriminals steal personal information or confidential information by peering\nover the target\u2019s shoulders. This act is much more common than you would ever\nimagine. Always check your surroundings whenever\nyou plan to do a financial transactions in public.<\/em><\/li>
                  5. Do not believe\npromises of easy money:<\/em> If\nsomeone claims that you can earn money with little or no work, get a loan or\ncredit card even if you have bad credit, or make money on an investment with\nlittle or no risk, it\u2019s probably a scam. Often\noffers that seem too good to be true, actually are too good to be true.<\/em><\/li>
                  6. Fully understand\nthe offer<\/em>: A legitimate seller will give you all the details\nabout the products or services before selling the product or services,\nlegitimate companies will always provide you with total price, its delivery\ntime, how refunds can be generated and their cancellation policies, and\ncompanies terms of any warranty, contact your seller if such details are\nmissing. If they are unable to provide such details, you may want to\ninvestigate further or drop dealing with such partners.<\/li>
                  7. Activate DND (Do\nnot Disturb) and get off credit marketing lists:<\/em> Marketing caller lists offers pre-approved offers such as loans or\ncredit cards. Such data is goldmine for cyber criminals, who are ready to\npounce and steal them as they would like to apply for credit in your name. Get\noff such mailing lists and never share your phone numbers or emails with random\npeople or shops. Removing yourself from these lists does not hurt your credit\nscore or your chance of applying for and getting a credit card or loan when\nrequired.<\/li>
                  8. Check your credit\nreports (CIBIL) regularly.<\/em> If you\nfind accounts that do not belong to you or other incorrect information, follow\nthe instructions for disputing such line items. If you were denied credit\nbecause of information in a credit report, you can ask the credit bureau that\nthe report is not correct.<\/li><\/ol>\n\n\n\n

                    You can get your credit score checked on CIBIL, EXPERIAN, PAISABAZAAR\nand other websites online for free but I must share that even Experian and\nPaisaBazaar use these to build there own data which can be used as per their\nconvenience.<\/p>\n\n\n\n

                    What\ncan be done<\/em><\/strong><\/p>\n\n\n\n

                    Small and midsize businesses need to keep a very close eye on revenue\nleakage as they prepare for a stronger year ahead. The use professional firms\nand an enterprise resource planning (ERP) system can plug many of the holes\nwithin small businesses that currently rely on spreadsheets or manual forms to\nmanage invoicing, pricing, and expenses. There are five common contributors to\nrevenue leakage that ERP systems can help flag or eliminate.<\/p>\n\n\n\n

                    Incorrect\ndata entries:<\/em><\/strong> <\/em>It is not uncommon for manual errors to creep into invoices created\nusing spreadsheet software, for example, an INR 1,000 product is entered as\ncosting INR 100. If the order is for 50 products, and the error is missed, that\nrepresents an INR 45,000 loss in revenue. A professional eye or an effective\nERP system eliminate this type of error as the correct cost information flows\nfrom the sales order to the invoice generated.<\/p>\n\n\n\n

                    Unsent\ninvoices<\/em><\/strong>: Sometimes busy owners of small\ncompanies forget to create and send an invoice. And let us understand, if a\nclient does not receive an invoice on time, most likely he is not going to\nraise a hand to say, \u201cI want to pay you.\u201d An effective system not only\ngenerates invoices, which are date and time-stamped, it also reports on the\nstatus of invoices sent and receivables.<\/p>\n\n\n\n

                    Unclear\npayment time frames<\/em><\/strong>:<\/strong> An invoice manually created using spreadsheet may have the right\ndue date for payment. However, separate spreadsheets track the due date and\npayment status of invoices. Missing or incorrect information may result in the\nbusiness failing to follow up on collecting past-due payments. By contrast,\nbusinesses can take help of professionals or use of an effective system to run\nreports on invoices, due dates, and payments received to trigger appropriate\ncourses of action.<\/p>\n\n\n\n

                    Unmonitored\nprofitability<\/em><\/strong>: Top line\nrevenues may be increasing, but the bottom line can be hit by any number of\nfactors. Perhaps the cost of a component within a product has risen. Or despite\noverall business growth, products are not selling well. Or the cost of\nproviding a service is higher than anticipated. Effective understanding and\nenterprise systems can generate reports about costs versus revenues to help\nbusiness executives decide whether to reprice or retire offerings that are\nlosing money.<\/p>\n\n\n\n

                    Unchecked\ngenerous discounts or offering sales incentives<\/em><\/strong>:<\/strong> Discounts and rebates can be powerful tools for getting customers\nto buy upgraded product packages, make high-volume purchases, or auto-subscribe\nto services monthly. However, eager managers or sales reps risk making these\nincentives so generous that they cut too deeply into the business\u2019 profit\nmargin to be profitable. Understanding and analyzing these would provide an\nanalysis of sales, including any discounts or rebates, versus costs to help\nbusiness owners and executives come up with policies for offering incentives.\nEqually important, the system can then be used to enforce those policies, for\nexample, only allowing a discount of up to 15%.<\/p>\n\n\n\n

                    In the past, many small businesses found the cost, time, and effort to\nimplement ERP software too daunting. However, a newer generation of\ncloud-based, or software as a service (SaaS), ERP solutions has significantly\nlowered the time and effort to get up and running while providing affordable,\nmonthly subscriptions. As a result, companies that move from spreadsheets and\nmanual entry to a SaaS ERP solution to stem their revenue leakage realize\nbenefits within months rather than years.<\/p>\n\n\n\n

                    MSME\nsector of India is the backbone of Indian economy contributing to approximately\n45% of industrial output, employing over 60 million people, creating over 1.3\nmillion jobs every year and producing more than 8,000 quality products for\nIndian and Global markets.<\/em><\/strong><\/p>\n\n\n\n

                    With\napproximately 30 million SMEs in India, 12 million people are expected to join\nthe workforce in next 2 years. With this huge potential, backed up by strong\ngovernment support; Indian SMEs continue to post their growth stories. Despite\nof this strong growth, there is huge potential among Indian SMEs that remains\nuntapped. Once this untapped potential becomes the source for growth of these\nunits, there would be no stopping for India posting a GDP higher than that of\nUS or China and becoming the world\u2019s economic powerhouse.<\/em><\/strong><\/p>\n\n\n\n

                    Disclaimer:<\/em><\/strong> This\ncontent is meant for information only and should not be considered as an advice\nor opinion, or otherwise. The views mentioned are of author only and\nshould not be construed as an opinion, advice or otherwise of CAC. <\/em><\/p>\n\n\n\n

                    Article by Hurrmeet SG Vohra <\/p>\n\n\n\n

                    Director,<\/p>\n\n\n\n

                    Corporate Analyst & Consultant Private Limited<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

                    At the closure of last quarter of 2019, most of the small business owners in India were bullish about their businesses, they were thinking towards expanding and growing in coming months. I remember sitting with one such owner by far the biggest manufacturer of white goods in Northern India, he was looking to relaunch one…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[],"class_list":["post-279","post","type-post","status-publish","format-standard","hentry","category-covid"],"_links":{"self":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/comments?post=279"}],"version-history":[{"count":2,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/279\/revisions"}],"predecessor-version":[{"id":284,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/279\/revisions\/284"}],"wp:attachment":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/media?parent=279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/categories?post=279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/tags?post=279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}