Financial Advisors, the Guiding Lights for SMEs
During the pandemic chaos, they came in to salvage the situation by bringing in expert third-eye perspective
Remember those scenes from old Bollywood movies, in which, just when everything seems lost, the protagonist gets beaten up by the villain, the heroine appears helpless — suddenly from heavens above, the hero appears. Now replace the protagonist with entrepreneur, villain with the pandemic, heroine with business, and hero with the financial advisor. That’s the case of Indian industry, particularly SMEs, at this moment.
Just as the pandemic appeared to upend our businesses, in comes financial advisors to salvage the situation. So, what do they bring to the table? Experience, financial knowledge and a third eye perspective. What do they do differently? Well, a lot, actually. Think of the following:
Market Analysis: Timing business decisions from point of view of the market is important. Financial advisors study the market and advice whether it is time to pivot, as your existing business has met a dead end, or lay low and rationalise on costs. Or even look to take advantage of an opportunity and scale up.
Industry Analysis: “Growth rate” is the most critical parameter to determine the attractiveness of an industry in times ahead. Further, examining qualitative aspects using various frameworks including political, social, economic, technological, legal, environmental analysis, SWOT analysis and Porter’s Five Forces, among others, helps in understanding the sustainability of growth rate. Government focus and influence on that sector needs to be looked at too.
Performance Analysis: Last but not the least, it is important to keep analysing profitability statements at shorter intervals. A decision can then be taken if one should go ahead with the same business, pivot or go for a completely new one. This can be done with reference to the payback period or return on investment (ROI). It will also provide inputs of subtle changes that need to be made to ensure that profitability goes higher. A key element is to ensure business has enough working capital balance in these tough times.
Financial advisors examine situation in terms of the three factors of production — land, labour and capital. Land, ie, the location of a business, is better negotiated. The ones on rent ask for a reduced rental or a performance share-based contract. In some situations, even consider giving up the lease, if it is not critical. Those who own the land, can ask banks for structuring EMIs. Labour, ie, supply of staff/contractual workers is better organised and rationalised. Better facilities/organisation is created to ensure lower migration of labour out of panic. Local sources of labour are looked at. In case of capital, SMEs which were sound prior to the pandemic and had good financial statements, need only a better presentation to banks.
The fourth factor of production, perhaps the most critical, is the entrepreneur. The financial advisor plays a key role in showing him the mirror, playing the devil’s advocate, giving him comfort through guidance, and being a partner in his journey.
Necessity as the mother of invention is an old adage, but it holds true even today. Financial advisors look to be opportunists for the sake of their clients. Thanks to them, SMEs did better during the pandemic than larger MNCs on account of supply chain disruptions. MNCs dependent on global supply chains started looking inwards to find reliable suppliers in their neighbourhood, increasing the top- and bottom- lines of several SMEs. Several SMEs also relied upon innovation, by adding supplementary products to their offerings, either for immediate future or the long term, depending on markets they were serving. This alteration enabled them not only to survive but perform better. Some SMEs used their brand name and came out with their own product line catering to local markets. On account of supply chain issues, local markets started to look for solutions close by. Financial advisors look for such opportunities and quickly guide businesses towards these.
More than 50 per cent of Fortune 500 companies were born in recession. Your financial advisor may show you the direction.
The author is Founder & MD of MARC, a market research, analytics and business advisory company
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.