FUND MANAGEMENT SPECIAL: Money Matters

BIGGEST FINANCIAL
CONCERN: Fund generation and its management is the biggest concern
area for most solution providers.

MANAGING FUNDS: When
it comes to generating and managing funds, it really depends on the kind
of project undertaken and the time period for which it is done. Most of
our projects are those, which get covered within about a month. Since the
deal time is short, we actually manage the funding pretty conveniently.
Yes, when long-term projects are involved, especially those that go beyond
six months, payment problems could arise. This pertains to delayed
payments from the customer end. Of course given that we have a good
relationship with our bankers, it has not been a problem so far.

COPING WITH REAL LIFE FINANCIAL
CRISIS: We have thus far not encountered any financial crisis
situation. When we do large projects we get support from our distributors
up to a certain limit. Besides that, large projects involve payment in
dollars and these are paid directly to the principal and the distributor.
Our involvement would be only in the implementation of the project. So we
would have no role to play in the funding part of the project. Most
projects involve products and service. Service does not need any funding,
investments is required for selling hardware. To ensure that we are never
in a tight money situation, we speak to our bankers and ask for some
percentage of back up in the form of temporary fund support. This would
give us additional time for payment. Also since we have a good track
record in the business, our bankers have always given us ample support.

BIGGEST FINANCIAL
CONCERN: Generating funds for working capital from financial
institutions is invariably difficult as immovable collateral has to
pledged. Only those with a good track record can avail these funds without
offering such securities.

Managing Funds: Funds
from cash profits also cannot be used as a definite source due to the
accounts receivables turnaround time varies from 30 to 90 days. This is
therefore a priority. Several times due to competition, customers tend to
play partners against each other for the credit offered and this
intensifies the pressure on the solution provider. A possible option is
the bill discounting offered by various financial institutions. However
here the principals have to play a role for the banks to offer this
facility.

Instance of crisis IN COMPANY: No
significant instance so far.

BIGGEST FINANCIAL
CONCERN: Generating fund is a major concern area because banks and
financial institutions ask for collateral, which is a challenge. The main
assets for us are the knowledge we possess and the human capital. We do
not have much fixed assets in our type of business. Most of the banks
evaluate us on the basis of the previous year's performance and do not
recognize the growth during the current year.

MANAGING FUNDS: Our
overseas vendors do not give longer credit though many of our customers
demand credit from us. Sometimes, if the implementation gets delayed for
whatever reason, our payment gets affected. Despite this, our payments are
committed or paid in advance.

This puts us in a situation
wherein we have to depend either on our own internal generation or equity
funding or working capital, whatever the case may be. We are on steep
growth curve at present. Hence fund generation has assumed a major role.

COPING WITH REAL LIFE
FINANCIAL CRISIS: We faced finance crisis two years ago when a big
contract from a government institution got delayed, for reasons beyond our
control. We are yet to get major amount from them. We borrowed funds on
short-term basis assuming that the project would be completed by then,
whereas it has taken

more than two years. The bank that funded this project initially was not
willing to extend the support beyond a point.

This adhoc loan resulted in usage of our
working capital limits and became a bottleneck in further borrowing to
meet the needs of the growing business. Hence we had to pay the banks out
of internal accruals, which were meant for fuelling the growth of the
business. Even though we have to get major chunk from the government
institution we have paid up most of the borrowing for the project. This
has eaten up the reserves and pushed us behind by at least two to three
years.

BIGGEST FINANCIAL
CONCERN: Generating funds are the most critical concern. The best
options is to source funds from are venture capitalists, bank, refinance
or from internal sources. Getting money from private equity and venture
capitalists are very long drawn processes laced with many formalities and
legal implications.

MANAGING FUNDS: We
have a monthly cash flow that gives us the likely position of the company
at the month's end. The quarterly cash flow statement gives us the
status of the pending orders. We identify large pockets of shortages on a
week-to-week basis and keep a tab of the projects on hand and those that
are likely to come. The key issue is that funds that are committed to you
should come on time. If you keep on pumping funds into the company and
creditors are not paying on time, you will be in trouble. The best way out
is cut down sales to defaulting or late-paying customers.

instance of crisis IN COMPANY:
99% of the cause for financial crisis is late payments from customers.
Also unexpected orders, particularly during the year-end add to this
problem. These projects are executed by the end of March, but the payment
is realized in April or May. Then we have to resort to temporary loans,
also have to approach principals to reschedule the payment cycle. This
predominantly happens mostly with government customers. Corrective actions
should be taken at the right instance to avert any problem.

BIGGEST FINANCIAL
CONCERN: Unless payment is collected on time, it is not possible to
manage funds. How much ever you borrow from your sources, it's of no use
at the end of the day. Backlogging will always be there.

MANAGING FUNDS: It is
very important to plan your investment. Proper calculation is a pertinent
while managing funds and future fund generation. It is important to ones'
limit before making any investment. It is also safe to make investment
ventures with known people. Just for the sake of enhancing the top line,
one should not jump to anything and everything. One should properly
utilize his credit. Additionally, keeping and maintaining proper accounts
are essential so that the entire payment cycle runs smoothly and you know
your financial strength and position.

Personal instance of crisis: We
had done one networking project with the Eastern Railways in September
2005. The payment for Rs 1 crore has yet to come from them. Naturally this
has hampered our financial planning to some extent. Originally the whole
payment was to be cleared by November 2005. But till date we have received
only Rs 20 lakh. We are trying our best to collect the remaining payment
but are unsure about its retrieval as the authorities have some internal
issues.

BIGGEST FINANCIAL
CONCERN: Fund generation and fund management are the most critical
subjects in any business. When it comes to these two topics there are
several core concerns that one should take under consideration. Ideally
following these points would decrease problems related to fund management,
which is otherwise, a constant grave issue.

MANAGING FUNDS:
Firstly, it is very important for any solution provider to make a budget
of their full financial transactions, expenditure, etc. Budgeting cannot
be fixed and long term, flexible and short term; as one cannot control the
situation according to one's planning. Ideally, it should be a monthly
budgeting. There will be a deviation but it is important to analyze the
percentage of the deviation and why it happened and workout accordingly.
And you have to prepare monthly balance sheets. It is then possible to
assess that what has been spend and the remaining funds in hand. The ideal
situation is to collect the customer's payment before you pay to
creditors. But unfortunately this hardly happens.

Secondly, it is very
important to monitor the expenses, what is generally termed as cost
control. Thirdly, one must have a back calculation of his fund and a clear
picture of how much he can spend and on what, so that he need not, at any
cost, touch his working capital. This is very vital.

Fourthly, to manage finance
and accounts it is very important to appoint professional people to avoid
any miscalculation. Fifthly, before any further investment or expenditure,
it is very essential to know your own financial status, how much you can
spend and what is the right option of investment so that further fund is
generated.

Personal instance of crisis: In
our type of business financial crisis are common. Recently, one of our
customers deposited a post-dated cheque in our account of Rs 8 lakh and
there was a shortage of Rs 7 lakh. I instructed my office to intimidate
the creditor not to deposit the cheque for another two days. But due to
some delay on our part the PDC was deposited. Then I called up my banker
and explained him the situation. And as per their advice I mailed a letter
asking for some additional short-term fund to make-up the shortage and
instructed my office to reach the required documents to the bank. And thus
the situation was handled. But it wouldn't have been easy if my image as
a committed person who makes payments within due time was not in the
market. Therefore, it's very important to repay your creditors in time.

BIGGEST FINANCIAL
CONCERN: The core concerns is how to get best returns on the spare
funds. The other concern is how to maintain lower cost of funds, which is
practically achieved by two banks working capital limits.

MANAGING FUNDS: We
have laid down clear benchmarks for an efficient fund management. We have
more than Rs 5 crore as our equity plus reserves to work with
and have been adding to our reserves at an average of three to four
times our equity capital per annum. The question arises that
how we can extract best out of this reserve amount. We
work and improve on our receivables coupled with practically no limit on
credit for our billing from distributors. We also prefer to team up with
banks where effective return on our surplus is highest since it becomes
quite imperative to get best returns on your additional capital. This is
achieved by opting for sweep in facility to funds where income tax on
return (dividend) is nil vis-à-vis normal 35% on interest.

Personal instance of crisis: No
significant instance so far.

BIGGEST FINANCIAL
CONCERN: The core concerns we have to deal with are obtaining enough
money for a new venture, that too with lower interest rates. For this, we
prefer to go for bank limit rather than going for the option of loan,
which extends the scope of paying back the debt amount at our own wish.

MANAGING FUNDS: Maintaining
a good rapport with bankers coupled with swift money rotation is
predominantly an important facet of good finance management. Your own
credibility is the biggest asset on which one can bank upon to get
financing assistance.

COPING WITH REAL LIFE FINANCIAL
CRISIS: Everybody faces fiscal crush at some point of time that calls
for a very calculated and discreet approach. We have been fortunate that
we have never faced any acute finance crisis where we have not been able
to pay the salary of our people. However, last year we received a big
order from the Ministry of Defense for which we sourced material from our
vendor on a 30-day credit limit. But we didn't get payment from
government's Controller of Accounts within the stipulated period. During
that occasion to secure our company's goodwill I shelled out money from
my personal account to make payment to the principal.