23 February 2020

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Gearing up for Financial Planning

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Chaitanya ShahI am sure you would have read with interest the entire case study, in my previous article, (The importance of Financial Planning & Management) of our friend Mr.X in printing business and his Accountant Mr.Y.

In this article, I propose to share with you critical aspects of Financial Planning & Management – particularly from a Small & Medium Enterprises / SME Owners’ point of view and why most of the time they painfully fail.

What do you think where Mr.X has gone wrong?

Before, we proceed to the details; I would like to highlight 2 main points:

  1. All the STEPS mentioned below are not only important but cumulative and need to be followed in totality to get the results
  2. It is also to be understood that these requires Qualifications, Experience and Exposure to lay down proper systems to understand and appreciate the issues and come to solutions.

However, the Author’s (with 35 years of experience) considered view is that the above two issues are the main cause of SMEs & SME Owners failing in their Financial Planning and Management.

  1. Mr.X took the decision of buying imported printing machine based on emotions – spur of the moment.
  2. Mr.X did not take into consideration –

-        What is the total investment in machine?

-        From where to raise these amount?

-        How this amount will be repaid?

-        What is the additional expenditure including interest?

-        What is the likely increase in sales?

-        To what extent profits will go up?

These are the issues which Mr.X should have addressed before buying the machine.

  1. Decide on right source to raise money
  2. Having taken the decision – compare actual with all the above assumptions under 2.

The above is straight solution – however, SMEs have other related issues – which are more important. In fact, it is because of these reasons – SMEs and SME Owners’ are unable to take their business on right track.

  1. SME Owner, in most of the cases being Technocrat is not aware of above requirements. Hence, most of the time takes decisions on emotions and or incomplete information.
  2. Managing a business requires “Holistic & Balanced View” between various key business functions – like – Marketing, Production, Finance, Materials, Personnel, Accounts etc.
  3. Most of the time, Accounting Systems are not geared to provide timely and accurate information like Cash Flow, Profits etc. As a result, the SME Owner is taken by surprise time and again.
  4. SMEs need to appreciate that every function is generally divided at three (4) levels:

(i)    Conceptualizing framework – i.e. after studying the business one has to prepare a Blue-print of what is required to be done.  This is required for all key functions like Marketing, Production, Finance, Personnel, Materials etc.

(ii)  Having finalized the conceptual framework – it has to be fine tuned and implemented

(iii) After that it becomes formalized routine

(iv) Will require on going review for its compliance and review

Now, in context of above issues it is very important that SMEs and SME Owners’ must appreciate their short comings and take corrective measures to plug them so that their existence and growth becomes comparatively smooth.

  1. If business is large enough take the services of Senior Professional Managers to get the “Holistic Balanced View”
  2. Appreciate the need of “Functional Experts” so as to integrate the same with a. above.

These are absolutely must for any SME – particularly when it has reached a certain level beyond which it can’t grow on its own and requires external support or internal resources.

Mr Chaitanya Shah is the CEO of CKPP Associates - a Financial & Management Support Services. He can be contacted on  This e-mail address is being protected from spambots. You need JavaScript enabled to view it


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