5 Practices Business Owners Can Adopt at the Beginning of a Financial Year

The start of a brand new financial year is filled with several emotions for SME owners, ranging from relief after the intense pressure of March, anticipations and excitement for the year ahead. Amidst these, business owners often don’t find the opportunity to celebrate the year that has gone by and the new financial year up ahead.

The new financial year is the only occasion that is of sole significance to an SME, whereas every other event, festival or celebration involves friends and family. It is that time when the SME can celebrate with their team the previous fiscal year that was full of learnings, experiences, peaks and troughs. The beginning of a financial year also presents a unique prospect to start over; SMEs can renew their enthusiasm and vigor as they make new business decisions.

Indeed, celebrating the new financial year can become an ongoing ritual for SMEs as it also helps establish a stronger workforce with a refined drive towards the company’s vision. To gain an advantageous start, here are some practices to ease you into the new fiscal year, so that you can look forward to bigger success celebrations at the end of it.

1. Set financial goals
Whether your financial goals are numerical or tangible, they should be defined in a manner that lets you evaluate if they can be achieved or not. These can be long-term, such as profitability, margins, sustained cash flows, etc. that may not be accomplished over the span of the financial year ahead or specific goals that are short-term.

For example, a retail store that has rented a space might learn that the building owner plans to sell the building eventually, and intends to acquire the space for further expansion. For a smooth sale without depleting the working capital, the retailer should have a clear sense of the cost of down payment, mortgage and additional costs. Based on this, they can create a strict budget for the year and stick to it. Another option is to avail collateral-free finance options such as Term Finance or Merchant Cash Advance that offers flexible modes for repayment.

2. Evaluate the scope of debts
The beginning of the year is the best time to assess the debts that you might have accumulated over the past years. Start by weighing each of your existing loans based on its cost, interest rate and other subsidiary factors such as prepayment penalty. Always ensure that the loan with the highest ticket size is repaid first.

Business finance is not often a liability-encountering measure, but also an instrument for growth, expansion and diversification of your business. If you have a promising business opportunity at hand and are reluctant to accept it due to a shortage of funds, this is when you should consider availing business finance. To determine the customized credit solution that best suits your business, check out Our Products.

3. Improve book-keeping
Unorganized compilation of financial records is the most recurrent theme for SMEs who let go of trickling financial losses, only to discover a gaping hole in its wake. Unexpected, unrecorded cash expenses often eat their way into the profitability of a business, resulting in a long-lasting impact that might take several years to recover from.

It is integral to maintain records of operational and financial performance, and the method you adopt to maintain these play a major role in determining the accuracy of the data. If you have been managing business accounts on your own, it is advised that you hire an experienced tax accountant or opt for an enhanced accounting software this fiscal year. This will keep you free to focus on other tasks, with the assurance that you one step closer to higher profits.

4. Plan for new partnerships
Large corporations can perform the role of different stakeholders to an SME; they can assume roles as business partners, product distributors or customers. Contrary to conventional belief, small businesses have much to gain by associating with bigger businesses that operate differently from the way the SMEs function. This ensures that the partnership remains fruitful for both the entities involved, and avoids situations where they find themselves competing with each other If you feel that your enterprise will benefit from such a collaboration to supplement time, logistical organization and resources, this new financial year is when you can make that move.

5. Identify a new customer base
For any SME, extending the outreach of your brand to a wide demography of consumers is instrumental to evolve into a larger organisation. If you envision a steady rate of growth, what best time to target a brand new audience than the start of the financial year? You can also think of ways to improvise your product or service for a high-potential customer segment that is less exposed to competition. At the end of the day, this is an exercise that promotes out-of-the-box thinking.

A sound financial budget prepared with the above points in mind ensures that you are better prepared to face the new fiscal year. Also, it gives you an edge over your competitors on several fronts, and getting a business finance partner for your needs becomes much simpler when you are armed with a well-calculated plan.

Capital Float exists to serve the unique business aspirations of ambitious SMEs like you. With a growing base of 80,000 customers in over 300 cities across India, we provide customized credit solutions for the diverse needs that you might have. Paperless loan application, minimal documentation requirement and quick processing ensure that you receive funds when you need it. Choose from our new, innovative financial solutions for FY 18-19 and get ready to #BreakLimits!

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Three Ways to Improve Your Business Credit Score

Small business owners often have to go an extra mile to ensure the consistent growth and success of their ventures. They must work hard in dealing with their customers and suppliers. They also need to come up with innovative ways to market their products and services. In their efforts to polish the customer-facing, technical and marketing aspects, small and medium enterprises (SMEs) often overlook the attention that their creditworthiness requires, which is vital to their chances of getting business loans.

If all goes well for the business and it is able to get a constant stream of customers, its position in the industry will be strengthened. This, in turn, opens doors for business finance from banks, conventional non-banking finance companies (NBFCs) and the new age NBFCs in the form of FinTech lenders. However, a few clever methods help in improving the prospects for business funding.

If you are an entrepreneur with a promising business idea that is backed by adequate possibilities for success, you must take it forward. To improve your chances of getting a loan for business expansion, here are the three points that you can pay heed to:

1- Make timely payments on your bills and clear outstanding credit 

Financial discipline is the key to success when you are managing a commercially motivated organisation. In business, you may have to make regular payments to your suppliers and vendors. These ought to be made on time.

With frequent delays on the payment of your outstanding invoices, you may hurt your prospects for being qualified for business loans. A late payment on bills can damage your financial records, particularly if it gets reported to business credit scores rating agencies such as CIBIL.

If you had missed a couple of payments, but later managed to catch up with the regular cycle, the delayed payments may have had some adverse impact on your credit ratings. However, the damage is not permanent. As credit scores are a reflection of activities over a period, it can take some time for the new data to set in and replace the older information. The credit score will gradually improve to reflect your eligibility for business finance.

The focus should be on making payments on bills before they are due. This is not only a good habit that will help your business get higher credit ratings, but will also improve your relationships with the suppliers and vendors. If you have severe financial constraints, you can use strategies such as invoice financing. (Link to relevant product page can be placed here)

In addition to the bills raised by entities dealing with your company, payments on credit cards and existing loans should also be made on time. Most importantly, keep all the receipts against payment safely in your records.

2- Use credit prudently

The FinTech revolution has given access to fast business loans and has made it convenient for SMEs to expand their presence in the market. If you can demonstrate the ability to use your loan for business wisely, it will only improve your business credit rating and will help you borrow bigger amounts in future.

Funds must be used for the purpose that was stated to procure them. If you have taken a loan for business activities – such as paying a vendor, buying raw material or inventory, refurbishing a storefront – it must be used accordingly. Do not use business finance for personal expenses. The mixing of personal funds with those for business can happen unknowingly at times, especially for start-ups and sole proprietorships, but the two should be separated as soon as possible. This helps in improving the credit history records considerably.

Another point to understand here is – if your business has credit accounts in good standing, but you barely use them, do not be tempted to close such accounts. They may come to the rescue of your business plans in future. What is more, the closure of any account trims down the total amount of credit that may be available for your company, and conversely, increases the ratio of credit utilisation stats – this change of numbers will negatively impact the credit score.

When the debt load is haphazardly scattered in multiple accounts, you should work on reordering it so that there are smaller balances on different accounts. Once you are able to make regular payments on them, it will gain you credit for paying off more than one outstanding balance.

3- Avoid taking hasty or risky decisions 

When you are managing a business and dealing with people from different fields every day, you will have your own experiences and learn to do things differently. Keep a vigil on the financial situation of your organisation even if you have hired accountants to manage your finances. Decide upon the figures that you aim to achieve and know what it will imply for the health, bottom line and future prospects of your business. This helps to maintain focus and financial discipline.

Avoid the risks that can affect your business credit scores. Some activities such as dealing with other companies of dubious nature not only harm your brand image, but also deter your business finance providers. Keep away from inherently risky operations that can cause financial stress in future.

Lastly, if you spot any mistake in your credit history records, do not hesitate to get it amended or inform your prospective lender. If you had paid off a bill in time but it was shown to be outstanding by the concerned entity, divulge the receipts to make corrections and prove your point. As a FinTech company offering quick loans to small and medium enterprises, Capital Float is on a mission to promote the spirit of entrepreneurship in India. Our process of evaluating the creditworthiness of a business is concise, lucid and clear-cut. It enables a high number of businesses to get timely funds. Capital Float also guides start-ups and growing companies in improving their prospects for bigger loans in future. Visit our website to find the best product that suits your business need.

Oct 24, 2018

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5 Common SME Financing Mistakes To Avoid

The SME (small and medium enterprises) sector is an important contributor to India’s economic growth. Even though their product or service may add great value for certain people, many SMEs face challenges. This is mostly because of the lack of research and planning by the business owners about the potential opportunities and risks of the particular niche in which these units operate. Many-a-times such businesses fail to make accurate assessments of their working capital requirements and, even when they do, cannot find ways to finance them.

Some common financing mistakes made by SMEs relate to whether or not to borrow, estimating the correct amount of SME business loan required, checking the full financing cost, the time wasted on getting a loan approved and the opportunity costs.

SME Financing Options and Some Common Mistakes

The Government and the private sector have taken several initiatives to increase availability of small business loans to SMEs in India. Despite the improved availability of SME finance, many units are still struggle with easy access to finance. This is mainly due to the lack of awareness of new-age, innovative financing solutions that are offered by FinTech lenders like Capital Float.

Here are the five most common financing mistakes made by SMEs:

1. Lack of Planning: One of the gravest shortcomings of smaller businesses is the inability to plan for the longer term. Business owners tend to get so involved with daily operations, troubleshooting and trying to complete orders that they fail to step back and look at the bigger picture. In the absence of a business plan, many SMEs do not foresee the amount of cash they would require to grow and expand. They suddenly find themselves in a severe cash crunch, unable to meet their working capital needs.

A sound business plan is essential for approaching a bank for a loan. Moreover, the ability to project a cash crunch or the funds needed to grow would allow SMEs to approach banks in time, since traditional lending institutions may take months before sanctioning the loan. This is where FinTech lenders have eased the situation. By deploying cutting-edge technology, Capital Float can ensure loan approval within hours. The use of powerful algorisms helps determine the prospects of a business, easing the process of loan approval. In fact, such lenders do not require a formal business plan for sanctioning SME finance.

2.Wrong Estimation of Funds Required: Most business owners feel anxious about overestimating their loan requirement and having to pay interest on excess funds. This makes them lean towards underestimating their costs. Thus, even when a loan is disbursed, these businesses are left wanting for more. Of course, the overestimation of the loan requirement hits the bottom-line.

What such businesses need is Capital Float’s Pay Later Finance product, which offers a Predetermined credit amount. While a credit amount is determined, based on the prospects of the business, the SME has the flexibility to transfer only as much funds, as it currently needs. Repayments can be made as the business generates money, and the repayment restores the credit amount, making funds available for future requirements.

3.Hidden Charges: Several lenders burden SMEs with hidden fees. These charges may be exorbitant and the business owner may not even know when they are levied. At Capital Float, perfect transparency is maintained, with no hidden charges. In fact, unlike most traditional banking institutions that impose a fee for the early repayment of a loan, there are no prepayment charges at Capital Float.

4.Choosing the Wrong SME Finance Product: Most SMEs turn toward unorganized moneylenders or traditional banking institutions to borrow money. These loans are not tailored to the specific needs of the SMEs. New-age lenders like Capital Float offer various SME business loans that have been designed keeping in mind the needs, business model and ability to repay of different businesses.

5.Trying to Arrange Collateral: SMEs sometimes put too much at stake to get a loan or do not borrow money in the absence of collateral. Capital Float offers small business loans in India without the requirement for collateral. One can also opt for a Merchant Cash Advance, which converts accounts receivables of a business to quick and usable funds.

Apart from these common mistakes made by small businesses, the timing of the loan approval and receipt of funds plays a critical role in the success of SMEs. Any delay in arranging the necessary funds can prove catastrophic for a business. This is mainly because SMEs often do not have sufficient negotiating power with their suppliers. They need to make payments for raw materials long before they can raise an invoice to their customers.

The rapid evolution of technology to address SME finance needs have revolutionized the lending space. The objective of FinTech lenders is to eliminate the liquidity issues faced by the SME sector by ensuring the quick approval and disbursal of the loan amount, while also making it easier for these smaller businesses to repay the loan. However, to make use of these advantages, SMEs need to be made aware of such options.

Oct 24, 2018

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Why SMEs should go digital

The Digital SME

If you’ve been reading the papers over the last year, you must have come across the words ‘digital’ and ‘SME’ on almost a daily basis. From the the ‘Digital India’ initiative by the government to cut red-tape, bureaucracy and dare I say even corruption, to the KPMG-Snapdeal report on how going digital (or selling online) has helped SMEs increase their turnover and profitability, there’s a lot of excitement in India about SMEs going digital.

Over the past few months I’ve been asking myself a couple of questions:

  • Do SMEs really understand what “going digital” means?
  • Do SMEs know what are the benefits of going digital?


Going Digital: What does this really mean?

Depending on which report you read, SMEs can sell products online for prices between ₹1500- ₹3000. So does this mean the SME has now gone digital? I think not. This just means the SME now sells its products online and therefore has a greater reach, which to be honest is a great achievement in itself, but the SME still has to adopt technology internally for it to go truly digital. A modern digital SME is powered by solutions that are spread across multiple functions: From Customer Acquisition to Risk Management to Operational Efficiency to Enabling/Empowering Workforce. Adopting new age technological solutions internally will allow an SME to achieve scale and more importantly operational efficiency at a lower cost. Some of the largest start-ups have managed to scale globally because they have successfully done this. Firms like Practo, AirBnB and Uber for example, have successfully incorporated technology in their internal processes which has allowed them to grow globally at a rapid pace.

The rapid growth of technology has given SMEs:

  • Access to Enabling Infrastructure through increasing device penetration and an enhancement in internet connectivity.
  • Availability of economically feasible enterprise solutions and services along with a thriving mobile applications (apps) ecosystem.
  • Customers who have adopted technology and ecosystems that are allowing this adoption through key initiatives.
     

Going Digital: Key Benefits

4 areas are likely to be directly benefited if SMEs adopt technology:

A) Customer Acquisition

Technology can be leveraged to access clients in distant geographies and create a greater visibility among target segments. Personalisation in engagement and customer relationships, for both new and existing clients, can be managed in a more efficient manner. The immense data that is captured using technology will allow SMEs to develop customer intelligence which will then allow them to optimize sales and engage with various ecosystems to open new sales channels.

B) Operational Efficiency

Automation and streamlining of core processes will allow the SME to become more efficient, reduce wastage and utilize resources in an optimal manner. This will allow them to enhance the customer experience and optimize their supply chain management through better visibility and control over logistics. With efficient processes in place, SMEs will be able to choose suitable potential partnerships that will fit their internal processes and not cause any disruption,

C) Workforce Enablement

Technology can go a long way in identifying workforce shortfall and identifying key areas of skill development needed within the organisation. A number of digital tools are now available for employees to collaborate and for the SME to monitor employee productivity. Web based solutions for skill development and training for employees will help the SME ensure that employees are empowered with new tools and concepts on a regular basis

D) Risk Management

With use of technology comes the responsibility to protect the information the firm has gathered. Data Security becomes paramount for customer/employee data as well as the company’s financial information. Digital solutions for preventing such leaks would strengthen the organisation. Technology can also be used to safeguard and monitor physical assets through the use of surveillance, asset control and tracking solutions.

There has never been a better time for SMEs in India to “go digital” and leverage technology to incorporate financially feasible solutions.

Akshay_Sarma

Akshay joined Capital Float after completing MBA from Judge Business School, University of Cambridge. Following 6 years with Deutsche Bank across various functions and geographies, he opened a French Italian bistro in India. At Deutsche Bank, Akshay worked across risk management, structuring derivative products, trading Indian government bonds and structuring and executing assets financing trades.
Akshay manages Capital Markets at Capital Float.

Oct 24, 2018