Posted On 2023-08-01
Observations and Approach
The initial observations of the CFO Bridge team comprising of a Partner and Chartered Accountant were:
The Accounts team closed the books monthly and shared a P&L and Balance Sheet extracted from Tally. However, management was expecting a detailed analysis and insights to be shared to improve Financial and Operating performance.
There were considerable variations in monthly profitability, and there were no reasons provided for the variations, such as sales, product/channel mix, realizations, or higher/lower or one-time costs.
CFO Bridge Team started with a Competitor Benchmarking exercise on financial parameters. The financial analysis threw out several actionable points:
– Their Profit margins were way below competitors as productivity of their employees was low – The client had extended higher credit to its customers and had borrowed unsecured loans from the market at high rates
– The above factors resulted in the company generating returns far lower than its cost of capital
To address this situation, CFO Bridge began studying the systems. It made changes to capture client-wise project costs based on employees assigned to various projects
From month 2, it could now identify the Clients and Segments where margins were low for corrective actioning
Further, it could identify the costs of the employees working on various projects and generate a report identifying the cost of the employee & the Revenue generated by every billable employee. This revealed the outperformers and underperformers.
Further analysis of the financials of the customers of the clients revealed issues in the customer selection process. The client had many financially weak customers resulting in slower growth rates and credit extensions.
Subsequently, every customer was rated based on its financials and industry
Business is now growing by 50%, and Profit margins have improved by 4%
The Client is now focusing on financially sound customers, who can give them a larger share of business
Every employee knows the billings expected from him
Additional billing is done to clients for additional work
The high-cost unsecured loans have been partially repaid