Managing Cashflows

Posted On 2023-09-12


Observations and Approach

The initial observations of the CFO Bridge team comprising of a Partner and Chartered Accountant were: 

  • Inventory Valuation was a huge challenge resulting in a P&L which was not reliable. Implementing an ERP was not the immediate solution. This was resolved by designing an excel sheet to capture the inventory and its valuation.

  • There was a massive component of non-moving inventory lying in the Balance Sheet. This was primarily due to:

 a. Excess ordering for most of the project material, which was never included in the project costing. 

b. Lack of periodic physical verification of inventory due to which Orders were placed for inventory that was already in stock.

  • Project-wise profitability was based on standards, however, there were no reports measuring variance between standard and actuals  

  • The actuals costs were captured, and it was revealed that there was excess consumption of 4% in every project

  • After setting up the second plant, the mandate given to the Sales team was to get Orders at any cost  

  • The customers could pay post-delivery and many of them had delayed payments, and few had turned into Bad Debts

  •  The Customer selection process was modified to include financially sound customers, and payment terms were aligned with the progress of the project


    • The Client is now focussing on profitability and free cash flows as a critical business metric compared to Sales growth. Profits have improved by Rs 5 crs, and the same is used for business growth as compared to pursuing growth through high-cost unsecured loans. 

    •  The Client now has a pricing template in place, which includes the variable, fixed costs, wastages, and also the cost of credit. This also has the minimum profitability to be delivered on every project, below which the order is rejected. This has shifted the focus on profitable orders.  

    • The high-cost unsecured loans have been repaid. 

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