MSMEs have been the backbone of a country’s economic growth. They are the major engine to propel economic growth and bring in investments. To say it very vaguely, around 70 per cent+ business falls under MSMEs category.

To accelerate the growth in the business environment the MSMEs growth is essential and in this journey all the stakeholders should play its role effectively and efficiently.

Easier said than done, we all go through socio economic and environmental uncertainty, volatility, technological disruptions and have to balance controllable and uncontrollable to run the ship. With meticulous study of the surrounding business environments and industry trends the leaders should have vision and formulate effective strategy to sail through challenging situations.

To drive and take the business on its growth path, chief financial officer (CFO) plays a major and key role together with other leaders of the company.

We say finance is the life blood of the business and the CFO is the steward to protect the company’s financial interest and ensure growth of business value.

CFO is the value creator, value preserver, value protector and he also plays the role of value distributor to promoter & shareholders.

With the awareness of knowing the inevitability of challenges and uncertain situations, navigating through these challenges to accelerate the business growth for MSME company the below mentioned roles would be critical for a CFO to play.

In a disruptive business environment these roles are even meticulously and effectively needs to be planned and performed.

Strategic Value Creation: Value creation is the key for a CFO. Strategic planning is essential in building value over a period of time, say 3 to 5 years and beyond and more so when we are operating in a disruptive business environment.

If a private MSME is striving for a growth to a next scale, this would demand a strong Long Range Planning process be incorporated where the CFO can play a central role in business partnering with all the divisional heads of the organisation. And a sustainable discretionary earning and cash production will ensure continuous value creation as a process.

With my own experience, there was a time when we had to tackle COVID and at the same time enabling remote working and been proactive with our thoughts and actions. And now it seems a norm with office work and remote work for a hybrid model where we had to strategically plan for enabling flexible working with security issues being addressed.

Hence, a lot of infrastructural investment goes behind that on cybersecurity, taking infrastructure to the cloud for better security management and needs strategic planning ensuring we maintain our margins.

Annual Budgeting Process: For the year planning the annual budget process is critical for business success. Budget shouldn’t only be seen as a cost control measure but should have a wholistic view of driving the business functions according to the plan and within the defined fund allocation limits. So, there should be justification if expenses exceeds budgeted amount and there should also be a justification if budgeted planned action is not performed. And periodical review process will help drive the business towards success and achieve the yearly goal.

Cash Flow Projections and Working Capital Management: Cash is king and to keep the business running smoothly on a day to day basis positive cash flow is must. For any deficit working capital the CFO should need to plan for sourcing credit lines, need to work on receivables and collections, and keep live other sources of finances and manage the treasury effectively.

At operational level weekly cash flow review helps immensely to circumvent obstacles and road blockers, enables proactive planning and actions.

Business Performance Management: Establishing Key Drivers to navigate a disruptive business environment is critical and who can be a better person than a CFO. As John Doerr said ‘Measure what Matters’.

If you start measuring business performance on key drivers, what matters to you the most, will enable a 10x growth and successfully navigate through the VUCA (Volatility, Uncertainty, Complexity and Ambiguity). Say for example, during COVID one of the affected industries is Hospitality, and one key driver of their business is Occupancy.

Now, to drive the business back, immediately after COVID lockdowns were over, quite a few wonderfully aligned the travel with wellness with the following of compliance preventive measures. That has worked significantly in bringing back the business and even now taking it to newer highs.

Risk Assessment and Risk Management: The CFO is the head of the finance function and the division, and it is imperative to ensure proper internal control measures are in place around the financial transactions. This will ensure the confidence and trust of the organisation and bestow confidence to face any challenging situation without faltering in the process.

Besides this CFO has to be on high alert on Cybersecurity front and work closely with Cybersecurity manager/Cyber security expert to protect information and data assets, protect confidentiality and Intellectual property information. Hence, risk assessment and risk management is a continuous process and a critical role of the CFO to perform to face disruption.

If the MSME is dealing in exports and imports, then foreign exchange risk hedging an essential role CFO needs to play.

Assessing and Implementing New technology: Business environment is facing major disruptions on the technological front. Everyday a new technology or a tool or a platform is emerging and that becomes really challenging to cope up with such frequent developments around. Regardless, a continuous study and a strong plan to adopt to newer technology can help you big time.

In the age of AI and ML, next level of disruption is inevitable. The question is, how we make our defence wall against this disruption. Here an important role for a CFO would be to strategically plan on significant fund allocation for necessary investment in the upcoming years (from a short term and long-term perspective) and in many cases it would be a fight for survival for many MSMEs.

One solace we can take however, is the big shots are with the financial muscle power can invest big time and they are generally the first adopter that we see for any new technology, but it would be a matter to time smart people around the world will make those technology cheaper to be available for MSMEs to adopt. So, CFOs have to be an active participant and play her role for that.

Cost Optimization and Profitability Management: This is a constant challenge faced by a CFO to improve on Corporate Profitability and ensuring this aligns and goes with the strategic business goal of value creation.

The CFO should continuously keep a project live by reviewing critical cost items, review business agreements, initiate negotiations with vendors, review items and check out for alternate vendors for cheaper rate with same or better quality and look out for rooms either for higher value and removing not required costs. This also demands process efficiency and automation, and by which cost optimisation can be achieved. Yes, the business needs to put initial investment on automation projects, lean six sigma projects, but in a short period of time, the benefits will reap its harvest.

Inorganic Growth Plans (M&A): A CFO needs to be constantly monitoring and looking out for opportunity to acquire or merger or joint venture to stay in the competition. And from scouting for such opportunity, building up the M&A model, deal structuring with scenario analysis, driving the due diligence process, assessing legal and taxation impact, ensuring the synergy, a CFO plays a major role in these business transactional functions. It’s not only about the acquisition, even at the event of divestiture, spin offs CFO takes main role to drive the processes.

Talent Development and Retention: Another challenge a business continuously face is developing and retaining talent in all facets of business functions. The CFO is no different to this challenge and plays a major role in developing & retaining talent in the finance & accounts division. We are observing higher attrition in MSMEs even when there were rounds of layoffs happening in bigger organizations. Attrition leads to a lot of business problems in losing out trained resources, higher spending on training, overall productivity loss etc. and impacts the bottom line adversely. Hence, CFO has to play a dual role of her own functional division as well as for the corporate in devising strategic plans to allocate optimal fund to address the Talent development and retention. The CFO takes a centre stage in driving retention plans, building innovative and attractive pay packages and closely works with the HR and the top Management in implementing those to prevent bottom line erosion.

ESG focused: Private MSME may not require to follow the ESG compliances, but in general understanding the terms of following environmental prevention practices, socially responsible behaviour and performing social responsibility and establishing sound corporate governance takes long way building a strong brand and a CFO can strategically plan on funding allocation to align with the company's growth and brand building.

This will impact the private MSMEs in a significant positive way in building business and support the growth.

On concluding note, in MSME sector, a lot of smaller companies generally remain engrossed with day-to-day operational activities by the promoter/owner, or the CEO and the forward-looking strategies goes into back burner because most of them are not urgent and there isn’t a CFO available on board who can take care and take ownership on these roles.

When there is so much of technological disruptions happening, a lot of uncertainties around socio economic environment the challenges would come on face as urgent if not taken care of on timely manner pro actively.

The advise here would be to contemplate on these aspects and if an MSME is not putting a lot of focus on these area, now is the time to act on it and take help of a CFO to drive these aspects.

Authored by Ankur Chakroborty, chief financial officer at Analytix Solutions