What are the problems faced by Indian small enterprises in accounts department?

Posted on 01 Jul 2019 07:33 in Small Business Hacks
by CA Prashant Khinvasara

This blog focuses on Indian MSEM and the problems faced by them in the Accounts Department, and possible solutions to resolve these problems. 

Women owners of Small Enterprises visited Shimbi Labs to understand and experience the advancement in technology and how they can use in their business.  


This blog focuses on Indian Small Enterprises and the problems faced by them in the Accounts Department, and possible solutions to resolve these problems. 


In India, Small Enterprises are defined under the MSME Act.
You can read here the definition of Small Enterprises under MSME Act.


Any proprietary firm, partnership firm, LLP or company can register itself under MSME act to avail benefits of the various schemes and subsidies provided by the government of India.

But today in this blog, I am going to focus on the various problem faced by the Small Enterprises from the Accounts and Finance Department perspective. More than 60% of micro and Small Enterprises either do not have the dedicated Accounts and Finance Department, or they have underperforming Accounts and Finance Department due to which enterprises face various problems which some times hits there bottom lines. 


7 most common problems faced by Small Enterprises in India.


1. Inadequate capabilities of staff  - In a Small Organization, many times, the staff are recruited for Accounts and Finance Department are less skilled and under-capable. This is primarily due to hiring cheap resources to save money. But such recruitment leads to errors in work, which in the long term is a cost to the company. Again significant time and money need to invest in training in improving staff capabilities. This problem, coupled with the lack of properly defined workflow and system documentation, may lead to operational and complains mess in these departments, resulting in significant financial losses.


This problem can be significantly resolved by hiring capable staff and continually training them.  


2. Over dependency on staff - Over dependancy on one or two staff members is one of the common problem faced by many Small Enterprises. Vacancies in the key position of in an Accounts and Finance Department may lead to overdependency on limited staff and overburden on them my leads to financial losses in terms of taxes, penalties or more serious compliance issues. Such problems can also arise some times due to the long holidays of the staff, especially during the audit times or at the time of answering some tax department notices will lead to an unnecessary delay to complete the task. 


Such problems can be resolved by setting up a proper system in place and making sure department function is system dependent and not overly human dependent. You can also try things like -  allowing holidays in rotation, so staff members are trained to take our work in others absence smoothly.  


3. Employee threatening to leave the job for salary hike - Very typical problem faced by Indian Small Enterprises where the employee is handling the entire department's responsibility single-handed and is working with the company over a more extended period of time. Here the employee becomes little possessive about his overriding power over the department. He does not have any substitute in the organization, or he does not allow anyone to be his substitute in his absence. Taking undue advantage of his position in the organization, threatens the company to leave the job for a salary hike.


Creating a secondary position in the organization and compulsory holidays to employees in the organization on a rotation basis along with system depend organizational culture may help to solve the problem in a larger extent.


4. Employee leaving the job on short notice - Another common problem faced by Small Enterprises is employee leaving the job on short notice, which leads to vacancies in the vital position of the organization which are difficult filled in the shorter duration. The normal functioning of Accounts and Finance Department will disturb largely or sometimes even collapse if an adequate secondary plan is not in place. 


Subordinate staff and established system with MIS can help significantly in such situations. 


5. Overpaid and under work staff - Some times, employees in the organization are overpaid as compared to what they deserve. These are those employees who are hired in situations like filling the vacancy created due someone left the job on short or no notice by some employees. In such cases, employees are overpaid as compared work they are handling.


Best way to handle such situation by creating hiring and promoting the plan and keeping data bank of the best talent in industry or keeping some consulting agency with you who can help continue your work till you get a best-fit employee.


6. Less use of MIS - MIS (Management Information System) is the output of effective Accounts and Finance Department of the organization, which helps the management to take appropriate decisions during the various phases of the business. In more than 75% of Small Enterprises, MIS (Management Information System) is either not present or not effectively used. 


Staff in this organization are unaware of what is MIS its importance for management decision. In smaller enterprises, employees are either busy with the routine task, or they are so overburdened with day to day activity that they do not get time to even think on MIS. 


Lack of awareness on the higher level may create further problems in the usage of the MIS. Adequate knowledge at all levels, continual training and daily usage of such information system at every level will bring, and all important and major decision making will be easy for management. 


7. Lack of guidance - There is a famous saying that 'Prevention is better than cure'. Today's taxation system is very transparent and interrelated. There is lots of information available at the fingertip to entrepreneurs and, but the same can be a problem, when a lot of information is available from different sources, it can quickly get confusing. 


While information is available on fingertips, but how to effectively use it is important. In such an environment, proper guidance from the consultants plays an essential role in maintaining and if required improving the admin and finance department functioning and implementing best practices. The consultant who can understand the need of your business, various taxes applicable to the organization and help your overall growth of the business in the longer run. 


In conclusion, Small Enterprise owners must resolve these issues as soon as possible for sustainable growth. 


Here are few takeaways-
1. Hire the right kind of people.
2. Pay them appropriately.
3. Train them regularly.
4. Always keep B plan ready for everything.
5. Setup process and develop MIS.


Hire a proper consultant and make use of correct software to achieve these suggestions. 

Do you have any queries, need help - write to me.


About the author

CA Prashant Khinvasara  
Partner in M/s Rao & Emmar, Chartered Accountants and advisor for Shimbi Invoice (India GST compliance).

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