[This is the second part of the 4 part series on Business Management.]
When it comes to finance it is not only about recording and auditing. Finance is about knowing the benefits that you gain by twisting and turning the reports. I am not talking about malicious practices but finding loop holes in the laws.
One of the biggest companies in India, Reliance Industries Limited, is made almost completely on its finances. The reason it has been able to flourish is because it knows how to present the expenses under the right heading. I came to know this through an able CA friend who says, “Tax law amendments are made by actually referring to what sections of the of the law RIL manipulated last year.”
A quick example in everyday life is that companies(employers) ask you to present medical bills of Rs. 1250 every month so that you get a tax free benefit of medical reimbursement, and not medical allowance, of Rs. 15000 every annum. You might call it unethical but that is the way your competitors have an edge over you.
Another example, one could sell stocks before the end of a year if you are in loss but if in profit, take it forward. Long term capital gain tax in India is 0, so you save 15% tax on your gains. Since the short term loss is accounted so when you sell your stocks at loss you might save tax on the ones you sold for profit.
Pricing of the product is also part of finance management. May be yours or the customers. If you say 10 % interest on Rs. 1000 loan you wont find customers but if you say Rs.100 processing fee for a 0% interest loan it would make better sense for the customer. According to his primitive brain it is not your profit he is paying for but the expenses that you incur because of him. This is a small example of how putting the right cost under the right heading could make a difference in perception of your customer and the taxmen.
Knowing the right government subsidies and provisions could give you a great competitive advantage in terms of production cost and price. Hiring a finance/tax consultant may not seem affordable at first but it would make all the difference.
Next: Machine (Production management)
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[Naman is a startup enthusiast and has worked with couple of Indian startups as Product Manager. He writes at The Inspire Blog]
I do not agree at all that tweaking nos help any company to survive for long. One may have some short term gain but in long term it is always be harmful. I am not against finding correct ways (legal and moral) for saving taxes, innovative pricing. I think finance is not just about numbers or tax savings but it is about investing right amount at right time. Finance guy always shows money meter to entrepreneur. Finance guy shows entrepreneur how his passion or he looks like in terms of money.
I am not sure Reliance is a good example to follow, because it is against the “spirit” of taxation. I believe it is all the more important to point that out to start up companies because, this when the founders are creating a corporate culture. Encouraging startup companies to find avoid taxes would set a bad trend.
There are many other positive examples: for example, it is believed that Infosys has been very upright in taxation issues. I would like to see startups to follow Infosys and other companies that also aid the country economically. I also believe startups should spend their innovative efforts in making a better product,service than to find ways to avoid taxes.
My two cents…