MyCFO helps companies to manage their cashflow process and also helps in operating cycle of distributor/ dealer linkages, negotiating terms on behalf of the distributor’s/ dealers. Deepak Narayanan, Co-founder and Director, MyCFO talks about the requirement of such services in the pharma sector with Usha Sharma
Tell us about the core business strategies of MyCFO?
MyCFO is a services brand in the implementation space working with companies across sectors, sizes and ownership types to help CEO’s, founders, CFO’s and venture capital/ private equity funds (for their portfolio companies) build best in class or improve the quality of the existing Finance systems. MyCFO’s core is to stay true to the ‘implementation’ theme and focusing on delivering ‘results’ or outcomes as opposed to being measured on time/ number of people involved. MyCFO is also embarking on a ‘productisation’ strategy where it plans to bundle a product along with its existing services. This is being tried out on a pilot basis for a couple of services across a few clients. The plan is then to launch this across all clients in the next six months.
What are the different services that you offer and how do they help companies in managing their cash-flow system?
MyCFO offers two services (a) CFO and (b) Finance Effectiveness services. CFO service is aimed at assisting start ups and mid-sized companies as their CFO. The role involves what a CFO typically does in a professionally managed company. Services include business plans including scenario planning, sensitivity analysis, defining metrics and MIS preparation, budgeting, cash flow forecasting, working capital management, dealing with banks, compliance and regulatory aspects, setting up processes, implementation of an ERP system, setting up of advisory boards, leading and managing investor relations amongst others. This is done through a ‘unique’ delivery model which entails looking at the CFO’s job as a role rather than a ‘resource’ which institutionalises the CFO function. The service is therefore not recruitment, neither merely placing on client locations nor temping.
The other service includes Finance Effectiveness which is delivered to mid to large Indian and multinational companies including the top 1000 corporates in India. Under the Finance Effectiveness service, we work with company’s CFO’s and the CFO’s office to improve the effectiveness of the finance function or transform the finance functions in certain cases. Services include setting up an enterprise risk management system, IFC including CEO/ CFO certification, implementation of internal audit findings, linking the distributors/ dealers in a FMCG company including pharma into the ERP, implementation/ re-implementation of an ERP/ BI, improvement in performance management systems/ framework amongst others. In recent times, cash flow has become one of the most critical metrics to measure in any company given that working capital cycles are getting tighter. One of the ways in which we manage cashflows better is by helping companies to manage their distributor/ dealer linkages better, negotiating terms better on behalf of the distributors/ dealers.
Organisations which have a complex supply chain mechanism particularly those in pharma, FMCG, and chemicals which sell through a distributor/dealer network require market related data to be able to do their production planning and manage their inventory levels. Market information relating to the regions, product type, SKU’s, discount schemes etc is used to predict customer behaviour. Most of the times this information is not available to the company at the level of the end consumer as the tracking stops at the level of the distributor. The other issue is the lack of linkages between the distributors’ data to the data available with the company resulting in loss of time in reconciliations. This makes it difficult to set credit limits for distributors, track inventory and receivable levels, track the benefit of the discount schemes thereby putting strain on working capital levels in the business. Some large companies and CFO’s have realised the importance of this exercise and have integrated the distributor systems to their ERP’s or rolled out the S&D module of their ERP’s to the distributors to allow them real time tracking. The other area where CFO’s play a vital role is in being able to play a part in on boarding new distributors or evaluating existing ones particularly in assessment of Return on Investment (ROI) of the distributor, working closely with them to ensure that their stock turns to the end customers are quick (improves ROI) and thereby encouraging them to pay quickly to the company (improves company’s cash flow). CFO’s have also partnered with the distributors and helped them negotiate with banks to extend ‘Channel Finance’ which allows them to leverage the company’s ‘balance sheet’ to avail working capital facility with banks thereby allowing companies to get paid immediately on raising an invoice (through bill discounting/ factoring) and allowing the distributors to buy more from the company.
The company offers implementation services to pharma domain as well, which is highly regulated and monitored, in such scenario, why do you think that companies need to have budgeting
Operating in a regulated environment especially in a market like India which is price sensitive and prices of certain drugs being fixed by the government makes it imperative for companies to budget since companies need to keep their costs under check. Secondly, budgeting also allows companies to chart out their growth plans a lot more clearly and establish a business case for new product introduction, foray into different geographies, ascertain RoI in case of setting up production facilities, budget for spends on R&D and its impact on pricing amongst others.
Besides pharma, which are the other sectors you are offering these services?
We are sector agnostic. We do a good mix of both manufacturing and services. We are excited about sectors like healthcare (healthcare delivery, diagnostic chains, and healthcare education), education, E- commerce, IT products, logistics etc where there is a lot of interest amongst investors
With the introduction of DPCO 2013 and constant changes in the prices of the essential medicines under the price control regime, what are the challenges you foresee for the pharma industry and what are your recommendations to overcome them?
The sector is regulated as far as prices of essential commodities are concerned. Essential commodities are going to be under the scanner all the time. Most multinational companies for this reason do not get some of the essential drugs to India until this is off patent which means they have recovered their investments and they believe it is safer to get it here given the propensity of such drugs being copied. This continues to be a worry as some of the best medicines may not be available. Indian companies need to spend a lot more on R&D and innovation. Social security in the form of insurance may also help companies get a share of the revenues that it currently does not have access to.
A majority of Indian pharma companies is into generic business and invest negligible amount on their R&D activities. According to you, why should pharma companies focus more on R&D and how it will benefit them in the long run?
The ‘value’ addition that companies may derive through discovery or through improvement is significantly higher than merely producing ‘generics’ that are either ‘off patent’ or a block buster which already exists. The price differential between a drug which is ‘discovered’ and a mere copy cat could be significant. Investment in R&D will not happen automatically as companies may not have enough to invest given the fact that traditionally most companies have taken the easier route. Availability of talent in India is another area of concern. Most of the talent required for innovation, research moves out of the country. Large companies are better positioned to access this talent. R&D and investment in world class facilities (approved by global regulators) also opens up a chance to export into developed markets where price realisations and receivable cycles are better. Banks and financial institutions need to come forward to assist companies which have a clear plan and demonstrate payback on the investments that they make. Maybe there is a need for the government to identify the areas where we need more essential drugs and extend tax benefits/ grants which then helps existing companies to develop new drugs. This will also allow them to create something ‘world class’ without having to worry about profitability/cash flows etc.