By Biswarup Gooptu & Arijit Barman, ET Bureau
Deepak Narayanan (right) of MyCFO helped Himani Kapadia of DigitasLBi with various facets of finance and accounting before the latter was acquired by Publicis
Indian companies, small and big, can now have a chief financial officer on call to do anything from accounts to company law, strategy to fund raising, report Arijit Barman & Biswarup Gooptu
In April 2013, Deepak Narayanan received an urgent call from Amit Dalmia, an operating partner in marquee private-equity firm Blackstone. A massive churn in the finance department of Gokaldas Exports, a Blackstone portfolio company, had seen many key exits. Critically, this included the financial controller, just before Gokaldas was to finalise its quarterly numbers.
A stranded Dalmia wanted Narayanan and his colleagues from MyCFO—which provides chief financial officers for temporary assignments— to help in the audit closure. Over the next five months, MyCFO did that, and more, in Goka
ldas: it also cleaned its management information system (MIS) reporting, data entry and inventory handling.
MyCFO had also prepped up another Blackstone investee company, speciality fragrance maker SH Kelkar, prior to the fund investing Rs 243 crore in 2012. The Kelkar assignment stretched for four years predating the investment—one of the longest for the six-year-old firm that Narayanan, a chartered accountant by training, had formed along with his first cousin S Venkat, another finance specialist and a former CFO himself.
Again, the engagement was deep and varied, spanning business cycles. “Till 2009, they were involved like a full-time CFO till the first round of external funding and even played an active role in due diligence at the time of getting our first PE investor,” recalls Kedar Vaze, managing director of SH Kelkar. “Thereafter, for two years, they did several projects, including implementation of Oracle ERP for our chemical business and assisted our professional CFO, who had come from HUL, in building budgets and designing MIS. In the run up to Blackstone’s investment, they also helped prepare the data room for KPMG to do an audit and diligence.”
A virtual CFO is, today, a reassuring reality for all kinds of companies. For bite-sized entrepreneurial endeavours, such outsourcing is about addressing a function that is, given their state of business, neither a priority nor a prudent full-time spend. For familyrun businesses, it’s a route to test the waters of professionalism. Even mid-tolarger sized firms are tapping external brain trusts to execute focussed assignments, a case in point being Hindustan Unilever using their services to rank its distributors on various parameters.
What’s In It For Companies
About a dozen such on-call counsellors have sprung up in the last few years, offering a host of C-suite services. There is MyCFO and IxCFO in Mumbai, Amplus Consulting and Alamak Capital in New Delhi, and Inspace Consulting in Chennai. Even some traditional accounting firms have diversified into this space. “While demand is still less compared to the west, it’s been picking up here as well,” says MK Tyagi, partner at Bangalore-based MK Tyagi & Co.
Outsourcing is at least 30% cheaper than hiring an experienced full-timer. MyCFO’s retainer fees ranges from Rs 1.5 lakh-7 lakh a month, with 20-25% of it linked to milestones. Typically, such engagements are for time-bound projects. While the sweet spot remains six months to a year, occasionally, they continue for longer, stretching to up to four years.
The initial drills of doubling up as the in-house finance controller with traditional accounting, MIS reporting, compliance and tax advisory have also evolved. Increasingly, CFO consultants are playing a change management role, plugging into issues CEOs grapple with: fund raising, strategy, treasury, business process improvement and supervising corporate governance standards.
For PE or VCs, they are must-haves in their Rolodex to scale up and streamline portfolio companies, especially in the first 100 days. For example, after investing in Sahyadri Hospitals, IDFC PE and the chain sought assistance to benchmark finance and accounts with best practices and to redeploy resources for better output.
Often, freshly acquired Indian JVs or multinational subsidiaries seek interim CFOs for post-merger integrations or a one-time rebooting of the finance function. “From playing a role in restructuring an organisation to preparing it for an IPO, or even steering it through mergers and acquisitions, we become the conduit between finance and accounting and the promoters,” says Rajesh Mittal, founder and MD of Alamak Capital, a two-year-old boutique investment bank that also provides CFOs to companies while paraphrasing strategic responsibilities. Alamak’s roster ranges from fledgling firms to midtier businesses with a Rs 1,500 crore turnover.
Prior to its takeover by French advertising and media giant Publicis, DigitasLBi (formerly VisualizeTechnologies), a digital agency, needed a retainer CFO. “We required someone with a deep understanding of various facets of finance and accounting like company law, taxation, in addition to just pure accounting,” says Himani Kapadia, its MD. “MyCFO had experts across various fields and we could draw upon their expertise, as needed. This would have been hard to find in one single person, had we made an in-house hire.”
What’s In It For CFO Firms
The existential realities of specialised human capital also come into play. The number of companies is growing faster than the basket of quality CFOs. Larger companies have the work, and the funds, to hire a full-time CFO. “But their smaller counterparts are fighting other battles to stabilise business models and do not always feel the need to bring in a high-profile CFO till they graduate to a certain level,” says Narayanan of MyCFO.
MyCFO has, so far, completed assignments for about 160 clients. Last year, the firm, arguably the biggest in its space, clocked over Rs 10 crore in revenues and expects to double it again this year. It has about 100 fulltime professionals, with experience of four to 30 years.
For more experienced CFOs, consultancy is a good fit. “There are many who, after having worked at senior levels for long, are unwilling to work under the constant pressure-cooker like situation often prevalent in a larger organisation,” says Praveen Nigam, MD at Amplus Consulting and the former India head of global advisory firm Grant Thornton. Consultancy gives them the scope to handle different projects.
According to Mittal of Alamak, his own stint as CFO—with Benetton, Hutchison and India Hospitality Corporation, spearheading many acquisitions and sale of fs—has been the “prime driver” for structuring CFO consultancy as a service. “The client gets far more confidence and comfort. We are not perceived as threats,” he says. “We can also quickly decipher gaps within strategy and finance function, and it comes quite naturally. We don’t come from a hardcore consulting background. Instead, we have been resolving problems first hand.”
Most CFOs-on-call firms have to sign non-disclosure agreements with clients. But they too put in riders. Alamak prefers its virtual CFOs to resist signing a company’s annual report, a move that protects them from subsequent scrutiny. “They do have the authority to sign contracts, but not the books of accounts. We avoid doing those functions,” cautions Mittal.