The CFO Bangladesh | DEC-JAN 2016-17 by CFO Connect Bangladesh

Rising in the organization through Competencies Development Chief Editor Md. Kausar Alam MBA(IBA), FCS, FCCA, FCMA

Editorial Pannel Khaled Mahmud Raihan, ACCA Mohammad Zahid Hossain FCA, ACMA, CGMA, CPA Mohammad Nazrul Islam FCMA, FCA Mohammad Shakawat Hossain Bhuyan ACA, ACMA, CGMA, CPA, QIA(UK) Md. Anwar Hossain ACA Farhana Sultana ACA

Publishing Director Mohammad Akram Hossain Siblee FCMA, FCCA, CPA

Published by: CFO Connect Bangladesh â&#x20AC;&#x2DC;The CFO Bangladeshâ&#x20AC;&#x2122; is a bi-monthly publiation of

Leadership development in an organizational perspective in a general sense is about passing through various positions, gaining experiences, grasping knowledge and experiences in various roles - starting from entry role to landing at the big turf of CFO to CEO and so on. The most challenging time for organizational leaders is often in the early days of leading and managing others. The biggest shift is from being a manager of self to a manager of others. The shift from only having to manage yourself to having to manage other people around you can be challenging, especially for young, inexperienced leaders. Once the initial leadership skills have been learnt, the progression to manager of managers and leader of leaders becomes much easier. Individual expectations as the leader as well as the goals of functions must be aligned with organization goals and strategic direction; more importantly, there must be dialogue to create alignment. In expanding leadership competence the organization must have absolute clarity on requirements and expectations of the various stakeholders of the leaders, including the articulating crucial emotional intelligence competencies and leadership capabilities best suited for the role. The Leaders need to develop their own leadership expertise including learning to build an effective leadership team, to manage the performance of others and to effectively delegate and develop others - hence they need to possess managerial coaching skills. In expanding organization competence, leaders have to understand the business processes that create economic value for the organization. Higher levels of leadership have to understand when and how to redesign these processes to accomplish the strategy as well as understand the capabilities needed to operate these processes. Good leaders make people around them successful. They are passionate and committed, authentic, courageous, honest and reliable. But in today's high-pressure and complex environment, leaders need a guide, a mentor, or someone they can trust to tell the truth about their behavior. They rarely get that from employees, employers or board members in the context of our developing world corporate environment. Professional friends, seniors,executive coaches can help leaders to reduce or eliminate their blind spots and be open to constructive feedback, not only reducing the likelihood of failure, and premature burnout, but also provide an atmosphere in which the executive can express fears, failures and dreams. For a new professional as CFO or CEO, the most important goal is to build momentum towards achieving priorities, the objectives the new leader wants to achieve within the near term. Success relies on securing early wins and laying a foundation for deeper change. The transition process requires a deeper assessment of organizational capabilities, and change that supports a more focused set of priorities. Following this learning period during transition, vision and coalition building are critical to success. Last not the least, one thing the leader must possessbefore starting the journey, is the vision to lead a function, the vision to lead an organization.

CFO Connect Bangladesh. Copyright 2016 CFO Connect Bangladesh all rights reserved. While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

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Md. Kausar Alam MBA(IBA), FCS, FCCA, FCMA Chief Editor

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Finance 2020 Workforce

From reporting the past to architecting the future.

Getting to Next Level

Academic qualification is not enough, and definitely not the peak of your career. A practical pragmatic understanding of leadership is essential to get to next level.

Insights of Financial Health

N K A Mobin FCA, FCS CEO of Emerging Credit Rating Ltd. explains how credit rating is adding value in the financial systems of a company and economy as a whole.

Professional Networking Essentials Opportunities to make connections

Be Pro-business Leader Rather Traditional Finance Leader Mahtab Uddin Ahmed, FCMA CEO of ROBI elucidates his experience of transition of CFO to CEO position as he was CFO of the same company before assuming the COO and then CEO role.

24 24

The Art of Valuation

Most, if not all, owner-managers have at one time or another considered the question: "How much is my company worth?"

Finance Competency Framework

Competency framework will help the aspirant leaders to develop and the organizations to attract talents with right “fit for purpose”.

New VAT Act

Challenges vs Prospect

Break Up With Your Job

A job is like any other relationship – when it’s good, there’s a reliable balance of give and take, and it’s bad, resentments and unhappiness can set in.

Matching Principle for Financial Management

Due to poor financial management, even a well established business can fall in financial crisis that can cause poor CIB status with overdue or classification status.

Top Lines

LAFARGE, HOLCIM START MERGER OF BANGLADESH UNITS Lafarge and Holcim have started the merger process of their cement companies in Bangladesh in line with their global amalgamation plan.World's leading cement makers, France's Lafarge and Switzerland's Holcim, merged in July last year to form LafargeHolcim, which owns the majority stake in Holcim Bangladesh. LafargeHolcim and CementosMolins of Spain together own Surma Holding, which is a majority shareholder of Lafarge Surma Cement in Bangladesh. Recently, Lafarge Surma Cement announced that it is starting discussions with LafargeHolcim to explore the opportunity of combining its business with Holcim Bangladesh.

A potential combination of Holcim Bangladesh and Lafarge Surma Cement is expected to create a significant synergy and further position both Holcim Bangladesh and Lafarge Surma Cement for future growth in Bangladesh. Any potential transaction will be subject to due diligence, assessment of synergy potential, as well as necessary regulatory and other approvals. Lafarge Surma Cement was listed on the Bangladesh stockmarket in 2003.Its net profit fell to Tk 228.95 crore in 2015, from Tk 281.98 crore a year earlier. Sponsors hold a 64.68 percent stake in the company, while institutions 14.33 percent, foreign investors 1.44 percent and general public 19.55 percent.

DOING BUSINESS INDEX – BANGLADESH IS TWO NOTCHES UP Bangladesh has gone up two places in the World Bank's ranking of ease of doing business. However, the country still ranks 176 among 190 economies in the study owing largely to minute improvements in the parameters of resolving insolvency and registering property. In the eight countries of South Asia, Bangladesh is only ahead of Afghanistan that ranked 183 in the “Doing Business 2017: Equal Opportunity for All” report of World Bank. Bhutan was the best in the region at 73, followed by Nepal, 107, Sri Lanka, 110, India, 130, the Maldives, 135, and Pakistan, 144. Bangladesh's distance to frontier (DTF) score, which is used for making the rankings, was 40.84 percent, slightly up from 40.68 percent of the previous report.Compared to its competitors in East Asia, Bangladesh did not do so well on the overall doing business ranking and on the DTF score. It has the lowest ranking as well as DTF score when compared to Thailand, China, Vietnam, the Philippines, Indonesia and Cambodia.

Key Stats

Every year the WB's Doing Business report sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations.The report tracks changes in regulations affecting 10 areas in the life cycle of a business: starting a business, dealing with construction permits,

BDT 21.3 billion Income tax was collected during tax fair

getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Bangladesh's grade slightly advanced on two indicators -- moving up by one spot, 185, on registering property and two places, 151, on resolving insolvency -- relative to the revised ranking of 2016. Even though the country's DTF score improved on starting a business, 0.02 percentage points, the ranking dropped by seven places to 122.The DTF score improved on getting electricity, 0.95 percentage points, and dealing with construction permits, 0.35 percentage points, but the ranking remained unchanged to 187 and 138 respectively.Bangladesh's ranking and DTF score remained unchanged in: trading across borders, 173, and enforcing contracts, 189. Bangladesh made the worst performance in the parameter of paying taxes, as the country's DTF score declined by 0.51 percentage points and the rank by three places, 151.The country also lost its position by five places to 157 in getting credit and one place to 70 in protecting minority investors. Somalia, which secured the last place, has been added this year.New Zealand topped the chart.

225 Percent

Global debt reached over world’s gross domestic product (GDP)

DIRECT LISTING DOES NOT ALLOW PRIVATE COMPANIES Private companies cannot join the bourses under the direct listing system, a regulatory measure to protect the interests of investors as well as the capital market.Direct listing is the process by which a company can be listed on a stock exchange without increasing existing paid-up capital or issuing new shares. Under the mechanism, a company can join a bourse just by offloading its existing shares to investors. Bangladesh Securities and Exchange Commission in a regulatory notice directed the twin bourses not to allow any private company to be listed directly. Only the government companies or state-owned enterprises can apply the mechanism. The regulatory directive comes after a private sector company, Aman Cement Mills, recently submitted a proposal to the premier bourse for direct listing, which was misused massively before the price crash of 2011.A government probe committee had found that before offloading their shares in the market, some companies inflated their stock prices by misusing the bidding system under the direct listing. The listing of companies with inflated prices affected the stockmarket, according to the probe committee report. Khulna Power Company was the last private sector firm to join the Dhaka and Chittagong stock exchanges in March 2010 through direct listing; trading of its shares began in April that year.Since the introduction of the direct listing system in 2006, five state-owned companies and five private sector companies joined the bourses by offloading shares. The government entities are: DESCO, Power Grid, Jamuna Oil, Meghna Petroleum and Titas Gas; and the private organisations are: Shinepukur Ceramics, ACI Formulations, Navana CNG, Ocean Containers and Khulna Power Company.

BDT 50 billion

NGOs of Bangladesh get as grant in every year.

BDT 3.9 Trillion Next year (2017-18) estimated budget size

Survey

Finance 2020

Finance 2020 workforce From reporting the past to architecting the future Survey summary of Accenture on finance 2020 workforce

Yet as digital technologies transform finance into an analytics powerhouse that derives insight from data, finance talent will need very different skills. Are your people ready to trade spreadsheets for scenarios and reports for recommendations? For finance to expand the business value it delivers and stay relevant—they better be. The eye of the enterprise The finance organization is a natural fit as the hub of enterprise analytics. Finance is the only group with complete visibility into business performance. Even so, Finance 2020—tomorrow’s digital finance organization—must earn this role or be relegated to an automated accounting function. Success hinges on finance talent. Together with analytical skills, the Finance workforce of the future needs an appetite for risk, a stomach for ambiguity, and the guts of a savvy business advisor. Attracting, retaining and building these skills means profound changes to finance talent strategy-because the work of finance, who does it and how, will never be the same. The machine era needs the human touch Automation, minibots, machine learning and adaptive intelligence are becoming part of the finance team at lightning speed. In fact, 30 to 50 percent of traditional shared services roles, including those in finance, will disappear over the next five years thanks to them. This steady influx of intelligent machines into the finance workforce will not overrun humans, but there is a tipping point for finance jobs on the horizon. As routine tasks become automated, finance professionals will be freed up to focus on more judgment-intensive activities. Some jobs will disappear, others will transform, and new roles will emerge.

Digital innovations such as artificial intelligence, collaboration technologies and advanced analytics are rapidly disrupting the Finance 2020 workforce. Traditional roles are evolving, and newer roles are increasing in importance. Traditional finance roles

Main impacts

Financial planning and analysis

The real work starts when you deliver the report or analysis: • Anticipating alternative scenarios, tracking their emergence and executing on contingency plans • Not just answering the “what happened” and “why did it happen” questions but also answering the “what should we do” questions

Financial controller

• Focusing on preventative and real-time control rather than relying on detective controls • Managing outcomes, not processes

Accounts payable clerk

• Focusing on exceptions as routine work is automated • Greater collaboration with other functions

Survey

Finance 2020

Emerging finance roles

New skills and requirements

Data scientist

• Ability to understand and manipulate massive volumes of data from internal and external sources • Detailed industry knowledge to pose the right questions of the data • Ability to combine market, operational and financial data into rich data sets

Scenario planner

• Ability to determine likely scenarios, the triggers for each scenario and the business impact of each scenario • Ability to run several models simultaneously

Market maker

• Ability to analyze new business opportunities and ways the organization can profit from them

Social/behavioral scientist

• Ability to model changes in customer and competitor behavior and describe the financial implications

Risk is not the enemy As the Finance 2020 organization provides deeper business insights, its relationship with risk will change dramatically. While finance must always maintain rigor and discipline around costs, cash and compliance, in the digital world, finance and business experimentation are not an odd couple. Digital technologies embed backend process controls that ensure accuracy and integrity early in the process, giving finance better data faster, and more room to experiment. This is about moving from accounting for the past toward architecting the future. Rather than focusing on the accounting close cycle, the Finance 2020 organization will triage risk and recommend course corrections in real time. There is power in expecting the unexpected But the Finance 2020 organization’s full emergence at the nerve center of the business is impossible without a radical mindset shift. The essence of finance is that everything adds up—that one plus one always equals two. This must change. The finance workforce of the future must be bold enough to challenge its own assumptions. This can mean accepting that projections must change because markets do. It can mean having the steel to go beyond defining project success factors to identifying criteria for abandonment. The renegades, not the rule followers, will drive finance’s evolution as a business partner. Preparing for tomorrow’s finance talent Building the talent to run a Finance 2020 organization will take time. But there is every reason to start today because change is already in play. Finance organizations should follow three fundamentals: Grow the impact—not the workforce. The new finance talent strategy must reinvent its organizational construct and roles to strike the optimal balance between activities performed by humans and machines. Finance organizations cannot do this without mapping out current skills, documenting future needs and identifying the gaps. Consider where to maximize the human impact and then reinvent roles, processes, development and performance management/evaluation. It is also critical to recalibrate expectations with today’s workforce. Finance talent must understand that from today forward, their job actually starts when the report is delivered. It must be clear that the value of their analysis is only as good as the business’ ability to interpret and act on it. They need to see themselves as stewards of the business, not just of the numbers. Seek diverse talent—in unexpected places. Hiring nontraditional finance talent means looking beyond business schools and the Big Four to acquire unconventional skills and capabilities. Doing this well is about rethinking evaluation and screening approaches to broaden the talent pool. Recruiting also must account for the millennial mindset. The opportunity here is to connect this generation’s passion for doing good with finance’s role as the gatekeeper of corporate financial integrity. Reinvent the culture—by welcoming rebels. In addition to leadership that sets the tone, finance organizations must thread specific practices through the talent lifecycle that encourage and reward thinking that rejects orthodoxy. This new thinking can be as simple as asking the tough, even unpopular questions. A renegade might ask, “Does the allocation of all costs to a business unit really drive increased accountability?” From looking backward to facing forward The finance workforce used to spend little time focused on forward-looking analytics. Such insight was limited to brief periods of calm between each accounting close cycle or budget season. Not anymore. Immersed in data, working side-by-side with intelligent machines, and delving into the gray areas, the Finance 2020 workforce is changing rapidly. It will not just account for the past. It will build the future of business. The future of work.

Feature

Finance Leadership

GETTING TO NEXT LEVEL M A IBRAHIM

Editor’s note: GETTING TO NEXT LEVELis a regular column for our readers by MA Ibrahim. He is a world-class expert in areas of Strategy, Family Business Governance and Talent Management. These regular columns will enrich our readers about various leadership and business related insights appropriate for top tier executives. “May you live in interesting times” – is generally believed to be an ancient Chinese saying, it may sound like a blessing, but this expression is always used with a sense of irony, with the hint that “uninteresting times” of calmness, peace and stability are better than the “interesting times” which usually witness too much change – often accompanied by chaos, conflict and unexpectedness. Today the world is changing at a speed unprecedented in the human history. There are many elements of chaos, conflict and unexpectedness. It is not just society, politics or technology, all the aspects and dimensions of our life are changing at an accelerated rate. So that “change”has become the new “normal”. Indeed we live in a VUCA world, which stands for, Volatility, Uncertainty, Complexity and Ambiguity. The whole world is being shaped and

disrupted by several powerful mega trends, like: 1. Shifts in the global economic power 2. Demographic and social changes 3. Technological breakthroughs 4. Rapid urbanization 5. Climate change and resource scarcity These powerful forces are here to stay and impact us. Bangladesh is not immune from all these too. For the C-suit executives, a new strategic understanding is required how the business intersects with all these trends. Most of us don’t feel comfortable with change because of the risk involved and the effort that it demands. We dread the unknown; relive the past forgetting that what we decide and do today is actually shaping the future. It seems that the “opposition” is our natural response to change, which comes in various forms – sometimes passive, or active, or a bit of both, it shows up in unconscious ways–in anger, blame, denial and so on. But this is absolutely a futile struggle that eventually ends up with acceptance. In all these changes what remain constant are our core values and

Feature

Finance Leadership

principles – such as integrity, fairness, respect for people, adherence to excellence and so forth. These are fundamental human values. If we lose these values, we will only weaken ourselves by not achieving sustainable success. So, it is far better if we learn to stop resisting and instead learn to embrace the change while remaining true to our values. The recent world events are some of the clear indications of the “tectonic” shifts that are happening. Challenges would suddenly arise–who would supply when a trade negotiation abruptly cuts off the global supply chain? Or how to reach the customers in markets which suddenly have become off limit? There are going to be significant structural changes– which will affect and reshape the global business system – from supply chain & global market access, to banking &currency, to industry attractiveness, to trade restrictions and to movement of labor & capital. Speaking in natural terms, this can be likened to the ice age phenomenon when meteorites annihilated the giant

dinosaurs. Business world, like the nature, are increasingly becoming more ruthless and brutal in selecting the fittest and fastest. Business dinosaurs are easy to spot. They freely roam the world in the pursuit of revenue and profit. They have become fatter, complacent, slow to respond and do not care much for the shifting currents. Often they are enjoying various incentives and guarded by protective measures. But they would starve and die without smooth supply chains and easy access to markets. So who are the smart companies who can outsmart the dumb dinosaurs? The smart companies closely watch customers and can find and create their own opportunities faster than others. They make it easy to do business with them while at the same time they have better control over the entire value chain. The smart leaders can disrupt and dictatethe entire industry - examples advertising by Google, phones by Apple, retail by Amazon, media by Facebook and so on & so forth. Smart companies move ahead in their industries by acquiring right talents, adopting appropriate “open” technology to have agile supply chains and extraordinarily getting access to more and more customers.

The reason that smart companies are seizing industry after industry from the “dinosaurs” is about how they make their strategy and execute it. They are very clear about the strategies they need in the new age. They love innovations, reward strategy execution and stay intimate with their ever demanding customers. They are internally more agile and nimble than the external world. The legendary CEO Jack Welch once said, “When the rate of change outside is greater than the rate of change inside, the end is in sight.” The dumb and smart companies both prove him. The growing intersection of business with technological, socio-economic, and geopolitical dimensions has to become a central part of new business strategies. The C-Suit leaders must be open totake up and challenge scenario-based approaches to develop several options, better preparedness, and higher resilience. There has never been a more “interesting time” to be a CFO than now. This is the time to prepare for and assume, additionally, the strategic leadership role to guide andsteer the business in the right direction amidst the sea of change. [The author can be reached at ibrahim@statureasia.com]

Interview

CEO - Emerging Credit Rating Limited

Interview

CEO - Emerging Credit Rating Limited

INSIGHTS OF FINANCIAL HEALTH Emerging Credit Rating Limited is one of the leading credit rating agencies in Bangladesh. Managing Director & Chief Executive Officer of the company N K A Mobin FCA, FCS explains how credit rating is adding value in the financial systems of a company and economy as a whole.

In view of weak governance practice in majority of companies, how does credit rating contribute in strengthening the financial systems in Bangladesh? Credit Rating provides various benefits mainly in the area of giving insight on financial health of a company. Since financial risk analysis is a major component of a credit rating report, reading the report will give the user an idea how sound the financial health of that particular company is. Another benefit of credit rating is “comparability”, such as when two companies or obligor operating in the same industry is rated and the grades are presented to an investor; simply by taking the grades into account the investor shall understand which obligor has higher risk. That is why credit rating is particularly helpful for an issuer with little or no credit history (new company or a company which never borrowed before), as less well-known issuer gains market access by having information and analysis of their credit widely available on a comparable basis. How does CFO could harness the benefit of credit rating rather to see it as a regulatory requirement or tool for reduction of risk weighted assets of lender/bank? A high quality report may be very advantageous to a company’s CFO because if he provides detailed information about his company during the preparation of his credit rating report, then that credit rating report can interpreted as in depth secondary review of his overall strategy conducted by a

team of highly skilled financial professional. Our experience in Emerging Credit Rating (ECRL) there has been numerous times when ECRL has discovered key flaws in a company’s strategy which was not discovered in the in-house review, which greatly benefitted the company in the long run. For this very reason it is always advisable that while choosing a credit rating partner a CFO should always keep the quality of analysis into consideration first then the rating fee. The reality is “better quality demands higher fee and vice versa”. Globally Credit Rating agencies are playing very influential role and their decision/forecast about a company is very price sensitive in share market, why credit rating agencies in Bangladesh are yet to exert this influence in financial sector? Well it is not entirely true that credit rating agencies in Bangladesh are not exerting influence in financial sector because if a company with loan opts to go for Initial Public Offering (IPO) then the company needs to submit its credit rating to BSEC and is required to publish the credit rating report as a part of its prospectus. In addition the company also does not get permission for IPO if it does not have a good credit rating grade. But what we can say is that credit rating agencies in Bangladesh do not have as high influence compared to global credit rating agencies. This is because credit rating is fairly a new concept in Bangladesh and most private investors are not aware of its benefits. In order to combat this issue for past five years, ECRL has been holding various seminars to educate both institutional

and private investors. We are also trying to make the regulators understandable that credit rating should be mandatory for all publicly listed companies on yearly basis as the Audited Financial statements does not have any scope to provide opinion beyond the financial statements of the company like market, regulatory environment, compliance, management and most importantly the futuristic projection/results. In last few years Bangladesh Government has been annually doing sovereign credit rating, how sovereign rating is crucial for economic development? Is there any effect on business houses from sovereign credit rating? For countries that take out loans or to buy sovereign bonds, a rating downgrade has negative effects on their access to credit and the cost of their borrowing. This could potentially force a government to have to borrow money at a higher interest rate and thus scale down its plans for economic development. An article name “How do sovereign credit rating changes affect private investment?” published in Journal of Banking & Finance on September 10, 2013 indicates that countries experience significant declines in their private investment growth following downgrades in sovereign ratings. However, the declines are temporary and occur only in the downgrade year and in the following year. After that, private investment growth exhibits no significant changes. So from this research it can be concluded if sovereign rating of a country

Interview

CEO - Emerging Credit Rating Limited

“We are trying to make the regulators understandable that credit rating should be mandatory for all publicly listed companies on yearly basis as the Audited Financial statements does not have any scope to provide opinion beyond the financial statements of the company like market, compliance, management and most importantly the futuristic projection/results.”

decreases than the local business houses are likely to decrease its investments in short term but in the long run there should not be any effect. Bangladesh, having BB- with stable outlook, is a good place for investors to invest compared to some other Asian countries (Bangladesh is at par with Vietnam and Costa Rico and above Pakistan and Sri Lanka but below India). (Ref S&P).

to go down which in turn also decreases the quality of the rating.I feel regulator has a great role I this area and evaluate the market and rating output and take corrective course of action. On the other hand the client should also be ready to pay proper fee for getting a proper/ quality report. I also believe with a structured fee the Credit rating companies must ensure minimum quality in the reports.

Recently few commercial banks have done their credit rating by international rating agencies, what is the significance of doing rating by international agencies than local agencies?

Credit rating is relatively new in our financial sector. What are the challenges you (Emerging Credit Rating Ltd.) have been facing to establish strong foothold in rating industry?

Credit rating done by international agencies may give a local bank an added advantage while bargaining with bilateral and multilateral sources from whom it borrows in foreign currencies. The better rating will obviously improve the bank's image, reputation and visibility, both domestically and internationally. But it should be noted that international credit rating agencies have their share of criticism, it has been criticized that the ratings it assigns are based on fixed documented standards and agencies does not adjust its methodologies while rating banks operating in different economies on the other hand methodologies of Domestic Credit Rating Agencies (DCRA) like us are tailor made for the Bangladesh economy. So it is advisable that if a company opts for international credit rating, it should also employ a domestic credit rating agency along with them and compare the two findings in order to get an accurate picture. Legally for local business purpose international rating agencies are not allowed to do the job. So whatever rating is done by few banks internationally are purely for sole purpose of their international transactions demanded by the lenders. Currently eight credit agencies are operating in Bangladesh. Do you think increase in number of rating agencies affect the quality of rating work? United States of America, a country with GDP of $16.722 trillion (2013) has 10 nationally recognized credit rating organizations whereas Bangladesh with a GDP of $161.76 billion has 8 nationally recognized credit rating agencies. This shows that Bangladesh already has more credit rating agencies than required which breeds unhealthy competition and forces the market price

One of the major challenges which we face is lack of information. In Bangladesh the quality of publicly available information is not very good and in fear of data theft, the companies are reluctant to provide extensive data to credit rating agencies. In addition record keeping of local companies are very poor however imposition of banking and various association rules to some extend have tutored local businesses to maintain a certain set of paperwork which needs to be further refined to help the flow of information and its visibility. The second most challenge what we face is undercutting of rating fees by the rating companies by down grading the quality of work. Company management particularly CFOs should be more alert in this side. As mentioned earlier they must not always look for cheaper cost by compromising quality. A Wrangler or Levies Denim cost is not same in USA and in Thailand or Bangladesh. Price will be different due to quality of those in those markets. I can definitely tell that all CFOs know very well that Audit fee of a big four firm will not be the same of other small firm in the market. How would you characterize the regulatory framework in Bangladesh? How important is the regulator’s support in credit rating industry? For Domestic CRA of Bangladesh’s regulatory agencies and their guidelines are listed below: a. Bangladesh Securities and Exchange Commission Bangladesh Securities and Exchange Commission (BSEC) has been one of the prime regulators for CRA, along with the authority to issue license and quarterly monitoring of CRA’s, it also oversees the compliance requirement and rules laid down by Credit Rating Companies Rules 1996.

Interview

CEO - Emerging Credit Rating Limited

“Emerging Credit Rating Limited has invested heavily into building a reliable data mining team and software, which will exponentially increase the efficiency and quality of the report at the same time shall decrease the cost of the making each credit rating report.”

b. Bangladesh Bank Regulations Credit Rating Companies are also being regulated by Bangladesh Bank through various circulars policy and guidelines. To perform credit assessment, credit rating companies must be recognized as an External Credit Assessment Institution (ECAI) under the Risk Based Capital Adequacy Framework (Basel II and Basel III) issued by Bangladesh Bank. c. Insurance Development and Regulatory Authority Bangladesh (IDRA) For credit rating assessment of insurance companies, the respective regulatory authority is Insurance Development and Regulatory Authority Bangladesh (IDRA). To perform credit assessment, credit rating companies can be recognized as a Credit Rating Institution by IDRA. Circular of Chief Controller of Insurance No. 21/21/98-376 dated 27 March 2007 requires all general insurance companies to get credit rating assessment once a year and all life insurance companies to get credit rating assessment every two years. It is very important for regulators to monitor the credit rating industry because if the industry is not monitored properly then some credit rating

agencies may take advantage of it and may award inflated grades to dubious companies which will spell disaster for the whole industry.Regulators’ support is also required in case of proper evaluation of requirement of CRAs in the market before awarding new licenses. Do you anticipate changes in the Bangladesh business landscape in the years ahead? If so, how is the Emerging Credit Rating staying ahead of the curve? I believe Bangladesh has stable macroeconomic condition and GDP growth is likely to increase in the future. However credit shocks in the banking system continues to be an important factor which hinders growth. Weak bank balance sheets and governance in the State owned Banks limit lending capacity, divert credit away from productive investment, and impose large fiscal recapitalization costs. High levels of non-performing loans and the high rates on national savings certificates increase banks’ operating and funding costs, keeping interest rates high despite large excess liquidity. Keeping this scenario in mind Emerging Credit Rating Limited is in pursuit of making a strong brand name by

providing credible superior and quality report. I anticipate increased level of nonperforming loans will make banks more cautious and shall rely heavily on more compliance and thus quality credit rating report. For this very reason Emerging Credit Rating Limited has invested heavily into building a reliable data mining team and software, which will exponentially increase the efficiency and quality of the report at the same time shall decrease the cost of the making each report. How does your background in corporate finance assist you as MD/CEO of Credit Rating Company? My background in corporate finance as CFO and in top management position is a great advantage as being a CEO of a Credit Rating Company. My finance background definitely helps me to understand the business, finance, risk and compliance very well as required in assessing the credit worthiness of any organisation. It helps me to understand the various directions given by the regulators and at the same time I can personally asses the quality of the reports. It also helps to guide the roadmap of our services when youknow what’s possible and what’s not.

Feature

ACCA’s New Qualification

SHAPE THE FUTURE ACCA launches innovations to its qualification to shape the future of global accountancy

The world needs strategic forward thinking, ACCA (the Association of Chartered Certified Accountants) professional accountants more than ever, to grow economies, keep them stable and help them develop. Accountancy is vital for econo-mies to grow and prosper – a strong profession makes societies fairer and more transparent, and therefore more accountable. In all sectors, professional accountants contribute to the success of their organisations which in turn strengthens their national economies. This means that the role of the professional accountant has never been more exciting, more challenging or more important. In this ever-changing world, professional accountants need to change and adapt too. ACCA has taken a major step forward in shaping the future of accountancy by unveiling major innovations to its Master’s level qualification, tailored to meet the strategic challenges of the 21st century’s disruptive economy. ACCA’s new ground-breaking design of its qualification draws on an extensive, two-year review and consultation with members, employers and learning providers. Helen Brand OBE, chief executive of ACCA, says: ‘Our ground-breaking redesign of the ACCA Qualification will give students the forward-thinking strategic abilities and advanced skill-set required of modern professional accountants who will shape the future of global business. ‘We’re delivering a qualification that meets the demands of professional accountants in the 21st century, while maintaining the rigorous standards of technical, ethical and professional skills that has established ACCA as the international benchmark for accountancy qualifications. These measures are important as they will ensure the rigorous and relevance of the qualification remains central to ACCA’s offering in emerging, as well as established, markets.’ New developments ACCA’s latest innovations to the top level of its qualification are new Strategic Professional level exams which will replace the existing Professional level exams in September 2018 and a new Ethics and Professional Skills module, which will be introduced in October 2017. The redesign enhances the breadth and depth of the qualification, with greater focus on employability and the practical

Feature

ACCA’s New Qualification

M A Mannan, MP, Hon’ble State Minister of Finance, Suraiya Zannat, Lead Financial Management Specialist of World Bank, Arif Islam, CEO of Summit Communications Ltd. and Mohua Rashid, Country Manager of ACCA launched new qualification of ACCA.

application of core skills in the contemporary workplace and includes: •

Strategic Business Leader – an innovative case study exam, based on a realistic business scenario.

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Strategic Business Reporting – a new exam exposing students to the wider context of finance and business reporting, giving them the vital skills needed to explain and communicate to stakeholders the implications of transactions and reporting.

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An Ethics and Professional Skills module - making modifications to the existing ethics module, which ACCA was the first professional body to offer to students in 2008.

In mid-July, this year, ACCA organised a roundtable in Dhaka with regulators, key employers, renowned accountants and other influencers of Bangladesh to discuss an ACCA report called ‘Professional Accountants: the Future’. It was based on a ground breaking research – for which ACCA members helped to inform and provide really great insights about their hopes and aspirations for the profession. It also helped to provide really great information and validation about the changes that ACCA is making to the qualification. It was a critical reference about the changes is going to take place. What the thousands of expert participants revealed in this report is that accountants of today and tomorrow need: intellect, creativity, emotional intelligence, vision, experience, technical skills, and a mastery of the digital world – a set of seven key quotients sought by employers now and in the future.

These seven quotients are, and will be the conditions for success. Looking ahead to 2025, some technical knowledge and skills will increase in value, others will decrease, and new knowledge and skills will be required, which will vary across specialist areas and technicalities. ACCA is also bringing change to exam. The exam changes, including the introduction of the Strategic Business Leader and the updated Strategic Business Reporting exam will be introduced in the September 2018 exam session. The Ethics and Professional Skills Module, which will replace the existing Professional Ethics Module, will be introduced in October 2017 – allowing the existing students to benefit from the unique professional skills at this early date. So in the coming months, ACCA will be working with students, employers and learning providers to introduce these exciting developments. The ACCA Qualification will be based on real-world scenarios, integrating advanced technical accounting skills, significant practical experience, a deep understanding of ethics and responsible decision making. It will offer a thorough appreciation of the global context in which accountants work – all benchmarked to global high standards and best practice to ensure global advantage. These developments will give the next generation of professional accountants the skills they’ll need to add tangible and immediate value to employers and their clients – but also so that they can have rewarding careers.

To summarise, these innovations mean: •

ACCA is the first to bring professional skills into the exams, experience and ethics in an integrated way – so students will gain the right blend of skills required by employers.

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ACCA is the only professional body to have an innovative case study – so students get the right blend of skills proven through a really integrated exam delivery. ACCA has refreshed the syllabus for the options exams – so students can specialize with the right skills and at the point that they want in their career

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ACCA provides the unique blend of skills that makes ACCA accountants professional strategic forward thinkers that understand the world of business, the opportunities, threats and the challenges.

These are exciting and inspiring developments for ACCA, and are really proud of where they are taking the qualification next. ACCA is building on the tradition of guaranteeing that future ACCA professional accountants have the skills to add immediate benefit and lasting value to organisations everywhere. As a professional body, ACCA’s work does not stop when someone becomes a member. ACCA is a committed lifelong career-partner – supporting students and members through careers with great CPDs, a Jobs Board, careers advice and Approved Employer programme.

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Professional Networking

PROFESSIONAL NETWORKING ESSENTIALS OPPORTUNITIES TO MAKE CONNECTIONS

Networking is all about people and making beneficial connections that will help you build a stable and fulfilling career. Unleashing the power of a network isn't something to be taken lightly. Poor networking skills and lack of etiquette can create roadblocks for you. However, with the right approach and techniques, the impact of a well-developed professional network can help make you more effective at work. Benefits of networking There are many reasons to seek out networking opportunities: i) Access information â&#x20AC;&#x201C; Attending a networking event is an excellent opportunity to keep up to date with the latest developments in your business sector. ii) Pursue new clients- Some networking events allow you to meet current and potential clients face-to-face. It may be a good idea to meet some of these prospects outside normal business settings. iii) Develop career -Take a class or attend a seminar to expand your knowledge of a particular business subject. Not only will you develop on a personal level, you can also use these sessions to network with people who share the same interests and goals.

Md Mahsudur Rahman FCA, FCMA Group Head of Compliance Rahimafrooz Bangladesh Ltd.

Networking opportunities There are four common networking opportunities you can use to build your reputation and develop your business connections.

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Professional Networking

1. Internal networking Networking doesn't always involve seeking external contacts and assistance. By building up relationships with your colleagues at work, you create a pool of talent, skills, and experience that can be drawn on to everyone's benefit. 2. Professional organizations No matter what your level of experience, you may occasionally need expert advice and mentoring to help you reach your goals. Professional associations can help you establish the necessary network to access vital information and support. 3. Trade show and conferences Attending conferences is not just about swapping business cards and rubbing shoulders with your peers; it's about building a quality network of new contacts and business prospects. Before attending a trade show or conference, there are several networking tips to consider: i) Make a list –find out who'll be exhibiting or speaking and make a list of the companies or people who you think will be most relevant to your business area. ii) Prepare by researching –Think about what you want to ask them, and prepare questions in advance to help stimulate conversations. iii) Get contact details – If attendees are unable to answer your questions, make sure to get their contact details so you can remind them later of any issues you had. It may be a good idea to record details such as web sites, e-mail addresses, and phone numbers in a contacts database for future reference. iv) Follow up on new contacts – Don't forget to follow up quickly with any new contacts you've made. For prospective new clients or other important contacts, set up an appointment so you can talk in greater detail later. 4. Virtual networking Online social media is increasingly being used by professionals as a means of easily finding and sharing information. It can also have an immediate impact on your business by offering a global audience an insight into your company's services and products.Two popular networking web sites are Facebook and LinkedIn. Networking Obstacles Although it sounds simple, there are a number of obstacles that can affect a

person's ability to network effectively. i) introversion ii) shyness iii) social uncertainty Overcoming Networking Obstacles There are four main ways to overcome obstacles of networking: i) Have a positive attitude – Focus on the potential benefits of networking, not on what might go wrong. ii) Practice mental flexibility –Try to respond and adapt quickly to new information and changing conditions as you get to know a contact, this mental flexibility will help you develop the ability to quickly plot or re-plot the strategic paths of your networking relationships. iii) Invest time and energy – The more people with whom you come in contact and share information, the more connections you'll make. iv) Consider mutual benefit – Business connections are both people to whom you can offer value and from whom you can derive benefits. For example, you can meet contacts by volunteering for charitable or not-for-profit groups. Preparing to Network There are two types of networking approaches: i) Direct –Direct networking is time-effective and establishes you as someone who's confident and motivated. ii) Indirect – This approach involves being one step removed from the point of first contact with your potential networking partner. It involves using someone you know to make the connection. Good First Impressions There are a number of benefits to making a good first impression. i) People will be more likely to relate to you if they've formed a positive image of you as a person and a potential networking partner. ii) When people relate well to you, it will be easier for you to build valuable partnerships and expand your network. iii) It will help improve your self-image and self-confidence in proportion to your newly acquired knowledge and networking experiences. How to Make a Good First Impression There are five main keys to making a good first impression when you're networking:

i) Be positive – This means learning to face your fears, believe in yourself, visualize success, suspend judgment about others, and be aware of body language. ii) Do your research – If you're targeting someone in particular, doing research can help you find a connection with that person. iii) Dress appropriately – Communication isn't limited to the words you speak. Potential contacts also glean information from the way you present yourself. iv) Position yourself – The right position will also give you an opportunity to observe group dynamics. Smaller groups are typically easier to join, and there's more opportunity to find a natural time to involve yourself in a discussion. v) Communicate with care – It's vital to be careful when you first speak to someone. Communication skills for networking include introducing yourself carefully, repeating your contact's name, and avoiding presenting a formal pitch. Speaking Confidently If you're going to be successful, you'll need to know how to converse with confidence.There are seven key techniques you can use to converse with confidence when you're networking: i. Make others feel good When you make your contacts feel good, you present yourself as someone who is interested and engaged, and not as someone who's just out to get something from them. Using a compliment is one of the best ways to start a conversation by making someone feel good. ii. Use small talk Using small talk is about finding a connection – something you can use to further your relationship. It can be as simple as connecting over the fact that the weather is nice, or asking an easy-to-answer question such as "What's the time?" iii. Ask the right questions Questions are an important part of conversation. But questions have to be phrased to encourage people to respond. How you phrase your questions can dramatically affect the quality of the responses you get. iv. Avoid divisive topics Many people find analyzing subjects such as religion and politics interesting. But if people don't share your opinions, they could develop a negative impression of you.

Cover Story

CEO - Robi Axiata Limited

BE PRO-BUSINESS LEADER RATHER TRADITIONAL FINANCE LEADER Mahtab Uddin Ahmed, Managing Director & Chief Executive Officer of Robi Axiata Limited, is the first Bangladeshi CEO of any foreign mobile operator. He elucidates his experience of transition of CFO to CEO position as he was CFO of the same company before assuming the COO and then CEO role.

A 2015 survey by Forbes 2000 shows that only 13 per cent of CEOs have moved directly from their CFO role. Why is that the CFOs hardly get promoted directly as CEOs?

Usually CFOs excel in technical skills whereas they may lack in competencies of people- and relationshiporiented areas. How would you evaluate this?

We all begin our career with a focus, specializing in one area of business. As we progress, we need to start appreciating the imperatives of business and thus make an attempt to redefine ourselves in order to adapt to the changing demands of the positions we hold throughout our career. As one’s career progresses s/he becomes more strategic. Alongside strategic thinking, it’s very important that one develops business acumen early on in one’s career. This helps to groom oneself for taking on the leadership positions at a later stage.

By definition, CFOs are process/compliance oriented, scientific, logical, analytical, linear thinker. Often this natural inclination leads them to limiting themselves as only a finance professional. Now, if the same person looks at finance from a consumer perspective, it would challenge many of his/her traditional thought process. That, in turn, would enable him to be imaginative, creative and innovative. This is how a professional starting with left brain can build the capability of the right brain. Unwavering efforts to know the unknown and connecting the dots gradually help to build a professional capability balancing left and right brain. The CFO needs to remember that the CEOs are the leaders of the people and business; they are only functional leaders.

There’s a common perception about CFOs that they are conservative and traditionalist in their thinking. In the current market scenario, such traits are not suitable for a CEO of a company who is looking to drive growth with innovation and aggressive marketing strategy based on consumer insights. Besides, the CFOs are considered to have excellent technical skills in the financial domain only. This limits their chances of making it to the CEO position. However, if you consider the nature of an industry, the business context (financial crisis), the positioning and prospect of the company operating in it, the management may feel comfortable to have the CFO move over to the CEO position right away. Therefore, one needs to keep an eye for opportunities beyond Finance as one progresses through their career.

From CFO to CEO; it’s quite a transition in terms of role. Do you think CFOs who become CEOs are aware of the extent of the challenges before taking up the job? Well, I have always wanted to be a businessman. My stints in IDLC and Unilever were to build a holistic knowledge and expertise in banking, finance, manufacturing and marketing. My effort to build business acumen from the early days of my career, to my mind, has helped me to make the transition from CFO role to COO -- and then, to CEO. Such transition involves a huge risk if you don’t handle it well, you may face dire consequences. It requires a lot of soul-searching and self-criticism. If I’m

not aware of my situation and challenges, I wouldn’t do well in the assigned role. After working in the Finance Director’s role in Unilever for several years, I joined Robi as its CFO in 2010. My specialization was in finance, but I wanted to have more exposure in sales and marketing functions. Robi gave me an opportunity to take on the role of the company’s Chief Operating Officer in 2014. It happened due to self-awareness of my own weaknesses. I may not be an expert in Sales and Marketing, but I have a basic understanding of how the Sales and Marketing functions work. But I must confess that my knowledge on technology needs much more work in order to become a successful CEO. When I had a discussion with Axiata Group’s Managing Director/President and Group Chief Executive Officer, Tan Sri Jamaludin Ibrahim, I did ask him why I couldn’t make a direct transition from CFO to CEO. He told me: “Mahtab, I first want you to get your hands dirty. Just think that you’re walking into a nice restaurant; will you order for a regular stake when you can see that premium stakes are available or for that matter go for a regular lobster when you know that a fat and juicy one is available for you? I need you to be that prime stake or the fat and juicy lobster. First, you need to be accepted as the deserving candidate for the CEO within the organization.” The rest, as they say, is history. Any CFO, who is honest to oneself, would be knowing his/her limitation to become a CEO. I had made a thorough gap analysis of me as a professional several times. In hindsight, I believe that it helped me to strengthen my readiness for taking on the role of CEO. I was never afraid to put myself in uncomfortable

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CEO - Robi Axiata Limited

â&#x20AC;&#x153;By definition, CFOs are process/compliance oriented, scientific, logical, analytical, linear thinker. Often this natural inclination leads them to limiting themselves as only a finance professional.â&#x20AC;?

Cover Story

CEO - Robi Axiata Limited

position in my career. In fact, I never served in a particular job role for more than two or three years. Rotating jobs and taking on international assignments have really helped me to come this far. As a CFO, you’re responsible for preparing the financial statements for the company. But when you become a CEO, you need to own up to the numbers that are captured in those statements. The CFOs who succeed in making this mental transitional journey can consider themselves ready for becoming CEOs. Often, CFOs act as Deputy CEOs of the organization, especially in the interim period when CEOs are on leave or have left the organization. Why do organizations look for a new CEO rather than appointing them the CEO? When someone is appointed as an interim CEO, s/he is not actually expected to run the company like an appointed CEO. Rather, the person is expected to make sure that the company’s exposure to various financial risks are averted. Since CFOs know the financial implications of the management decisions for the business, they’re considered to be well acquainted with the state of the business and that’s why they’re trusted with this interim role. The other aspect is that the Board doesn’t expect the interim CEO to be driving growth; so a steady and methodical CFO is considered to be the best person to steer the ship during such critical phase. Besides, a CFO is a good communicator—to the Board on the performance of the business and the issues it is facing. To his/her peers, s/he can get across the key information and concepts for facilitating discussions and decision makings. These are some of the other reasons why CFOs are appointed as CEOs in the interim. To my mind, it’s a great opportunity for a CFO to demonstrate his/her right brain skills and competencies to successfully move to the CEO’s role. In this regard, professionals of others functions are less privileged. What do the Boards and others look for in a CFO for a CEO in terms of competencies, personal characteristics and experiences?

As I see it, the key competency that the Board looks for in a CEO is to have an innovative and growth mindset. If you look at the current market condition, across the world, it’s well established that the conventional wisdom in running a business organization has given way to innovative thinking. The customers have become lot more demanding about what they’re looking for from a company. They are much more informed and are capable to make the right spending decision for themselves. In this context, a business has no other option but to continue to innovate for staying relevant in the market. Apart from having a sound business acumen, the CEO needs to have the right attitude because his/her behaviour would be reflected on every aspect of the company. Every CEO is expected to be a change catalyst for the company during his/her tenure. The CEO has to champion the cause for change and the key to this is his/her ability to connect with the people in the organization. It’s the CEO to whom they turn to for direction and motivation. CEOs need to have the behavioural attributes of a great motivator both within and outside the company. When it comes to business, a CEO is required to have strong business acumen; he/she needs to think far beyond the remits of finance to look out for the opportunities that can be created with innovative thinking and in-depth consumer insight. It’s also very important for a CEO to be comfortable in engaging with the internal and external stakeholders to advance the cause for the company in a mutually beneficial manner. The corporate image of a company largely depends on it. Last but not the least; the CEO has to have more than one area of specialization. Does moving from one company to another help or hurt a CFO’s chances of becoming CEO? I think switching jobs too frequently gives a negative message. If someone changes job every 2-3 years, I consider them to be ‘quitters’, as they leave before establishing his/her position or they fail to create impression in that company. However, I also feel that changing companies or roles is a good thing for a candidate as it gives

opportunity to adapt to new business scenario in potentially different industry and environment. It also helps you to identify the gaps in your skill. If someone is keen on improving his/her skills, switching to a new place may open up a new horizon. I always believe that if I’m feeling too comfortable in my job, it is a sign for me to take new challenges in a new role, otherwise I’ll lose my mental sharpness. Working with Unilever as a Finance Director for a long time, I had become very comfortable at one point. I think it was a sign for me to move on, and I joined Robi as its CFO. Telecom being a totally different industry had provided me with challenges that allowed me to learn by challenging myself. How long does a former CFO transitioning into the CEO role have to prove him or herself? There’s no specific timeframe for this. As I have mentioned earlier, the CFOs are considered to be very methodical, pragmatic, decisive and very details oriented in their thinking process. While these qualities make them great CFOs may often render them unfit to take on the role of CEOs. Moreover, with their exposure to the investor analysts and the Board, they become very predictable. So, when they become CEOs, at times, it becomes very difficult to come out of their shell. The CEOs’ balancing act between decisiveness and intuitiveness allows room for innovative thinking within the organization, paving the way for strong market performance. Hence, it’s very clear that it’s an inner journey that the CFOs need to embark on when they set their eyes on the CEO’s job. In this journey, it really doesn’t matter what the CFOs think of their readiness for becoming CEOs; what counts is what the decision-makers think. Some CFOs quickly adapt to the new competencies than the others. The leader of a business needs to be an optimist and sales-oriented. CFOs are fundamentally conservative. How would you explain this? The stereotypes of a CFO have been found to be true on many occasions, but

Cover Story

CEO - Robi Axiata Limited

“As a CFO, you’re responsible for preparing the financial statements for the company. But when you become a CEO, you need to own up to the numbers that are captured in those statements. The CFOs who succeed in making this mental transitional journey can consider themselves ready for becoming CEOs.”

I’m aware of many exceptions too. There’s nothing wrong if a CFO is conservative as long as s/he has holistic business understanding. Not all the CFOs aspire to become CEOs. The business leader needs to be able to create a vision for the company and motivate his/her team to get there. At the core of it lies the ability of the leader to connect to the consumer needs by leveraging on all the business levers; and Sales is just one of it. If a CFO has developed the eyes for identifying business opportunities which others can’t see, s/he is ready for the bigger leadership role. What are your tips for CFOs who are aiming for the CEO’s chair? Keep pushing yourself and challenging

yourself. Don’t feel too comfortable with yourself. As a CEO, you are supposed to be driving the vision for the entire organization which is very different from the role of the CFOs. You need to work on your communication skill, because as CEO, people would expect you to be a good orator and a great story teller. You need to be able to capture peoples’ imagination for giving them a sense of self-confidence. International assignments or cross functional moves help CFOs to broaden their horizon and network. One must not stop reading books and attending courses to continuously benchmark oneself with the role models. It’s important to have a few global and local role models in mind to aspire to be as successful as them but not like them.

For me, the process begins with a heightened sense of self-awareness to move beyond what is comfortable and develop a requisite broader array of leadership strengths. One needs to have an acute sense of self-awareness, especially of one’s strengths and weaknesses; needs to have the mental agility, or be comfortable with complexity and be able to make fresh connections; know how to get things done through others; have passion for ideas; have keen interest in continuous development and have the ability to deliver results in first-time situations through one’s own drive and by inspiring others. As CFO, don’t lock yourself away in the back office and always become buried in details. Be the right hand of the CEO, learn about the external market by interacting with the entire supply chain. A good CFO is one who’s externally visible; everyone in the organization looks up to him/her for direction. Don’t act like a Finance Leader but a Business Leader!

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Business Valuation

Most, if not all, owner-managers have at one time or another considered the question: "How much is my company worth?" Value is, of course, a subjective concept. At its best,valuation is an art. It is influenced by institutional,macroeconomic and personal factors.

THE ART OF VALUATION

What may be valuable to one person may actually be considered detrimental to another. For example, an in-house design department may be considered by one owner to be a significant attribute because it can provide proprietary designs quickly and efficiently, while another owner may perceive it as a detriment because of its high fixed costs and limited flexibility. Given the subjective nature of calculating an accurate valuation range, it is tempting to avoid the exercise. However, if you are thinking about selling your business, raising new capital or, in the case of a family business, planning the succession process, this type of analysis may be critical to protecting your personal interests. The financial community relies on several quantitative techniques to arrive at an estimation of market value for operating businesses, and subsequently refines the estimate to take qualitative or subjective factors into account. These qualitative factors constitute the art of valuation.

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Business Valuation

Valuation basics While no one technique should be relied upon exclusively, a realistic range of market values can be determined by employing several approaches. Approach—there are three general approaches for establishing business values. Depending on the circumstances, one of them may be used or a weighted average of more than one of them may be used: •

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the income approach: past or future income or cash flow streams are applied to a capitalization rate or discount rate; the market approach: values or sales of comparable businesses,or interests in comparable businesses, are the bases for valueof the subject business; and/or the asset approach (or asset-based approach, adjusted net asset approach, and other variations on the term): a value for each balance sheet item is determined (including intangibles,which may or may not appear on the balance sheet) and then added together (assets less liabilities).

Method (or methodology)— Examples of methods include: • for the income approach: capitalization of earnings,capitalization of excess earnings (i.e., after calculating a return on assets) or discounted future earnings plus residual value;

Control premium—this premium is generally applicable when an interest in a business being valued is or will becomeone of control or partial control Other value influencers Many qualitative factors are not captured in rigid quantitative methods despite their obvious impact on value. Some of thesefactors may influence value in the eyes of many, while others may be important only to a few. This is where matching the right seller to the right buyer can make all the difference in obtaining the greatest value for your business. The significant emphasis placed by potential purchasers on subjective characteristics cannot be discounted and must not be overlooked. Below is a sample of factors that can impact onthe value of your business but which are not directly taken into account with traditional quantitative approaches:

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for the market approach: use of comparable public company data and of comparable merger and acquisition data; and

• • • • •

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for the asset approach: establishment of fair market value,replacement value or liquidation value of the assets and liabilities.

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Lack of marketability (or non-marketability) discount—the extent of the discount principally depends on the time itmay take for the business or, more commonly, the business interest to become liquid to the seller, i.e., when cash from the sale is received. Lack of control discount—applied

when the ownership interest in the business is fifty percent or less. When a business interest being valued is less than one-hundred percent but fifty percent or greater, however, a discount may still be appropriate by virtue of having less than complete control.

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Dominant market share Company size and critical mass Union-management relations Strength of competition Technological capability and expertise Size of backlog Location of operations Strength of customer / supplier relationships Competence of management Tax considerations Intangible assets (e.g. mailing lists and key supply contracts) Surplus / non-core assets

The market matters The current market environment must also be taken into account when assessing market value. If your company is in a ‘hot’ industry segment in terms of

merger and acquisition activity, a significant premium may be offered by potential buyers. On the other hand, a profitable business in an industry which is not the subject of much corporate activity may actually carry a market value lower than that of an unprofitable company in a highly popular market. Other market factors that can influence value include: • • • •

Availability of finance Interest by foreign companies General economic conditions Positioning of company in a sale process

Why be in the dark? Even if you are not currently interested in selling your company, going through the exercise of determining its market value has many advantages. It can identify competitive weaknesses in your operations, highlight misallocation of resources and bring to light new opportunities for growth or other value enhancing ideas. In addition, determining that he value of the company is greater to you than to someone else provides encouragement to forge ahead under your current structure. However, if it transpires that the market is valuing your business at a level you find surprising it may be time to cash out, in whole or in part. Know as you go While valuing a company is not an exact science, it is also not a total mystery. Valuation is an art practiced by experienced financial professionals. Given the complexities of analyzing all the direct and indirect factors influencing a company's value, it is often a good practice to meet with a financial advisor as early as possible. Advisors can be just as valuable to you in quantifying a realistic valuation range as in preparing your company for sale. Additionally, as the dynamics of the market change, a trusted, informed advisor can quickly re-evaluate your company's worth, thereby enhancing your chances of selling at the best possible time and price.

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Finance Competency

FINANCE COMPETENCY FRAMEWORK

A competency is the term used to describe a cluster of related knowledge, skills, and attributes that contributes to successful job performance to meet the goals and priorities of the function and organization. The attributes includes, self-confidence, world views, traits, thought patterns, mind-sets, ways of thinking, feeling, and consistency in taking actions. It is a behavioral demonstration towards delivering expected results through right set of values, skills and time applications. Competencies can usually be developed by participating in training, utilizing individual coaching, and through on-the-job opportunities such as projects, cross functional team involvement exposing to the VUCA (Volatility, Uncertainty, Complexity and Ambiguity) world.

Munshi Abdul Alim MBA, FCMA CFO - Fiber@Home

When this world is facing war on talents, developing and nurturing future leaders has already become critical element for the organizations. Professionals nourish a dream to grow up to the rungs and occupy the corner office. Many a times they get distracted to select a path, a path of excellence and selfdevelopment. Competency framework will help the aspirant leaders to develop and the organizations to attract talents with right â&#x20AC;&#x153;fit for purposeâ&#x20AC;? .Competency requirement varies in term of degrees at different levels in the organization from planning to execution.

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Finance Competency

To evolve as a finance professional one must strive to build the following competencies. 1. Business model, environment and functional roles This is about how the organizations serve its stakeholders including the customers, what are business propositions and the entire value chain of the business. A finance professional must know the other functional roles and how everyone is contributing towards achieving a common goal or a shared vision. 2. Strategic planning and budgeting Budgeting and strategic planning is the ability to capture the business activities in a form of financial reports for short-term and long term operations. This is essentially organizational resource management; allocating right resources where it needs most to deliver expected results. This competency requires leadership capabilities and functional understanding which helps to drive the budgetary control. 3. Cost and revenue management It includes the ability to help the organization to make right profitable business choices through understanding the segment and product profitability. It includes cost saving initiatives eliminating non value adding activities. It also includes the capability to make tax efficient decisions and business processes. 4. Efficiency management Efficiency management includes understanding the business process and helping the organization to capture non-financial information and translates those into financial numbers to improve process efficiencies. It is being done through implementing KPIs and functional metrics through the organization. 5. Liquidity management This is about managing cash, the blood supply of the organization, making sure that it doesn’t go out of supply. Careful planning, effort on execution and managing instruments, internal stakeholders and relationship with suppliers are the key areas that need to be focused. It is about following the

heart rate of a patient in the ICU. However in good times it is being ignored but in tough times this can ruin an organizational image and existence. 6. Business analysis and reporting Value of information in these days is so critical that few wrong decisions can be fatal enough to destroy an organization. Reporting ensures all internal and external stakeholders about how the organization is doing; it reports performance, financial health and compliance. Business analysis ensures organization takes right, conscious and strategic decision for the future to ensure sustainability and profitability. 7. Accounting and audit Accounting and audit is about book keeping and representing true and fair view of the business. Audit ensures delegation of authorities, compliance with the legal and regulatory frameworks. It also ensures compliance with local and international accounting and reporting standards. Internal audit builds trust within the organization. 8. Policies, procedure and control As a functional department Finance ensures the trust in the organization. An organization delegates its owner’s authority to the strategic and operational level through policies, procedures and control. Here finance plays its stewardship role to protect the assets of the organization. Procedures conform standardized operational guidelines to deliver consistent quality performance. 9. Risk management and compliance The complexity of the business environment is demanding more and more focus on risk management. It is

about identifying factors that have a probable impact on achieving business goals and addressing them according to their likelihood and impact. Here organization needs to make sure all non-financial compliances connected with the continuity of the business i.e. licensing guideline are being followed. Generally finance needs to play the role of a risk manager if a separate corporate governance department doesn’t exist. 10. Business automation Business automation is transforming the way of doing things all over the organization to bring more efficiency and accuracy of the information. There is no escape from using technology anymore. Finance head generally leads this transformation process. It has become a key competency across the functions. 11. People and leadership Everything rise and fall on leadership and finance is no exception. By design finance sits in a position to have the bird’s eye view. Understanding the talent requirement and developing talents are essentials at all level and across the functions. Without right leadership no big goals can be achieved consistently. Finally competency framework is a road map and it needs to be applied and updated considering industry and country peculiarity. i.e. a corrupt environment may need some different competency which is not mentioned here. It is like a tool for development and guideline for moving around the sub functions. Competency is the currency in the world of professionalism. Recognize your current competency and build the required one and move forward.

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Strategy Execution

STRATEGY EXECUTION: WHAT COULD POSSIBLY GO WRONG? Every year, many companies convene their sharpest thinkers to develop strategies to enter new markets, capture greater market share, become more profitable or otherwise improve some aspect of the business. And every year a large percentage of these strategies are doomed from day one. The past is littered with new strategies that were unveiled with much fanfare only to fall short of meeting expectations. How do organizations go wrong? Often, there’s nothing inherently defective with the strategies. Rather, the strategies do not live up to their promise because organizations don’t do what it takes to effectively put them into practice. More specifically, there is a mismatch between what the strategy was designed to accomplish and the approach taken to implement it. Three Root Causes For many companies, strategy execution risk can be found in three areas: 1. Failure to adequately translate the strategy from high-level ambition to specific actions the organization must take to make that ambition a reality. In this case, strategic ambition—while understood tacitly by senior leadership—is poorly translated into design principles and downstream implementation choices. This communication failure disaggregates the ambition so that elements of the strategy, when built, no longer fit. The result: the execution of the strategy defaults to best (or average) practice rather than calling for next practice. 2. Failure to appropriately adapt the strategy when conditions change. Real-world conditions change. Key employees leave, competitors act, customer expectations evolve, and new regulatory laws are passed. Implementation efforts often insufficiently account for such changing conditions, however. Moreover, “implementers” are expected and incentivized to stay on plan. The result: certain elements of the change (for example, organizational structures,

new processes and programs, technology architecture) are “locked in” before key learnings can occur. 3. Failure to put in place the organizational capabilities required to sustain the strategy after it is enacted. Implementation efforts “run out of steam” in this scenario, or do not take off at all. Some of the culprits include initiative fatigue, organizational resistance and lack of ownership or clear accountability. The result: change fails to take root after implementation; people revert to their old ways; and organizations do not build the capabilities to sustain the new way of working. Moving from Traditional to Dynamic Execution Failures in translating, adapting, and sustaining a strategy may thwart an organization’s efforts to effectively execute it. Worse, these failures are often virtually inevitable because they are the natural outcomes of the traditional approach to strategy implementation. Dynamic strategy implementation focuses on translating leaders’ strategic ambition into downstream implementation choices needed to create the desired outcomes, explicitly designing activities to enable the organization to adapt to changing conditions, and investing in capability-building efforts to embed new skills and behaviors. a. Translate strategy into explicit implementation guidelines and choices. A translation problem arises because strategic ambitions are tacit knowledge (“I know it when I see it”) and require some effort to be made explicit (“I can describe to you what it looks like”). If leaders can’t make their ambition explicit, the rest of the organization will likely find itself forced to interpret the ambition’s meaning on their own. b. Adapt to rapidly changing conditions. Conditions change, both internally and externally.

Thus, companies should be prepared to course-correct and sometimes even change course as they implement strategy. A dynamic approach enables such flexibility by emphasizing learning throughout implementation.Dynamic implementation also requires greater attention to understanding “What should we learn from the fact that we are off track?” It allocates additional expertise to assess whether the problem is a detour requiring rapid course correction or a leading indicator that a change of course is required. c. Sustain the strategy by building organizational capabilities. Sustaining implementation changes over the long term requires investment in organizational capabilities. After all, the behavioral changes required by a new strategy may not stick until they are embedded as enduring organizational capabilities.By investing in helping individuals develop the new competencies required by the strategy, the dynamic approach increases the likelihood that the implementation effort will not be a temporary, isolated event. Rather, the effort results in a sustained, long-term improvement in the organization’s performance. Building organizational capabilities requires significant effort, from clearly defining the desired capabilities to diagnosing the current level of organizational capabilities to designing the integrated system of assets and activities that builds and sustains these capabilities. Major economic and competitive shifts can require real-time adaptation of approaches, expectations, and responsibilities. By adopting a dynamic approach to strategy implementation, however, companies and CFOs can increase the chance of successful strategy execution and potentially reduce the chance of failing to effectively translate, adapt, and sustain the new strategy. Source: Deloitte Consulting LLP.

Feature

New VAT Act

NEW VAT ACT: CHALLENGES VS. PROSPECTS

Government of Bangladesh has enacted a new Value Added Tax (VAT) law in December 2012, which Government intends to implement from 1st July 2017. New VAT & Supplementary Duty (SD) Rules, 2016 has already been gazetted very recently. Test run of IVAS software has done successfully and the Honorable Finance Minister has inaugurated re-registration of existing taxpayers. In new VAT act, some of the distortions which are envisaged to be eliminated are: (i) truncated tax base for certain products and services; (ii) tariff values established in ad hoc manners on certain imports; (iii) extensive imposition of supplementary duties at the import stage for trade protection and revenue purposes; and (iv) many of the exemptions and some products subject to lower VAT rates (different rates instead of 15%). Rationalization of the supplementary duty structure by elimination of SDs on most imports and a substantial reduction in many other products and changes in the tax base (through elimination of truncated base and tariff values) will have impacts on revenue collection from the VAT system as well as on the final prices of related products. The overall cost of living may also be impacted through these changes on the tax base and rates. The massive elimination of supplementary duties applied only at the import stage will also certainly improve the structure of the VAT system towards trade neutrality, but the move will also lead to erosion of the degree of protection offered to domestic produces implicitly through the uneven application of supplementary duty. Challenges for implementing the new VAT & SD Act, 2012

Md. Mashiur Rahman ACMA Deputy Commissioner (Customs, Excise & VAT) National Board of Revenue 30

a. Abolition of VAT exemption through standing order (SRO) At present through SRO,VAT exemption has given to different goods and services at different stages. Almost 238 products are exempted at Import stage, 228 products

Feature

New VAT Act

are exempted both in import & production stage while 1,233 products are exempted in production stage. 25 services 160 products has given exemption in trade level. Total number of products & services which have given exemption through SRO are quite high. Right now around 1,874 products & services exempted through SRO. As we know, in new VAT system there will be no provision for such SRO exemption seems one of the major challenges for implementing new VAT system. b. Scope of imposition of SD will shrink in a significant manner Supplementary Duty has imposed on 1,362 products and 5 services in existing VAT system, whereas, SD will impose on 170 products and 3 services only in new VAT system. As a result there will be no SD on 1,192 products and services. It will definitely reduce the nominal protection of existing local producers. Nevertheless, in most of the cases effective protection will remain as existing system. However, small producers will face some difficulties at initial stage. c. Abolition of Tariff Value System At present, tariff value system applicable for 85 products on production stage. Indeed, it is one of the major distortions of existing VAT system. Producers have to pay VAT of tariff value instead of actual selling price. Abolition of tariff value system may cause to price hike in paper, MS rod and some other essential sector. However, for ensuring transparency in account system and establishing transaction based record trail system there is no other alternative but to abolish tariff value system. d. Abolition of truncated base system In existing VAT system truncated based value system applicable for 19 services. It is also one of the major distortions of existing VAT system. In this system, VAT collected on presumed percentage of addition rather than actual invoice price. Procurement provider, construction firm and electricity supplier are some common named services in truncated based value system. Cost of doing business may increase due abolition of truncated base system. Moreover, implementation of Annual Development Plan (ADP) may become difficult for price escalation. Electricity price may increase for home consumption due to 15% VAT rate instead of 5% existing rate. e. Abolition of package VAT system According to New VAT & SD Act, 2012

business entities having turnover less than BDT 3 million don’t have to pay any VAT. Business entities having turnover more than BDT 3 million but less than BDT 8 million will have to pay 3 percent turnover tax. Entities having turnover more than BDT 8 million will have to pay 15% standard VAT. But small and medium business groups are reluctant to pay turnover tax and standard VAT. They have continuously beendemanding inclusion of package VAT system. Impact of New VAT system in Bangladesh i. Impact on revenue collection: Significantly higher revenues may be collected in subsequent years with efficient functioning of the VAT chain; improvements in VAT registration and compliance; modernization of the VAT administration; and reform of the VAT administration and the resulting dynamism in VAT administration. However, these potential gains cannot be quantified, although the upside revenue potential is enormous. It is assumed that at least 20 percent growth will be achieved in VAT collection if we can implement the new VAT system successfully. Moreover the VAT-GDP ratio will be enhance to 4.7 percent from 3.7 percent within 5 years of commencement of new vat system. ii. Impact on price of commodities at consumer level The impact at the General Price level (economy wide) may vary from as high as 0.7% to as low as 0.4% and the corresponding impact on the Consumer Price level may vary from as high as 0.9% to as low as 0.5%. iii. Impact on local industry protection One of the major implications of the structural reforms associated with the new SD system is to get rid of the distortions introduced through indiscriminate use of SDs at the import stage, which violates the spirit of VAT Law 1991 when it was originally formulated and introduced as a trade neutral SD structure. The substantial reduction of line items subject to SD will obviously reduce the average nominal protection rates for all related categories of products, and the impact will be significantly more for the finished consumer goods. The average national nominal protection rate (NPR) will decline by 13 percentage points to 15.2% primarily because of the rationalization of the SD structure. The loss of protection will be primarily limited to final consumer goods which currently enjoy an average NPR of 50.7%, which

is one of the highest in the world. After the SDrationalization the average NPR on final consumer goods will come down to 23.3%. From trade policy and resource allocation perspectives this reform will be very important and will also support the export-led growth strategy that the government is currently pursuing. At the same time, some industries which are operating under the current highly protective trade regime will face enhanced competition and may resist this new VAT system. Way forward to face those challenges: Implementation of new VAT system would be a political decision rather than an administrative decision. NBR suggested different proposal to the higher decision maker of the government before implementing the vat system: • As exemption on so many products and service will be abolish, there may have some adverse impact on price level of commodities. Consumer Protection Act, 2009 under commerce ministry should be enforced properly to save consumer from any extra advantages seeker traders. • Local industry protection may be enabled through proper risk management system and prevent mis-declaration in custom entry point. • As credit mechanism become easier, costing of doing business may reduce through that. • Some amendment in law may take place according to the demand of FBCCI & other business communities. • In initial stage of implementation, there must have participatory approach of NBR officials. • Give more concentration to the large taxpayers rather than small & medium taxpayers • Integrated support system from different stakeholder ministries like LGED, Energy division and Industry etc. • Strong political commitment for new VAT system. VAT system has been introduced in Bangladesh for 26 years. But unfortunately existing VAT system has alreadybeen departed from an ideal VAT system. It was happened due to change in law in ad-hoc manner. Existing system fail to ensure account transparency and accountability. For ensuring an audit based VAT system, we have no other alternatives but to introduce new VAT system.

Feature

Career Advice

BREAK UP WITH YOUR JOB

How to Know Your Time

A job is like any other relationship – when it’s good, there’s a reliable balance of give and take that leaves everyone feeling satisfied. When it’s bad, however, and one party begins to give more than it gets, that’s when resentments and unhappiness can set in. It may have started out well in the beginning, but after a while, things began to slip. It’s not always obvious when it’s time to move on from a bad relationship – I mean, job – but there are a few very telling warning signs. Of course, it’s always best to try to work out your workplace grievances. Talk it out with your manager and see if anything can be done. But if not, staying in a job that’s passed its prime can turn into a real nightmare. If you ever experience these betraying symptoms, it may be time to make a move. Here is how to know if it’s time to break up with your job. 1. It constantly puts you down You work and work, giving your best effort possible, but it still feels like you just can’t win. Nothing you do is ever enough. A job should make you feel challenged and exhilarated. If you’re fighting a losing battle, for your own sake, consider moving on. This kind of situation can make you doubt your value inside and sometimes outside the workplace. There is no good reason to put yourself through this. Find another company who will be more appreciative of your skills and talents. 2. Your ideas are disregarded or even ignored This may be an example of how your job is putting you down. If you are able to contribute more than you’re being allowed to, your skills are going untapped and you are not being allowed to grow. Not only that, but by blatantly disregarding you, they are devaluing your contribution as a team member. Many companies will be interested in your opinions and ideas. Go out and find one that is. 3. Your personal life is suffering This is a challenging one because it’s not always easy to see

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Career Advice

when, or to what degree, your personal life is being affected by work. It could be that you’re bringing stress home every day, or that your work life balance has gotten, well, out of balance, or that self-doubt caused by a toxic work life has crept its way into your daily life. We spend most of our time in our workplaces. If it’s a negative situation, it can and eventually will affect your personal life, and no job is worth that price. 4. Your life is changing This one might be the easiest symptom to foresee and handle. If you’re moving farther away, planning to travel, looking to put a down payment on a house, getting married, having kids, or whatever, you may need to rethink your career situation. Whether you need more money, flexible hours, or compensation for your commute, trying to force your current job into your life change may prove difficult. Sometimes, the best situation for everyone is a new clean break. You can then be free to find a new job that fits with your new situation. 5. You’re woefully underpaid While it’s true we need to pay our dues in our careers, sometimes being underpaid goes beyond that. You know when the effort you’re putting in is worth more than you’re getting in return. If you’re feeling like the work is outweighing the reward, it may be time to move.

Raises and promotions can be hard to come by in a lot of organizations. Sometimes, a move is the only way to jump up in the pay scale. 6. Your job duties have changed/increased, but the pay hasn’t Similarly, if at one point you did feel fairly compensated, but your responsibilities have since increased, you may start to feel unsatisfied with your level of compensation. If your employer is not able to increase your salary based on new job duties, you may need to move to get the increase you feel you deserve. 7. You feel like you have no purpose It’s important for employees to feel like they are a part of something bigger, adding value as an important part of the daily grind. When people feel they serve a purpose, their job satisfaction and engagement is much higher. Feeling lost within the company can make daily duties feel tedious and irrelevant. You can try to find your place in your current position, but it may be more beneficial to start fresh at a place that makes you feel like an important part of the team 8. You’re not growing It’s easy to get comfortable in a job, but sometimes, to keep your career moving forward, you need to move. Even if the job is great in many other ways, it may

not be the one to help you achieve your career goals. It’s not personal, it’s just business. 9. You have a harder and harder time tolerating your job, your boss or both Every job has its downsides, but if they’re starting to get to you more and more, then this isn’t your everyday workplace irritation. Life is too short to be waking up dreading going to work every day. At a certain point, being comfortable in a job isn’t comfortable, and you may find leaving to be better than holding on. 10. You’ve already mentally checked out Be honest with yourself. Is your heart in it like it used to be? Is your head in the moment, or counting the minutes on the clock? If your investment in your work has dropped and you’re already looking at other jobs, it’s better to leave sooner rather than later, before your work effort starts to suffer. Find a new placement and end your current one on a good note. It can be hard to leave a job, especially once you’ve gotten comfortable. But sometimes, the best thing for your career and your life is to move on to the next stage in your career. Lean into change and find a job that truly works for you. Source: workopolis.com

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Fund Mismatch

MATCHING PRINCIPLE FOR FINANCIAL MANAGEMENT Md Ibrahim Kabir, MBA

Finance is required for every type of businesses. Proper financial management plays vital role for growth of business, business opportunities can be explored if sufficient finance is available to a business concern. Banks or financial institutions work as financer or financial partner. In competitive edge, if a company maintains positive credit history and if there exists business growth opportunity, finance is not so rare. But due to poor financial management, even a well established business house can fall in financial crisis that can cause adverse credit history, i.e. - poor CIB status with overdue or classification status. In such situation, credibility of a concern is deteriorated and access to credit from banks or financial institution becomes limited which ultimately creates obstacle for growth of business or even existence of business falls in danger.

Finance Manager of an organization takes various crucial decisions or assists board to take various important decisions for business concern. Among such decision, two important decisions are financing decision and investment decision. Both are interlinked and very important for smooth business. One common mistake in these two decisions is not following matching principle of finance and investment. Core theme of this principle is that short term investment is to be done from short term finance and long term investment is to be done from long term finance. If this principle is not followed, there will be a mismatch in cash flow consequently a business concern will not be able to serve itâ&#x20AC;&#x2122;s credit and it will result overdue and irregular repayment history. It will increase cost of fund and deteriorates credit worthiness and goodwill of a concern.

Every finance from bank or financial institution has a specific tenure. Short term finance like Overdraft, Demand Loan, Loan against Trust Receipt, Time Loan etc are provided for short term investment purpose usually for investment in working capital. Long term finance like Term Loan and Time Loan are usually provided for finance of fixed assets like capital machinery, building and other real estate. Working capital cycle of a company usually does not exceed more than one year. This cycle mainly depends on the nature of business and types of credit arrangement with itâ&#x20AC;&#x2122;s suppliers and buyers. Majority of Investment in working capital remains in two components, Inventory (Raw Materials, Work in Process and Finished Goods) and Accounts Receivables. If a company

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Fund Mismatch

secures short term finance for investment in working capital but actual investment diverted fixed assets like capital machinery, building or other long term assets, that business concern will not be able to serve it’s short term finance on time. A company may fall in negative working capital situation, i.e.short term liability is more than short term assets. Working capital cycle will be hampered. For example, when fund from Overdraft (OD)/ Cash Credit (CC) facility invested in capital machinery, a businesscannot roll fund in the OD/CC Account property. It will increase interest expenditure on the OD/CC facility. Another example, when LTR facility is taken for finance of raw materials, after completing working capital cycle of production, sales, collection, the sales proceeds to be adjusted for LTR outstanding. But if a company does not adjust LTR and invest in other fixed assets, that concern will not be able to adjust LTR outstanding when it will be due. For fixing tenure of short term finance, a business should know it’s working capital cycle, from purchase to sales collection, how many days usually it requires. This is cycle is commonly known as Cash Conversion Cycle (CCC).

Capital Machinery and other real estates are financed through long term finance. Total amount under long term finance cannot be repaid in short term tenure. A business concern repays this amount over long time usually ranging from 2 to 7 years through periodic installment. Operating Cash Flow (OCF) should be sufficient to repay the loan installment. How the fixed assets contributeto cash flow of the concern should also to be considered. For example, a beauty parlor can run it’s branch by purchasing space through term loan or by rental agreement. Under both situations, there is no direct effect on incremental cash flow from sales. But when a manufacturer installs new capital machinery through long term financeit has incremental cash flow through sales. Through gradual repayment of term loan, equity portion increases over time and the business concern can reduce it’s leverage and interest expense. If such fixed assets are financed from short term financing source, it will have various adverse effects on the business concern including, poor repayment history, adverse credit record and loan classification, increased interest expenditure, perpetual loan liability and ultimately business failure.

When such mismatch takes place in finance and investment, it is termed as fund diversion. Say purchasing landfrom OD/CC fund that means taking business fund outside of business. A business concern can do it willfully. But fund diversion can also take place within the business, for example, use of short term fund for long term investment in capital machinery or other fixed investment. Some organizations can fall in such mismatch situation just due to lack of awareness and poor financial management. Capital restructuring is required when such mismatch already happens to get release from perpetual loan liability, increased interest expenditure and adverse loan classification. Banks or financial institutions provide financing facility for specific purpose. When finance is used complying this purposes honestly, there is little chance to fall in such mismatch of funding situation. Life of business remains comfortable. [ The writer is a senior banker. Statements contained in this article are writer’s own. He can be reached at kabir_banking@yahoo.com]

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Finance Innovation

FINANCE INNOVATION FOR THE FUTURE A recent report from CFO Research suggests five actions to prepare finance professionals for the future. Tomorrow’s business world will look different from today’s. And it logically follows that tomorrow’s finance teams will look different as well. Professionals joining the world of finance can look forward to a career that is more deeply engaged with, and contributes more value to, the businesses they support. Those were key themes emerging from a recent global survey of more than 1,500 finance professionals in large and midsize firms, conducted by CFO Research and sponsored by SAP. Titled “Thriving in the Digital Economy,” the survey sought to gain an understanding of what finance professionals from all levels see as the source of their future success. With information of all types, structured and unstructured, being generated from more sources than could have been imagined only a short while ago, companies’ success will depend increasingly on their ability to capture that data, analyze it, and make immediate decisions under rapidly changing conditions. Eighty-five percent of survey respondents agree that, over the next

five years, their companies’ success will increasingly depend on their ability to adapt to the rapid pace of change and greater business complexity. For 84% of the respondents, success will also mean being able to translate the flow of data into swift and decisive action.

Figure: What other types of work experience are you most likely to seek out, in order to advance your career?

General management

43%

Operations

36% 34%

Information technology

As a result, companies are increasingly looking to their finance functions to serve as information analyzers, not just data caretakers. To meet these expectations, finance teams of the future will also need to seek out the kinds of sophisticated information tools that can best support them in meeting the new demands they take on. Five Ways Forward Where exactly does an ambitious finance professional go from here in order to survive andthrive in a changed world? Survey respondents point out five ways to prepare for success. 1. To become a leader, expand your view. Finance professionals are focused on what they need to learn in order to help the business run better, not just their own function. In preparing to take on broader leadership roles within their companies, they want to know the entire business better.

18%

Supply chain Customer service (outside sales and marketing)

17% 17%

Marketing

15%

Sales None of the above Other

9% 2%

To gain this kind of understanding and advance in their careers, respondents say they are most likely to seek out general management experience (43%) and operations experience (36%). In keeping with the demand for more advanced analytical capabilities and information tools, nearly as many (34%) will seek more experience with information technology. (See Figure 1, above.) 2. Turn finance into a team of information analyzers, not data caretakers. Finance professionals at all levels express a clear vision of a more collaborative

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Finance Innovation

working environment, where increasingly sophisticated financial analysis is tied directly to swift, decisive business actions. That kind of interconnectivity is likely to grow beyond the virtual walls of a company, touching on external as well as internal partners within the company’s extended value chain. Finance professionals of the future are poised to take on even larger roles in all aspects of value creation for their businesses. To do so, they see a clear need for more collaboration, greater self-sufficiency in their use of technology, and a more forward-looking analytical view. Ultimately, they see themselves transforming from data caretakers to true information analyzers. 3. Adapt technology to a new generation of finance professionals. Survey respondents say that their future success depends on new ways of working that are collaborative, flexible, and up-to-the-minute. To foster this kind of work culture, finance professionals believe their companies must bring their enterprise IT up to the standards that consumer IT — smartphones, tablets, apps — has established for speed, flexibility, and ease of use. In fact, survey respondents believe that this transformation is required to meet the work needs of a new generation of finance professionals, which expects instant access from anywhere, anytime. Nearly three-quarters (73%) of the survey respondents believe that their companies will be pressured to bring enterprise information systems in line with consumer technologies in order to meet the future challenge of attracting and retaining top finance talent. 4. Transform expectations, and extend the use of advanced analytics throughout all functions. In the future, the finance function’s influence throughout the enterprise will be based less on its ability to keep track of the numbers and more on its ability to unpack what those numbers mean for the direction of the business. In fact, respondents say that becoming even more involved with strategy development and execution will be essential for the finance function — along with developing advanced information processing capabilities.

As finance’s reach becomes longer, there may be an opportunity to expand the use of advanced analytics into even more areas. Respondents say that advanced analytics currently are focused primarily on business analysis/decision support and forecasting, and less so in areas such as production/operations, pricing and sales, and risk management.

respondents don’t expect to be able to employ real-time analytics for at least two years.

However, finance professionals see the potential for a “substantial, measurable financial benefit” from increased use of advanced analytics in virtually any part of a company. That includes back-office areas such as human capital management and IT management.

In line with their expanding mandate, finance functions will need to be able to evaluate the multitude of technology providers in the market and the diverse range of capabilities they provide. The value of “digitalization,” enabled by widespread automation, will no longer be restricted simply to gathering data faster or storing larger volumes of it. Rather, advanced technologies offer the potential for actual transformation of the finance function, and by extension, of the business itself.

5. Strengthen your expertise — educate yourself about real-time analytical capabilities. In order to keep up with an increasingly fast-paced decision-making environment, finance professionals know that they will need to employ all the technology tools at their disposal. Advanced technologies will be the platform finance teams can use to vault forward. At the same time, only 6% of respondents report that their finance functions already have real-time analytics available, and fully half of the

Respondents say that the largest barrier to adopting real-time capabilities is cost (35%), but the next largest number of finance professionals (23%) simply don’t think these capabilities are available right now.

The future looks bright for a career in finance. By focusing on the five areas highlighted by this survey, finance professionals can become a “business partner of choice” in their enterprise and fulfill a vision for their own bright future as well.