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by Rajen Kumar

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Apr 2012

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Interviews

PrEquate Assures Inclusive Approach: Pragmatic Approach to Professional Services Missing in SMEs

SME WORLD Bureau
Sep 2011

Driven by sheer passion and enthusiasm to take on a different aspect of entrepreneurship, a group of three professionals, all chartered accountants, thought of venturing into an unexplored area – management consulting and execution – and went on to set up 'PrEquate' in January 2011 in Bengluru.

Pradyumna Nag, Rakesh Bordia and Rishabh Jain hope to bring together the experience and vantage in the fields of Assurance, Management consulting, Risk management, Transaction accounting, Taxation, Management accounting, Merger accounting and ERP Implementation targeting mostly the vulnerable small and medium enterprises sector.

Says Rishabh, “The major problem that SMEs encounter while using the services of professionals is that they are not fully able to absorb the value of the professional services. Another problem is simply Execution. The value of the services is greatly diminished when the advice is not implementable or not executed in the end.”

What makes PrEquate stand out?

The company is able to marry the ground realities of business carried on by the small and medium businesses with the professional advice that larger consulting firms are able to provide to their clientele. This makes execution plans more realistic, accurate and achievable. PrEquate works on an executive model, than on a suggestive model. Linking execution plans into strategic advice that clients are able to formulate makes the difference between results and attempts. For an SME, this could make all the difference as they require assistance not only in the planning, but also the execution of the advisory services that they have availed.

According to Rishabh, SMEs are often forced to look at professional services as a cost centre addition rather than a Profit centre contribution. However, PrEquate works on a slightly different model. Our approach to consulting is more a participative and inclusive approach than a fee based structure. “What matters to a business is not what goals you can formulate for it, but what fields you can walk it through!” We believe that the professional services need to go beyond. They must be ready to find the execution strategy and action plans to supplement. Only then can professional services achieve their intended purpose.

SME WORLD had an interaction with Rishabh Jain recently.

You are a professional. What made you take to entrepreneurship? Why entrepreneurship was an easy jump?

The three years of professional training in Assurance and Business consulting services ensured that we develop an inside out understanding of businesses and the difficulties Organizations face in Operations. We gain the ability to anaylse a business based merely upon the financials they put forth before their stakeholders. Further, this ability to see beyond the numbers stretches across a variety of industries as the CA firms that mentor us perform services across the economy.

Traditionally, professionals do tend to take the employment route or the Audit and Taxation practise. While this ensures a certain degree of specialisation, the skill sets of a CA are tuned to span across industries. The decision to make a choice of the skillsets in which he prefers to train himself rests with the Individual. In this light, CAs are the most equipped to take up the entrepreneurial route. They are not only trained in Regulations and compliances but also in Strategy, Management and Core operations.

Why entrepreneurship itself?

Passion. We collectively had a passion to make available the mindwork in terms of professional services to SMEs. While SMEs enjoy flexibility in terms of operations, they may not be able to engage best of talent to chart growth stories consistently. We believed that no social organisation, whether large or small, should be unable to avail quality mindwork.

In your view what is extent of constraints faced by SMEs in regard to credit flow?

The major problem faced by SMEs is the fact their credit flow is plagued by a plethora of catch 22 situations. The access to credit seems theoriticallynear but turns out to be practically distant.

Some problems that SMEs face are:

Cost of funds: Access to adequate and timely credit at a reasonable cost is the most critical problem faced by this sector. The major reason for this has been the high risk perception among the banks about this sector and the high transaction costs for loan appraisal.
Higher Interest rates with increasing REPO and Reverse REPO rates by RBI. The enterprises do not have an effective hedging strategy
Inability to implement professional services: While SMEs may obtain professional services, they fail to value the services because of a lack in implementation assistance.
Inability to implement technology successfully: The MSME sector in India, with some exceptions, is characterized by low technology levels, which act as a handicap in the emerging global market. This reduces their likability in the international markets.
Lack of Collateral to raise Institutional Loans: Compared to large firms, SMEs are commonly more opaque. They are less likely to be able to post collaterals and often do not have audited financial statements. This makes them fail on the bankers elementary diligence criteria.
Inadequate Debt Equity ratio: Mis-timing fund requirements and startup assistance availed heavily tilt the leverage ratios in the intial periods
Unlike other credit categories, such as consumer credit or mortgage lending, SME lending is still considered a high-cost lending product and it still depends heavily on relationships between borrowers and lenders.

How will you help small entrepreneurs with growth prospects?

Assistance to enter new markets: Performing Market studies, Industry analysis, Business plan preparation and assessment and acquisition assistance
Branding and positioning: Reprogramming brand strategy, Rebranding and offering positioning and establishing brand recall.
Optimization of Marketing and sales functions: Consumer transformation process, Customer relationship management, Lead generation and management function
Facilitating formation of alliances: Alliance need assessment, Establishing acquisition strategy, Due diligence and Compliances
Funding assistance: Funds need assessment, Valuation, Organizational readiness assessment and accounting. We help them raise debt and/or equity fund.
Strategic assistance: Developing uncontested market spaces, Developing collaborative environments, Establishing Goal centric environment and Business Unit strategy
How you will prove to be a via media between entrepreneurs and banks or financial institutions?

Fund seekers point-of-view:

Fund requirement analysis
Project finance assistance
Liaison between investors and borrowers
Scientifc assessment of SMEs

Fund provider's point-of-view:

Provide Due Diligence services to Investors
Continuous monitoring program so that Investors have an objective appraisal and alert systems over management and operations
Liaison between investors and borrowers
Help FI's with Reports on utilisations of funds and Performance of SME post disbursement of Loan

What could be alternate funding options for SMEs?

Assisted funding routes:
Subsidies from State Govts
Non-collateralised funding from SIDBI
Project investment
Technology grants from Regulatory bodies

Internal:

Strategic collaborations with foreign and domestic partners
Fund restructuring
Working capital management
Cost reduction programmes

External:

Crowd funding
PE funding
Angel funding

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