Summary
The client was a construction company having projects at multiple locations including residential and commercial buildings. The client primarily required better visibility on raw material usage, accounting, and Statutory compliance. During the time of transition from the first to the second generation, Rho worked with both generations to set internal control systems, and statutory requirements and more importantly create better business governance in all aspects including proper control over raw materials.
Client Situation
Upon preliminary analysis, the biggest pain points plaguing the client were improper accounting practices, a huge volume of cash transactions, and poor visibility on raw material movement. Most of its employees were recruited based on family relations and friendships rather than meritocracy leading to underperformance.
Since the client had projects running at multiple locations, the required raw materials such as cement, sand, and steel were procured to a common location and then distributed to each of these locations without any established process or entry. Salaries to workers were paid fully in cash leading to leakages and improper site records. Even the basic double-entry book keeping method was not followed.
It was also noted that there was a lot of noncompliance with Direct and Indirect tax, which increased the possibility of heavy penalties and fines in the future.
Rho’s Approach
Rho initially cleaned up the company’s accounts on a war footing and made it up to date with proper systems such as vouchers, approvals, etc. We implemented the fund outflow through the bank instead of cash transactions.
As a next step, control was brought on the usage of raw materials. SOPs were set up on Material Procurement, Storage, and Issue. It was made mandatory to have proper documents to support the movement of materials to each site which helped to track the volume of material consumed by each project site. A stockkeeper was also recruited to ensure the systems and processes were followed.
Analysis of the client’s tax obligation was done and set right to ensure undue tax penalties were not levied. Rho helped the company be GST compliant, educating the client on the right ways to take GST input by maintaining proper records.
The partnership business was converted into a private limited company and succession planning was done to ensure the second generation could start playing a successful role in the Company. Proper guidance, motivation, and mentoring also were done for the second generation.
The next step was Costing, to evaluate the profitability of each project. Since construction projects can extend to more than 1 year, Our team created a forecasting model to provide insights into profitability for each of the projects at each year’s end. by calculating their actual cost and how it was faring against the budgeted costs. This helped the client to timely identify areas where wastage or excessive consumption is occurring and take corrective action to reduce these costs.
Results
GST Compliance helped the company save substantial potential penalties (averaging 15 Lakhs). It also provided a competitive advantage by enhancing its reputation and trust among customers, vendors, and other stakeholders. Banks that were earlier unwilling to provide loans became interested in providing loans seeing the clean financials.
Doing away with cash reduced leakages and theft by 93%.
The visibility on project-level profitability helped the client take proactive action on possible loss-making projects. It also helped the client manage inventory more efficiently by ensuring that adequate supplies are available at each location and that there is no excess or shortage of materials.
The company was set for a period of steady and sustainable growth.
