Page 88 - IMDR MSME BOOK 2021

Managing Finance in Micro, Small & Medium Enterprises
variance between Forecasted & actual cash ows. For
small businesses; the most important aspect of cash ow
management is avoiding extended cash shortages,
caused by an overly large gap between cash inows and
outows. It is found that majority (46%) of the
respondent businesses forecast the cash ow monthly,
prepare actual ow statement (43%) . Out of those who
prepare the cash ow majority (43%) review it monthly
and 34% dig deep to analyse the variance between
planned and actuals.
Cost of Capital
Understanding the Cost of the capital that is invested
into the business is an area which deserves utmost
attention. The investors in the business expect return on
their money, which covers their opportunity cost.
Whether debt or equity, any form of capital involves a
charge on prot on the organization. The management
running the business by using the money belonging to
owners or debt providers is obliged to provide them
expected returns and to do so, it is crucial to understand
how much the cost of the fund is. When asked if the
respondents from MSMEs calculate the cost of capital
and use it as hurdle rate to invest into projects only when
they generate returns more than cost of capital, only 28%
afrmed that they calculate and use cost of capital as a
hurdle rate. 35% do not calculate cost of capital and 35%
do not use it as a hurdle rate.
ROI for investment in technology

Technology is very important for managing nances in
the present times. A large number of transactions make
the use of technology, a necessity. While an investment is
necessary in technology, business enterprise expects a
certain ROI by making investment. Like any other
investment, investment in technology related to nance,