A publicly traded Indian company manufacturing underground mining machines set up a wholly owned subsidiary [WOS] to manufacture certain key electrical items with a technical know-how from a UK company. The low initial operations of the WOS did not justify having a full-fledged accounting department in house. It was therefore decided to outsource the entire accounting, direct and indirect tax compliance and other regulatory compliance assurance to an outside agency. Sterling having earlier satisfactorily executed a similar project with the Group was called in to provide these services.
As a green field project there were no precedents and practices to follow. For substantially long period of time the client was to have only development activities requiring proper capitalisation of expenses. No formal organisation structure existed. Advising client on selection of accounting software, keeping in view the business projections, posed an intriguing challenge. Setting up the General Ledger visualising the immediate activities and future business transactions required a lot of foresight.
How we helped:
With its prior industry experience Sterling quickly set up an accounting frame work on which client accounting system was to be built. Based on the discussions with the client on the immediate and future business activities and the projected business volumes, we advised client on selection of the accounting software. GL accounts were created envisaging various business activities. A qualified and well trained accounting employee was dedicated to the client job exclusively working at the client site, with a senior employee periodically reviewing the work. With the increase in the business volume another employee was added on the job later.
The client saves about half a million Rupees annually in manpower costs besides converting the fixed costs of staffing a full fledged accounting department in to a variable cost. Management could focus on core activities of product development and marketing. With low fixed costs, the client has been able to generate substantial cash flows on a comparable gross margin.