Every crisis brings in new opportunities and turning all disadvantages to one advantage is the true sign of brinksmanship.
Wikipedia describes brinkmanship as the policy or practice of pushing a dangerous situation to the brink of disaster in order to achieve the most advantageous outcome.
The partners are aware of this art of the game pretty well. Sailing through rough sea has been the order of the day for them. But the IT channel better learnt to develop the resilience perhaps a few years back when the world was witnessing a general slow down.
It was post 9/11 when every organization, even with the best of processes and planning, felt the urgency to think and act differently. But to bravely cross such hurdles and manage financial apparatus remain an all time challenge for them though time and again the channel agrees that the uncertain era has definitely taught many companies to become more organized.
When we sit on this side of the fence and try to chart out tips for the channel, the foremost idea that weighs in our mind is how we can advise them to take care of their finances and gain maximum profit. There are many traditional ways of putting things across on finance and tax planning.
The channel partners are currently facing a situation in which revenue from traditional sources has declined or at best is reaching a saturation point. This makes financial management more challenging. Now, let’s look at things which are emerging in an innovative way.
One such roadmap the disties and VARs have given themselves is exploring the option of making public offering through stock exchanges. Other such initiatives in the pipeline include merger, acquisition and importantly the strategic investment.
First things first, when it comes to weighing options for ensuring the roadmap to grow inorganically, similar to what software giants did a few years back smaller IT players are now chipping in stock trading.
Redington raised over Rs 150 crore though its Initial Public Offerings (IPO) after the Chennai-based provider of IT products and support services, opened with premium of 24 percent over its offer price of Rs 113 per share and touched an intra trading high of about Rs 150 in BSE and nearly Rs 135 on the NSE. Similarly, Tulip IT raised about Rs 100 crore.
A few other companies are also trading in and a staggeringly high amount of Rs 300 crore has been raised. These positive developments have, therefore, prompted other smaller IT players and VARs to keep a closer eye at the stock exchanges and are in the process of consulting experts to enter the ball game called primary markets for funds. And they have reasons to cheer on this as market experts believe that even investors are now looking at smaller players with clearer future prospects.
A senior Redington executive did not mind sharing with us that their being in the market successfully has encouraged more solution providers and VARs to explore the markets for funds.
The company expects 18-20 percent growth in revenues by the fiscal 2007-08 even as the distributor is likely to catch on the bandwagon of Supply Chain Management (SCM) with services likely to contribute towards higher revenues.
No wonder, companies like them are talking much about excellent buying opportunities for investors as the markets do look upward moving.
Stock market analysts believe it is likely to encourage many more solution providers and system integrators to explore the primary markets for funds. Delhi-based Team Computers is already toying with the idea of trading through stock exchange.
Among other priorities of management would include setting up new business units, geographical expansion into hitherto vacant slots and strategic acquisitions.
There is also the option of bringing in strategic investors both from within the country and from overseas. This can help in creation of niche and vanilla system integrators can scale up to become end-to-end solutions providers.
Financial managers in VARs and system integrators obviously face another gigantic task on how to tackle their pressing problems like taxation and other financial problems.
Tax planning may sound a Herculean task but there are simple ways to reduce, if not completely eliminate, tax burden if a partner knows how to use business-expense tax deductions to his advantage.
Having stated this, I am also aware that for a small reseller there is little scope in planning his indirect taxes as almost all the vendors sell through national distributors, and the resellers buy the products from them with the taxes already included in the cost price.
There is another aspect, in small place like Gorakhpur or Jalgaon, most of the players don’t generate bills and evade taxes, and this trend has become very serious. It definitely affects players who pay taxes regularly in the form of increased competition as evaders save on capital.
One way to save on tax is to increase the number of shareholders to spread profits and lower tax liability. In fact, there is a lot of scope in minimizing the service tax as well. For minimizing this, a partner needs to file a separate quarterly return and provide evidence in its support.
Lack of awareness among the partners is one of the biggest challenges with respect to tax planning and financial management. It is time partners take this seriously as planning taxes is the key to a tension-free and professional way of doing business.
The vendors can also play a major role in creating awareness and sensitizing the channel on the need for proper tax planning and various nitty-gritty of financial management.