A hiring freeze happens when the employer stops hiring non-essentials for a certain period mainly to lower expenses and save money at a time of financial difficulty, such as a period of recession or during business restructuring. They may either be short-term or long-term. Employers may assess current employees and reshuffle internal departments for paramount productivity, during a hiring freeze.
What is the gig economy? The gig economy refers to a market structure where there is a greater number of temporary and flexible job contracts compared to permanent employment contracts. This type of economy relies on short-term labour rather than full-time workers who have fixed employment status and are less prone to change. A gig economy sees heavy reliance on digital means to sustain itself. Most of the jobs that belong to the ‘gig’ sector depend on an online platform. In the modern age of the internet, the commonly seen gig jobs are those in Uber, Airbnb, or even courier deliveries. The availability of app-based business creation has enabled businesses that were once brick and mortar establishments to function remotely. However, this does not limit the existence of gig jobs to online platforms. Contract-based hiring is observed in many other sectors as well, like the education sector, where teachers are hired on an ad-hoc basis. FOR FURTHER COMPREHENSION: Understanding the Concept of Gig Economy Why the name “gig”? Previously called the ‘sharing economy’ or ‘collaborative economy’, the gig economy derives its name from the meaning of the word ‘gig’ which translates to a job or event that lasts a specific amount of time. This is used mostly to be musicians or stage performers to refer to their acts. In a similar fashion, the gig economy translates to an economy mainly running on temporarily employed labour. Since most gig jobs are observed in the digital sphere, many people prefer to use the word “platform economy” too. How is the gig economy beneficial? Image Source: ©Kalkine Group Short term, flexible contracts allow companies to run more efficiently as it is a pay-per-job kind of a setup. The gig set up focuses on the output delivered rather than the hours put in. Unlike a typical office set up, where employees are salaried based on their work shifts, a gig job allows the flexibility to the employer to pay the employee depending on the output delivered by the latter. On the employees’ side, gig jobs allow them to explore a more flexible form of work setup. With more relaxed job rules, workers enjoy a better and more defined work-life balance under a gig economy. Moreover, full-time employers own exclusive rights to the work and offer less creative freedom to the workers. The situation is not the same in case of the gig economy, thus leading to a better experience for the employed workers as well. Gig setup could be beneficial at a time when companies are trying to cut down on costs and save up on salaries. Moreover, a gig economy paves the way for a fast-paced setup where people can shift jobs quickly. This resonates well with the priorities seen currently among the working class as people are rapidly switching jobs and are constantly on the lookout for new skills to acquire. But full-time employment is still more liked as workers see their rights and intellectual property secured, they would want to contribute more and stay engaged with the employer. What are the challenges under a gig economy? Most businesses do not see gig type setup in the long run. But things are changing for job markets globally as more and more jobs are becoming gig-based and are adopting an online platform. However, the long run sustainability of such employment is still ambiguous. Regularly paid salaries along with paid sick leaves and many other benefits give the traditional full-time jobs an edge over the temporary, relaxed nature of the gig economy. This means that people looking for security in a job would not benefit from the gig economy setup. Another major drawback can be the absence of minimum wages under a gig economy. Adding to that, the irregularity in receiving job tasks makes contract-based jobs less desirable. For instance, an uber driver could earn a lot on a good day when there are many clients, however, he may also see a day when there are no bookings. This uncertainty in the flow of income adds to financial insecurities associated with gig jobs. Thus, even with a good skill set and formal training, employees might see delayed assignment of work, irregular salaries, and lesser employee benefits under a gig economy. Can a gig economy setup be a good idea in the long run? Contract-based hiring can be beneficial under stressful times when cost saving is on the company’s agenda. Under the scenario of a pandemic, when major businesses are hit due to lesser demand, a gig-based job setup can provide the extra edge to companies. Alternatively, on the employee’s side, rising health concerns might make the prospect of remote or digitally functioning jobs more appealing in the scenario of a pandemic. However, in the long run, the cost-efficiency might wear out with concerns regarding workers’ rights and benefits. If the labour employed is not satisfied with the job setup and does not feel a sense of security, then the job loses its appeal. Thus, it is important to offer financial security as well as intellectual rights security to the workers. While a temporary job structure allows for creative freedom, its high dependency on online platforms makes it reach limited to a select set of individuals who have access to technology. In case companies do not have a brick and mortar establishment, they may lose out on customers who do no prefer online methods or who do not have access to them. The future may see an upward streak in terms of gig-based hiring as companies evolve and change norms. It is imperative, however, to maintain more traditional, offline methods alongside the short-term roles offered by companies of the modern world.
What is Business Process Outsourcing? Business Process Outsourcing (BPO) is a procedure of using a third-party service provider company to deliver operations and responsibilities which otherwise can be done in-house. Typically, in the organisations "non-primary" activities and services are outsourced on a contract basis. Data gathering, Payroll, customer relations such functions are outsourced, which allows the companies to focus on the core areas of business. Outsourcing can be foreign or domestic contracting. Types of Outsourcing Onshore – outsourcing within the same country but different city or location Nearshoring – the country where services are outsourced is located nearby to the contracting country Offshoring – Contracting country outsources its functions in a distant country The services which are outsourced are primarily operational business functions. Also known as subcontracting, outsourcing was once commonly used in the manufacturing industry, slowly the technology companies started to outsource the manpower from other countries, and now BPO services are used in various businesses. BPO vendors provide both back office and front office operation support. The third-party service provider is employed on a contract or project basis to carry out the business functions in a company. Outsourcing has several benefits; hence many companies in the world opt for it. Rather than employing a whole team, companies hire one professional who manages the outsourced vendors. It not just reduces operational cost but also allows a global footprint for the company. While BPO has been efficient for many, there are also drawbacks of overdependence on the vendor and security issues, but with technology in place, these issues are no more hindrance. Image Source: © Kalkine Group Good Read: All You Need To Know About Online Outsourcing Marketplace Freelancer.com What are the common benefits of Business process outsourcing (BPO)? Lower cost: One of the biggest benefits BPO provides to the business is cost control, and this is one of the most acknowledged objectives why organisations outsource services. The third-party services are usually cheaper than having the entire system in-house, such as setting up IT equipment, hiring employees. Most of the time, BPO services are outsourced to the countries offering less currency rate and lower international tax. Many Business Process Outsourcing (BPO) firms are located in developing nations. Developing countries allows businesses to take advantage of low-cost labour markets. Focus on essential business functions: Many technology companies outsource their IT staff from other countries, or even the cybersecurity companies hire specialists from other countries. It is a widespread practice. While setting up a startup, the focus is on core processes, and the non-core functions are outsourced to BPO firms. For instance, if a seed-stage technology startup is striving to get the hold of the market, it will not be bothered with building a customer support system in-house. While having a customer service function is essential, in-house isn't the best place. The startup instead could hire a Business Process Outsourcing (BPO) firm specialised in customer service. The startup will receive the efficient end result in a cost-reduced manner. Businesses can save time and energy for the functions, which are their main business activities that make the brand stand out. Improve speed and efficiency: Another important benefit BPO firms provide is that because they are specialised and experienced in the services they provide; it indeed saves time and efforts of your core team members. When the employees can focus on the core functions effectively, it will improve the overall service delivery. BPO firms also keep improving their own delivery quality to keep up with the competition in the market. They encourage best practices and use the latest technology to provide services. Naturally, the end result is better compared to the in-house setup. Expanding global footprint: If the organisation decides to enter overseas markets such as the French market, the company in the US or Australia will not have the required resources to provide customer service in the French language. Even if they do, it will not be at a reduced cost of the level BPO can provide. In such scenarios, the companies send their representative to set up a regional office in the country. Many companies find it better to hire a local partner company with the local workforce and give them the project on a contract basis. As the native workforce is aware of the local market and has a stronghold on language, it helps them produce better results. The local partner company can help you expand your company's footprints on the international stage at a faster pace and low budget. Also Read: Onevue Signed Five-Year Outsourced Managed Fund Administration Deal With AUWCM What are the disadvantages of Business process outsourcing (BPO)? Though outsourcing produces many benefits and the Business Process Outsourcing (BPO) firms, have been a reliable support system for various organisations but if the BPO vendor is not up to the mark, the company may be facing significant risk. You don't want to compromise on the valuable data or become highly dependable on the local partner for operations. Overdependence on the BPO firm: It is more difficult to cut ties with a company than firing an unproductive employee. When the work is outsourced to a BPO company for a very long time, they become an integral part of the operations. They know the company in and out. If the BPO firm is underperforming, it's a vast process to fire them and hire another firm. Therefore, organisations get accustomed to their work processes, and it impacts on the quality of the services. Hidden expenses: The vendor selection process isn't simplistic; It requires time and efforts to search and initiate the procedures to get them on board. The miscellaneous costs, additional consultation fees, legal fees etc. are some of the add on costs which may appear in the last stage of the process. Security risk: Though the Business Process Outsourcing (BPO) companies are under the legal contract, but depending upon the nature of the outsourcing work, the security risk such as sensitive data leak is always possible. These companies not just hold the classified company data but also customer data. Customer data is one of the most expensive assets in today's time.
Working Capital Running a business is not everyone’s cup of tea. This may be the only thing which no business owner can deny. Cruise control feature doesn’t exist in any business, i.e. regular evolvement of business is important and is neither dependent on the number of years of business existence, nor on the industry, the business belongs to such as Technology, Medical, Construction, Service Sectors etc. What is working capital/net working capital? In simple terms, capital refers to money. Working capital is the money that is available to fund the daily operations of a business. Working capital is an indicator of near-term financial position of a business and a measure of its operational efficiency. It shows the ability of the business to meet its short-term obligations/current liabilities through its current assets. Dividing current assets by current liabilities gives the working capital ratio. If a company has $2 million of current assets and $1 million of current liabilities, the working capital ratio would be 2:1 ($2 million/$1 million), meaning that the business has $2 in hand for every $1 of obligation. Likewise, net working capital would give the amount of the funds that a business has in hand to meet current liabilities. In the above example, net working capital would be $1 million ($2 million - $1 million), indicating that business has $1 million of headroom to meet its near-term obligations. Is negative working capital good for business? A negative net working capital would mean that a business may need additional financing to meet its working capital. In simple words, current liabilities in the balance sheet are in excess of current assets. It is an indication of business having higher liabilities. But negative working capital is favourable for select business models at certain times. Consider businesses like Dominos, McDonald’s, Woolworths, Kogan.com, Amazon.com that realise revenue instantly at the point of sale before paying their suppliers. Such business models are high cash generative and fund sales through suppliers. An enterprise with a high reputation with its suppliers may have negative working capital due to their ability to bargain with the suppliers. When the supplier of the business finances parts of current assets, it will save the need for working capital financing and associated interest costs. But negative working capital could be favourable at certain times for some business models. It is because a long term negative working capital can raise questions on the liquidity management of the business. For instance, if a company has large debt maturity over the next year, it will also add to negative working capital. Or, when an enterprise is building inventory in anticipation of a bumper demand over the near future, it would buy more from suppliers and may take short-term debt to support anticipated demand, thereby increasing current liabilities. Moreover, it is imperative to scan financial statements for a period of a few years and find more answers since looking at just working capital of the business may not give a long-term picture What is the working capital cycle? Working capital cycle is the time taken by a business to convert net current assets less liabilities into cash. A shorter working capital cycle means that a business realises cash in a short period of time. It also indicates the operational efficiency of the business. “Turnover is vanity, profit is sanity, and cash is reality” Companies with shorter working capital cycle are relatively more efficient than the companies with longer working capital cycle or a greater number of working capital cycle days. In cases where companies have a longer working capital cycle, it would mean that the business payout period to suppliers is shorter than the period for receiving cash from customers. Receivable days indicates the number of days an enterprise takes to receive cash from its customers from the credit sales made earlier. Inventory days means the number of days it would take to clear inventory through sales. Payable days are the number of days an enterprise takes to pay its suppliers. Consider the below information: Inventory Days: 60 Receivable Days: 50 Payable Days: 100 Working capital cycle would be 10 days (60+50-100). The business takes 50 days to realise the cash made on sales, but it takes 100 days to pay its suppliers. It is understandable that the business takes, on average, 60 days between acquiring the product and delivering to the customer. It is also apparent that the company 100 days of the payable cycle is funded by suppliers, leaving the company with 10 days of a funding shortfall. What causes changes to working capital? Although changes to working capital can be strategic at times, some basic ones include the following. Credit sale agreements: Any changes to the sales agreement would impact the working capital of the business. Usually, B2B businesses are run on credit, if a company reduces the number of days for payment due by debtors, it will improve the working capital cycle and increase cash, but customers could be discouraged to buy more. But when a company increases the credit days for its customers, it will further stretch cash conversion, and the customer could be inclined to buy more. Expansion and inventory build-up: Business expansion requires capital to invests in areas such as machinery, premises, marketing, hiring etc. When a business is expecting sales to be higher as a result of expansion, it may need to be build-up inventory to support the sales. How companies finance working capital needs? Short-term business loan: It is a popular credit facility, especially provided for working capital purposes, where the tenure could be as short as three months. Such financing meets the funding needs of the business during emergencies. Factoring: In this type of financing, the companies offer their account receivables to factoring service providers at a discount, realising cash instantly on an invoice which could be due after a few months. Line of credit: Business line of credit is similar to business credit cards, which can be used for working capital financing. Businesses/Borrowers can draw funds up to the maximum limit of credit provided to them, which depends on the creditability of the business and the track record of success, and pay interest thereafter. Once the repayment is made, the full limit is available again. Debt or equity: Many companies also use traditional sources of funding, especially large companies. While raising funds through capital markets, companies often make provision for working capital purposes out of the total raised money. Banking facilities are also a popular source of working capital financing.
Who is a Financial Advisor? Financial advisors are the professionals who provide financial consultation and guidance to the clients. The financial advisors, based on the understanding of their client’s requirements, provide specific solutions and advice. They earn money by either charging commission on investment or separately charge a consultation fee. The financial advice can be a general advice or a personalized advice depending on professional’s expertise and licence obtained. In general advice, professionals offer overall generic solutions pertaining to interests of a class/group. The onus of financial decision ultimately lies with the individual basis his own opinion and expectation setting. While, in personalized advice, the advice is tailored to meet the monetary objectives and risk appetite of customers. The advice can relate to areas such as investment in different asset classes, tax planning, financial coaching, wealth advice, risk management, insurance decisions, retirement, and estate planning. They cater to financial needs of both individuals as well as companies. The financial advisors can provide the services independently, or they can work for the financial firms. Services of financial advisors are targeted towards increasing the wealth of clients or reducing financial risk, or both. This is done by guiding on investment in alternate return-enhancing or income-generating assets or devising strategies though which cost, and debt can be easily managed. What are the Basic Requisites to Become a Financial Advisor? A financial advisor must comply to regulations and licensing requirements. The right mix of education, expertise in financial domain, well-experienced team, along with license and certification can go a long way to shape the advisor’s performance and clients’ choice. Kalkine Image Let us look at the key elements which are essential to become financial advisors: Educational Qualifications Firms providing financial services often require a degree in finance, accounting, mathematics, business, statistics, or economics from an accredited educational institution. Higher education is not generally required but could be substantially helpful in enhancing the proficiency of advisors. Educational qualifications play a key role in shaping the advisor’s ability to research market and financial information. Registration and Licenses There does not exist an independent license for becoming a financial advisor catering to all areas of financial consulting services. However, depending upon different fields such as stock investment, risk management, tax planning, etc., the individuals/firms require different types of licenses from designated regulatory authorities under specific Acts. In the United States, one needs to pass several tests administered by the Financial Industry Regulatory Authority (FINRA) for getting licenses in the respective area of investment. The licenses may include Series 6, Series 7, Series 63, Series 65, Series 66 licenses. In Australia, one requires an Australian Financial Services (AFS) license for providing various financial consultation and monetary advice related services. There also exists Registered Investment Advisor (RIA) who are registered either with the Securities and Exchange Commission (SEC) or with the Government and regulatory agencies. In New Zealand, there exists two specific Acts pertaining to regulatory regime for financial advisors: Financial Advisers Act 2008 and Financial Service Providers (Registration and Disputes) Act 2008. Certification Lack of a standalone license for financial advisor may generate credibility issues among prospective clients, who may doubt the expertise of the advisor in the field. No one is ready to shell out and waste their resources and money, especially when they are going for a financial investment. Thus, professional certification gives a competitive edge to an individual over many other financial advisors. The individuals can get a designation of Certified Financial PlannerTM (CFP), which is awarded by the American Institute of Certified Financial Planner Board of Standards. The requirements for CFP certification include: Completed CFP Board-registered education program and Passing CFP test Graduate Degree from an accredited institution At least three years of experience in relevant financial planning services Skills and Work Experience Financial advice demands not only providing assistance in creation of plans but also offering consultations to the client. Hence, interpersonal communication skills assume immense importance while dealing with a client. Furthermore, strong aptitude is also critical, especially for those working in the areas of devising financial plans and strategies. The delivery of top notch services can further be enhanced through significant work experience in the same field. What are the Different Types of Financial Advisors? Depending upon the area in which the services are offered, financial advisors typically fall in one of the following categories: Stockbroker- The representative who trades stocks and securities on behalf of the investors is called stockbroker. Stockbrokers can work independently or be associated with a stockbroking firm. The brokers charge a commission for the transaction. Investment Advisor- Registered with regulatory bodies, investment managers, apart from picking securities, offers comprehensive guidance. They work to meet the long-term objectives of the clients through asset allocation. Tax Planner- Tax Planner takes into account varying tax-related factors for devising a plan which seeks to enhance tax efficiency by dodging avoidable taxes. For instance, they may highlight the tax-friendly investment options, which could help in saving some extent of tax deductions. Risk Management Advisor- Risk Management consultants assess the varying risks inherent to a business and can help in mitigating the chances of losses. Both the individuals and the companies are exposed to different types of risks that can affect their returns, such as market risk, business risk and legal risk. The risk management consultants, depending on the nature of the investment and macro-scenario, formulates risk-management strategies. Estate Planner- Estate planning involves advance arrangement for managing and disposing of a person’s wealth before their death or incapacitation. Estate planners help in devising plans which could reduce both the legal as well as financial struggles, the person’s loved ones may face in case of the person’s demise. What Are the Pros and Cons of Hiring Financial Advisors? Pros The expert advice provides an advantage in additional areas which can be oblivious to the investors. The advisors are more aware of changes in legislation and policies which can hurt the investment objectives. Their past experiences can help avoid common pitfalls. Financial planning and investments are well aligned. Hiring a financial consultant saves time and energy. Cons Additional cost burden in the form of substantial commissions and the fee charged by the financial advisors. A financial advisor may have a contradictory interest which may not serve in favour of the client. Poor-quality or inexperienced advisors can affect the overall financial planning goals.