While the larger credit issues are being addressed by the Governments and regulators, MSME Owners and Senior Management need to define their strategy and create activities to come out of the prevalent challenges. With a clear understanding of their Operational and Financial Strengths, MSMEs would be able to survive, sustain and grow by adopting a 2-pronged approach 鈥� Internal Optimization and Building Global Outlook.

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Internal Optimization

Depending on their challenges, an MSME may use the following strategies:

• Survival
• Sustenance
• Growth

Let me share actions that will support these strategies:

• Realize Revenue
  • It is important to collect the 鈥淐omplete鈥� payment against each order in agreed timelines
  • Assign a dedicated resource to monitor the Payment Collection
  • Incentivize early payments
• Streamline Cash flow
  • Monitor monthly inflow and outflow
  • Identify Shortfalls
  • Explore ways to fulfill the shortfall from receivables
• Optimize Working Capital
  • Monitor Monthly Working Capital Deployment
  • Identify the reasons for excess deployment
  • Prepare an Action Plan to reduce the amount of working capital deployed
  • Check Cost of Working Capital for each month
  • Use new options like Receivables Exchange of India, Bill Discounting through Banks and Purchase Credit Platforms
• Measure Profitability
  • Measure Profitability for each Product / Service / Client
  • In case of lesser profitability/loss check with the Sales / Production team
  • Initiate Corrective Actions
• Improve Resource Utilization
  • Develop Resource Utilization Reports
  • Initiate daily short duration review meetings
  • Conduct weekly review meeting

Download the Checklist

Building Global Outlook

Adopting Digital First Approach that would enable MSMEs to target the World Market while letting Systems drive Internal Processes / Controls. MSMEs need to start the internal Operational Efficiency drive by Implementing an that would give them a comprehensive integrated view of Financial and Operational parameters. Having multiple systems creates data silos and impacts the efficiency adversely. MSMEs may use Cloud as IT Infrastructure and Software as a Service to reduce Capital Investments. This approach will enable MSMEs to drive Digitalization / System Adoption faster. This would improve Business Efficiency and create a strong platform for these MSMEs to capture Growth Opportunities. MSMEs may follow the following steps to help them get a better perspective:

• Understanding the Opportunity
• Preparing to capture the Opportunity
• Initiating the Global Outlook

With these simple steps, MSMEs will be able to get a better perspective of the opportunities available across the world. Once MSMEs start searching more, reaching out to few clients and have initial conversations, their understanding will evolve. They will be able to appreciate various opportunities and explore ways to capitalize on those opportunities.

Revenue is a key measure of a company鈥檚 growth. It attracts additional investment, fuels the capital needed to scale operations, and elevates your brand reputation.

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The post How MSMEs Can Address Their Growth Challenges appeared first on 麻豆原创 India News Center.

Governments and Markets have been monitoring the evolving situation and responding dynamically. The large corporates have the requisite skill and technology to assess the emerging situation and plan their strategy. What should be the way forward for MSMEs? With limited resources and skills to assess and monitor the situations, MSMEs need a different and simpler approach. MSMEs can benchmark themselves against their previous performances and the industry standards. They can define targets and work towards achieving those targets.

A MSME may use the following steps to create benchmarks across processes/functions. The current performance may be compared with the previous best performance or Industry standards.

• Working Capital
• Cash flow
• Profitability
• Resource Utilization

While the industry standards vary across sectors and geographies, some common parameters can be benchmarked against the best practices.

• Inventory Levels
  • for companies with non-seasonal inputs, Inventory Levels should be close to the average monthly purchase.
  • This will indicate faster inventory turnover and lesser chances for inventory scrapping
• Inventory Ageing
  • Under the current circumstances, a company may hold any material which can be converted into finished goods in the next 3 months.
  • If there is any older inventory, it is advisable to liquidate the same.
  • The material nearing expiry in the next 6 months needs to be used for production or sold out at the earliest.
• Receivables
  • Receivable should be close to monthly sales.
  • This will indicate the continuous flow of orders.
  • In the case of project companies, the receivables may be compared to the projected cash flow.
• Payment Collection
  • Payment should be collected on agreed terms.
  • The delay will lead to additional working capital requirements.
• Payables
  • Payables need to be equal to monthly purchases.
  • Compare the agreed payment terms with actual payment.
  • Plot payment receipt from a client with the payment made to corresponding vendor payment.
  • Any advance payments will increase the Working Capital Requirement and Cost of the Product.
• Cash flow requirements
  • The monthly Cash flow gap should be within the Banking Limits available for the SME
  • In case the gap exceeds the Bank Limits, the company will need to delay payment for borrow funds to meet this gap.
• Profitability
  • Define Profitability Target
    • Calculate the Cost of the Product by estimating the cost of your investment to be at the interest rate twice the Bank Rate of Interest
    • Set a target of a minimum of 10% profit on top of this cost.
    • The profit margins for companies with patented solutions/niche products may be higher.
  • Compare Monthly Product / Service / Client-wise Profitability with the target.
  • If the business is profitable with the above cost, your capital will grow over a period of time. Otherwise, you will need to reworks Sales Prices or Costs.

Availability of historical data helps companies identify the best performances over the years and correlate various parameters facilitating the best performance. Company management needs to critically analyze these parameters and establish the benchmarks. Once these numbers and indicators are agreed, company may develop reports in the to review the present performance against these benchmarks. Use of ERP system for benchmarking will ensure that Owner / Management focuses on analysis rather than the data collection.

This will help MSMEs create a baseline for their business. This baseline would help MSME Owners and Senior Management plan across the phases. At the survival stage, they will be able to estimate Breakeven Point and work towards achieving the same. During the sustenance phase, benchmarks will help them conserve cash for Growth. In the Growth phase, these benchmarks would help the company pursue newer opportunities without compromising the fundamentals.

In the second of the MSME thought leadership series, we bring you guides with checklists to prepare your business to become more agile, efficient and resilient. If you missed the previous article about assessing and improving business efficiencies, do check it out. In the next article, we will discuss how an your enterprise can address specific strategies for growth.

Companies large and small are now contemplating how to reopen, recover, and return to profitability after a long pandemic-induced pause. And for 61.6% of midsize companies, this line of thinking includes the possibility of competing in new markets to grow steadily and organically, according to IDC.

Find out how you can and recommendations from the IDC Info Snapshot, 鈥淏usiness Reimagined: Competing More Effectively,鈥� sponsored by 麻豆原创, such as聽why data is a critical part of enhancing competitiveness
which emerging market realities must be addressed strategically and how an interconnected digital system supports agile decision-making

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