Financial Management Guide For SMEs/MSMEs: Tips To Drive Profitability

There is nothing in saying that SMEs/MSMEs (Medium, Small & Micro-Enterprises) are the most significant pillar for a country’s economy to be lied on. They not only contribute over 95% of the businesses in OECD Nations whose members have a considerable role in global trade, but they are also responsible for creating great job opportunities in countries around the world.  

Irrespective of their immense significance in a country’s economy, many small businesses are still struggling to find financial support & are unable to meet their financial goals due to the liquidity crisis. Bank & FI’s rigid policies towards lending to SMEs, and the longer & strict process of evaluating creditworthiness can be considered as one of the contributory factors towards this situation, the global impacts of Covid-19 are also making this situation even worse. 

Several reports are showing SMEs/MSMEs' negative growth for FY 2020-21, making it clear that this sector has been severely injured during a pandemic and needs to rethink its strategies towards smarter & economical ways of conducting business processes. Although digitization can be a silver lining for SMEs/MSMEs, they have a lack of technological knowledge & awareness. In this blog, we have discussed a few ways that can help SMEs/MSMEs to manage their finances better and run their business activities uninterruptedly. Let’s have a look:

We believe that making policies for handling a business’s finances without getting an idea of what's going on in your financial world is not worth it. For SMEs/MSMEs, the very first step towards financial management is to track financial activities so that they can understand the current finance scenario in the business and better finance strategies can take place. Start by evaluating the current financial scenario. Create a detailed description of all your debts, outstanding payment & stock. Once you get a clear picture of your financial health, you can make better plans to remedy the situation.

As small businesses are on their way to recover from the sudden Covid-19-induced global economic disruptions, they are required to rebound their strategies about meeting their working capital needs. SMEs often struggle to get loans from traditional banks as they have smaller balance sheets and FIs are becoming more risk-averse day by day when it comes to lending. So SMEs/MSMEs can, in turn, approach professional trade finance services offering a range of international trade finance instruments. From Letters of Credit to Bank Guarantee & Documentary Collections and many more. The most favorable part is that these companies offer short-term funds to SMEs/MSMEs without thorough documentation to prove their creditworthiness that saves lots of time & enables SMEs/MSMEs to access funds quicker.

SMEs/MSMEs often struggle with cash flow discrepancies and find it difficult to pay their vendors or suppliers on time. To cope with the situation, SMEs/MSMEs can negotiate with them and try to convince them if a delayed payment is possible. It may happen that the suppliers or vendors don’t need immediate payment at a moment, and can allow your pending payments on a specific date or period. Grab this opportunity if possible and ask for such favors.

In addition to negotiating the payment with creditors, SMEs/MSMEs should also find out if the debtors can pay them on time. If the debtors are expecting a cash flow crisis for a particular period and are unable to pay you on time, find out if they can make payment in installments periodically. Encourage customers to pay on time by offering them added incentives like extra discounts etc.

SMEs/MSMEs often struggle to connect with insurers due to the lack of distribution channels. The growing need for adopting technologies & becoming tech-savvy can trigger various cyber threats to different industries. Small businesses need to get their companies insured first to protect themselves from any online fraudulent activities. From automobile to processing, an appropriate & suitable insurance action can enable SMEs to prevent future online business threats.

Financial advisor, Mr. Ngulminthang Lhanghal thinks that SMEs should start adopting suitable software to automate the processes to survive in the globally competitive world. It will save their time & costs of labor, improve the efficiency of business operations as well as eliminate the need for manpower for processes that can be performed by machines. Small businesses can take an initiative, for example, by providing a simple online catalog stating products & services, using technological platforms for customers to register with such as ChatBots, or generating automated bills & payment slips instead of entering them manually. Automating the tasks that may not require intellectual labor & skills can be crucial for SMEs/MSMEs for labor shortage and capital crisis.

One of the most effective ways for SMEs/MSMEs to expand their network & seek peer support is to get their business listed on a marketplace where orders can be received digitally by collaborating with others. If you are willing to get your footprints in the digitized global economy, only having an online presence is not enough. SMEs/MSMEs are required to talk to the global customers and should establish robust collaboration with them. 

Running a small business comes with plenty of challenges and applying these financing tips can help SMEs/MSMEs to simplify their daily business operations. Follow them to avoid lack of funds and ensure a sound financial status combined with global opportunities.