MSMEs have been considered the backbone of the Indian economy. Contributing to 48.1% of export and in turn 31.8% to the Gross Value Added (GVA) of India in 2019, they play a pivotal role in achieving India’s dream of becoming a $5 trillion economy. Owing to the complete lockdown in India due to the coronavirus pandemic, it has become a great challenge for all businesses to keep their financial wheels turning.
The position on MSMEs in India was worst as they are now engaged in a battle for survival
-Nitin Gadkari, Union Minister
It is expected that India’s growth rate in FY 20-21 will be down to 2% as opposed to the initial forecast of 4.7-5.2% by ICRA. Having low cash reserves and low shock mitigation abilities, the impact on Start-ups will be considerable. To alleviate the situation and survive the COVID19 shock, entrepreneurs will have to re-visit their business strategies and incorporate crucial changes in their Business Plan.
Let us have a look at a few things start-ups and SMEs can do to survive the lockdown:
1. BRAINSTORMING SURVIVAL STRATEGIES:
Bounded Optimism
The Outlook of the leader greatly reflects on the team and in turn, the business. The US has faced the brunt of almost every economical disaster in the last 120 years, but the Dow Jones index has always bounced back. As the stock market is very susceptible to economic changes, we can be sure that the situation will be better. But looking at the various recovery periods our optimism should be bounded. Not an optimist, neither a pessimist. Be a REALIST.
Re-organize according to new demands:
Start by fully understanding which parts of the business are at risk of disruption and prioritize the different problems and opportunities faced. Take this time in the lockdown to do a proper SWOT and PESTEL Analysis for the company. Check the feasibility of the business model and plan short term and long term policies accordingly. In these tough times, sell what sells and cease doing what does not work.
Flexible Hierarchy:
Senior executives should be willing to take on more work and offer some more responsibility and liberty to the employee teams, to facilitate quick responses. Regular full team virtual huddles in the form of Zoom meetings to brainstorm over products, expenses, and strategies is the need of the hour.
Make efficient use of assets:
A company’s assets can be classified into people, intellectual property, capital or technology which it can leverage to create value and generate income. Use your assets to raise temporary capital.
For example, the asset for Dhipromethi Consulting is the people. Online webinars or blogs discussing the COVID19 impact is a great way to remain relevant and also raise some money.
Offer remote services wherever possible.
Corporate Start-up Partnership Programs:
Enlisting your start-up in a start-up engagement program or partnering with companies with resources to fight the economic impact of the pandemic. Rocketspace is a great start-up engagement platform to start with
Taking Advantage of Government schemes and incentives:
The Industry has listed several issues that demand the government’s intervention. These include an extension of the moratorium for at least six months, enhance working capital loan limit for MSMEs, waiver of charges on utility bills, the inclusion of certain goods in the category of essential commodities, payment of salaries to workers during lockdown from ESI and Provident Fund reserves, and making all expenditure incurred on education and health institutions tax-free. Devise your strategy around so as to reap the maximum benefit from the grants and schemes passed by the Indian government.
2. MONETARY SOLUTIONS:
DECREASE EXPENDITURE:
Renegotiate supplier contracts:
Try to negotiate with the existing suppliers to lower their prices or give a discount during the time of crisis. In exchange for this, a promise of longer contracts could be made.
Review Online Subscriptions:
Cease the unnecessary online subscriptions
Scale back on Office Space:
Consider the remote working option even post lockdown. This will reduce overheads. Subletting the unused spaces will fetch extra income.
INCREASE LIQUID CASH:
Use Invoice Factoring:
If you really need cash on hand, turn to invoice factoring. For example, if you have an invoice of Rs. 10,000, then selling the invoice for Rs. 9,500 will give you Rs. 9,500 liquid cash but a net loss of Rs. 500
Collect outstanding debts:
Collect all the cash people owe you.
Consider encashing the investments:
Depending on the need for liquid cash, sell your stocks, bonds, etc. and raise capital.
Government Schemes:
Asking for government grants, making use of the ease of tax, etc.
3. HANDLING EMPLOYEES AND CUSTOMERS WELL:
Hold on to workers, but introduce pay cuts and defer bonuses:
Refrain from letting loose staff in their time of need. However, a small cut in their salaries would save a few bucks.
Scale back perks and fringe benefits:
Rescind the yearly bonuses and other perks on a strictly temporary basis
Inspiring Confidence in Employees:
Working from home can hinder productivity and hence it is imperative to foster employee engagements and inspire confidence in the team.
Communicate Transparently with your customers and stakeholders:
The Costumers and Stakeholders can understand that we are in this together. Offering Gift Certificates to loyal customers and promising added benefits to investors should keep them happy.
4. REMAINING RELEVANT:
Marketing and Branding:
Limit the marketing and branding schemes that are draining your cash. Instead, focus on branding through webinars and free online marketing media
Customer Retention:
Keep in contact with your long-term customers, stakeholders as well as suppliers through ZOOM meetings and regular virtual conferences.
Apart from this, our Prime Minister Narendra Modi announced an economic package of INR 20 lakh crore on 12th May, 2020 towards economic reforms and the self-India spirit. Given a proper business strategy and a united front in making the plan work, MSMEs can tide over the massive economic challenge better.
Comments