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 – Internal Optimization and Building Global Outlook.

Download the Checklist

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 “Complete” 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’s growth. It attracts additional investment, fuels the capital needed to scale operations, and elevates your brand reputation.

Discover the latest insights and recommendations from IDC Info Snapshot, “,” sponsored by 51·çÁ÷that can help you drive continued growth, even during times of volatility.

The post How MSMEs Can Address Their Growth Challenges appeared first on 51·çÁ÷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, “Business Reimagined: Competing More Effectively,” sponsored by SAP, such as 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

The post How MSMEs Can Create Benchmarks For Growth appeared first on 51·çÁ÷India News Center.

What is a MSME?

The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 micro, small and medium enterprises engaged in the manufacture or production, processing or preservation of goods as specified by investment. A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh, a small enterprise is one where the investment is more than Rs. 25 lakh but does not exceed Rs. 5 crore and finally a medium enterprise is one where investment is more than Rs.5 crore but does not exceed Rs.10 crore.

MSMEs may be categorized into Trading, Manufacturing, or Service enterprises based on their activities. The individuals promoting each type of enterprise demonstrate distinctive characteristics. Traders are very good with numbers. Manufacturing set-ups are created by Technology enthusiasts passionate about a problem they would like to solve. Service Enterprises work with a mindset to improve the life of the target client base with their services. These enterprises experience different growth curves based on a variety of External and Internal factors. While External factors are beyond their controls, the SMEs need to work on the internal factors to ensure that they remain agile to capitalize on the growth opportunities.

Ongoing Pandemic and resultant lockdowns have hampered the economic activities globally. The cascading effect on SMEs has been distressing. Globally, more than 90% of the SMEs have been impacted. These SMEs reported Revenue Decline in the range from 20% to 90%. Adoption of Technology proved to be the critical factor for the SMEs to resume operations under restrictions.

Historically, an economic downturn of this magnitude leads to a bigger peak in the subsequent recovery cycle. The Economic Recovery has already started. Various international agencies have reported the developing economies to grow between 8 to 12% this year. This recovery will create tremendous growth opportunities for SMEs.

To prepare for the growth opportunities in the post-COVID World, all the SMEs need to:

• Assess their Current Situation realistically
• Benchmark Themselves against peers and industry standards
• Identify strategies to address their current challenges and grow

In this article, we are going to focus on the Assessment part.

Assessing the situation

We are going through unprecedented times. The MSME owners or Management has not faced such situations earlier. Hence, all the stakeholders must come together and realistically assess the status. As the situation is continuously evolving, the company also needs to calibrate the response periodically. For successful calibration, the company will need to create a baseline.

To establish this baseline, MSME Owners need to review their business in the following 3 phases:

• Pre-COVID Era
• Pandemic Period
• Unlocking Phase

SMEs need to take a comprehensive review of their business spanning across all the functional areas. The following parameters need to be covered. Click here to download the complete checklist

• Financials Aspects
  • Revenue Generated in each Phase
  • Trace changes in Receivables across the 3 phases including:
  • Costs
  • Profit
  • Cash Flow
  • Working Capital
• Operational
  • Plant / Set-up Utilization
  • Equipment Maintenance
  • Inventory
• Human Resources

Assessment of these parameters will help an Entrepreneur / Senior Management get a clear understanding of the status. Having an would be a great advantage as it would capture most of the data required for the assessment. ERPs provide preconfigured reports for Profitability, Monthly Cash Flow and Operational Efficiency. This would enable companies to conduct effective monthly reviews.

In the first of the MSME thought leadership series, we bring you three guides with downloadable checklists to prepare your business to become more agile, efficient and resilient. In the next article, we will discuss how an your enterprise can benchmark itself against the industry’s best practices.

Midsize businesses today are thinking about how their operational efficiency and agility can help them to weather future storms and seize new opportunities along the way. In fact, 33% of midsize business identify “becoming more agile and flexible” as a top five priority, according to the IDC Info Snapshot, “Business Reimagined: Driving Greater Efficiency and Resiliency,” sponsored by SAP.

Read the to discover how your business can connect, grow, and win by renewing efficiency and agility with more resilient supply chains, data-driven decision-making, and a workforce supported by intelligent systems.

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