How can Small Businesses manage cash efficiently amidst COVID-19 disruption?

Businesses across the globe have taken a hit due to COVID-19 Lockdown. A temporary shutdown in India resulting into disruptions in Supply Chain, overstocked supplier inventories, conservative consumer spending, fixed overhead costs and overdue vendor payments is causing a huge strain on the financials and cash-flows of many SMEs in India. A survey by FICCI, of 317 companies found that 73% of businesses have reported a fall in the number of orders. During the survey, 50% of the respondents said that their inventory levels were up at least 15% or more.

How Government is coming up with different reliefs

  • RBI recently introduced Long Term Repo Operations worth Rs. 100,000 Crore to help Banks increase Lending at cheaper interest rates.
  • Government-run Banks are being encouraged to keep loans worth 60,000 Crore ready.
  • FM announced the extension of the last date to file belated ITR and GSTR for all businesses from March 31stto June 30th.

Despite these initiatives, you need to focus on a few more things to maintain the cash flow of your Business during the crisis.

  1. Keep daily business Financials up to date to understand the best possible action to keep Business afloat. Estimate different scenarios for the best outcome in terms of Financials
  2. Proactively communicate with your Financersabout current business situation, Sales figures, Collection figures. Deeply engage to understand your obligations and work with them to meet them. A strong credit history is essential for getting future funding lines for your business
  3. Seek payment extensions from your suppliers. In case of any existing standing instructions with Auto-debit facility; speak to suppliers for an extension.
  4. Speak to your Customers and collect updates on payments. It is important for a healthy cashflow to get regular repayments, explore pre-payment and part-payment options.
  5. Closely monitor relief measures announced by Regulator and Government.
  6. It is important to Identify variable costs followed by the Categorization of essential and non-essential costs with ramping up efforts to cut down non-essential spends. Minimizing Operating expenses can provide some relief on liquidity.
  7. Managing Inventory Optimally; 70-80% of the sales usually comes from 10% products, in terms of consumption, 80% of the value of inventory would be held in about 20 percent of the items. So, focusing on high churn inventory items may also be a good idea.

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