Dr Vivek Bindra, Founder & CEO, Bada Business Pvt Ltd

A Human Performance Improvement  Pioneer, Dr. Vivek Bindra helps in  Driving Business Results through Performance Effectiveness. Dr. Vivek Bindra is the Founder & CEO  of one of the largest and most progressive organizations – Bada Business Pvt. Ltd. (formerly known as Global ACT).

Covid 19 combined with the lockdown has hit nearly most businesses – from micro and small to medium to even the bigger enterprises – with varying degrees of severity. While it has been more damaging for some particular sectors than others, most small businesses across sectors have dealt a body blow. The double whammy of supply chain uncertainties and fall in demand has even led many to fold. And those somehow managing to stay afloat are faced with dire financial challenges.       

Stemming from all-round supply chain breakdown, a disruption in cash flow, and lack of ready-to-use liquidity has been the biggest financial challenge for small businesses in the times of Covid-19. As a result, while they have been finding it difficult to settle their accounts smoothly vis-à-vis their vendors and partners, the delays in payments from customers, particularly bigger businesses including public sector players have spelled a financial paralysis of sorts for their own businesses. In an estimate, more than Rs 10,000 crore was pending towards micro and small enterprises until April this year with about Rs 2,040 crore pending in central ministries, departments, and PSUs until mid-June. This has also come to impact their working capital flows without which running any business is nearly impossible. And to make matters worse, the drying up of credit in Covid-dictated lean times has completely thrown their businesses out of gear. Even for the loans which have been sanctioned by the government on account of Covid-19, there has been a wide gap between sanctioning and actual disbursal. Notably, most of them are already outside the formal credit system due to high-interest rates and excessive collateral requirements.  

What are the ways in which small businesses can meet these Covid-dictated financial challenges?

Reworking variable cost structures

The first step is to rework your cost structures. This involves revisiting your variable costs with an eye on instantly reducing cash outflows. This could range from cutting back on non-essential administrative costs as well as discretionary spendings such as unnecessary travel, meetings, and functions to smartly tackling your non-permanent labor costs. You could reduce the non-permanent headcount either by redistributing work within a curtailed pool of contractual employees or by way of allocating and redistributing relevant tasks to in-house permanent employees. 

Managing fixed costs through creative HR strategies & rescheduling current liabilities 

At the same time, you have to give attention to your fixed costs through a mix of imaginative HR policy tools and rescheduling of fixed cost liabilities. Come up with HR strategies to rationalize compensation structures such as reducing salaries of higher grade employees in order to protect the lower-salaried employees. Besides freezing fresh hiring and salary hikes while holding up bonuses and overtimes, you could reorganize office time flows by devising a four-day a week work or even a 15-day month. Also, encourage unpaid leaves and early voluntary retirement if possible. At the same time, you must negotiate with all relevant partners with a view to rescheduling/postpone your fixed cost liabilities such as loans, rent, utility payments, etc. which would give you a breathing space in the short term. Timely communication is the key in this respect. Also, you should delay your capital investment and long-term acquisition plans.     

Finding alternative revenue streams

If the nature of your present product and services has been the reason behind Covid-dictated struggles and even failures, don’t wait for the virus to go away. Pivot towards similar or new product and service offerings with new pricing strategies. We have seen how many companies have successfully shifted to making of masks, ventilators, and PPE kits spurred by Covid-19. The idea is to reinvent yourself quickly and not to allow the ‘downing of shutters’ altogether.    

Creating additional routes for securing due payments 

If your business has reached a do-or-die stage while your customer is not being able to meet their payment obligations immediately due to their own financial pressures and are looking for an extension or rescheduling of some kind, you could ponder dynamic discounting to them for early payments. Although this may cost a bit in the short term, it would allow you to remain in business with the possibility of making a comeback. At the same time, you could also consider options such as Trade Receivables Electronic Discounting System (TREDS) by uploading your invoice on the portal. 

Addressing working capital flow in a balanced manner  

Typically in ordinary times, there is an overriding focus on inventory as compared to payables and receivables. In other words, topline and sales is focused upon more prominently. However, during challenging times when working capital is hard to come by, businesses must employ a balanced approach with a focus on all the three elements of the working capital supply chain.  

Collectivising & sharing a few operational costs with peer businesses

Like you, there would be several businesses facing similar financing and cost issues as a result of Covid-19. Especially if your businesses operate in physical proximity to one another, you could think of sharing certain logistical, transportation, and utility infrastructure and services which would relieve the cost pressures for both the parties.     

Exploring alternative modes of credit/finance

If you are really hard-pressed for cash and traditional sources of credit and finance are not forthcoming, there are alternative sources available these days. But to avail of these sources of funds, you have to go digital. While peer-to-peer (P2P) mode allows an interface between borrowers and lenders online, crowdfunding is another popular tech-enabled online source of financing which entails rewards based, donation-based, and equity-based financing models allowing you to choose as you please.     

Although the government has put in place a number of measures including making priority sector lending to SMEs mandatory, instituting a bankruptcy law empowering small creditors, the introduction of long-term repo operations (LTRO) by RBI, these high-sounding measures have not translated into real benefits on the ground for small businesses. As such, besides sanctioning additional working capital, granting a moratorium on loans, and mandating early payment of dues, the government must ensure that there is no time lag between sanctioning and disbursal of loans. 

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