Skip to main content

Surviving Covid: How securing cash flows before pandemic is helping small businesses fight better

By Samir Sathe

Credit and Finance for MSMEs: Last three months have proved to be a testimony to the fact that small businesses must focus on securing cashflows, more than ever, if they were to emerge stronger.

Surviving Covid: How securing cash flows before pandemic is helping small businesses fight better

Small businesses have 30-50 days of cash left, globally and in India.

Credit and Finance for MSMEs: The research done by Wadhwani Advantage indicates that the small businesses which were able to secure cash flows before Covid-19 hit us, are showing better resilience in surviving Covid-19, agnostic of industry, region and size. Here, three lessons stand out for us. First, securing predictability, repeatability and profitability of cash inflows; second, securing cash outflows and third, securing cash as a lever to secure talent.

Small businesses have 30-50 days of cash left, globally and in India. The free loans and extended moratoria of the loans as part of the $266 billion economic stimulus by the Indian government, have had few takers. Several reports suggest that there are hardly 33-50 per cent of the eligible existing small business borrowers who seem to have shown interest in the government credit schemes for small businesses. The fixed costs of rentals, payroll is already a burden on the employers. The global economy, barring a few examples, is expected to move into recession soon with India expected to show GDP% between negative 3 per cent and 2.5 per cent depending on how the next three months play out.

The small businesses are struggling to stay afloat and are negotiating at their best, with imminent death. We expect the consolidation is a certainty with anywhere between 3-15 million small businesses facing extinction in 2020. We expect unemployment rates would oscillate between 20 per cent and 30 per cent for most of 2020 and would settle around 15 per cent in 2021. Now, this dire situation could debilitate the small businesses beyond repair, facing extinction or it could cripple them with little strength than the spirit of optimism or it could make certain businesses come out winners.

In my earlier article in this publication, I had talked about 18 guideposts, one of which was securing cash flows. Last three months have proved to be a testimony to the fact that small businesses must focus on securing cash flows, more than ever, if they were to emerge stronger. How did the winning small businesses secure their cash flows before Covid-19 and what are they doing now? Here are three lessons:

  1. Securing predictability, repeatability and profitability of cash inflows: Small businesses that built these reserves before Covid-19 did not do it as a stroke of luck. They consciously exercised financial discipline in securing predictability of cash inflows by choosing whom they wanted to serve far better than those who didn’t and ensured that their products met the expectations of these customers. They secured repeatability by rapidly finding such customers and therefore scaled better than others and they secured profitability by getting their unit economics right. Any businesses which did not do any of these three things are suffering more during Covid-19. During these hard times, the winners are focusing on profits than revenue to survive and thrive better.
  2. Securing cash outflows: It boils down to basics. Small businesses which have used cash smartly have been able to create reserves, have had the opportunity to invest better. The winners spent cash on the top 3 key success factors of their businesses and slashed expenses everywhere else. For example, if the key success factor was building the right partnerships then they spent more cash on that than spending on marketing. During Covid-19 the winners are trying to convert fixed costs into variable, questioning the cost drivers, using digital platforms actively and using a value chain approach in building support from its ecosystem rather than competing with them.
  3. Securing cash is securing talent: We knew that the better talent demands more cash but these businesses have been able to attract talent at cheaper rates simply because talent saw them as stable businesses and hoped for better careers and partly because good talent is more accommodative in asking for high salaries. Good talent needs to see the security in their career progression and secured cash position made them feel either safe or daring enough to take risks because the businesses could afford to take small risks. So secured cash position ensured secured talent. Unsurprisingly, talent also stayed longer as businesses had enough to make them stay. Clearly, a combination of talent and money made it possible for winners to win.

In summary, small businesses could do better by securing cash and learning from their winning peers, even if they are competitors, and clearly charting out a transformation plan that is built on these three lessons.

Source: Financial Express