The Medium, Small and Micro Enterprises (MSMEs) are the backbone of India’s economy. The country’s negative growth of 7.3% for FY 2020-21 means this backbone is severely dented and needs to realign and re-engage its efforts towards smarter and economical ways of undergoing business processes. Here is where the role of technology comes into play.
With the pandemic, a large number of MSMEs in India are battling for survival and their credit requirements are compounded from a year ago. In addition, MSMEs now have to adopt digitization. Although this can be considered as the silver lining to the cloud of despair brought by covid-19 induced lockdowns and restrictions, unfortunately, MSMEs are gripped with the lack of technological knowledge and awareness.
In the present scenario, there is no denying that MSMEs facing liquidity crisis along with other major issues need whatever help they can get. So, here are the top five ways in which MSMEs can manage their finances better and focus on rebuilding their business.
As MSMEs prepare to bounce back from a coronavirus-induced economic upheaval, they will once again have to think about meeting their working capital requirements. The lack of such a vital element is a persistent deterrent to the growth of a business.
Banks and non-banking financial companies are becoming more conservative by the day when it comes to lending primarily as they want to combat a build-up of non-performing loans and liabilities. So, MSMEs can, in turn, approach structured finance companies who offer strategies such as off-balance sheet accounting, legal and corporate restructuring or the use of financial instruments for credit, both working capital and loans. This is ideal for MSMEs who then do not have thorough documentation to prove their credit worthiness and are instead exploring unsecured lending opportunities to easily advance their business cycle.
MSMEs face the problem of the absence of distribution channels that connect insurers to them. As new challenges are bound to emerge with the fast adoption of technology and digitization and with cyber threats lurking around, the first step in this direction is to insulate MSMEs from any threat to their business by insuring them.
From agriculture, automobile, pharmaceutical to processing, adequate and appropriate insurance could act as an enabler and prevent any knee-jerk impact to the business in the event of any imminent catastrophe.
MSME minister Nitin Gadkari in a recent press conference spoke about the need for the technologically-advanced minds to provide MSMEs the opportunity to choose suitable software for their businesses. With the help of these, MSMEs can mitigate reliability on additional resources and consequently cut costs.
For instance, using software that enables easy accounting and book-keeping can be beneficial for MSMEs. This will help them establish a transparent accounts system, as well as, centrally organize their business instead of being dependent on multiple stakeholders for crucial business operations such as managing sales records.
For MSMEs, some tasks do not need intellectual labor and can instead be performed by machines. Simple basics like an online catalog to detail products and services, using technology platforms to register pending orders, and producing automated bills and payment slips instead of manual entries, etc. can be adopted. This will not only save time but improve the efficiency of the business and ensure transparency, as well as, precision. Automating the everyday processes that may not require high acumen and skills is a crucial requirement in times of labor shortage and credit conservativeness.
One of the ways for MSMEs to build their network and garner support from peers is by collaborating with others for technical support. Listing your business on a marketplace and allowing orders to be taken digitally via an alternate business that acts as an enabler is a classic example of collaborating for technical support.
For any business to get noticed in this digital-first economy, merely having an online presence is not enough. Businesses need to walk to the customer instead of the other way around. In such a scenario, helping each other via subtle competition and robust cooperation can work in favor of MSMEs.
To summarize, adopting alternate means of financing, simplifying everyday processes by resorting to technology and collaborating with peers are some of the ways in which MSMEs can better manage their finances.
(The article was first publised on thesmeindia.com)