By Wendy Liu-Finnex 8/4/2020
A recent study by Tsinghua University and Peking University estimates that 85% of the SMEs in China will run out of cash in a matter of 3 months with 2 thirds running of of money in 2 months. This is a bleak outlook given the already slowly economy the world is facing prior to this pandemic event. Now the gravity of this problem has come to our shores
So what is cash flow and why is it so important to SMEs?
There 3 main activities of a company’s cash flow flows thru are the Operating Activities , Investing Activities and Financing Activities. During an external economic shock like the current Covid-19 , all 3 activities are deeply affected. The bulk of a company’s cash flow stems from its operating activities which includes its receipts, payments to suppliers, salaries , rentals and other operating expenses and revenues. Cash in this instance is of paramount importance to the very existence and wellbeing of the company. Working Capital in other sense is important. In normal circumstances, the health of a company is determined by the state of its Working Capital. A positive Working Capital is required for a company to fulfill its short term debt and upcoming operating expenses.
The ongoing trade war that was waged between China and the US had already brought about a slowdown in the markets and adding fuel to fire, the unexpected pandemic created a situation that has caught us off guard. Many if not all businesses are affected. An associate recently shared a conversation he had with a friend. And he quote, ” We were lamenting about the impact this virus has on our all business but at least the undertaker is not affected!” Words spoken too soon! There after he said they were proven wrong when social distancing measures came in, all the funerals were dramatically cut short or with no frills. Therefore even the undertaker is severely affected! This shows that we are all not immune to external shocks. Now with Circuit Breaker in place, everything has gone much worse. With Operations almost grinding to a halt, how can are firms able to generate enough to continue to have a positive cash flow?
The logical way is for the companies now to take a step back and rethink their strategies.
The following are steps we are all take to realign business strategies :
- Looking inwards and analyse the current activites. Are you doing too much garnering too little or bit-part results? Which are the lucrative or better performing activities? It might be time to realign and stream line that in accordance to company strengths and weakness.
- Relook in cost management , expenditures and other operational cost via cost analysis. Optimised cost and profit model.
- Improving inventory and credit management. Improve receivables position to improve working capital management.
Fortunately Government with a slew of measures to aid the local businesses. With Enhanced Enterprise Financial Schemes such as the Working Capital Loan, Trade Loans , Loan Insurance Scheme and Temporary Bridging Loan Programme, the Government is aiming to help our local SMEs weather through the storm. So should you take up the aid? Lets ask this few questions :
- Would the company’s cash flow last the next few weeks or even more with substantial lost of incoming revenue?
- How liquid is the company’s assets or cash flow?
- Are receivables expected to be delayed or coming in on time?
If the answer to any of the above 2 is negative then its best to consider financing options. With the terms and conditions of the financing programmes at all time best with increase quantum, it might be the best time to boost your working capital or equipped the company with financial instruments like the trade loan facilities that allows the company to utilise short term loan to facilitate frequent trading. Thus freeing up pressure on cash flows. There are much more to be done and at a time like this where everything slows down or even ground to a halt, its the best time to really rethink and do a major Reset to welcome the new phase- Recovery.
Our partners Finnex , is equipped with expertise to be able to conduct in-depth business analysis to optimise the company’s cash flow and stream line operations. On the other hand, with the vast experience and strong working relationship with 51 financiers and more coming onboard, they are poised to be able to assist you in obtaining the much needed financing reprieve and improving credit management as well as obtianing various financial instruments . Contact us at the below options for a no obligations analysis.
Lastly, i hope we are stay strong, lets overcome this great adversity together and emerge stronger then before. #SGUNITED