Management at Every Micro, Small, and Medium enterprise (MSMEs) has to rework their Strategy

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Management at Every Micro, Small, and Medium enterprise (MSMEs) has to rework their Strategy

Uncertain Economic conditions are forcing most of the Micro, Small, and Medium Enterprises (MSMEs) to re-examine their strategy book and adapt to the macroeconomic changes faster. Of course, there are a lot of items in the priority list of every MSME. However, if we have to handpick some which are most urgent in nature, then it should be on financial stability, digital transformation, Corporate Risk Management, and Strengthening operational efficiency.

1. Financial Stability

In this volatility, the focus of every MSME should be on managing the cash flow as optimally as possible so as to survive and revive.

 Cash Flow Forecast: Often follow a rolling Quarterly cash flow forecast and update it monthly. This provides great visibility into potential shortfalls or surpluses.

 Accelerate Receivables: Focus on credit terms and ensure the payments are collected on time. Negotiate the terms with your customers and follow up often. 

Optimize Working Capital: renegotiate terms with suppliers, avoid locking cash in slow-moving products/ inventory, ensure no impact on operational aspects of supply chain and also have adequate insurance to cover any unforeseen risks.

2. Digital Transformation

With the advent of AI, investing in digital transformation is no longer a discretionary spend. It has become inevitable to invest in digital transformation if you want to survive in the future.

 Automation: Several mundane tasks from various departments can be automated by adopting AI today. It can be in accounting, HR, customer services, admin or any other such department today.

 SaaS Services: Literally, today, every tech service is available on SaaS. One can subscribe to affordable plans to use and adopt these services. It can be anything, ERP, storing your business data, surveillance information, employee data, etc., even accounting, HR, recruitment all these kinds of services are available on a SaaS basis. One should make the best use of them instead of spending upfront CapEx.

3. Corporate Risk Management:

 Contingency Funds: Identify various risks and their degree of impact on the business. Accordingly, build a contingency plan and allocate sufficient funds to mitigate such risks. This will not only give confidence to the management but also have the team prepared for any unforeseen event.

 Business Continuity Planning (BCP): In most cases, MSMEs are run by close family members. It is not necessary that all of them be professionals and have the necessary experience or academic background of the departments which they are leading. Therefore, it becomes inevitable to plan for BCP. At least a high-level plan on BCP would help the decision makers to choose the best alternatives to safeguard the interests of the organisation.

4. Operational Efficiency

 Avoid Dependency: Avoid dependency on any single supplier/vendor for core components which are critical for your business. Having at least 2-3 such service providers is always best. Also, diversify your vendor base geographically if your business imports core components from other countries.

 Revenue Streams: Similar to vendors and suppliers, business needs to have multiple or complementary revenue streams. Depending on only one product or service would risk the very existence of the business. There are numerous examples in history which explain how the arrogance of management ruined the organisation. Nokia could be one such. Example. If you are selling Cell phones, you can also sell phone accessories, post-sales services, refurbishments, etc.

 Revenue diversification: Revenue diversification is so important today that no business can survive without it. If your business is focused only on a small market segment, always think of diversifying it across the geographies, not only in your country but also in the countries where you find a customer base.

You can connect to Guru Gokak - guru.oceanblue@gmail.com