The biggest challenges facing SMEs today are:
(i) Grappling with business costs: Business costs have not fallen in tandem with the slowdown in business activities. There's been a drastic fall in external demand, and this is phenomenon that is happening throughout the world. And while demand has fallen, the cost of doing business is still relatively high for SMEs. For instance, rental costs have risen tremendously in the past year, yet rental rebates that have been offered by property owners are based on the new increased rates which do not necessarily translate to meaningful savings for businesses.
(ii) Managing cashflow: Cash is king especially in a downturn, and managing your cashflow well is key to keeping your business running. Although your businesses may be viable, there are SMEs who have problems with their cashflow because the banks have cut back on their credit lines or raised the cost of borrowing. The situation is often aggravated as customers default on payments or take a longer time to pay while suppliers demand upfront payments or cash-on-delivery.
(iii) Managing excess or idle resources: Businesses cope by reducing the number of shifts, implementing a shorter work week, introducing no-pay leave and other measures. While the Jobs Credit Scheme has helped lower labour costs for employers and re-training under SPUR is possible is an option to help keep workers gainfully employed, the reality is that employers cannot guarantee jobs if the economic downturn worsens, and there is no sign of the business recovering.
With the downturn expected to worsen and SMEs struggle to cope with cost pressures (mainly from rentals and manpower costs), businesses will have to look at ways and means to cut wastage and reduce costs to ensure that revenue is sustainable.
The common measures are to impose a wage freeze and to implement wage cuts such as cutting bonuses. Companies that have a monthly variable component in their wage structure have the added flexibility to reduce their wage cost.
It would be prudent for SMEs to conserve cash as much as possible, lower their gearing, exercise diligence in recovering debt, give credit terms only to long-term and reliable customers, ask for cash-on-delivery or even advanced payment from ad-hoc customers. Businesses should also keep as low inventories as possible.
SMEs should not shy away from tapping on government assistance schemes such as the enhanced financing schemes – Micro Loans, Bridging Loan, LEFS, LIS, etc – for working capital and trade financing.
Apart from the government-assistance programmes, businesses have also stepped forward to help each other with special arrangements on payment schemes, discounted business packages and barter exchange. On its part, the Association of SMEs (ASME) has a Biz Access Programme which is a platform for merchants offering a wide range of products and services at special privileges to ASME members.
SMEs should also keep an eye on the long term. SMEs should also diligently study ways to strengthen their business model, their product relevance, their key markets, as well as explore new markets, innovation and use of technology to ensure continued business viability.
When exploring new markets or business expansion, look at strategic partnerships to reduce risks and lower financial burden. They could possibly look at appointing distributors, forming joint ventures, franchising models, etc. SMEs should also leverage on the Internet as a means of promoting a product or service and selling to a world-wide audience.
There are opportunities for growth in a downturn. While prudence should be exercised, over-conservatism can lead to missed opportunities
SMEs can approach any of the five Enterprise Development Centres (EDCs) located at the business associations and at EnterpriseOne Business Information Services (EBIS) at the Singapore Business Federation to help with their loan applications for the Government’s enhanced financing schemes under the Financial Facilitator Programme (FFP). The FFP offers assistance on detailed loan process and business diagnosis.
Starting a business in a downturn has its advantages, especially since there is downward pressure on rentals, salaries, equipment and material costs. It is also easier for start-ups to tap on a ready pool of talent from people who have been retrenched.
However, in today’s situation where banks and financial institutions have become tighter on credit control and have held back on lending, it may be difficult for start-ups to get access to financing. It is, however, encouraging to know that there are government financial assistance scheme and grants that SMEs can tap on. These include SPRING Start-Up Development Enterprise Scheme (SEEDS) and the Business Angels Scheme (BAS). The Government has also taken active and timely measures to address the credit issue.
Starting a business is a challenging task, and careful planning must be done to increase the chances of success.
