Covid & MSME: Challenges, Responses and Opportunities – My Views
Earlier today, I got an opportunity as a speaker in a panel at SKOCH Summit which was aggregating opinion on the challenges faced by MSMEs in India due to Covid 19. My topic was “Salaries & Fixed Expenses”. Due to Covid-19, the summit was held over Zoom, something that we all have to get used to but with such digital summits one thing is time management and hence, I was unable to speak of all the matters that I had thought about due to the paucity of time.
Hence, I thought of publishing my thoughts here on my blog.
So here is my full version of the speech:
“Good Afternoon Everyone! Its a pleasure to speak to all of you at this summit.
We are truly in an unprecedented zone right now. People who are debt free and have cash equivalent of 12 months or more can think crystal clear. Rest are all grappling and having a nightmare of the future ahead. I call this, the mother of all disruptions something probably none of the business schools would have taught. A disruption where economic activity is interlinked with personal health. A true black swan event!
Problem Area:
1. This is a pandemic and there is no sight of a solution just yet. It’s important that plans are in place for any organisation for a period of 9-12 months.
2. Fixed cost expenses have to be reduced. For a company like us which is into Software Development Services, our fixed costs broadly are:
a. Salaries
b. Office Rents
c. Electricity & Internet
d. Office Maintenance expenses
e. Tools or softwares for business processes (Accounting/HRMS/CRM/Project Management tool/Adobe and Microsoft Licenses etc)
f. Marketing Expenses
g. Hardware Resources expenses.
As we got aware of the situation, we had basic plans in place the end of 2nd week of March and infact got 90% of our employees to work from home from 19th March onwards. There is no denying the fact Human Resources (our employees) remain our top most priority. Their health and well being remain our first priority. Thereafter with all working from home from 23rd March, we got our finance team in action to come up with a 5 step plan for this financial year.
We are ofcourse in an industry and we feel extremely humbled and lucky to be very busy with work during this Black Swan event. So our 5 step plan was calculating our fixed costs. 65% of our total expenses is salary. The rest 35% is divided as told above.
Plan of Action
1. Electricity & Internet bills will be NIL because no one is going to office.
2. Office Rent: We spoke to the landlords and agreed on 50% payment of rent till situation normalises with an additional cut of 25% if situation doesn’t normalise in 6 months time. All of us are in this together.
3. Office expenses will be once again NIL because offices are closed.
4. Salary: Continues as normal (including admin staff who has no work)
5. Marketing: Continues as usual (We are eternal optimists).
Based on 5 different parameters of cash flow (Collection from clients) we had 5 different sets of decisions. None of our plans include layoffs. No employees will be laid off. If we are able to achieve 80% of our revenues as before then there is no change and we continue with Plan 1. Plan 2-4 is mainly reducing marketing budget in % terms. Only if the situation goes to the worse level, we are looking at a salary cut which will be percentage wise based on who draws how much. But that only gets activated when the situation gets further worse in the western world because our business is very much dependent on how the world recovers from this pandemic. As of today we are in Step 1 and based on the pipeline we have, the next 3-4 months we can sail through. At this point, I must thank all our employees for the stupendous effort they are putting up from their homes. Our cash flow is rock steady and a robust pipeline is available only because of their acceptance of this new normal and working to their level best and sometimes more than that. But this problem is not going to be sorted in 3-4 months. It will take more than 9 months to get us back to our feet. And there lies our biggest problem.
Just like we are in lockdown to flatten the curve, if the Government supports MSMEs with a percentage of their Fixed Costs then the companies like us will be able to elongate our survival.
Some Ideas:
1. Using PF/ESI data, give 50% of employee salaries of MSMEs to their corporate accounts.
2. Give a moratorium of 9-12 months after which the EMI can start with a reduced rate of interest.
3. Give a catch that no one is laid off.
4. Refunds of IT and GST (Process it ASAP).
5. USA and Australia are doing it in this manner for their small businesses. This not only helps business continuity but it also helps the employees. Even the UK has a plan in place of a similar nature. If these countries can do it, I think even India can also do it. There is liquidity in the system but there is not a process in place which will ensure that all companies are taken care off. I heard an interview of Mr. Harsh Goenka recently and he says that banks are lined up to give him special loans due to Covid-19 and when we write to our bankers for the same (3 banks) none of them have replied back. 2 banks has categorically rejected (though we have good credit history) and the other bank is doing lip service over the phone with no formal commitment.
6. So where is the money going? Are we going to see another scam with money being pocketed by a few big businesses?
7. Why not just a blanket help to all the registered MSMEs based on the GST/PF/ESI data that’s already available and help with their business continuity plans?
I think the Government needs to think about this very quickly. We are already 30 days and counting related to the nation wide lockdown and MSMEs are not flushed with cash for Business Continuity. We can’t allow job losses in the middle class category as well because this category takes care of the consumption boom in India. I hope someone is listening and executes a plan which will help the whole MSME sector.
Thank You!”
So what do you think about this, my dear readers? Do suggest your ideas!
Recent Comments
Related blog posts
Collaboration amidst the new normal
Creativity needs collaboration. But Covid-19 has created a massive challenge in this aspect. Let's think of the good part. You no longer need
Read More
Cheap is expensive
What seems cheap is expensive! What’s perceived as expensive actually ends up being cheaper! We talk long term but think short term! I bought a fl
Read More
Why do we restrict ourselves?
Inadvertently we are all selfish! It’s because we care for ourselves! Nothing wrong with that! You should love yourself first before loving others!
Read More
Account Management: The Dual edged sword
When I started my career as a salesperson I found prospecting new customers as the hardest part of my role. I was an introvert by nature and talking w
Read More
Cold emails – The golden skill
Writing cold emails or writing your first email to a lead or to any influencer whom you want to reach out to, is one of the most undervalued skills in
Read More
Points mentioned are noteworthy. At this hour of crisis Government must keep the Economy running at an optimum level so that people are not starved of cash. MSME enterprises accounts for more than 40% of employment in the unorganised sector. Therefore Government must make a separate plan for this sector. A separate package for funding fixed cost of the units should be declared and the money should be made available right now. Government may put on hold all non-essential expenditures for the time being . In addition, as mentioned in the write-up, remit back IT and GST received from the MSME units. An urgent situation requires an urgent response.
Banking sector can take the present crisis as an opportunity to extend a helping hand towards MSME units, whose track records are clean, by extending credit for running cost. The norms and interest rate should be soft so that it does not prove to be a burden in the future for the MSME unit.