Gauging the COVID-19 impact on SMEs

The current crisis is disrupting business models across sectors and causing a lot of damage to the finances of businesses. It will take the heaviest toll on the cash position of Small & Medium Enterprises (“SMEs”). This is mostly because of the following components of the business being affected:

Revenue

On the one hand, the crisis causes a crash in the demand for several goods and services. Consumers cannot go to markets, malls and hotels to consume, causing both B2C and B2B businesses to suffer. SMEs working in the hospitality, consumer discretionary, manufacturing sectors are expected to report close to zero revenue. On the other hand, the crisis shifts demand towards basic necessities, like medicine and food, while creating additional demand for other products, such as gaming, online shopping and delivery. The crisis will also hamper the abilities of SMEs to fill in their backlog of orders, which will cause a strain on revenues, even after the lockdown is lifted.

Expenses

While your revenues are taking a direct hit, expenses will mostly increase. Fixed costs, such as wages, utility bills and rent must still be paid, while the entrepreneur will have to bear additional costs to cover for temporary closing down businesses, or to shift their facilities towards working from home to enable fulfilling some orders. Additional funds must also be allocated towards incorporating social distancing in the daily works, providing hand sanitisers and masks to employees, as well as carrying out frequent health checks and more regular cleaning throughout the work premises.

Assets & liabilities

A lot of SMEs require external funding to carry out their businesses, and the loss of revenue over the crisis is putting a lot of pressure on these businesses to repay their loans and their suppliers. In addition, the assets bought by the entrepreneur, be it machinery or delivery vehicles, are working well below optimal capacity, if not lying idle.

How can you prepare your business for the crisis and its aftermath?

Although governments have promised financial aid to SMEs and are working on plans to re-open economies, there is no going back to normal anytime soon. SMEs will need to prepare themselves to face uncertainty in consumer habits, as well as global disruptions like digitalisation. Here are some steps we think will help you better navigate these uncharted waters:

  • Survival mode

Your first priority will undoubtedly be the survival of your business, which is why managing your cash position will be crucial over the coming months. We recommend going through each expense and revenue item to get an accurate picture of the inflows and outflows and plan ahead.

  • Seek out financial help from the government. Various forms of packages have been launched to help support employees and cover expenses. If you have not already registered with the authorities, it is recommended you do so.
  • Negotiate with lenders and suppliers for flexibility in payment. In the same line, allow your debtors some leeway to repay you. This should give your business some much needed visibility on your cash flows for the short term.
  • Consider off-loading assets from your balance sheet. For example, you could seek financial intermediaries to arrange for ‘sale and lease-back’ agreements for your equipment to unlock cash.

 

  •    Disruption

While your immediate priority will be focused on the short-term, you should however allocate some resources towards understanding how the crisis has and will disrupt your immediate environment. We believe the world has changed, and the business model that worked in 2019 might not necessarily make it in this new decade.

Digitalisation, for example, is set to radically change how we all carry out business. Concepts like digital marketing, using online platforms, home delivery and working from home barely scratch the surface of the coming changes.  Disruptions in the global supply chain should also be considered, as economies will most likely turn towards import-substitution policies to produce locally and reduce interdependence between countries. Changes in consumption patterns should also be expected, with a heavy focus on sustainability and consumer experience.

Opening up discussions about these changes with your financiers, suppliers and consumers should help you get invaluable insights into how your business can be relevant in this new world..

  • Embrace the uncertainty

We believe that the key towards success lies in our ability to embrace uncertainty, and this could not stand truer than for entrepreneurs. The nature of SMEs itself is full of uncertainty; however that has never discouraged innovators like yourselves to face it all. Massive challenges provide even bigger opportunities to make a difference in the world, and we believe SMEs will play a major role in the years to come.

How we can help?

At Rogers Capital, our plethora of expertise can help you overcome many of the challenges you will face.

Our Consumer Finance division has special packages designed to help you manage your cash flows, all the while supporting your investments in disruptive technologies. We can notably offer you short term credit facilities to bridge your cash flow needs, as well as finance your digitalisation projects.

Our Technology division can also help you set up these new technologies to enable your collaborators to Work From Home where possible and help your marketing and selling efforts. . Our skilled programmers and technicians can further help you digitalise your business model to assist you in adapting to this new world.

Yavishek Periag

Senior Analyst- Corporate Advisory

Alain Lim

Chief Operating Officer

Anusha Mannick

Head of Projects