ClarityApril 11, 2020
Risk factor; MSME should OvercomeMay 16, 2020
Lockdown for more than a month has passed and it must have given an opportunity to brainstorm and plan a way forward.
Business outlook post lockdown will not be same again, at least for some time. All we can do is to restart with positive approach.
This blog emphasize on the points to be considered while restarting the business.
- Do status check for all key customers and suppliers.
- Customers’ outstanding might have become overdue, check how much work capital is blocked (outstanding + Unsold Stocks), accordingly take action.
- All undelivered orders must be reconfirmed with customers with revised delivery schedule before doing production; if dispatch is kept on hold; collect advance.
- Accept new orders with ‘No Cancellation’ terms with some advance payments, try improved pricing and flexible delivery due to uncontrollable events.
- Explore the possibility to pitch with new customers, may be their current supplier is struggling and it can be opportunity.
- Check the applicability of Force Majeure clause in rent agreement AMC’s, customer/ Supplier agreements and try to resolve the concerns in a positive and amicable way.
- Even after business restart, first 15 – 30 days will be slow for business; use this time driving cost reduction, quality improvisation and expanding product bouquet.
- Sale non- moving raw material, WIP, FG to free the working capital and saving the inventory carrying cost.
- Check whether final product made from WIP is till saleable, if not then find alternate use for different product.
- Making team efficient – warnings to non performing / person with wrong attitude.
- Involve key team members in major efficiency improvement exercise.
- Yield improvement, loss reduction and least quality rejections.
- Reduce per unit labour cost by improving efficiency or extending shifts.
- Contract labours should be brought, once company’s manpower is utilized with highest efficiency. Also the requirement of additional manpower should be pre-planned ans strictly linked to the production.
- Add more suppliers to have uninterrupted supplies at competitive pricing.
- Purchases should be centralized with promoters ( next 3 -6 months) and each and every item should be ordered carefully, involving sales team, production team , procurement and finance team. All item should be categorized into critical an non-critical. All non-critical / bulk purchases to be avoided.
- Pending orders to be reviewed and short close, if required.
Budgeting & MIS
- Implement stringent budget department wise with cost control plans.
- Production planning linked to orders, available inventory and profitability.
- Accurately maintain production an manpower utilization records to measure process-wise yield and efficiency. Ensure unit operating above break-even point gradually.
- Weekly review of yield related MIS and any shortcoming in the process should be highlighted and rectified immediately.
- Weekly review of key departments rigorously.
- Plan and project cash flows for next 6 months conservatively. Also, workout cash flow with the possibility of recurrence of lockdown.
- Hold all the capex till situation is normalized, unless strong reason/ free funds.
- Continuous followups for collection with sales team and customers.
- Prioritize all the payments and ask suppliers for additional credit period/ part payments. Ask of LC extension from suppliers available under RBI’s relief package.
- Rationalization of salary structure, for at least 6 months.
- Plan for additional working capital/ ad-hoc limits for next 6 months as an emergency arrangements, even if it is not required.
All these steps are required to ensure business continuity and every step should be taken after taking all stakeholders in confidence.
” The ray of hope can conquer the darkness.”
Your Virtual CFO
Sunil Sandeep & Co.