Ways MSMEs can remain resilient as economy transitions

One of the most affected sectors during transitions of any kind is the micro, small and medium-sized (MSME) segment.

According to the ‘Beyond Financials: Helping small and medium sized enterprises thrive’ report released by McKinsey in January 2022, MSMEs constitute more than 70 per cent of all businesses and more than 50 per cent of all jobs globally, making them the backbone of our economies. 

With the economic uncertainty that comes with a change of regime, not forgetting that businesses are yet to fully recover from the slowdown induced by the Covid-19 pandemic, it is important for MSMEs to adopt ways to cushion themselves against further financial shocks. 

Here are a few key pointers for business owners to consider:

Know exactly how much cash you need. This can be achieved by doing precise and detailed cash flow forecasting. In an uncertain climate where the potential for further disruption is significant, proper budgeting should be a business priority.

It is important to identify threats that could disrupt your cash flow and have the data as well as expertise to model your ability to absorb them.

If your business faces danger, what levers can you pull to mitigate the risks?

Ensure you protect your cash flow. Cash flow is the spine of the business and you need to regularly track and critically analyse it to determine the liquidity and solvency of the business. Money must continue flowing in and out for optimum business health.

Review your inventory management. A good inventory system enables you to keep track of the supply chain from procurement to dispatch by giving you visibility of your stock movement within it. Explore ways to reduce any costs without sacrificing the quality of goods sold or inconveniencing your customers.

Keep a keen eye on your credit scores. Hard times make it difficult for most MSMEs to borrow, acquire and pay back loans. Businesses stand a better chance of being able to borrow to keep their enterprise afloat if they have high credit scores.

Digital lenders like Tala who give flexible credit options to make it easy to repay loans have helped in the sustainability of MSMEs by offering support through initiatives such as ‘Jijenge na Tala’.

This is an enterprise fund, which offers grants to support businesses in rebuilding during times of economic shock.

As a small enterprise, you should expect volatility from time to time but remember that these tend to be temporary stages in the markets.