Modified Enhanced Community Quarantine (MECQ) has been reinstated in Metro Manila, Cavite, Bulacan, Laguna and Rizal, and most small business owners are alarmed by this retrogradation. Since the lockdown started last March 16, the Philippines has seen over 3,000 Micro, Small, and Medium Enterprises (MSMEs) close down and this hasn’t stopped. Although many MSMEs were still able to survive even with tighter measures employed by the ECQ, we had all expected to be up and running by this time at one hundred percent capacity. That’s why sliding back into MECQ will force MSME owners to go back to the drawing board to re-strategise and re-calibrate sales and growth forecasts.
Luckily for traders and business owners supplying for supermarkets however, demand continues to be high since the country was placed on various lockdown measures five months ago, and signs of demand dwindling are unlikely. In fact, the same day that MECQ was in place, supermarkets and groceries in Metro Manila reported panic buying among consumers, which could mean an unexpected uptick in demand for suppliers. Hence, the question isn’t so much how to survive but how to continue managing your business despite supply chain barriers like operating at a decreased capacity or getting your orders and deliveries on time. Even better is that supermarket suppliers can focus on growth prospects.
Urgent items you need done:
- Grow the business by taking on more project orders.
- Increase revenues by capitalising on seasonal spikes (i.e. panic buying events)
- Manage trading relationships by ensuring their needs are met.
- Increase inventory.
- Keep business running by staying on top of your finances, covering your bills and staying on schedule.
- Expand your business by adding warehouses or increasing staff.
What are your best options to help grow your business during this time?
Sustainable, Long-term solutions
1. Tighten your operations management for efficiency
The goal here is to streamline your business processes to minimise run outs, save on costs and ultimately keep your customers happy with every order made at par with standards and delivered on time. This will allow you to build a relationship with clients who trust you with larger orders or put in a good word for you in their circle, making your brand reputation reliable.
The job here is to always ask what needs improvement? Then regularly assess your supply chain and operations to see what needs changes or tightening for further improvements. Create a flowchart and identify goals and outcomes at every step of the flowchart so that improvements will have an impact on your bottom line goals. Always remember that what gets measured gets done.
How do you get process improvement work done if you’re only an SME and don’t have the workforce to do it, you ask? There’s a way to do this easily through automating processes like using a kanban board. This is essentially a collaborative flowchart but more visually appealing and less complicated as it shows all your business processes in one board and allows you to organise by priority or create a timeline of what needs to get done, what is currently at work, and so forth.
To learn about automation and the best free apps for your small business, click here.
To learn more about how to improve working capital for manufacturing companies, click here.
2. Take better control of your finances
Create a cash flow analysis to check its health. Your cash flow statement will reveal areas where you are strongest and weakest. This will enable you to break down where your money is coming from, where you need to cut down on expenses, which part of your investments are working, and where you need to allot more of your money to see its growth.
The most basic step to check the efficiency of any company’s performance and what part of the process needs adjusting is taking a peek at its cash conversion cycle. Through this, you will be able to regulate and control the inflow and outflow of your company’s cash.
To easily get this, you need to add your inventory turnover with your accounts receivable and subtract your accounts payable. You would basically need to find out how long it took since the company paid to get raw materials and the profit received from the sale of those goods or services. The shorter your cash conversion cycle is, the better it is for your company’s liquidity. Consequently, this should prompt you to collect your receivables quicker by finding creative ways to entice your customers to pay on-time or sooner.
To learn more about how to manage your business cash flow click here.
Quick, Short-term solutions
3. Take out a business loan
What we learned during this pandemic is that most Micro, Small, and Medium Enterprises (MSMEs) are liquid or have enough cash flow for a month in total. Small business owners usually run on a subsistence basis that puts them at a tight spot when there are seasonal spikes or unexpected events like a delay in payment or a sudden rush in orders. To state it simply, while there are plenty of ways to make your working capital more sustainable for your business, those solutions (examples above), are hardly achievable in a month’s time.
The best business loans for your business
If you answered bullet points one to five above, the right business loan for your business would be to get right on track growth plans is a short-term loan.
What is a short-term loan?
A short-term loan is a type of business financing in which the principal plus interest must be paid within a year; hence the name short-term credit. This is used mainly to finance operating expenses or working capital requirements.
But first, it’s good to note the two different kinds of short-term business loan options you can get. These two types differ based on the screening process. A secured term loan requires the borrower to provide collateral, which serves as a security for the repayment of the loan. In the event that the borrower defaults on the loan, this security will be forfeited, allowing the creditor to get back the money owed. An unsecured business term loan, on the other hand, does not require collateral, and as such, a borrower’s creditworthiness and financial standing will be more scrutinized. Unsecured business loans also usually entail larger repayment amortizations and bigger interest rates compared to secure business loans.
What are the advantages of short-term loans?
- Quick and convenient application process
- Fast approval
- Less restrictions
- Higher interest rates and administration fees
- Tempting to cause borrowers to repeat financing
- SMEs who need a business loan fast
- Your financing need won’t go past 6 months to a year
- You need a working capital fix that will boost your business
There are at least four main types of short-term business loans that can help with your business growth. Two of these options that will give you the best value for your investment as well as a more sustainable means of financing that will help you manage your long-term finances as they are designed to address momentary cash flow gaps and specific projects or orders. They are meant to be paid out as soon as you can, which means it won’t drag out and bleed you dry of profits through total interest. These are Invoice Financing and Purchase Order Financing.
Invoice Financing can help you take on new orders and replenish your inventory so you’re ready to deliver to any client on time.
Purchase Order loans can help finance your purchase of raw materials to ensure continuous supply and allow you to take on more orders, thereby capturing the demand growth of the industry.
The keyword for short-term business loans and to hasten your company’s growth trajectory is fast. First Circle is the right company for the job. When you apply for a short-term loan, you’ll know if you’re approved within three to five business days (provided you submit complete documents).
To learn more about the different short-term loans click here.
What are long-term loans?
Long-term loans are a type of business financing in which the maturity date of the loan extends past a year and can even last for as long as 20 years (i.e. commercial property loans).This is used mainly to finance long-term projects such as business expansion, purchase of property, plant, and equipment and other fixed assets.
What are the advantages of long-term business loans?
- Longer repayment period
- Lower interest rates
- Best for funding expensive, long-term investments like machinery that can lower product costs or increase production
Disadvantages of long-term loans
- Application process is more stringent and takes time
- Total interest will cost you more
- Can restrict your short-term working capital or monthly cash flow because you have to pay monthly interest fees in the long-term
- Business financing need that will extend over a year
- Businesses that are credit-worthy
- Businesses that have a feasible repayment plan
Your specific need for a loan will determine which loan is best to take. Assess which one will give you the best value and which your business is eligible for to prompt your growth now.