Cash Flow Management For New Small-Businesses And MSMEs – Recommendations To Drive Business Forward

Cash flow management is defined as the process of analyzing, monitoring, and optimizing the number of net cash receipts minus the expenses incurred by your business. The cash flow of a business is a critical measure that determines the financial health of a business.

It is highly crucial for a small business. This is because, if it spends more than it earns, the business will soon face cash flow problems. When it comes to small businesses, the most significant aspect of cash flow is to avoid all significant cash flow shortages caused by spending too much cash.

Irrespective of the industry you operate in, cash flow management is essential to drive your business forward. Every small-scale business falls under one of the following categories.

  • Manufacturing Industry: The units producing finished products for final consumption and manufacturing products for processing industries fall under this category.
  • Service Industries: The businesses operating in this industry are small shops or facilities offering services to society in diverse spectrums.
  • Ancillary Industries: The businesses that produce components and parts and also render services to large industries fall under this category.
  • Export Units: Businesses that export more than 50% of their total manufactures are classified as export units.

For small businesses operating in the manufacturing sector, the sum of investment should be over 25 lakhs but below Rs. 1 crore. In the service sector, the sum of investment should be over ten lakhs but below Rs. 2 crores.

To encourage the establishment of small-scale businesses, a loan facility under the CGTMSE Scheme has been introduced. Let us know more about what it is.

What is a CGTMSE Loan?

The full form of CGTMSE is Credit Guarantee Fund Trust for Small and Micro Enterprises. Financial institutions provide this fund to guarantee credit to SMEs and MSEs.

This scheme encourages first-time entrepreneurs to establish an SME or an MSME. Such businesses are considered as the bull work of the Indian Economy. The guarantee covers the default amount by the borrower so that the advance is repaid.

Eligibility Criteria:

According to the CGTMSE guidelines, the credit guarantee is deemed to back the borrower with collateral and a third-party guarantee. Under this scheme, a financial institution that can be an NBFC also lends money to the MSME and SME sector, and they are eligible for a fund with a maximum credit cap of Rs. 2 crores.

However, some entities are excluded from obtaining the advantages of CGTMSE Coverage. They are educational institutions, retail trade, self-help groups, agriculture, training institutes, etc.

How Technology Impacts Small Businesses?

The advent of modernization has increased the use of technology, affecting a large pool of people to a great extent. In today’s world, driving your business forward has nothing to do with the involvement and adoption of cutting-edge and modern technology. Rather, businesses are required to choose the right technology that can profoundly impact their daily operations.

A few benefits of Information technology for small businesses include:

  • Automation of Operations: If businesses choose to adopt automation in several areas, they will obtain several advantages. The areas that can be automated include tracking packages, staying in touch with consumers, training employees, etc. Since the needs of businesses are different, automating different aspects will be beneficial.
  • Overall Business Efficiency: Technology helps businesses to carry out operations seamlessly. Software programs are regularly updated, which makes the collection of data and powerful interpretation easy.
  • Productivity and Automation: By leveraging technology, small businesses can compete with large businesses by being sharp and immediate. Furthermore, technology helps reduce human errors by developing automated processes in their organization.

Not only technology, but NSIC also promotes fosters the growth of MSMEs in India. Let us know more about it.

What is NSIC?

The full form of NSIC is National Small Industries Corporation. It operates throughout the country with the help of the network Technical Centres and Offices. The primary function of NSIC is to promote small businesses in India and provide help to Small Scale Industries.

Its objectives include:

  • To achieve efficient operations, productivity, and better profitability.
  • To provide a clean and safe working environment.
  • They enhance the reach of corporations that ultimately results in business growth.
  • To provide training to the trainees and help them in self-employment.

NSIC facilitates access to provide credit support to the MSMEs from the banks. They assist SMEs and MSMEs in the documentation process, and they also follow up with the bank. Borrowers can avail the loans easily by downloading the loan form from the official website of banks.

NSIC aims to meet the credit needs of MSME units, and for this purpose, it has signed an MOU with the nationalized and private banks and non-banking financial institutions. The NSIC supports MSMEs and enables them to avail the benefits of credit support offered by the banks. It helps them successfully manage and operate their business ventures.

The interest levied on such loans varies from bank to bank. It is generally between 10-12%.

How to Analyse Cash Flow

The first thing to understand about your company’s cash flow is that it does not have any relationship with your profit statement. Cash-flow of a company changes on the basis of few factors. It is however directly related to your company’s working capital.

1. Break-even Analysis

Although your profits and your cash flow are not related, it is important to understand at what point you will break even in your business. The break-even amount should be the first goal you should strive for. Once you have registered your first profit, you can manage your cash flow more efficiently.

2. The Quarterly Assessment

Every quarter goes through your accounts ledger. Remember as far as businesses are concerned, Cash is King. Analyse where you have spent the most. Take a stalk of your inventory. The biggest drain on the cash can be maintaining unnecessary inventory. Make a list of wasteful or excessive expenditures.

3. Speed Up Recovery Process

Yes, in India extra effort needs to be taken to ensure that you get the money due to you. This is the process of recovering pending bills that need to be streamlined. Many businesses have suffered due to unpaid bills. Hence, to maintain a good cash flow ensure that your clients are paying their bills.

These are just a few measures that you can take to improve your cash flow. A streamlined cash flow ensures that all your employees are paid on time along with your other bills.

Observe your cash flow and watch your business grow!

Cash Flow Management Recommendations for MSMEs & Small-Businesses

Being a small business owner, you need more and more people to know about your business and its operations. It will further help you generate increased revenue and will help your small business obtain several other benefits.

Do not overlook the benefits of digital marketing and choose to implement the strategies today to skyrocket your business.

If you have just started with the operation for your business, managing adequate cash flow must be difficult. Hence, to ensure that outgoing cash is less than the cash you have at the bank or in hand, we recommend opting for a loan.

Financial institutions offer loans for SMEs and MSMEs to ensure smooth operations. The loans provided to such organizations encourage them to drive their business forward. Such loans are mostly given to small startups and business owners, and women entrepreneurs, generally on a short-term basis. The duration of such loans provided to the companies usually differentiates from a lender to a lender.

Different institutions charge a distinct interest rate from the businesses to ensure that the businesses get the best possible ROI. The analytics of financial data is used to calculate the best possible rate of interest for your organization. Moreover, you also get ample amount of time and several options to repay the loan easily.

To be eligible for availing of the MSME loan, your organization can be a public or private limited company, a sole proprietorship, a partnership firm, or a limited liability partnership. Your business should have a good history, repayments, and financial stability. The annual turnover should be a minimum of 10 lacs for enterprises that already exist, and the limit varies from bank to bank.

Such loans help small to medium scale enterprises to grow and increase their revenue, and as a result, profitability. You can meet the working capital requirement of your business by availing of a very beneficial MSME loan. Cash flow management initially for businesses is difficult since they are at a growing stage. Once established, they can easily maintain the flow of cash for their business.

Hence, during the early stages, we recommend opting for loans that would prove beneficial.