UOB : Greatest oversight of SMEs

Budget

Having a well-crafted budget is akin to having a GPS in the wide ocean. It will help you navigate, make important decisions and provides useful insights about achieving your organizational goals. With a clear budget, the next step is to identify key drivers for periodic monitoring and drive performances to stay on track for the rest of financial year. Some other benefits which a good budget can provide will include a financial roadmap, planned revenues, strategic investments, limit expenditures and to identify financial gaps.

Despite the important function of a budget to SMEs, many still fail to create and fully take advantage of one. “I am the key person and know everything inside out,” “Budget takes up too much time,” “It is better for us to look at how to bring in sales,” are some of the common reasons provided for not having an annual budget.No matter what the excuse is, it should be a non-negotiable part of business planning and will impress your banking partner. Crafting one may take time but the benefits are priceless.

To help you get things started, prepare the following:

1. Review your Cash Flow statements, Profit & Loss and Balance Sheet from last financial year.
2. Highlight operating expenses, direct costs, gross profit margin and net profit before tax (NPBT).
3. Adjust/ project historical costs and expenses to reflect current momentum.
4. Put up a realistic sales forecast based on product lines and seasonality.
5. From your payment terms with suppliers and buyers, project your cash flows and derive net cash positions at each month end.
6. Identify financing gaps.

Sales Forecast

A robust sales forecast will help your business to optimize inventory levels and cash flows at each period. There are many areas to consider when drafting the forecast. For example, economic growth, demands, competition, seasonality and your aspiration as a percentage of addressable market size. You may need to rely on your past experiences and trends to estimate it. With clear top line targets in place, you can deploy adequate resources such as sales force and marketing budget to achieve.

Cash Flows

Cash flow can be broadly defined as the difference between the opening and closing cash balances. Positive cash flow generated as a result of your business activities will pay for your operating and inventory costs which in turn generate more sales.

A consistent and positive cash flow creates liquidity for businesses and they are more able to undertake new business opportunities or capital investment (CAPEX) to generate higher profits.

Liquidity is the lifeline for SMEs and it should not be confused with profitability. While SMEs may be able to operate without profit for a period of time, without liquidity, the business may not be able to meet a critical payment and risks becoming insolvent. Suffice to say, when your expenses runs ahead of your cash, you have a cash flow situation. To arrest the situation, you will have to revisit your budget to recalibrate your revenue and cost drivers such as to ramp up sales activities, delay payments to suppliers, quicken receivables or to seek a financial institution to bridge your financing gap.

Technology can be a jargon to many SMEs and the common misconception is that it is expensive and meant for companies of a certain scale only.

From my observations, many businesses are still trapped with outdated workflows and mundane tasks. With the right technologies/ solutions, SMEs can lift productivities and free resources for revenue generating activities. Forget about manual inventory and human resource management.

The trick to technology is in understanding your true pain points and in choosing a solution which caters to your business size. Investing in technology blindly can be expensive and it will be helpful to speak to a financial service provider with curated/ integrated solutions (e.g. Enterprise Resource Planning, Customer Relations Management, Point of Sale etc.) to serve your needs.

With all the pain points identified and solutions curated, you will need to prioritize your investments with internally generated cash flows or external financing.

Employee Retention

To be able to attract and retain good talents has always been a challenge for SMEs. With the rise of agile Tech driven companies such as Google and Grab, employees are increasingly looking for an inspiring work environment/ experience. Deep down, if we were to peel open the glamourous skin of work spaces, employees do want to be trained, given the exposure and progress with the organization. Spend some time to look into the career plans for each role in your company and craft a suitable training program to develop your talents. Organize a weekend workshop or offsite for your people to contribute ideas for instance. It will be a great job experience to be an architect of their own employment journey.

Productivity & Performance Management

SMEs usually operate with very limited human capital. Training our people to be more efficient and effective in their respective roles will lift productivity and add to the bottom line of the organization. While training takes time and investments, it will be penny wise and pound foolish in the long run to ignore this altogether.

A common misconception about training is that it requires our people to be away from their daily task. The truth is, depending on the size of the company, the key man can be the coach in providing guidance on the job for his people. For example, be involved with your sales team for a day and observe their routine. Key man can help optimize their sales pitch or daily schedule to maximize effectiveness. The cumulative effect of periodic coaching cannot be underestimated. To boost morale and avoid work fatigue, the company may invest in a weekend team bonding or getaway.

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Comment

Loi Gia Hy, Director, Tan Hiep Phat Manufacture & Commercial Joint Venture Company

The article shares a valuable view of the basic limitations of SMEs. With the fast-paced development of 4.0 technology, businesses need many capital supports to promote development ,yet it have still faced many difficulties and limitations such as not having enough collateral or no guarantor. Hopefully, with the promotion of economy and support from the state, there will be many solutions to assist SMEs as today.

Huyen Pham, Director, Emum

Currently I find that startups, or SMEs, despite good products, fresh business ideas, but there are still limitations on planning financial reports, knowledge of financial management, valuation. , planning budgets, cash flow and forecast sales cause it is still struggling to grow.

DK Long, CEO, Vietnam is awesome Ltd. Company

From my point of view, in addition to attracting and maintaining good human resources, the role of managers is vital,also. They need to care, observe the strengths and promote the employees development , help increase productivity and achieve efficiency in work, while inspiring the team to grow together.

Truong Cong Quang Minh, Co-founder, Wecreate Joint Venture Company

Hopefully , the Government is able to facilitate the provision of advanced financial solutions to help businesses unlock budgets and promote the growth.

Truc Le, Founder, Kensofa.vn

Amazing article sharing the right issues that small and medium enterprises still face difficulties. However, I would also like to contribute an idea that investment in human resources and technology should also have a clear strategy, avoiding the case of shortages of capital due to the competitive market and rapid changes for the time being.

Bui Thi Ngoc Phuong, Director, NOP Ltd. Co

I want to know more about the establishment of a smart and practical financial budget, which are basic principles needed to help small and medium enterprises easily manage and operate?

Vo Ho Thuc Doan, Founder, Kooka Bakery Ltd Company

For businesses, analyzing the cash flow judgment and predicting sales reports is still difficult and heavily depend on the current competitive sales and market channels.

Nam Nguyen, Former Project Director, Thang Loi Group

In fact, I find technology helps businesses reduce the management and operation costs compared to those implemented by people such as: consulting, answering customers through chatbot, using warehouse management system, and finding potential customers . Some advanced software is worth considering investment such as Haravan, Sapo.

Ton Nu Bich Tram, Founder, Hana Studio

Thanks the expert for sharing the article!

Phu Nguyen, Director, Habitat Furniture

Currently I see the technology resources, the wage on the market is pushed up quite high, so there are many difficulties in attracting and recruiting for businesses in the start-up phase.