Pic Courtesy – Financial Express (https://www.financialexpress.com/business/sme-msme-eodb-explained-how-msmes-can-undertake-risk-management-in-business-2999448/)

In the Financial Express article of March 4, 2023 by Mohan Ramaswamy, CEO & Co-Founder of Rubix Data Sciences. ‘Ease of doing business for MSMEs’ 10,655 Micro, Small, and Medium Enterprises (MSMEs) had shut down in the period April to February 2023. So, why are MSMEs flailing? The primary risk that MSMEs carry is Financial risk – inability to pay for expenses above the laid down Capital Funding. IN a down market, with no clear understanding on how the loans will be repaid, Banks and Financial Institutions are unwilling to keep putting money into a dying business especially if the management is showing little signs of intent or expertise to get back.

Further in the article, ‘MSME risks can be classified into two types: internal risks and external risks. Internal risks include all risks that can be controlled by the business and its owners, e.g., internal fraud, compliance risk, over-leverage, concentration risk, etc. External risks are the risks that are beyond the control of the business, e.g., black swan events, rising inflation and interest rates, changes in laws, natural disasters, etc.’

Credit Risk Management, New Customer Onboarding, Supplier Risk Monitoring and similar areas need to be identified as to the problem statement and associated solution processes can be initiated to build a model to sustain and grow the organisation.

MSMEs can survive and grow only if they have adequate risk management plans to identify, assess, monitor, manage, mitigate and control these risks. These risk management plans should focus on the following, given the core strenght of MSMEs over larger organisations.

1. Being smaller makes MSMEs agile – quicker decision making – How to scale up if there is an opportunity, what to do if there is a slowdown?
2. Decision making based on fact and Data and not on assumptions / gut feel or emotions
3. People Management is the biggest gap between Large and MSME organisations. Having people and growing them is a differentiator. If this can be managed, MSMEs can grow exponentially. Key is managing MAST
4. Business Analytics and review is crucial for success and growth – this is a mitigable risk area
5. Learning from others – Many European and UK SMEs have shown their resilience by forming networks, learning and supporting each other including buying from one other
6. Managing Finance – Cash flow, providing for a reserve, not investing into assets which are a higher depreciation Vs ROI ratio, clearing debtors and managing a line of credit from key partners

If you wish to short cut the chase and get to your goals, contact@nat-cons.com for customised solutions