A lion’s share of India’s total industrial units are categorised as micro, small and medium enterprises, which contribute a significant amount to the national GDP. This sector is also responsible for the creation of a considerable number of jobs in the country.
- According to a 2019 survey, 3.31 lakh enterprises are categorised as small companies. The MSME sector, as a whole, targets to create 5 crore additional jobs by 2024.
However, small companies often struggle to raise its business finance due to the limited number of options open to them. Traditional lenders may also be reluctant to offer advances to these enterprises, further complicating their functions. Effective management of their daily finances can keep such a company functional, enabling it to remain operational without straining their availing funds.
Useful Guidelines For Small Business Financial Management
The following tips should help one enhance the operability of small businesses, without overburdening the available capital –
- Optimise cash flow
While profit generation is important, a critical part of effective business finance management is to appreciate the importance of cash flow. Prioritising the flow of usable cash for a company may yield better returns down the line instead of focusing on generating revenue alone. At some points in time, optimising business cash flow can prove more important than simply earning a profit.
- Accelerate receivables collection
To continue the point made in the previous section, receivables of a small business is interlinked with its cash flow. With a delay in acquiring receivables, such a small company may start to face challenges with the upkeep of finances. Thus, an effective business owner must take steps early on to accelerate the entire procedure of receivables collection. This is also one of the tips on how to be a successful small business owner.
- Save for a rainy day
An emergency reserve can prove to be highly useful when a small business experiences cash flow shortfalls. This is a step that one must take while creating a growth plan for his/her small business. The availability of such funds can help enterprises persevere itself during difficult financial times.
- Improve your sales
When a company is struggling to meet its business financing needs, the surest way to help is to try to boost sales. Strategic planning and implementation can help achieve such an improvement. For instance, implementing an attractive incentive programme for the business’s sales executive team can boost their morals, as well as their sales number.
- Use advances for substantial purchases
A business owner may be tempted to use profits or company revenue to fund a large purchase or a significant investment. However, doing so would be an example of what not do when running a small business. Instead of using a company’s own funds, one should avail business financing for such expenditure.
- Opt for a line of credit from NBFCs
NBFCs do not have stringent eligibility criteria, unlike most other lending institutions. This is why MSMEs often rely on such companies for financial assistance.
- On July 23, 2020, the Indian government sanctioned the Emergency Credit Line Guarantee Scheme for MSMEs.
- Loan sanctions to this sector increased from Rs.1.10 lakh crore on July 1 to Rs.1.30 lakh crore as of July 23.
Lenders such as Bajaj Finserv offer unsecured business loans worth up to Rs.20 lakh, that too at competitive rates of interest. Such business finance loans can effectively minimise the credit gap, experienced by the MSME sector.
This NBFC also provides pre-approved offers to expedite the loan application and approval process. These offers are available on a range of secured and unsecured debt, including personal loan, business loan and more. You can check your pre-approved offers by providing only a few details, including name and phone number.
Small businesses lack the financial freedom that many larger corporate setups possess. Financing options can ensure that these companies can utilise the same to make up for any monetary issues. The micro, small and medium enterprises sector suffers from a shortage of funding options, even though it is a major source of India’s GDP. With effective management of small business financing, such companies can flourish without necessarily resorting to borrowing. Checkout blog