How SMEs Can Manage Their Finances Better

For SMEs it is crucial to get their operational and business expenditures in line with their revenue

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To run any business, you need the capital that will help you grow and succeed. While start-ups have had a massive investment growth in the country, the small and medium enterprises have found themselves a challenge when it comes to raising funds for their business.


Funds had been one of the biggest challenges SMEs face, with banks and investors not eager to invest in them. But things are now changing. Banks have opened up facilities especially to help SMEs raise funds while start-ups too are bringing about alternative ways of raising capital.

But once the funds are in, it’s also important to manage it well to ensure a smooth running business. Entrepreneur India takes a look at the funds challenge SMEs face and how they can manage their capital better.

Managing the Working Capital

With hurdles all along the fundraising route, SMEs for long have had to turn away from banks for loans. Rohit Lohia, COO and CO-Founder, CoinTribe too said that most SMEs struggle with raising debt from the right channels. “While, most banks are averse to giving unsecured small business loans; at SME’s end the key contributors are lack of discipline in accounting, transaction management, document management which makes Credit Assessment difficult for traditional lenders. Hence the credit gap is huge,” said Lohia.

According to Lohia, because of this reason many SMEs end up with the unorganised lending sector where the interest rates are higher and they get exposed to several unethical practices.

For SMEs it is crucial to get their operational and business expenditures in line with their revenue. Asish Mohapatra, Co-founder, OfBusiness believes that the biggest challenge that SMEs face in capital management is managing their working capital. “Receivables, Inventory are uncertain as buyers pass on any burden to the SME,” he said.

The working capital is a huge issue for SMEs, as when it comes to day-to-day expenses the bills run high. “To fulfill moderately large orders or to invest in technology/ marketing/expansion, they don’t have enough cash and hence have to borrow from suppliers or from the market, which is time-consuming as well as expensive,” said Rana Vikram Anand, President, Indifi Technologies.

Lack of Planning

SMEs have long been working in the unorganized sector, therefore with no clear records of accounts. This also hinders the management of funds. While the turn to digitization and the demonetization effect coupled with introduction of GST did change things, it has still been a slow growth for SMEs. Mohapatra said that most SMEs are one-man armies, armed with instinct and gut which is approximately right but wrong on the margin and that margin pinches in business.

What They Can Do

The Indian government is now encouraging SMEs by disbursing loans through various schemes. More and more fintech players too in the Indian start-up ecosystem are rising in the support for SMEs. Lohia said that start-ups are using using alternate data or drawing deeper insights from the same data sources.

However, once the cash is in what can a business owner do to make things better? Mohapatra believes that building certainty of cash flows in the SME world is key. “It not only reduces their need for external cash flows but also makes them more creditworthy. Basic process changes like right customers, right project delivery and systems around it are important as well,” he said.

SMEs too need to start planning their business well by turning the focus on accounting. While a lot of business communities are very diligent with respect to accounting, there are several SMEs where accounting is usually left to the week before filing tax returns. Lohia said that diligent accounting and business planning is the key to fund management. “Besides, moving away from ‘cash culture’ will help the SME in reflecting the true nature of their business to the Lenders, thus helping them get better credit assessments and access to debt capital,” he said.