Covid-19 Business Unusual: How should SMEs tackle it?

Covid-19 Business Unusual: How should SMEs tackle it?

Leadership & Management

Abheek Chaudhari

Abheek Chaudhari

223 week ago — 6 min read

What is the impact of the Covid-19 pandemic?

  • Global, rapid and intense
  • Crisis akin to a Third World War
  • Cash frozen, wealth and employment have vaporized in few weeks
  • Years of bull market gains [upwards of US$10 trillion] wiped out in few weeks
  • Startups funding and M&A activities have come to standstill. Will take a while to resume
  • Companies and individuals are going to hold cash – Sign for major liquidity crunch
  • Banking will see more NPAs [Incl. retail] in coming years – May harden banks to lend further
  • Distress signal for airlines, tourism, event management, logistics, restaurants, entertainment industries


Also read: COVID 19 – Smart survival for self and business


What are immediate risks for you?

  • Cash inflow taps frozen – collections, new revenue
  • Obligations clock is NOT frozen – interest, employees etc.
  • Fixed Costs……
  • Payment to suppliers, liquidated damage issues, force majeure issues. 
  • Additional liquidity may be tough to find


What to do?

  • Identify key members to make a “war-room” team to evaluate daily situation and plan ahead
  • Model your risks. Make multiple P&L + Cashflow scenario. Plan for the worst
  • There could be opportunities as well – we learn that Alcohol manufacturers are now making Sanitizers, Engineering Companies can make Ventilators, moulding companies can make hospital beds
  • Plan for short-term and mid-term.
  • Current consensus on short term is till end of June
  • Long term impact will be more permanent than 9/11 – no one has a clue now. Survival (liquidity) is the only goal everything else can wait


Also read: Business continuity plan amidst COVID-19: Immediate action points

1. Conserve Cash – for Survival & Revival

  • Offer cash discounts to customers for faster collection
  • Freeze all your discretionary expenses
  • Thorough review of marketing strategy & expenditure
  • Make scenario analysis for manpower & salary – discuss pay cut/ deferment
  • Hold back incentives, bonus & increments
  • Postpone major expansion plans & Capex
  • Discuss reduction or deferment from key vendors
  • Talk to your landlord for relief in rent – best time to negotiate
  • Hold enough cash to kickstart working capital cycle


2. Debt, Insurance & Government Obligations

  • Consider holding back your government obligations as their cost is below CC cost
  • Talk to banks for postponement of principal repayment – RBI Action is not automatic – you need to write to your bank
  • Insurance Premiums provide for grace period of 30 days – but better not to avail
  • Push ESIC to pay salaries for covered workers – as if they are impacted by sickness
  • Explore new debt options – bill discounting etc
  • Keep a headroom for collateral ready – There might be sudden demand for cash


3. Force Majeure

  • Government has clarified that this incident qualifies as a Force Majeure event
  • Even if Force Majeure is not in your contract, you could still invoke “Doctrine of Frustration” under section 56 for impossibility of performance
  • But there are many technicalities – Get in touch with your lawyer and be prepared


4. Remodel your business

Prepare multiple P&L & Cashflow scenarios to understand risk & be ready for potential tough decisions


Cautious Plan

  • Impact – short term revenue ZERO & minor operational challenges
  • Action - Talk to your customers, ensure smooth supply chain & work on cost optimization


Severe downturn

  • Impact – Revenue slow-down for months to come, shutting down of few BUs or products
  • Action – Look for alternate avenues, temporary close operations & cost reduction is the key


Worst case scenario

  • Impact – Drastic drop in revenue & greater risk of negative cash
  • Action – Shutdown High Fixed Cost cost centres, plan for lean management,


5. Use time to enhance you to next version

  • Leaders will have to maintain healthy state of mind – keep calm
  • Develop a new hobby or learn a new skill
  • You can NOT say that you do not have the time
  • Use online resources to stay healthy
  • Sleep well


6. Prioritise

  • Reconfigure your Supply Chain
  • Prepare a rapid re-launch plan
  • Wake up call to go DIGITAL – has to be part of relaunch strategy
  • Resources are available cheap – make use of them


7. Post COVID-19… some thoughts

  • Quite possible that the end to this virus is rapid
  • Hence, always be ready to hit the ground running
  • Western world will behave very differently to Eastern World
  • Recovery will be V shaped for India
  • Aggregate demand will revive for consumer-focused industries first and will graduate upwards
  • Pharma, Digital Media, Fintech, Healthcare, Consumer staples will bounce back faster
  • Oil & Gas industry will be sluggish – there is now added trouble of fight for market share between producers


How can we help you?

  • Access to panel of CFOs

Free access to our panel of CFOs to understand best current practices & bounce your ideas

  • Engage us as your trusted partner

We will help you get your financial task plan up and running with multiple case scenario


Also read: An unprecedented challenge, also an opportunity for SMEs to do unprecedented things


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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.


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Abheek Chaudhari

Abheek is a Chartered Accountant and has experience of over 20 years across industries in India.. Adept in Manufacturing and Services space; he has a diverse experience of working...

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