SMEs still struggling with cash-flow issues

This article first appeared in The Edge Malaysia Weekly, on September 28, 2020 - October 04, 2020.
SMEs still struggling with cash-flow issues
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THREE months into the less stringent Recovery Movement Control Order (RMCO) phase, more people are confident about venturing out of their homes as evident from the peak hour traffic, increased footfall in malls and lit-up office buildings.

Despite these signs of activity, coupled with data which indicates that the economy is starting to gain momentum after the partial lockdown from mid-March to June, many small and medium enterprises (SME) continue to struggle with cash flow.

An August survey by the SME Association of Malaysia, covering 1,713 members, reveals that 20%, or one in five respondents, are considering permanently shuttering their business in the next six months.

The survey also found that 22% of the respondents have sufficient cash flow to last them for a month,while 27% can sustain till November and 31%, until December.

“SMEs still struggle with cash flow up till today. There are bills to pay while sales haven’t fully recovered for some of them,” says SME Association president Datuk Michael Kang, who notes that the worst hit are those in the retail sector, followed by manufacturing and services. “For the retail sector, those that are reliant on international tourists are worst affected since the borders are still closed.”

An owner of a food and beverage outlet in the Klang Valley says he is still plagued by cash-flow issues even though business has picked up.

“Business post-MCO has been both good and bad. What’s good is that the number of walk-in patrons has been steady. In fact, it is better than pre-MCO.

“However, we rely a lot on catering and wedding events, and that source of revenue has been wiped out,” he points out.

Although cash flow remains tight for many SMEs, about 20% of the respondents say it has normalised.

Acknowledging that this is a tough year for his business, Vincent Tong, the co-founder of online DIY gift printing platform Printcious, is nevertheless thankful that cash flow is no longer an issue.

“Sales have started coming in since June and this has solved the cash-flow problem we had previously. Having said that, we find that there are fewer corporates looking for promotional gifts owing to budget constraints. It has badly impacted the industry,” he explains. Profit margins have also been eroded owing to an ongoing price war in the industry, he adds.

For the luckier ones, 2020 has not been such a bad year as sales have been robust. Amazin’ Graze co-founder and CEO Amy Zheng reveals that her healthy snack food business saw a surge in demand during the MCO, and while sales have stabilised, demand for her products remains strong.

“We actually saw cash flow improve during the MCO owing to an increase in e-commerce sales, which is better for cash flow compared with the offline retail business, which has 30- to 60-day payment terms,” she says.

An engineering service provider has also seen a jump in orders.

“Except for the period during the MCO when we were not allowed to work, we have been very busy. I think we are also lucky in the sense that we secured several orders prior to the MCO, so we are busy fulfilling them now,” says the owner, who did not want to be named.

SMEs say the automatic six-month loan repayment moratorium as well as the government’s wage subsidy programme has definitely helped amid the pandemic.

The F&B outlet owner says the wage subsidy was most useful for businesses in his industry, which rely on cash flow to operate. Other SME owners also pointed to the loan moratorium for helping to ease cash-flow concerns this year.

SME Malaysia president Kang says the additional stimulus package unveiled last week, which extends the wage subsidy programme to December, would definitely be a huge boost for SMEs.

As part of the package, Prime Minister Tan Sri Muhyddin Yassin announced a targeted wage subsidy programme for companies that continue to register at least 30% lower revenues post RMCO, compared with last year.

The wage subsidy will be given for up to three months, beginning in October, at the rate of RM600 a month for each employee, limited to 200 employees per company.

It is worth noting that 11% of the SMEs in the survey reported zero business since the start of the RMCO while 33% said sales were 30% less than usual.

The extension of the wage subsidy programme for affected businesses will be one less thing for SMEs to worry about until the end of the year.

Of greater concern is the termination of the automatic loan moratorium on Sept 30, unless borrowers have worked out an extension with their bankers.

Bank Negara Malaysia and financial institutions have been urging the business community not to tarry in seeking financial assistance if they still face cash-flow issues as banks have committed to offer repayment assistance to SMEs affected by Covid-19.

At the time the survey was conducted, half of the respondents indicated their intention to apply for an extension.

However, Kang says SMEs are hoping for an automatic extension.

“We hope the banks will be able to continue offering the loan moratorium automatically. Those who don’t need it can opt out of it ... and they will, because they wouldn’t want to pay additional interest on the loans.

“Many SMEs worry about what the banks will require of them, such as proving a decline in sales or [providing] other documents, before they can get the loan moratorium extended,” he says.

However, banks say that is a misconception and that the application process is pretty seamless (see story on Page 20).

Meanwhile, about 40% of the survey respondents are hoping that the government will provide more grants for business transformation while 26% think they need assistance to secure a loan.

The findings resonate with Amazin’ Graze’s Zheng. She says a company like hers could really do with more loans and grants at this juncture.

“We are growing really fast and we need capital to drive more growth, so definitely, more loans and grants to increase productivity and expand our market will be useful,” she says.

Their struggles aside, most SMEs plan to keep their employees and retain their salaries at the present levels.

The survey showed that only 7% of respondents plan to introduce more than 50% pay cuts while 6% see themselves laying off more than half of their employees.

Seventy per cent of the respondents do not plan to lay off any of their workers, while 58% have no plans to introduce pay cuts.



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