Mastering Your Finances: 7 Budgeting Tips for MSMEs to manage their expenses
Synopsis: In today’s blog, we highlight some of the best tips that small enterprises can apply to reduce their business costs and improve their long-term profitability.
MSMEs have a cash crunch problem. To be precise, at least 61% of small businesses struggle with cash issues, with 32% unable to pay their employees, their vendors, and even their loan interests, per an Intuit study.
MSMEs’ cash flow issues were further compounded by the COVID-19 crisis, with over 41% expected to run out of cash within a month or less. In view of this critical situation, the government and financial institutions have bucked up and introduced several support measures in the form of credit support.
But this is not enough. While some small firms have taken a hard look at their income and have been chasing after new revenue streams and market expansions to streamline their cash issues, the expenses segment has remained neglected.
So, what are some of the best, hands-on strategies to ensure better business expense and financial management? Let’s find out.
7 Practical Budgeting Tips to Manage Your Expenses Better
MSMEs must rein in their expenses to improve their bottom line and streamline their cash flows while leaving headroom for growth investment. Below, we mention the top 7 budgeting tips that will help you in improved expense management.
1) Make a Plan and Draw up a Budget
With nearly 50% of small businesses failing to draw a formal budget, it is no surprise that MSMEs suffer from severe cash flow crises. The key to successfully managing your expenses lies in making a plan and sticking to it.
It means taking stock of your current financial position, and budgeting where you want to be long term. Generate and revise forecasts as the situations evolve, while also making projections about future expansions. Keep on top of the liquidity game by assiduously tracking and comparing your operational and cash flow budgeted numbers against actual performance.
2) Review and Benchmark Your Expenses, and Prune Them
MSMEs must keenly focus on their expenses and benchmark them against the industry standard. Are there any areas where you are spending higher than the industry norms? If yes, then what are the reasons for the cost escalation, and how can it be brought down?
In a similar vein, small businesses must review their expenses to identify and cut back on non-essential expenses, such as business travel, subscriptions, and memberships. Another area worth targeting is the office space’s rent if going remote works for your business equally well.
3) Rework Your Payments Cycle
Delayed payments are one of the biggest causes for small firms finding themselves in need of a working capital loan (interest payments = more expenses), and in some cases, even on the brink of insolvency! According to a GAME and D&B report, 5.9% of the MSMEs’ gross value added (GVA), totaling Rs. 10.7 lakh crore, is locked up due to delayed payments.
This kickstarts a vicious payments cycle, where firms borrow working capital loans to tide over cash crunches (at high-interest rates), which eventually get priced in the final product. Higher prices may lead to a loss in demand, further aggravating the enterprise’s profitability and cash flows.
4) Negotiate Better Deals with Suppliers
One area often overlooked by small business owners is the long-standing relationship with suppliers. Better expense management necessitates that you must periodically hunt for better prices by inviting new proposals from different suppliers. This sends out a message that you are actively tracking your costs while keeping abreast of the prices offered by competing suppliers.
Furthermore, given the ever-evolving economic situation, it is best to negotiate for better terms and prices from time to time. Hiring a professional negotiator can also do wonders for your expense management at an aggregate level.
5) Automate, Automate, Automate
Digital is the way to go if MSMEs are serious about surviving in the cut-throat manufacturing industry landscape. While digital adoption rates have gone up from a paltry 29% pre-pandemic to 47% and 53% for micro and small enterprises, respectively, there is scope for so much more!
Investments in technology empower small enterprises to rationalize their processes, expenses, and cash flows. Entrepreneurs should automate their operations, especially bill payments, as it frees up time to focus on customer acquisition and reduces the likelihood of incurring penalties for missing deadlines.
Additionally, you should opt for digital marketing and adopt cloud-based solutions for improved production, enhanced efficiency, and cost reduction. If creating tech-driven solutions in-house is impractical, SMEs can also experiment with collaborations with like-minded start-ups.
6) Invest in Your Employees
MSMEs can save massively on expenses by investing in training and skill upgradation of their employees. Training enhances employees’ productivity, boosts morale, and reduces turnover, thereby trimming additional hiring costs.
Employee performance can further be enhanced by offering performance-linked and cost-reduction-based incentives. Alternatively, you can also outsource some of the routine, repetitive, admin tasks to enable your employees to focus on core productive functions.
7) Consolidate Your Debts
Finally, prioritize your debt payments to ensure better expense management. While there is no doubt that businesses need funds to purchase new machinery, scale their operations, or meet working capital needs, such loans can add up to a considerable sum. Consequently, MSMEs are saddled with huge interest costs, with no signs of relenting.
Thus, firms must focus on paying off their loans to reduce their interest burden. Conversely, you can also opt for debt consolidation to minimize interest payments. Protium offers tailored customized loans (LAPs) that MSMEs can use to consolidate their debts.
Transform Your Business by Taking Control of Your Expenses
Managing your expenses can go a long way in improving your business’s bottom line. The path to immeasurable growth and glorious success passes through careful planning and tracking of expenses, making adjustments, and employing smart cost-saving choices. Automation, employee training, and debt consolidation are other useful methods for achieving financial success.
Do you think it’s time to consolidate your debts? Obtain a business loan from Protium today that has been customized to your needs, without any undue requirements for credit history. Give us a holler at 8828827800 to know more!