Can Singapore SMEs withstand the headwinds without managing cash flows?

As Singapore reopened its economy, small businesses were optimistic at the beginning of the year while witnessing fewer bankruptcies. But many factors have changed since then. Prioritizing cash flows is the need of the hour.

A survey conducted by DBS Bank after the budget highlighted that about 85% of SMEs would focus on ensuring consistent cash flow and conservatively manage their operational costs in 2022.

The survey also indicated that 70-90% of SMEs were confident about withstanding a high-interest rate and an inflationary environment.

In the first two months of the year, about 450 Singapore small businesses filed for bankruptcy, 8% lower than the previous year mainly due to the reopening of the economy.

While rental rebates and wage subsidies were some of the measures that helped small businesses in surviving the pandemic and regaining confidence, the future remains uncertain.

The effects of risk factors such as rising inflation, high energy prices, and supply chain disruptions on SMEs were initially obscured by government support. But now that these support measures have been rolled back, and the Ukraine war has added fuel to the fire, SMEs are more vulnerable to these risks than ever before, especially for some sectors like travel, hospitality, and F&B that have barely recovered from the pandemic.

In fact, Singapore Prime Minister Lee Hsien Loong has also warned that the country’s GDP will take a hit of 1.5%, which equates to S$8 billion, a year due to global headwinds and, therefore, urged citizens to “stay open and make our economy stronger and more resilient.”

So, even as the Singapore economy attempts to recover from the pandemic-related recession, and with government support expiring, SMEs need to brace themselves for turbulent times ahead.

SMEs often operate with very thin margins and typically hold very little cash in hand to keep their businesses running. Higher interest rates mean a high cost of borrowing which leads to lower profits.

Therefore, working capital, especially your receivables matters. If your business is lacking sufficient working capital to run your day-to-day activities, it may lead to business failure.

To avoid this pitfall, SMEs need to review their cash flow process and existing relationships with customers. And to do that, you need customer intimacy.

Customer intimacy is about understanding the needs, wants, and opinions of customers, with the goal of nurturing a long-term relationship. Through close communication, you will be better able to help them get the most out of your products or services, which in turn will help you get paid on time.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com