Page 15 - Newsletter July - Sep 2020__

PERSPECTIVES BY SKC
1. Manage existing ‘cash’ frugally:
It is very often and aptly quoted in the business world that “cash is king”, and current times best depict why this age-old saying holds true to the test of time. When funds are stuck in debtors, piles of inventory, and unproductive fixed assets, it is those businesses that have liquid funds available with them which are in a much healthier position than the others which currently don’t.
This is a period where debtor recovery may be slow, old piles of inventory may not get sold off in
anticipated time and still fixed expenses need to be paid. Before this pandemic, businesses used to make many such expenses which were important for business growth, but not necessary. These may include marketing budgets, travels, corporate gifting, over the board staff welfare, investment in office/factory infrastructure, renovations and so on.
In current times it is imperative to bifurcate your expense types into following broad categories:
Mandatory spends - This would include payments like salary, rentals, buying raw materials, and other spends which are absolutely necessary for your business to run on a day to day basis. Provisions need to be made to pay off these expenses first.
Luxury spends - These would include expenses like sponsorships, renovations, corporate giftings and so on. These are the expenses which may not directly add revenue or increase business but are ancillary in nature. These expenses should ideally be put on least priority in your budgeting.
Discretionary spends - These would include expenses on marketing, process improvements through technology and so on. To finalise what and how much needs to be spent in these heads, careful analysis should be done to identify the ROI (return on investment) that you expect to generate per unit of money spent. This analysis may lead you to reduce your budgets in these heads, if not completely eliminating them.
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