Al-Tijaarat al-Raabehah - Financial Management Webinar

1. Managing finance during the crisis
handling present scenario
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Organised by Al-Tijaarat al-Raabehah

2. Present scenario – economic situation
• Economic slow down
• Stock market index – 25% down
• Many companies will have liquidity crisis
• Huge debt burden
• Possibility of layoffs and salary cuts across
• Rampant filings under Insolvency and Bankruptcy Act
• Creditors to take a major hit
• Situation during lock out and post lock out

3. Impact on our business/finances
• Cash flow crisis
• Managing overheads
• Achieving sales at competitive prices
• Recovery of customer outstanding
• Handling debt commitments
Manage Overhead costs
Increase sales by competitive pricing
Recover outstanding's

4. Different business levels – Different problems and solutions
• Tier 0 : Day to day business - Persons operating without shop – bakra/thela
• Tier 1 : Small shop – 1 to 4 employees
• Tier 2 : Midsize Business trading/supplies 4 to 8 employees
• Tier 3 : Large trading business with agencies and distribution – 10 to 16 employees
• Tier 4 : Midsize manufacturing / processing / service business 15 to 35 empoyees
• Tier 5 : Industry / Supplies / Agencies with services /huge inventory etc above 50 employees

5. Characteristics of the present crisis
• Physical damage – health concerns
• Staff may suffer from confusion, friction, pressure or stress
• Key staff may not be available
• Difficulty in carrying out usual daily activities
• Financial constraints

6. Characteristics of the present crisis – Positive side
• Will bring about immense opportunities
• One needs to capture opportunities
• Opportunities are never lost – someone takes it
• When market opens up after lock down, demand surge
• World came out during GREAT RECESSION
• Government spending will boost economy – funds injected in the system
• Deficit financing

7. How do you deal with the crisis
Eliminate emotions
• No need to brood over loss opportunity
• have positive approach
• Don’t be depressed – you cant make good decisions
Breathe
• Be calm and relaxed
• Take the bull by the horn

8. How do you deal with the crisis
Stop the bleeding
• Cash flow analysis
• Find out cash bleed areas - expenses
• Areas where losing
Get Help
• Professionals to guide
• Funding options

9. How do you deal with the crisis
Budgeting and Implementing the plan
• Budgeting is half done
• Identify essential and non essential expenses
• Cut down non essential expenses
• Eliminate wastage
• Trim cost
• Set priorities
Focus on Cash sales rather than credit sales
• Recovery will be challenge
• Lower sales vs Bad debts

10. Key factors to be considered
• Cash flow management
• Income generation – explore alternatives
• Pricing mechanism in crisis situation
• Cost control
• Credit management

11. Cash flow management
• Plan strict cash flow budget for the next six months
• Sell unused or unwanted assets – no emotional attachment
• Create liquidity – Cash is king
• Focus on recovering old debtors
• Try barter to settle customers outstanding dues

12. How to finance the Business requirements
• Carefully plan the financial budget for the venture
• Keep initial infrastructure cost low – Rental vs Self owned
• Smaller place/Smaller scale
• Expand as your grow
• Keep overheads – fixed cost - minimum
• Keep contingency
• Check available savings
• Plan should keep in mind the resources available
• Start at a level which can be managed within means
• If need be take financial partner who is willing to invest
• Risk is distributed

13. Income generation – explore alternatives
• Give surplus premises on rentals
• Outsource/lease excess capacity to other manufacturers
• Take work on job work basis – reduce working capital requirement
• Think of backward or forward integration – Example Talcum Powder
• Think “Out of Box” for new ideas – Ola, Flipkart
• Try franchisee arrangements – Take or give – like KFC

14. Pricing mechanism
• Sometimes lower prices fetch higher sales
• Improved bottom line
• What is important is the bottom line
• Marginal cost concept to be used for pricing
• Ensure that overheads are covered
• Keep you afloat

15. Case Study – Marginal cost concept to improve bottom line
Item Qty Rate Amount
Sales 10000 10 100000
Raw material 10000 6 60000
Factory Rent 5000
Fixed Salaries/wages 45000
Loss -10000
Scenario 1
A manufacturer has following sales prices and costing and overheads

16. Case Study – Marginal cost concept to improve bottom line
Item Qty Rate Amount
Sales 40000 8 320000
Raw Material Cost 40000 6 240000
Factory Rent 5000
Fixed Salaries/wages 45000
Profit 30000
Scenario 2
A manufacturer decides to slash price by Rs.2 to Rs.8 and can then sell 40000 units

17. Cost control
• Zero based budgeting
• Retain essential cost only
• Weed out non essential cost - reduce level of transport facilities – train against air travel
• Reduce working hours if idle time for employees – you save on electricity and other office cost
• Give option to employees – shorter hours reduced pay – as against no pay at all.
• Enforce leave rather than encashment
• Tax savings – GST – by proper planning - Compositing scheme

18. Moral of the story
• Have faith
• Need determination
• Be Honest
• Believe in Yourself
• Invest in Yourself
• You can’t go wrong