Dear Everyone – Hope you and your beloved members are doing well. None of us had a clue of a pandemic disease of this kind and magnitude. As an afterthought, many people have suggested/ forwarded to watch Bill Gates talk / Contagion movie. Similarly, some of the astrologers and gurujis are quoting their predictions, made a year before or so! These things are juicy stuffs for passing redundant time at home! A common man, an entrepreneur, a professional had no clue, whatsoever about the onset of the deadly disease.

As the days progress, we get to hear a lot of unfavorable developments. If you look at the total counts in the world, 80% of the 16 Lakh cases, are from the top 10 countries. Various reports suggest that the pandemic will phase out by August and from Q3 onwards, the economy will start to revive.

In this background, I have compiled some of the information which may be helpful to Micro, Small and Medium Enterprises.

The challenges –

What are the immediate challenges for all of us?

• Pay the outstanding dues of Creditors who have already supplied the Goods and Services
• Meet the running expenses such as salary, rent and utilities
• Collection of dues from the debtors for whom the Goods and Services are supplied
• Payment of statutory dues and bank loans

Smaller companies have a Bigger Challenges.

It is true, smaller companies can’t send PINK SLIPS the way bigger companies do! Here, you know every employee by their name, their family condition and their requirements. Can’t just say – Go on Leave without Pay (LOP). You are not only morally obliged but also emotionally attached to them.

Sensitive management of finance and people by balancing short term requirements with long-term plans have to be done by all, both at organizational and personal front. The economic uncertainties, business volatilities are going to stay for long, at least for a year and a half.

What Big Cats are doing?

As I have gathered the information, w.r.t Employees –

• many large companies have deducted 5 days, 10 days salary for March 2020.
• Many have taken a decision for 20 to 30% salary cut in Q1 (April to June 2020)
• No increment/salary cut letters are sent out
• Temporary workers are sent home; layoffs of regular staff is on its way.

Similarly, w.r.t. contracts

They have invoked Force Majeure Clause - FMC (this means legally, it is a clause that removes financial liability from a person/ company for not fulfilling a contractual obligation due to an unforeseeable event, inter-changeably called an ‘act of god’).

I can quote a few examples for better understanding. These details are picked from the public domain (Disclaimer – I won’t take the responsibility for this authenticity, my idea of giving these examples is for better understanding and for nothing else)

• Eicher Motors have taken a stand to suspend the vendor payments to a few of its suppliers quoting “While we are all together in this, we have no choice but to declare this as ‘Force Majeure’ and suspend any/all our contractual obligations”
• Similar stand is taken by Volvo and Hero Company, is what I heard
• Reliance Retail has invoked FMC to not pay the rent due to the outbreak of
• Likewise, Both PVR and Inox (+others) have invoked ‘act of god’ (FMC) & decided not to pay rent (during lockdown) to mall owners
• Even Government companies like HPCL has invoked FMC on Iraqi oil to cancel 2 oil cargoes, as local fuel demand is hit by lockdown. GAIL has invoked FMC to ONGC, Petro LNG. So has IOC to Middle East based players
• It is no surprise that many airlines are invoking FPC and denying refunds to

Why buyers will use FMC?

• The buyers are going back on their existing unfavorable contracts so that in the future, they can renegotiate the prices and get a better deal

Why sellers use FMC?

• They have genuine problem of delivery of goods, as the trucks are abandoned on the roads!

Will this kind of denial of payments pass the test of law? Can’t say now. I foresee a long legal battle among service providers in the days to come.

The Force Majeure Clause (FMC) is invoked for favorable reasons also.

• Ports have declared FMC. The Ministry of Shipping has directed all ports to not levy penalties on port users for delay.
• Indian railways have declared FMC and waived all charges levied due to detention of rolling stock, delays, etc.

Conserving Cash is the mantra

Some people have asked – can we invest in the stock market now? The answer is Yes, if one has super surplus funds and which can be deployed over the next couple of months / years systematically. I understand that some traders are still making a good profit in this blown up stock market. I could call them as exceptions. It is not a path to be suggested for anyone at this stage.

What can be suggested now is only one mantra – Conserve Cash as much as you can. Some tips –

1. Cash Flow Statement – Prepare the cash outflows during COVID Lock Down Period (LDP) and at least 3 months (conservative) projections post LDP. Check the
   resources such as line of credit, receivables from the clients, additional borrowings, capital inflow, etc., to meet the cost. Once it is done, try to find the ways of reducing the cost pre and post COVID. Remember, the payment cycle won’t be the same as it used to be in the past. Be very conservative while projecting the inflows.
2. Payment of EMI – If you have money – pay EMI, because it attracts Interest for every day of delay. Try to save the accounts from going to NPA, post COVID era! Check the current interest rates, as the rates are going southwards, negotiate for lesser rates.
3. Payment of Statutory Dues – Pay it, as it also attracts interest. But for some payments, there is a provision of interest waiver, you can check with your consultants. Pay on time and save big on interest and penalties.
4. Salary – Incentives, variable pay, Bonus can be deferred. But make sure that you reach out to employees politely and explain the hardship. It is the primary responsibility of every individual to save the job than retrenchment. Jobs can be saved only if the available resources are used judiciously.
5.  Rent - Connect with your service provider and ask for rental waiver / reduction. Whatever you can - save. This policy holds good for other vendors as well. Though critical services/goods can’t be availed at a reduced rate.
6.  Reduce the space – If you have 2 floors, can you give away one floor? If you are in such an industry where revival is unlikely in the next 12 months, better to cut down on space and save the rentals.
7. Stagger the joining dates – Immediately after Lock Down is lifted, if you foresee the volume of work is not much, stagger the joining dates of employees so that you can save a portion of the costs.
8. Look out for any schemes / Benefits given by the Government – As of now, not many benefits are made available. However, some more benefits are in the offing. Make the best use of them.
9. Work remotely – This period would have taught us more or refined way of working remotely with lesser cost and higher efficiency. Even after the Lock Down period,
   continue such practices. This will help you to reduce the cost.
10. Put Off expansion / Capital Investments – Consolidate the strong areas and postpone the expansion plan for now. Once things return to normalcy and you find your feet on the ground, you can look at the re-entry. Focus on tested waters then exploring newer fields.
11. New Schemes – During this period, many proposals will knock your door with innovative ideas of doing / cutting costs. Review them properly – TWICE/THRICE. If such proposal warrants Capital Investment – postpone the decision. Known devil is better than unknown angel.
12.  Consolidate the work – Check if you can consolidate the work among efficient team members with an extra pay and reduce the team size. – employer will reduce the cost and the efficient member will get extra earnings! Survival of the fittest. It is the tie for re-calibration.
13. Safe Guard the data – Many of us are not used to Work from Home (WFH) culture. We have given away the conventional model of working, thereby we are not sensing the probable danger to the data! I read in the media that the hackers are out on street to make ransom from COVID. Check with your service provider, whether we are in safe hands. Take the required action on priority.

Maintaining Rapport – This point may sound like preaching! Sorry for this. At the end, we all know that mankind is in danger. Some reports are suggesting that over 55% of the world population (barring China and its population from the calculation) is under Lock Down mode. It is not simple!

We should continue to maintain a harmonious relationship with the workforce, vendors, business partners and customers. Our attitude and behavior will be judged by the way we treat them during the phase of crisis. Let us be humans first and other things will find its place.

By CA Prasad – Phone: 9845721255; This email address is being protected from spambots. You need JavaScript enabled to view it. ; date: 10/4/2020