Thrice in my work life, I have advised & engineered turnaround of virtually bankrupt #MSME firms. In all three instances, the working capital was destroyed and no fresh equity was infused.
Took them onto recovery & nursed them back to good health. Each case took five years. 1/n
Took them onto recovery & nursed them back to good health. Each case took five years. 1/n
In all cases, entrepreneur firmly believed lack of capital was the problem. They believed that if capital was given, #MSME could recover. In all 3 cases, the recovery happened without fresh capital. So much for how wrong ppl can be in knowing their own biz well enough. 2/n
The problem was simple. Each biz had a certain cash conversion cycle. This cycle needed to be kept tight & further tightened if possible. Entrepreneurs believed cycle was managed in the best possible manner. They saw little room to improve. There actually was plenty of scope. 3/n
They all had common issues.
Money diverted to other areas.
Buying land for future use.
Family expenses loaded onto the biz.
Incurring debt on non revenue giving assets.
Loosely managed working capital.
Taking more bank loans than biz really needed.
It was their own making. 4/n
Money diverted to other areas.
Buying land for future use.
Family expenses loaded onto the biz.
Incurring debt on non revenue giving assets.
Loosely managed working capital.
Taking more bank loans than biz really needed.
It was their own making. 4/n
So where did we find solutions? First, we worked painstakingly to recover monies stuck with clients & held in stock. Gradually, we got the cycle moving again. Freed up working capital became the first lifeline. We built on that methodically. #MSMEs can be financially tighter. 5/n
