SME in India…..Risk Funding Opportunities & Challenges
SME (Small & Medium Enterprises) entrepreneurs and
their small enterprises are responsible for almost all the economic growth in
India. Managing SME is less hierarchical and in most of the
cases, the buck stops at you. It doesn’t let one hide behind the pillars. The 3Ps
of a large corporate are Performance, Posturing and Politics; though the mix
may differ from one organisaiton to the other.
Wherein the 3Ps of an SME are Performance, Performance
and Performance. There is much lesser room for mistakes, but much bigger room
for pending governance and compliances. There is much more cohesion within the
team as either they all float or all sink. I feel attracting and retaining
talent is the biggest challenge that an SME faces. An SME manager finds it
tough to attract the risk-averse talent pool. The stock market adage, “fear is
always bigger than greed”, also holds true for job market. An SME is like a
high beta stock, wehre the investor and the job aspirant think alike- fear the
downside more than the promise of the potential upside.
Key risk involved in Funding to SME equity:
SMEs need robust risk management as they may not have
where withal to manage and control non-operational risks due to their very size
and several limitations. Some of the key risks faced by SMEs are listed below:
1. Commodity Price Risk
2. Receivable Risk
3. Leverage Risk
4. Currency Risk
5. Key Man Risk
6. Cash flow Risk
Having discussed some of the prominent risk factors that
contribute to failure of SMEs, many of the failures are preventable. Excessive risks
taken by SMEs are usually the outcome of improper planning and it may prima
facie appear that by hedging all these risks, the margins in the business
reduce substantially. However, these margins are the sustainable margins in the
business and hence, all efforts should be made to retain and grow this. All other
profits are temporary in nature and can easily translate into losses. Calculated
risks are part and parcel of any business. SMEs being more prone to failures
should make sure that the risks are consciously taken with complete knowledge
and clear understanding. Keeping an open minded approach and giving a close
look at the common reason of failure will pave way for more sustainable future
for SMEs and in-turn will create value for them.
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