Cash flow is drying up for many small and medium enterprises (SMEs) that started 2021 with raised expectations after the dismal year that was 2020. But lockdown measures implemented in a haphazard manner are adding to uncertainties, businesses say, when what is needed are clear and consistent guidelines.
Towards the end of last year, consumer spending was picking up as movement restrictions eased while the malls were full with people out and about. Businesses were also busy gearing up for the Lunar New Year - an annual affair in which sales soar as consumers loosen their purse strings for the 15 days of festivities.
More crucial were reports that the rollout of Covid-19 vaccines was just around the corner, fuelling optimism of light at the end of the tunnel.
But with daily infections rising at rapidly 13 days into the new year, the government announced the implementation of the second MCO, or MCO 2.0, in selected states. This has since been extended to the whole of Malaysia, except for Sarawak.
Some might argue that after last year’s lockdown, small and medium enterprises should be more prepared this time around to face MCO 2.0, especially as five essential sectors are allowed to open, as are food and beverage businesses, and even warungs.
Yet, the sentiment appears worse now than during the first MCO in March last year. It is perhaps more apparent in sectors deemed not essential that have been ordered shut.
Coburn Soy, a hair stylist and owner of Belco Hair Studio in Damansara Uptown, says business conditions are worse than in the previous MCO.
“Like the last MCO, we were told to close our doors during the MCO period. However, many hair salons like myself could still bear the months of zero sales because the lockdown happened only after the Chinese New Year period. March and April are usually off-peak periods for hair salons.”
To add to his misery, he had stocked up products a month ago in anticipation of a rush of customers who usually make a beeline for hair salons before the festive season.
“There is this big question of what am I going to do with all this stock now if the MCO continues. I can’t sell them online because these stocks are not to be resold and I don’t think the crowd after MCO will be big if we miss this Chinese New Year window,” he muses.
Cash-flow-wise, Soy concedes he may be better off than most of his peers. “Most of my friends who own salons have only two to three months of cash flow. I have about half a year and it’s possible for me because I have very few staff and there are some costs that I can control.”
He hopes hair salons will be allowed to reopen, as they comply with strict standard operating procedures (SOP). “It’s better they allow businesses like us to open and impose strict SOPs than have people doing it secretly without any SOPs, which will result in higher risk of infection,” he observes.
Cash flow has always been a main concern for SMEs. Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM) SME committee chairman Koong Lin Loong believes many SMEs have either depleted their cash flow by now or are eating into their reserves.
“Many SMEs are at the edge now. People can’t go out. So, when people don’t buy, there is no cash flow. I believe a lot of SMEs will choose to go for temporary closure soon, meaning being in dormant status, to stop bleeding cash,” he says.
He expects more SMEs to go bust this year than in the previous year. “It’s for the simple reason that, in 2020, SMEs still had cash flow, as they were making profits for some part of the year. This round, it’s a bit different. They started the year badly and, at this point, businesses are not looking for profit but more for cash flow or survival.”
SME Association of Malaysia president Datuk Michael Kang concurs, stressing “the need to strike a balance between health and the economy”.
An entrepreneur who just wanted to be known as David Khoo, who has several retail, F&B and laundry ventures, says this MCO is definitely a concern for small businesses.
“People go out less and travel less. They generally spend less and, for us in the retail space, we feel the pinch the most. The laundry service business is doing okay because people are sending their bedding, curtains and carpets in for washing more often since they spend more time at home.”
The biggest pain point for businesses now is the uncertainty, Khoo says, adding that ad hoc measures taken by the government to curb the virus have left most clueless on what they can or cannot do.
“Almost all small businesses like us do not have contingency plans, policies or manpower to handle a pandemic like this. Just when things were starting to look better in mid-2020, we started some business expansion, not knowing that we would be facing MCO 2.0.
“I guess while big businesses have the resources to ride out this uncertainty, this could be the end of some of us small businesses,” he says.
SME Malaysia’s Kang says what SMEs really need at this point are consistent and clear SOP guidelines. “We need SOPs that are the same at both state and federal levels, for both businesses and consumers. Now, there is a lack of clear guidelines and it is a real challenge for businesses.”
Koong says while small businesses need assistance, he understands the government has limitations on what it can provide.
But cash flow remains the main problem for SMEs. “What SMEs really need are sales because, if there are no sales, there is no cash. It is the restriction of movement that is killing businesses,” he stresses.
He says the extension of the Wage Subsidy Programme is a good measure, but its benchmark needs to be lowered for businesses to qualify.
He also suggests more practical measures such as rental rebates. “The government needs some kind of measure to urge landlords to do this, like what is done in Hong Kong, especially for the MCO states. The current rental rebate to SMEs is not effective,” he says.
The recent Perlindungan Ekonomi dan Rakyat Malaysia (Permai) assistance package saw some measures doled out to SMEs, such as one-off grants, extension of the wage subsidy programme and electricity discounts.
But is this enough, given that the MCO has caused a huge slowdown in activity?
“Any form of financial assistance and relief given can never fully compensate for the impact of MCO 2.0 but is, rather, intended to reduce the impact. The reality is that the government’s tight fiscal space constrains its disposal of more resources to fulfil the wish list of everyone,” says ACCCIM’s Socio-Economic Research Centre executive director Lee Heng Guie.
“The reprioritisation and optimisation of fiscal resources is necessary, based on a targeted approach according to the degree of vulnerability and magnitude of impact.”
While some find the Permai package underwhelming, UOB Malaysia economist Julia Goh says it is an assistance package that improves on existing initiatives and accelerates the implementation of the programmes. “It does not entail fresh funds but is funded through reallocations and recalibrations from the budget. Thus, expectations that it is a full-scale stimulus plan need to be dialled back,” she says.
Nevertheless, Lee says if MCO 2.0 were to be extended beyond one month or more, the government could consider extending some of the existing initiatives, especially to targeted groups and sectors such as the self-employed and micro-entrepreneurs.
“The chances are that we will cope, but at a short-term cost, depending on the duration of the MCO/Conditional MCO,” says Lee. The cost will be even larger and have a long-lasting impact if Malaysia does not do a good job of balancing health risks with supporting the economy, he cautions.
Source: https://www.theedgemarkets.com/article/state-nation-sme-struggles-continue-cash-flow-dries