According to Singapore Department of Statistics, Small and Medium Enterprises (SMEs) make up 99% of Singapore enterprises. To consider as a SME, an enterprise should have operating receipts not more than $100 million or employment not more than 200 workers for all sectors. In recent years, the Singapore government has been injecting many grants, schemes and programmes to support and equip owners of SMEs to grow both locally and overseas. However, not all SMEs make it in the long-run. Let us look at some of the challenges SMEs face today and how to deal with them.
Many business owners often discuss about how the competition in the top industries are fierce and how many SMEs struggle to survive. To understand why, we have to first recognize that that the competition for SMEs are no longer just based on local competitors but also other sources that are international and online. Next, due to the advancements of internet, technology and globalization – it has now become easier to duplicate and reproduce better products all over the world, be it online or offline. What is paramount for SMEs to survive is to ensure that they do not avoid the face of competition and instead, figure out how to raise efficiency and productivity levels with streamlining processes and automation.
Thus, SMEs have to continuously innovate while maintaining low costs and providing a good deal of choices for consumers through IT capital. In Singapore, the government has introduced the Smart Nation initiative where startups and businesses have a platform to access open data sets, collaborate and receive assistance on growing their business. If SMEs are intending to internationalise, they can also look out for ASEAN updates where agreements made are able to remove tariff and non-tariff barriers, provide overseas market access and other benefits to help businesses expand overseas. For example, this year the ASEAN Smart Cities Network (ASCN) was established as a collaborative platform where member cities exchange best practice and urban solutions, and catalyse bankable smart city projects with the goal to improve the lives of people in this region, using technology as an enabler.
2. Cash flow
The recent SME Development Survey by DP Info revealed that 35% of SMEs had finance-related issues, with another Spring Singapore poll showing that 64% of SMEs face some form of delay in receiving payments from customer. Even though it is not uncommon for companies to have financial problems and even operate at a loss in the beginning, SMEs should realize that it is a cause for worry when they are still facing losses after 2-3 years. A few red signs that business owners should notice are – cash outflows (i.e. expenses) largely exceeding inflows (i.e income), having exponential sales but not being able to meet financial obligations and too much overhead costs. Cash flow problems could create long term problems and hinder SMEs from expanding.
How some SMEs deal with delayed payments is to increase the number of days needed to pay their creditors to offset cash constraints. Other ways to improve cash flows are – maintaining a good relationship with customers, paying bills on time (as close to the due date as possible), not providing big customer discounts and leveraging on accounting softwares and cloud tools.
3. Limited IT performance and resources
When SMEs have cash flow constraints, it restricts their spending on implementing IT automation tools and investing in technology that increases productivity. Since there may already be high IT expenses, small businesses that use inefficient technology will result in a negative impact on the company’s profits and growth.
Lucky for SMEs, IT implementations are relatively easy for them as compared to bigger enterprises. Furthermore, multiple applications are moving into the cloud which allows them to manage their softwares and systems better and focus on other business objectives instead. A tip to fully utilize the IT assets that the companies have invested in requires the business owners to ensure that software applications and hardwares are always updated, hardwares are used within the life cycles. Once it’s up, invest in new hardware or software because it could be more cost efficient to get a new IT asset than to constantly send them for repair, especially if you don’t have an IT personnel to do it in-house.
Besides the recommendations and tips mentioned, SMEs can also reach out to mentors for advice based on their experience and it will help overcome their problem to a great extent.
Starting a SME may not have high growth prospects at first, and there may be many obstacles along the way, but one should know that there are many platforms, grants and programmes to provide support and assistance.
That said, if you’re interested to learn more about business strategies and how to tackle common issues that many SMEs face, follow the H.E.R Entrepreneur Facebook page. We post weekly articles on a variety of business related topics, and it’s all completely free.
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[…] our previous article of the 3 Main Challenges of SMEs in Singapore, we discussed the problems that business owners of SMEs face and apart from those, there are two […]