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10-ways In Which Demonetisation Will Impact Entrepreneurs, SMEs
you must keep your accounts up-to-date as the government analytics software's are becoming smarter and smarter to identify any irregularities
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If you are an existing entrepreneur or someone who is dreaming of setting up their own project, then it is important to understand the social and market forces that will shape the country in the coming times. Apart from demonetisation, which has totally changed the rules of the game, globalisation and technology will have a major impact on how enterprises are run in the future. Leaving the complaining or chest thumping politicians- as an entrepreneur you have no option, but to learn the new rules of the game. Only those who can adapt or have the potential to adjust to this changing economy will survive.
So, here are the 10 biggest changes expected in the coming times and how entrepreneurs & SMEs should respond to them:
1. Survive the short-term period: Due to paucity of cash, we can already see a drop in demand deflation in the market. During this period, focus on cash preservation, keeping the cash credit limits low and reducing other debts as much as possible without harming liquidity needs, till positive signs are visible. Also, do take money from creditors if they offer you as their cash crunch may hurt you to get in immediate future due to possible decline in the GDP growth. Similarly, resist the temptation to offer credit to offset the drop in demand, as creditors may suddenly be unable to repay. Hopefully, as the new notes get circulated in the market and the mismatch gets corrected, money supply will pick up speed. Once things bottom out, your organization should be all ready to take advantage of the boom expected thereafter!
2. Maintain Proper Accounts: With increased digitisation and increased focus of the government on source & flow of capital, you must keep your accounts up-to-date as the government analytics software's are becoming smarter and smarter to identify any irregularities. It is no longer enough for an entrepreneur to be passionate about his business - you need to have a proper understanding of accounts and financial laws of the country to ensure that you do not land on the wrong wide of the law. You must ensure that you build a solid accounting department backed by well-informed accounting consultants to have proper accounting records for both income tax and GST departments in the future.
3. Avoid certain sectors: Areas where banking penetration in the interior areas is low like small-time businesses, consumer-focused firms, unorganized sectors, informal wholesale businesses, etc., will be negatively impacted as depend hinge mostly on cash for their daily transactions. Further, businesses, which have been traditionally dependent on unaccounted money, for example, jewelry, real estate industries, luxury items, FMCG, discretionary products, etc., will be side-stepped as consumers will refrain from spending (those spending in cash, black money, etc.) fearing crackdown by IT authorities. One should stick to sectors, which form the basic needs of an individual or family - such as food, travel, communication and education -things which the household budget is least likely to cut back on. However, entrepreneurs can look at recruiting employees who may lose their jobs from sectors where the demand will drop.
4. Scope for legal business: Strict tax compliance levels ensure that SMEs running legitimate businesses are now able to compete with businesses that find creative ways to avoid taxes. Further, with GST likely to be rolled out from 1st April 2017, this demonetization of old currency notes will complement the government's move to ensure higher 'tax compliance'. Demonetization would surely be fatal for certain businesses that cannot survive after doing businesses legally. On the other hand, we have sectors which are organized such as Banking, Insurance etc. getting a huge boost from these changes.
5. Digital economy: Huge expenditure is going to be allotted for set up of banks, ATMs in rural areas, manufacturing of cards, apps, digital education, data analytics, software development as a part of digitization of the country. Apart from innovative tech-solutions; there is plenty of scope for entrepreneurs who can come up with optimum usage of technology, even in non-digital fields. Such projects could easily access funding by banks and even by the government.
6. A New Digital Population: Demonetisation, coupled with Digital India initiatives has forced people, who were resistant to technology, to learn their usage as part of their business. Similarly, you should ensure that your organization gradually moves towards lesser cash and greater dependence on credit cards, IMPS/NEFT/RTGS, mobile wallets, e-commerce, M-banking, etc. After the initial teething problems, which may pop you up, you will realize that it is safer and more efficient. Furthermore, consumers would start expecting more digitalisation, not only for payments, but also for sharing information, as people have started getting instant replies from organisations. This means that unless your ventures can adapt to digital India - you have risk of turning into dinosaurs.
7. Change in investment behavior: Gold & real estate will no longer be your choice of investment; and you surely look at investing in instruments, which pay more interest than the charged bank rates. The old philosophy of investing in real estate and drawing a rental income plus getting property appreciation will no longer be followed. With the fall in real estate prices, more property purchases will be done only by end users with actual housing needs and less by investors. Furthermore, retail participation in stock market is expected to go up through Equity mutual Funds, which will lead to increase in Equity Markets. Also, we can expect to see more and more people investing in franchise projects, which offer higher success rates than individual startup projects.
8. Increasing funding by Banks: Flushed with funds, banks can be expected to lower the interest rates on deposits and loans. If you require funds, then you should take advantage of this lower cost of capital and reduce the high cost of borrowing by seeking lower priced loans. However, the banks will be concerned with drop in property prices, uncertainty in cash flow of traditional businesses, and hence, will be funding very safe projects, as they are already under a lot of scrutiny after the flak they have received due to their large NPAs (Non Performing Assets).
9. Increased spending by Government: With increasing tax revenues, the government will spend more on infrastructure, ATMs, airports, railways, and highways and other social infrastructure. New entrepreneurs could easily partner with the governments through the PPP (Public Private Partnership) mode for increasing its efficiency and supplementing its efforts.
10. Proven Business Models in times of Policy fluctuations: This kind of demonetization, combined with GST rolling, has never been done before and so, we can expect multiple changes in the policy as the government will try and accommodate unforeseen challenges. Once again- sectors which cater to basic human needs of survival like basic food, education, necessary travel are likely to be going forward with more stability. With the landscape of economy changing, people will focus on proven business models such as Franchising as it enables an entrepreneur to invest and start their project immediately, with proven know-how coming from the franchisor.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.