Working Capital Trends for Small and Medium Businesses
This report collects major trends in working capital and insights into which small- or medium-business sectors are most in need for working capital assistance. India, home to more than 330,000 small businesses, is experiencing a major working capital crisis as a result of COVID-19 and will need to seek methods of sustenance for at least one quarter of its businesses moving forward. Technology trends including AI and Robotic Process Automation are contributing to growth in working capital.
Part (A): This section details major trends in working capital.
- Technology is becoming increasingly important in increasing working capital for businesses of all sizes (including small and medium businesses), according to a report from PwC.
- Artificial Intelligence (AI) is directly impacting the amount of working capital for small businesses through its usage at banks. Banks and other lenders are using AI to assess small- and medium-sized businesses for appropriate loans. Amazon, Paypal, and Square are using this technology currently to effectively increase working capital for small businesses.
- Specialist cloud-based solutions are enabling businesses of all sizes to increase working capital by optimizing cashflow. An example of such a software-based solution is Xero, which is praised by its customers for the amount of time-saving features it provides to small businesses.
- Robotic Process Automation (RPA) is being adopted to help businesses automate their back-end processes and speed up tasks like billing, thus increasing efficiency in organizing working capital.
Business and Social Trend: India's Widespread Lack of Capital Will Lead to Closures and Unemployment
- India's small- and medium-sized businesses are profoundly impacted by COVID-19 in such a way that will reshape the nation's economy moving forward.
- Up to one quarter of India's MSMEs will default on their debt if COVID-19 conditions continue, in large part due to cashflow constraints.
- From an annual revenue growth of approximately 5 percent from FY2017-2020, India's MSMEs are facing a revenue "growth" of negative 21 percent in 2021 (a total shift of 26 points), according to Crisil Research.
- India's small business and MSME sector accounts for the employment of more than 110 million people and 45 percent of manufacturing output.
- India's total working population is just over 400 million, meaning a sizable impact can be anticipated for over a quarter of the working population and those they support.
Part (B): This section provides insights as to which industries or business sectors are most in need of working capital.
Retail and Hospitality Industries In High Need of Working Capital in the U.S.
- In general, retail businesses have a higher need for working capital than most other sectors due to the need to maintain inventory in the face of demand that is often seasonal.
- Per Deloitte, the retail and hospitality industries are highly affected by COVID-19 as a result of supply chain issues and a decline in tourism.
- The retail trade is the 5th-largest for small businesses in the U.S. with more than 654,000 employers.
- The hospitality trade (including food and lodging) is the 6th-largest for small businesses in the U.S. with more than 537,000 employers.
Sectors Most In Need in India Include Ceramics, Construction
- Crisil Research anticipates that businesses in the consumer discretionary, construction, and export-linked sectors will be the most affected moving forward in India.
- Other impacted sectors include small real-estate contractors, ceramics, and tilemakers.
- While data on the number of MSMEs engaged in different sectors in India was not available, the total number of MSMEs in India is more than 63 million. The large majority of these are micro-enterprises of one person, while 330,000 are small- businesses and 5,000 are medium businesses.
- The ceramic tile industry in India has an annual revenue of INR 250 billion (or about $3.3 billion according to this converter).
The number of businesses engaged in different sectors in India could not be determined due to a lack of available public data. The website for the Ministry of Micro, Small & Medium Enterprises was searched, along with major organizations and media sources. Revenue data for more specific fields (such as ceramic tile production) is available and was provided.