How to Overcome Cash Flow Crunch of Small Medium Enterprises (SMEs)? Walk the Talk 247 Media did an interview with Marcus Ho who is the co-founder of SocialMetric, an award-winning digital marketing agency. In 2015, he was part of the executive management team that led the acquisition of SocialMetric.
Having successfully exited two companies which he started, Marcus has realized the fast-growing challenges of scaling up and access to capital. His mission now is to help overcome the Cash Flow Crunch of SMEs.
1. What were some of the key challenges in terms of growth and funding in Social Metric?
As a professional service company offering digital marketing services for SMEs and MNCs, one big challenge that we faced was dealing with working capital. Clients would pay 30 to 90 days upon receiving of the invoice, and we would have to meet payroll by the end of every month. As a result, the more clients we had, the more working capital we would require so that we could continuously meet payroll and grow the firm even more.I soon realised that this is a very common problem faced by growing SMEs everywhere.
2. Besides exiting, what were some of the options available to you and why were they not adopted?
My partner, Clement and I actually intended to grow SocialMetric, exiting wasn’t exactly part of our plans until we started receiving offers. But before we exited, Clement and I were learning from Alan Miltz whom we met at an event organized by the Entrepreneur Organization. During that session, Alan shared generously about how business owners should look at their company’s finances. He also provided actionable checklists and things for us to work on.I would have to add that session with Alan was very pivotal for us when it comes to scaling SocialMetric to the next level.
3. It seems working capital was the key challenges, how can business owners avoid being in a cash flow crunch of SMEs?
Every emerging entrepreneur would know that growing an SME would suck up a lot of cash. So to help mitigate that, we constantly use the 3 financial metrics (credit to Alan Miltz again) to measure at the end of every month. These 3 metrics eventually helped us to make full use of our working capital in the most efficient manner.One of the 3 ratios was to measure the EBIT/Net Operating Assets. Speaking purely from a financial perspective, this metric is important to measure because as a people-centric business, you would want to have a business model that can generate the highest earnings for every person employed (of course, ensuring that your colleagues are still very happy!)
4. Your company was eventually bought over and finally overcame the problem of cash flow crunch for SMEs, please enlighten us on the advantages and if this is suitable for other industries or business models?
A lot of entrepreneurs would aspire to be able to exit their business. I’ve been grateful so far to have exited two companies (SocialMetric and another e-commerce company which I started in my younger days).There are a few reasons why most entrepreneurs would want to exit their companies…
- Further growth – The entrepreneur realizes that he is limited in his ways of growing the business and is looking for a “big brother” (ie. a bigger company) who shares the same vision and can grow the company even further
- Capitalisation – Some business owner wants to capitalise on the value of the company and perhaps move on to something else.
- A Mix of both – There are some deals which I’ve seen before is a hybrid of the above 2. This is where other esteemed individuals like Patrick Liew can better advise here.
5. What’s the next occasion we can hear you in person to talk about Cash flow Crunch of SMEs?
I’m most excited to speak at Growth Catalyst Asia event this 1-2 November, specifically about Overcoming Cash flow Crunch of SMEs. More info available on http://growthcatalyst-asia.com/