Word in the New$: Near-term

Feb 25, 2017 05.00PM |
 

by Ryan Ong

BUSINESS survival is usually measured on a sliding scale of how many bad cheques your boss writes you. Once you get three in a row, you know the corporate vision of a DIY vasectomy kit in every home is doomed. You see, no matter how smart a business idea seems, or how much it could pay off in the long run, it’s the near-term support that matters for everyday survival:

Now that Budget 2017 is done, Singaporeans can celebrate in the traditional way: by writing long, angry Facebook posts about the inadequacy of the budget, and then voting in the exact same government in a few years. One of the issues this year is the lack of near-term support for Small and Medium-sized Enterprises (SMEs).

A lot of this is due to the targeted nature of this year’s budget. As we’ve pointed out in previous articles, businesses that plan to scale-up and internationalise will get the lion’s share of handouts. Businesses that remain small and niche, like your neighbourhood provision store, get the financial equivalent of a pat on the back.

But what’s the importance of near-term support, and why does the overall strategy seem to place less importance on that?

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Near-term support and why it’s important

When the phrase “near-term” is used, it typically means anything from next quarter to next year. As far as businesses are concerned, the near-term is radically different from strategic planning. It’s not uncommon for SMEs to have fantastic mid-term or long-term prospects, but still fail from lack of near-term support.

For example, consider a tiny furniture shop somewhere in Jurong. The shop’s on its last legs; the owner can’t pay the employees for another three months and the rent is overdue. The business is on the verge of closing down.

Just then, a huge order comes in. A designer firm wants to buy 200,000 pieces from the company and a purchase order is already sent. There’s also a good chance this will be a recurring deal, over the next five years. Now the mid-term prospects of the business are fantastic. Perhaps, even the long-term prospects are good, as it’s gaining momentum.

But none of that matters, because the shop can’t complete 200,000 pieces and receive payment in three months. It takes time for that to happen. Nor can they gain the benefits of that big purchase order, if the landlord is going to kick them off the property in a matter of weeks.

Without near-term support to handle these costs, the shop can’t deliver. And so, a business that could have been successful and could have provided employment to another 300 Singaporeans, ends up dying instead.

 

Near-term support is a never-ending point of contention between businesses and government

Budget 2017 aims to help companies scale up and internationalise (we’ve mentioned this in previous articles). These are long-term goals and include assistance in areas like incorporating robotics, expert advice in meeting product safety regulations in other countries, and so forth.

Many SMEs, however, are not worried about long term prospects. They probably already have plans of their own. Their key concern is being able to pay their staff today and being able to fix or maintain their equipment. If you run a cafe and your $50,000 walk-in freezer is broken, you don’t need a consultant to tell you how to expand into Canada. You need money to fix your fridge, or your business is over.

On the other hand, governments – and this is not exclusive to the Singapore government – generally don’t like to give out this kind of near-term support. The fear is that badly run businesses will waste taxpayer dollars, and run on government subsidies.

After all, would you invest money in a business that’s struggling just to survive? It will likely keep needing support and you won’t see a return on that money. Governments want something back when they pump money into local businesses. They want to see the companies grow and provide employment for citizens, and hopefully pay back millions of dollars in taxes some day. There’s little inclination to help struggling businesses that might go nowhere.

This sets up a constant argument between SMEs and the government, in countries all over the world. Small businesses will complain they never get meaningful support from the government, and the government will point out that it’s wasting everyone’s money by running around trying to support every little shop.

From there, it escalates into bickering about how the government doesn’t care for entrepreneurship, or home-grown businesses.

 

The near-term will be rough for Singapore businesses

Complaints from local businesses are far from groundless. Many are facing the prospect of rising interest rates, rising rents (tied to the interest rates, because landlords may raise rentals to compensate for their property loans), and disruptive business models (such as online shopping for retail).

The next few years will be a real test for our SMEs, and we can expect a lot of casualties.

 

Read the 2-part series on Economic realities:

  1. Economic realities: 3 harsh takeaways from the Committee on the Future Economy

  2. Economic realities: 3 harsh takeaways from Budget 2017

 

Featured image by Pixabay user Unsplash. (CC0 1.0)

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