Small and medium enterprises (SMEs) must prepare for a bumpy ride for the rest of 2018 if South African's economic conditions do not change, an expert has advised.
In the first quarter of 2018, South Africa's economy shrank by 2.2 percent compared to the previous quarter — the largest quarterly drop since the 2008 financial crisis, revealed Stats SA recently. Coupled with data that indicates that 70 percent to 80 percent of small businesses fail within their first five years, this suggests that SMEs will need to work even harder now to ensure their survival for the long term, according to Erin Louw, executive head of marketing and people operations at SME funding company Retail Capital.
And to survive, this may mean additional funding. But taking on additional funding should not be approached lightly, and should be taken only when you need it most — as paying it back will always result in additional costs, coupled with high interest rates in a tough economy.
However, if done smartly, it can yield some great results, said Louw. She pointed out that for those with seasonal businesses, for example, investing during traditional downtime can have significant benefits.
"Our data indicates that our clients primarily use advances taken in winter to renovate, expand and to purchase stock. For many businesses, this is probably the best time to invest in renovations and upgrades, when construction is least likely to inconvenience their customers," said Louw.
"Investing in your business in months like July and August, which are often considered 'slow', can help your business to grow. We've seen our clients experience an average of 200 percent growth in turnover, month on month, after taking an advance in winter."
She added that it isn't always large investments that make the biggest difference. In many cases, smaller investments (less than R100,000) reaped the greatest rewards, with less pressure on cash flow resulting in greater turnover.
But the above is not applicable to all SMEs — here are a few other top tips to help businesses through tough economic times:
1. Have an edge over your competitors by being consistent in your service. Not all consumers go to cheaper versions of a product when their rands are stretched, so offering a great service will ensure that you don't lose your core customer base, or your growing customer base.
2. Maximise benefits with your banking provider. Some financial institutions have reward programmes and other incentives for SMEs that can save you some money. Research and take advantage of these incentives.
3. Consider how you can operationally save costs. This may mean, for example, video conferencing instead of meeting every client one-on-one, having a team-building exercise at the office instead of an expensive venue, offering coffee without biscuits at meetings, or getting in earlier so you don't waste fuel sitting in traffic.