South Africa’s economic outlook for the next three years remains bleak. During his first Medium-Term Budget Policy Statement in October, new finance minister Malusi Gigaba painted a picture of continued low growth, higher debt and less revenue.
On top of all this bad news, business and consumer confidence is low. This leaves small and medium-sized businesses at their most vulnerable.
A business owner in SA who remains under the impression that it’s business as usual, will see their venture suffer a slow death.
A lot has been written about ways to bulletproof a small business against a recession or tough economic times. And although the advice sounds simple, the devil is in the detail.
The dependency drug
The devil in SA is government and big business. Small businesses have allowed themselves to become dependent on them.
Bernard Swanepoel, chair of the Small Business Institute (SBi), says a government that runs on the belief that it is the great enabler creates an environment of dependency.
“We can be critical and say this dependency on tenders from government or big business should never have happened. However, that is the reality many small businesses find themselves in.”
To break free from this “drug” of easy service delivery to either government or big business is not easy. Consumers are under financial strain. They are buying less, and they are purchasing cheaper goods and services.
Small-business owners should actively seek opportunities that fall outside of the influence sphere of the state. Many companies are looking at the rest of Africa.
“Some African economies are growing at a rate of between 5% and 8%. There is no reason why we can’t be part of this African growth story,” Swanepoel says. “People need to take some risks.”
Indeed, especially if your business is an export-oriented one. Swanepoel says it becomes critical to look for opportunities elsewhere, because it’s hard to survive in an economy that’s not growing. “In many instances, people are shaken out of their comfort zones when times get tough,” he says.
“We must do what we expect of government, and that is to grow the economy.”
But do so cautiously. Alan Mukoki, CEO of the South African Chamber of Commerce and Industry, warns that now is not the time to embark on any grand expansions. The main aim is to ride out the storm and maintain the business.
Diversification vs different
It is important to make sure new opportunities complement and truly diversify your core business offering. Susan Ward, co-owner of the Canadian IT consultancy Cypress Technologies, writes that small-business owners too often simplify the concept of “diversification” to “different”.
“Just adding other products or services to your offerings is not diversification. At best it is a waste of time and money. Worse, it can damage your core business by taking your time and money away from what you do best and damage your brand and reputation,” she writes.
Beware the rash decision
Trevor Gosling, CEO of LulaLend, which offers short-term business loans online, says small-business owners tend to panic when times are tough. “We find that business owners jump into deals that make no sense at all and do not benefit the company.”
Entrepreneurs simply see potential – instead of actual – income for their businesses and make their decisions accordingly.
“Calculate the risk and the cost associated with the contract carefully before making rash decisions. It could have a knock-on effect when you least expect it. Make sure you understand the contract.”
Also check that you’re aware of what lies in store in terms of red tape and compliance before signing on the dotted line. “It is not only extremely difficult to open a business,” Swanepoel says, “but it’s equally difficult to keep it afloat because of the debilitating regulatory environment.”
Gosling also advises company owners to “bed down” their businesses. Contain costs, and ensure there’s no wastage or leakage.
“Costs have to be contained, especially if there’s little prospect of an increase in turnover.”
In a time of constrained economic growth, profits are likely minimal, meaning any event causing need for quick access to funding could spell disaster, or even ruin, if it is too little and too late, he says.
Businesses that don’t know the importance of well-managed cash flow will fail despite all the advice in the world.
Business owners should see what can be done to reduce inventory costs without sacrificing quality or upsetting customers, Ward recommends.
“Just because you’ve always ordered something from a particular supplier or done things in a particular way, does not mean you have to keep doing them that way – especially when those other ways may save you money.”
The SBi’s advice to companies wanting to survive is to take a hard look at their debt. The threat of further credit downgrades will make debt more expensive for everybody, not only for government.
It’s also a good time to be extra-kind to your own suppliers, as this may help you negotiate better credit terms with them. Plus it’s a win-win situation: everybody remains in business, and jobs remain secure.
Safety in networking
Swanepoel proposes that business owners who feel trapped by, or even depressed about, growth forecasts should link up with relevant associations and industry bodies such as business chambers.
“This gives business owners the opportunity to share their sorrows with people who are in the same boat. Networking is an integral part of doing business. We all have to get off our backsides and actively seek opportunities. You can only feel sorry for yourself so long,” he says.
According to Ward, consumers are restless in these times and looking to make changes in their buying decisions, and business owners should capitalise on that.
“You need to help them find your products and services and choose them, rather than others, by getting your name out there,” she recommends.
Mukoki says, it’s a good time to improve services to keep current customers happy – and hopefully attract new ones. There’s nothing wrong with considering cheaper marketing opportunities and strategies.
For instance, social media media is an inexpensive way of making your business visible. However, use with caution and heed experts’ advice regarding engagement on these platforms.