South Africa’s small business sector is a tough environment to break into, but those who succeed in weathering the storms of the first few years of business have a real shot at scaling their business to new heights.
Arguably, effective financial management is the single most important aspect of running a successful venture, part of which involves saving on a regular and consistent basis.
The ongoing quarterly SME Index conducted by Business Partners Limited has found, over a consecutive number of years, that cash-flow remains the biggest challenge to local business owners. Saving and cash-flow management go hand in hand.
Contending against multiple market shocks
Evidence of this can be found in the events of recent years, which has seen many small businesses buckling under mounting economic pressures.
2020 saw a staggering 1182 business liquidations between January and November, many of which were SMEs whose profitability plummeted as a result of the pandemic. And while the rate of liquidations has slowed in more recent years, local small businesses face several headwinds, including the ongoing energy crisis, the rising cost of fuel and food and significant interest rate hikes.
Why save?
Challenges such as these pose a serious threat to business continuity and are indicative of the increasing importance of saving during times of market volatility. For Arnold February, the regional investment manager at small and medium-sized enterprises financier firm, Business Partners Limited, saving provides an effective buffer against cash-flow gaps.
When faced with unexpected misfortune, having an emergency savings fund can ensure that your business can continue to meet its financial obligations, pay employees and cover essential expenses without disruption.
Furthermore, saving is a best practice that may play an integral role in the business’ strategic growth plan. It could provide the necessary capital to invest in new opportunities, such as entering new markets, launching new products or services, or expanding operations.
In addition, by saving diligently, small business owners can also allocate a portion of their funds to working capital, ensuring that there is enough liquidity to support ongoing operations and fulfil immediate and projected financial needs.
Bring in tech to optimise efficiencies
Entrepreneurs should assess and audit the efficiency of their internal processes and production methods. For some, the solution to greater efficiency can be found in replacing manual tasks with automated processes or streamlining everyday operations using technological tools.
Now, in the wake of the pandemic, small businesses find themselves operating in a digital-first climate and need to embrace the new level of efficiency that this can enable.
Some of these tools include cloud accounting, customer relationship management (CRM) and marketing automation, social media scheduling, and collaboration and productivity management platforms. Many of these available tools are relatively cost-effective and have free subscription offerings that can help business owners keep their outflows to a minimum.
Consider temporary ‘quick fixes’ during the slow season
Many small businesses in South Africa find themselves vulnerable to factors relating to seasonality. A key example of this can be found in the retail industry. Data collected by Statistics South Africa shows that the winter period between May to July typically sees sales volumes take a substantial dip before recovering ahead of the festive season.
In these slower periods, affected small businesses could find temporary ways to save by reducing costs where possible. For example, non-essential expenses such as subscriptions, memberships and services that are not vital to maintaining immediate operations can be put on hold.
Business owners could also review and negotiate with their suppliers for better terms, discounts or volume-based pricing over slower months. Another possibility is to implement energy-saving practices by optimising lighting, heating and cooling systems.
Arnold February is the regional investment manager at small and medium-sized enterprises financier firm, Business Partners Limited.
BUSINESS REPORT