SMALL BUSINESS SURVIVAL STRATEGIES

As interest rates increase to curb rising inflation, coupled with fuel and load shedding, amongst other challenges – all putting pressure on the profit margins of SMEs, First National Bank (FNB) says the silver lining potentially lies in managing cash flow effectively and efficiently.

The past few months haven’t been easy for small businesses as fuel increases have significantly increased the cost of transporting goods. Moreover, load shedding has resulted in some businesses losing revenue due to non-operation while having to spend more on diesel for backup generators.

Andiswa Bata, Co-Head of SME at FNB, says SMEs have shown resilience by absorbing costs in the short-term, but the rising pace of inflation may lead to operating models being unstable, leaving some businesses with no choice but to pass on some of these costs to consumers – who are regrettably also struggling to make ends meet. At the same time, we are likely going to see employees pleading for higher wages as their household budgets struggle to keep up with rising food prices.

Bata unpacks five simple strategies that SMEs can consider managing these mounting pressures:

1. Every cent counts. So, use the stuff your business can access for free, e.g. low/zero monthly fee bank accounts, speedpoint devices with no upfront purchase cost or monthly rental fee, free accounting and payroll solutions that save you money and time.
2. Given the costly impact of an interest rate hiking cycle on the ability of small businesses to borrow and service their debt, they stand to benefit from the Bounce Back Loan Scheme which is currently available to businesses at a more favourable interest rate than what most may be able to access funding at elsewhere.
3. Eliminate any unnecessary vulnerabilities by cutting non-essentials, streamlining business processes, sharing costs with other businesses (e.g., truck hire for deliveries) where possible, reduce redundant physical space you are occupying (especially if your business has a strong online/digital presence and your staff are working from home).
4. Understand the direct costs that go into producing your business’ products and services. This helps to determine if the business can continue to make profit in the event of rising input costs. Know how much pressure your profit margins can take and push back where you can, to help you stay competitive.
5. The upfront cost may seem high, but there has never been a better time to pursue a green energy solution like solar. It will lower your future monthly electricity costs, limit downtime from load shedding, not to mention the added benefit of protecting the environment.

“There’s no doubt that inflation, fuel and load shedding will continue putting significant pressure on the bottom line of SMEs. However, there are steps businesses can take that will make a big difference on how SMEs will emerge from the current tough economic conditions,” concludes Bata.