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Small business survival skills for 2015

| Economic factors

"Small business owners in SA have a lot to worry about at the best of times: customer demands, outstanding payments, cash flow constraints — add load shedding to the mix and it makes for an intensely frustrating situation."

Greig Whitton, MD and founder of Evergrow — an online business community that offers support to small business owners — can attest to the host of problems that entrepreneurs grapple with daily. This is particularly difficult within a broader context characterised by anaemic economic growth, power constraints, petrol price increases and tax hikes, he says.

Of the 100 South African companies surveyed earlier in the year by professional services group Grant Thornton, the majority cited rising energy costs, a volatile rand exchange rate, policy uncertainty, and poor government service delivery as among their main concerns for 2015. In fact, these businesses felt more pessimistic about the economy now than they did in 2013 and 2014.

While larger companies are better able to absorb economic pressures and escalating costs, more vulnerable small and medium-sized enterprises (SMEs) are likely to struggle. Consumers are also cash-strapped and consumer confidence plummeted to a 14-year low in the second quarter, according to the First National Bank/Bureau for Economic Research consumer confidence index.

"Overall, this is a challenging time to be a business owner in SA. There are real opportunities, but the economic and regulatory environment is not particularly conducive to entrepreneurialism," says Whitton.

He reiterates that load shedding will continue to be a big hurdle for local SMEs in 2015, as will regulatory compliance.

"We’ve witnessed a number of seismic legislative shifts over the last few years, and 2015 is no different. The changes to SA’s labour laws will begin to be felt this year and the new rules for non-permanent employees, in particular, will present growing SMEs with challenges and risks." He also notes the recent introduction of the new revised B-BBEE Codes of Good Practice and how these will significantly alter the SME landscape.

Survival strategies

Here are eight approaches that can help small businesses survive when costs increase and the financial pressure is on:

• A good starting point is improving internal efficiencies: Whitton suggests managing costs vigilantly; concentrating on the most profitable products and services; and "protecting cash flow zealously".

• Don’t immediately cut back on marketing: Business Partners regional GM Anton Roelofse writes in a company blog that SMEs often cut back on their marketing when trimming costs, but this is generally a mistake. "If anything, when times get tough, a business should increase its visibility in the market. By all means stop spending on wasteful marketing projects, but your focus on marketing must become sharper." Valentino Gerber, founder and owner of African Water Controls cc, points out that many small business owners may not have the specific experience or expertise to determine where to cut back on marketing campaigns. "Business owners have to wear many hats, and sometimes lack advanced skills in certain areas. It is important, at the very least, for a small business to have a digital presence. This includes a website, a LinkedIn profile and Twitter account." He also suggests brushing up on basic marketing approaches by following topical blogs, subscribing to podcasts, or, if affordable, asking a marketing expert for help.

• Limit your capital expenditure: "As a general rule, don’t try to expand during an economic downturn. Of course, many opportunities open up during a downturn, not least because many of your competitors may run into trouble. The general rule cannot be absolute, and carefully considered expansive moves always have a place in your strategy. But be very careful," writes Roelofse.

• Sales and debtor management is particularly important when improving efficiencies: Whitton says small business owners often make customer concessions and extend risky credit facilities, especially when times are tough. "They believe that any sale is a good sale, but that’s not always true. Bad customers can destroy your business by not paying on time (or simply not paying at all)."

• Analyse stock turnover times and reduce inventory accordingly: Whitton says this is a smart way to improve productivity, along with restructuring prices and payment terms to drive sales, without compromising profitability.

• Sell unproductive assets: "Let go of any emotional attachment to old, unproductive assets or pet projects that didn’t work out. Sell them and use the cash – and space – more productively," writes Roelofse.

• Don’t be too proud to ask for help: Whitton suggests approaching your best suppliers and asking for their support, for example, credit facilities and more favourable payment terms. Or, approaching your best customers and asking for a larger share of their procurement budget and referrals. Another option is to partner with non-competing enterprises to share costs and/or collaborate on joint marketing initiatives.

• Plan to succeed: Roelofse notes the most successful business owners are often those whose plans include detailed cash-flow forecasts, which are routinely updated (once a month at least) and are referred to regularly.

Rethinking your business

Once you have improved efficiencies, streamlined operations and cut costs where possible, there is one last question you need to ask – is your business still relevant?

"The world has changed dramatically since the global credit crisis and business models that worked five or 10 years ago are no longer as viable as they used to be," says Whitton.

If you have been battling for the last year or two, or longer, then it is time to put aside external factors (however real they may be) and take a long, hard look at your business model, he says.

"When you get right down to it, the key to success for any business is simple (but, admittedly, not easy): create more value for your customers than your competitors. The vast majority of SMEs aren’t doing that. They’re sticking to business as usual and hoping that the economy improves."

But, despite the various challenges facing SMEs, Whitton is still upbeat about the possibilities in SA for gutsy entrepreneurs.

"There’s always light — no matter how bad things may get, there will always be entrepreneurs who thrive by working harder, being more innovative and benefiting from more luck.

"When times are tough, many SMEs struggle with sales. When times are good, many SMEs struggle to keep up with demand. The only way to break the cycle is by being proactive rather than reactive, and setting aside some time to work on your business instead of allocating all of your time to working in it," says Whitton.

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Knowledge @ your fingertips

Often the most valuable resources a small business owner needs, apart from funding, are advice, information, training – and a reminder every so often to take a step back and gain perspective.

"Most small business owners are too stuck in the day-to-day stuff to notice the opportunities around them," says Greig Whitton, MD and founder of Evergrow.

"For example, many of the small business owners who we have helped were completely unaware of funding opportunities (such as the Black Business Supplier Development Programme and Small Enterprise Development Agency), tax breaks (such as the Employment Tax Incentive Scheme and Small Business Corporation Tax structure), or marketing opportunities (such as lead-nurturing campaigns and community promotion initiatives) that they could benefit from."

There is a wealth of information and networking opportunities readily available in books, on websites, and social media, if you know where to look.

"Seth Godin’s blog (www.sethgodin.typepad.com) is a fantastic source of thought-provoking inspiration and entrepreneurial insight, while LinkedIn can be a very powerful networking platform for staying informed and forging new business relationships," says Whitton.

He says most of the South African government websites (such as the Department of Labour and the Department of Trade and Industry) provide important functional information.

"Of course, it would be remiss of me not to recommend Evergrow (evergrow.co.za) as well. I believe that we excel at providing local SMEs with information, advice, and guidance that is highly practical, easy to understand, and specific to South African entrepreneurs."

Useful resources include:

National Small Business Chamber: www.nsbc.org.za

Business Engage: www.businessengage.co.za

SME South Africa: www.smesouthafrica.co.za

Businesswomen’s Association SA: www.bwasa.co.za

Business Partners: www.businesspartners.co.za

Entrepreneurs Growth Centre: e-mail This email address is being protected from spambots. You need JavaScript enabled to view it..

Small Enterprise Finance Agency: www.sefa.org.za

National Empowerment Fund: www.nefcorp.co.za

Small Enterprise Development Agency: www.seda.org.za

Black Business Supplier Development Programme: www.gov.za/services/business-incentives/black-business-supplier-development-programme-bbsdp

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