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The South African economy has taken a few hard knocks in recent months and as the business environment becomes more competitive, entrepreneurs may have to change the way they do business to stay afloat.
The International Monetary Fund cut the economic growth forecast for this year to 2% (in April 2015) from 2.3% in October 2014 and reduced that for next year to 2.1% from 2.5% in January 2015.
The revisions reflected more binding electricity supply constraints and a tighter fiscal stance in 2016 than previously expected, the IMF mentioned on their report.
The economy is struggling and this is putting direct and indirect pressure on business owners as well as consumers who are careful about spending money as a result of higher inflation and upward interest rate cycles.
Here are three tips for the business owner in today’s uncertain times:
1. Stay close to key partners
Entrepreneurs find themselves caught in the middle. Input costs are increasing and large suppliers are reluctant to extend longer credit terms but business owners also have to protect their own client base by keeping prices competitive and, sometimes, have to extend credit terms to their clients to secure the sales of their product.
These reduced margins may require the business owner to reassess his/her business model, which could lead to job losses.
During times like these entrepreneurs should stay close to their business partners such as key suppliers, customers and bankers and advise them up front of any pressures on the business or potential challenges. They know the economy is tough and will often be willing to work together to get through a difficult time.
2. Cash flow
Now is the time for business owners to rein in operating expenses and overheads and work on improving efficiencies – this is good business practice, regardless of market conditions.
In tough economic times cash flow is probably the most important aspect of a business which needs to be closely managed. Be cautious when it comes to taking on large capital projects in a struggling economy as this can place additional pressure on the business.
It is important to strike a balance – prepare for the next positive business cycle but always ensure you are able to survive the wait while the market turns. Despite challenging conditions, there will be more than enough opportunity for businesses to chase their expansion ambitions once the economy recovers.
3. Innovation
A low growth environment can create opportunities for entrepreneurs to buy businesses in distress or negotiate deals to buy plant and equipment at really good prices.
This can also be a good time for entrepreneurs to innovate and identify new revenue streams by diversifying their businesses, particularly if this can be done without large capital outlay.
Difficult economic conditions may force business owners to look for new markets and customers or to look for alternative suppliers who offer different products and may consider more favourable pricing options. Sustainable innovation can help businesses improve their competitive advantage.
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