SME survival guide

Johannesburg - While many of those who enjoy formal employment discuss their plans for December leave, a number of SME owners are trying to figure out how to tackle the slowing global economy and keep themselves afloat.

The South African small business sector is hard hit as bad debts are on the up and customers are tucking away their wallets. This is indeed a lonely time to be in business for yourself and Fin24.com has some expert advice to help small- and medium-sized enterprise (SME) owners through this trying time.

In a statement on Thursday, the Banking Association said: "The current worldwide economic downturn has made conducting business difficult for all industries. SMEs sometimes, due in large part to cash flow pressures, find themselves tempted to make hasty decisions in an effort to counter associated ill-effects and thereby inadvertently expose themselves to even greater business risks."

The association went on to discuss debtor financing as one way around the cash flow crunch being experienced by many SMEs.

Ryan Botha, CEO of the Regent Group, a Banking Association debtor finance committee member company, discussed the use of factoring as an SME tool. Botha said: "Conducting one's business with openness, integrity and consideration will go a long way towards ensuring that SA's economy continues along its relatively stable path and that businesses have the best possible chance of remaining viable in the current economy."

How to stay afloat

Gavin Reddy of Sanlam Cobalt has provided these guidelines for SMEs under strain:

1. Restate cash flows as projections to reflect the worst-case scenario, in which expected sales dip with consequent cutting of overheads. Then provide a second cash flow projection to show a conservative view with practical reasons for such statements. In this way, what is made over and above the projections can be ploughed back into the business for rainy days.

2. Focus on an open and honest policy of discussing the real challenges with all stakeholders. Understand that there has to be a focus on cost savings, higher efficiency and productivity levels with zero to absolute minimum wastage. Ensure that you contract legally on all performance agreements.

3. Try not to retrench staff but rather see if they are willing to share jobs. It costs more to hire, train and properly equip new people with similar skill levels.

4. Consider leasing facilities not used by other businesses. In a slowing economy, what are the opportunities to use business assets to make money off related services?

5. Perhaps it's a good time to tighten the belt by lessening the repayment period for debtors - limit the amount of credit you give, and enforce shorter collection periods where the business norm has been exceeded.

6. Reduce stock holding according to financial projections in terms of sales.

7. Depending on the relationship you have with suppliers, ensure that you negotiate terms that will create win-win situations.

8. It's a good idea to have one-on-one meetings with debtors so that you can be sure of their ability to pay in today's difficult climate.

9. In terms of customers, look for new markets to sell a service related to your business for additional income and use your networks.

10. This is not the time to spend money and try new things.

These are trying times for SMEs and the ability to think on your feet and adapt to the economic turmoil could be your key to survival.

Fin24.com