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More SMEs being liquidated

Sep 19 2017 19:57

Cape Town - SME indicators of distress, in particular the number of liquidations, are increasing, according to Ben Bierman, MD of Business Partners Limited.

“We have noticed a sharp increase in credit risk amongst our clients,” says Bierman.

The Business Partners Limited 2016/2017 financial results shows that net credit losses had almost doubled during the financial year, highlighting the level of distress amongst SMEs.

Bierman stresses that SMEs are critical engines for growth and job creation, and, as conditions are expected to get worse before they get better, SMEs need to prepare for the challenges ahead.

“If business owners are to steer their companies through this almost perfect economic storm, and possibly emerge stronger, they need to set a clear course and actively stick to the plan," says Bierman.

“Now, more than ever, business owners need to anticipate the future by forecasting and quantifying the cash flow implications for multiple scenarios. Should the country face further economic strain, business owners should attempt to secure access to funding as a ‘financial cushion’ or shock absorber before they urgently require it.”

Bierman also advises SMEs to critically evaluate the timing of possible expansion.

“A bad set of economic circumstances might in some cases be the ideal time to invest so that when the economy turns, the business is ready to take advantage of opportunities ahead of its competitors,” he says.

Tough times

Karl Westvig, CEO Retail Capital, a company that funds SME retailers and restaurants, said it is very tough being an SME retailer right now.

“Consumers aren’t spending as they are servicing their debts built up over the years. Many industries are retrenching which takes cash out the economy. Large corporates are hoarding cash in this uncertain environment,” said Westvig.

He said SMEs collectively contribute between 50% and 60% to gross domestic product (GDP), but they can only succeed if the public and private sectors work together to bring about change and foster opportunities for economic growth with this development being encouraged through a favorable policy environment.

“A generation ago, young people only thought of following well-defined career paths. Now our education system needs to equip young people with skills required to be successful entrepreneurs,” he advises.

“We need to promote entrepreneurship as a viable career option as the formal sector’s employment opportunities are unable to support the growing number of young people looking for jobs every year.”

Large businesses need to start reinvesting in the economy, appreciating the contribution made by SMEs and aiding in job creation within the sector.

“The developmental effect of investing in SMEs can be increased by access to finance to enhance their sustainability,” Westvig concludes.

Confidence indicators

Business confidence indicators plummeted further in the second quarter of this year as the SA macroeconomic environment remains dire, resulting in increased pressure on small and medium enterprises (SMEs) and their ability to deliver as one of the country’s leading growth engines.

This is according to the second quarter 2017 Business Partners Limited SME Index, a survey measuring the attitudes and confidence levels of South African SME owners.

Bierman says small business owners’ confidence has slowly been eroded by the broader environment in which the country finds itself operating in.

The depressed outlook is linked to the current political and economic volatility and uncertainty, according to Bierman.

“While the frustration with policy uncertainty and economic volatility will likely continue to increase until the end of the year, SMEs should continue to ensure they are implementing their business strategies consistently and contributing towards generating economic growth," he adds.

"If we all wait for economic growth to improve before we take action, low or even no growth will become a self-fulfilling prophecy.”

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