As over-indebted consumers reduce their spending, entrepreneurs are facing increasingly challenging circumstances.
A whopping 90% of entrepreneurs surveyed in a new report said that business was tough, with several saying they were taking pay cuts just to survive.
The Retail Capital Roll with the Punches report surveyed over 700 entrepreneurs.
According to the report, SMEs must work smart and make changes if need be, because it is not “business as usual”.
Retail Capital CEO Karl Westvig has 10 tips for entrepreneurs wanting to move “from panic to profit”.
1. Speed up cash flow
Speed up your inflows by having arrangements with bigger clients. If you have corporates or bigger companies on your book, ask for preferential payment terms and try to convince them to support you as an SME, as it is really their responsibility to assist.
2. Protect cash flow
If you can, reduce expenses and look at your overheads. Don’t get caught in the trap of a few consecutive months of overspending which could become the norm.
3. Build a data bank
This is a valuable asset for you, as it opens up new channels of funding. One of the biggest constraints for SMEs is funding.
If funders have data that is reliable and gives a track record of how the company operates – trading patterns, turnover levels, card vs. cash – this information can be leveraged to gain access to funding.
4. Know your funders
It is up to you to position your business in a way that speaks to the funders’ requirements. Importantly, there are also different funders for different stages of the business’ life cycle.
Get involved with an entrepreneurial community that is on the same journey as you, but not necessarily at the same level. Find one that exposes you to more mature businesses from whom you can learn.
6. Change direction
If you have a bad business model or it isn’t working, change direction. There is no straight curve, and it’s important that business owners understand that.
A tough market provides the opportunity to re-evaluate what matters to you as a business owner and your clients. You need to understand what’s most important to ensure that what you are offering stays relevant.
8. Embrace digital
More and more people are buying online and doing comparisons, so the more you embrace the opportunities that these online channels present, the better. There are plenty of tools available online – you just need to do some digging.
Having a positive attitude is essential. See the opportunity among the challenges and look for those gaps. You also need perspective when you face the challenge of rising costs, tighter margins and lower demand.
It can all be seen as an existential threat and you might want to put your head in the sand. Or you can process it and take it up as a challenge.
10. Be nice
People will do business with you if you’re a nice person, grateful and forgiving.
With 70-80% of SMEs failing within the first five years, and only 1% growing to employ more than 10 people, South African SMEs are struggling to realise their own growth potential and become active drivers of job creation. And with slow economic growth, on-going political uncertainty, and a national budget shortfall of R209-billion, SMEs seeking much-needed funding face a tough time ahead.
Following the crisis at African Bank a few years ago due to non-payment of unsecured loans by its customer base, traditional lenders largely lost their appetite for exposure to unsecured lending. This has left the majority of SMEs without access to funding via traditional banking channels. And where such loans are on offer, the application process is loaded with administrative and bureaucratic red tape that can take more than three months to work through, with no guarantee that the loan will be awarded.
In fact, in our latest survey of South African SMEs, 76% of respondents said they suffered through tedious paperwork and waited for months only to have their applications for funding denied. This is creating an environment of immense risk to SMEs.
The #1 priority for SME success
I believe access to adequate and flexible funding is the number one priority for South African SMEs over the next six months. The results from our survey showed that access to credit is the single biggest business challenge South African SMEs face today, with a further 33% listing cash flow management as a primary challenge.
A deeper look into why SMEs are seeking funding brings further cause for alarm: nearly a quarter of respondents listed “unforeseen circumstances” as their reason for seeking funding. In a time of constrained economic growth and difficult trading conditions, profits are likely minimal, meaning any event causing need for quick access to funding could spell disaster – or even ruin – should the SME not get the funding they need.
To fill the gap left by the big banks’ unwillingness to expose themselves to unsecured business lending, a vibrant ecosystem of innovative fintech companies have emerged. In the Disrupt Africa Finnovating for Africa 2017 report, South Africa was found to be home to 94 fintech start-ups, 22 of which offer some form of lending support. Such tech-first lenders are able to adapt quicker to changing market needs than their big traditional peers, and are playing an increasingly important role in supporting a rather fragile SME sector. And since they are built on technology and unencumbered by legacy systems, this new breed of fintech company can process and award loan applications in a matter of days compared to the 2-3 months traditional lenders such as banks generally demand.
The role of the SME owner in ensuring survival, success
But it’s not all about the banks and lenders: SME owners also need to play a more active role in ensuring their businesses are resilient enough to withstand times of hardship. Many SMEs lack basic accounting and administrative processes, leaving SME owners blind to potential weak spots or areas of opportunity.
Successful entrepreneurs are able to take calculated risks to accelerate their growth and expand into new markets, but without a solid understanding of the current state of their business, any risk they take is potentially ruinous. A lack of adequate financial reporting also limits SMEs’ ability to apply for and secure funding,
Technology as enabler
Technology can provide support to SMEs wishing to strengthen their administrative and operational processes. Even competent use of something as basic as Excel could give SME owners much-needed insight into the state of their businesses. Online accounting software such as Xero gives SMEs enormous authority over their finances and helps business owners plan and strategise more effectively. In a do-or-die environment such as the one we currently find ourselves in, every slight advantage could mean the difference between success and failure, survival or bankruptcy.
SMEs should prioritise marketing their business effectively. In fact, 47% of respondents in our survey listed marketing as the biggest potential factor in growing sales and revenue, and yet only a third had a marketing budget. Technology can provide cost effective marketing opportunities to SMEs and assist with reaching and influencing key stakeholders. Google AdWords, social media profiles, LinkedIn groups, and even a basic website not only increases the SME’s exposure in the market, but also gives potential lenders comfort that the business is well-supported and in a healthy state.
Entrepreneurs should also seek membership of relevant associations and industry bodies to get access not only to other businesses and business owners, but to draw on the knowledge and research capacity most such associations and industry bodies produce. The better a SME owner’s knowledge of the market in which he or she operates, the better they are able to adapt to changes and ensure the long-term sustainability of their businesses.
Partner, and partner well
Partners can play a vital role in supporting and driving business growth in the SME sector. Whether it is an equity partner providing much needed financing during the early stages of a business, or a business partner that provides goods or services that are complementary to an SME’s core business, effective partnership is essential for long-term business sustainability.
SME owners should however take care to ensure the partner shares similar values and ethics, and strive toward building long-term trust with a view to ensuring mutual benefit between the two businesses. Our philosophy is to seek SMEs that share our passion for sustainable business growth, and to build a long-term partnership that enables us to provide on-going lending support through various growth stages.
In our current economic climate, a go-it-alone, shoot-from-the-hip approach is a recipe for disaster. SME owners should prioritise gaining access to funding, improving their financial and administrative processes, expand their marketing efforts, and seek appropriate partnerships to ensure they continue to survive and thrive.
By Trevor Gosling, CEO of Lulalend
African businesses are struggling to scale and grow businesses due to lack of funds. This is where global crowd-funding platforms come in.
Attracting funders from around the world, platforms such as Malaik channels the funds it raises to small and medium sized enterprises (SME) around the African continent.
“Young companies all over Africa face a scarcity of funds to fuel their growth,” founder and CEO, Neku Atawodi, said in a statement – something the platform is trying to change.
Atawodi believes that there is no shortage of good, actionable ideas in Africa but investors are deterred by the risk associated with the continent.
“The African narrative is changing for the better, and the continent’s exponential growth in the last decade shows that an investment in impact focused African businesses can yield high returns.”
As testament to this, Malaik will be showcasing its first fully funded company, i-Drop, at FinovateEurope 2016 later this week. Malaik will be the only African company demonstrating a product at the conference.
Not content with one success, Malaik has issued a call to all African start-ups and SMEs with high-impact and original ideas to apply and start vying for potential investors.
By Brendyn Lotz for www.htxt.co.za
The full force of new legislation relating to consumer rights, electronic communications and data protection which takes hold this year poses a major challenge for SMEs who will have to comply with its onerous requirements, Matthew Balcomb, CEO of Call Cabinet Southern Africa.
The value of small and medium enterprises (SMEs) is widely recognised in terms of the contribution this sector makes to the economy and job creation.