How prepared are SMEs when the lights go out?

A new survey that investigated how prepared SMEs are when the lights go out has found various levels of preparedness, determination and some reason for concern. Most South Africans will remember this year for two reasons: the high of winning the Rugby World Cup and the low of the ongoing battle with load shedding.

Diminished generation capacity, stemming from maintenance issues, breakdowns, delays, Eskom skills gaps, internal conflicts and government restructuring means that 2023 was the year that load shedding has become the norm, not the exception.

By the end of July 2023, South Africa had endured more hours of darkness than in the past five years of load shedding combined. More alarmingly, by August 2023, the blackout hours surpassed the total of the previous ten years, resulting in billions lost to the economy and countless businesses being put at risk, Miguel Da Silva, managing executive of Retail Capital, says.

“As we head into the festive season, with load shedding now posing the most prevalent challenge in the lives of businesses, the true cost to the economy is becoming clearer. The Council for Scientific and Industrial Research’s (CSIR) data puts the cost of load shedding at R560 billion in 2022, with projections indicating an inevitably higher cost for 2023.”

Retail Capital, a leading alternative SME funder and division of TymeBank, recently conducted a survey to shed light on the mindset and strategies South African SMEs employ to survive. The survey reveals how businesses grapple with the challenges of prolonged blackouts and navigate the delicate balance between risks and resources needed to overcome these obstacles.

The results offer valuable insights into ongoing crisis management in the South African economy and an analysis gives guidance on how to best manage it.

“The results of our survey depict a landscape of concern, determination and varying levels of preparedness among SMEs. Now, more than ever, businesses must prioritise sustainability and alternative energy solutions to not only survive the current electricity crisis but also continue growing and scaling in an uncertain future.”

ALSO READ: New survey results: load shedding kills SME business confidence

Back up to keep up

The importance of a backup power solution to minimise operational disruptions during outages is evident, Da Silva says. However, nearly half of the surveyed businesses (47%) lack sufficient backup power.

He suggests that businesses weigh the long-term benefits of investing in alternative energy solutions against the short-term cost and explore accessible sources of funding to support these investments.

Understanding the risks

A significant insight from the survey is that SMEs expect further economic changing events to occur and as a result, it is even more important that they plan for any scenario including a grid collapse. This underscores the deep sense of uncertainty in the market.

“The key takeaway is that the majority of business owners lack confidence in the prompt resolution of the electricity crisis, making mitigation the primary option for business sustainability,” Da Silva points out.

The survey revealed that managing a grid collapse is a top priority for SME owners, but confidence levels vary widely from business to business. While 34.9% feel ‘very confident’ they can manage it, a notable 38.1% lack confidence entirely, highlighting differences in resources, preparation and perspective.

The human cost

The extended power outages experienced in the past few months undoubtedly disrupted business operations, leading to revenue losses and an inevitable human cost. Notably, 64.7% of the respondents said they considered or are considering retrenchments to keep their businesses afloat in the face of consistent, extended power outages.

Da Silva’s advice to these businesses is to explore other options, including short-term business funding options to mitigate layoffs and invest in long-term, sustainable solutions. He emphasises that SMEs play a crucial role in job creation and the prolonged electricity crisis threatens many jobs in this sector.

ALSO READ: SME survivor’s guide: businesses must be prepared for the unexpected

Business continuity planning

Business continuity planning is crucial for all businesses, not just large corporations. It must outline strategies for continuing essential operations during unexpected disruptions. However, less than a third (31.6%) of businesses surveyed have well-prepared plans, leaving a significant portion without a plan.

Da Silva points out that many small businesses are not fully aware of the requirements and benefits of business continuity planning and how it can assist in mitigating the risks of power outages and unexpected emergencies, such as those witnessed during the Covid-19 outbreak.

The lack of complete plans among many small businesses underscores the need for a focus on their importance and the information, resources and financial support to create them.

A business continuity plan includes a risk assessment and analysis, emergency response procedures, continuity of operations, data backup and recovery and a communication plan.

With the results of the survey and the wider economic landscape in mind, it is clear that a wait-and-see attitude is not the answer in the face of load shedding and other national crises, Da Silva says.

“At a time of year when SMEs, especially in the retail and hospitality sector, should push to make a good year great, many will be pushed to their limits to meet the high demand with limited resources.”