Here is how you can recession-proof your small business

MBOMBELA – Small and Medium-Sized Enterprises (SMEs) are among businesses affected by South Africa falling into recession. Although the economic outlook remains bleak, there is light at the end of the tunnel for small businesses.

According to Andiswa Bata, who is the FNB Business Regional Head for Gauteng South West, this negative outlook for the year is influenced by a number of factors. These include a lower global economic growth forecast, challenging local trading conditions because of inconsistent power supply, currency volatility and rising operating costs.

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There are, however, opportunities for active SMEs. Bata provided several approaches to consider in the short to medium term to maneouvre through the economic maelstrom:

• Cash buffer – a cash buffer can help your business to take advantage of opportunities quickly, survive unexpected knocks and remain competitive when price can be the difference between winning or losing market share.

“There may even be an opportunity to acquire or merge with a competitor or another company that complements your own offering. Having spare cash sets you up as a potential buyer, at a time when business valuations may be attractive. If the pie isn’t getting bigger, seek to secure a larger slice,” said Bata.

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• Inventory management – move inventory into buyer’s hands quicker, collect on receivables quicker and reduce operating costs to free up the cash you have in the bank for investment in the right opportunities as they arise.
• Creative cost cutting ideas – consider cost cutting initiatives that will have a positive impact on your business and staff.

For example, consider sharing or renting office space and use that money to spare a job. Buy used or rent equipment or tools, if buying new is too costly. Make use of technology to improve your productivity and efficiency. Re-look at your operating model with the view to become faster and cheaper in the way you deliver your products or services.

• New markets – identify those markets and geographic areas where opportunities still exist. Tailor your offering to meet previously under-serviced markets. If a traditional, premium offering is not selling, evolve your offering to include solutions at lower price points – which may prove more resilient in tougher times. Know what customers are willing to spend money on and service that deliberately.

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“You cannot expect to fill up the bucket if there is a leak at the bottom. So, if you are pursuing new markets (to top up the ‘bucket’), do not forget to ensure you protect your existing client base by striving to deliver superior quality and service every time,” she cautioned.

• Use debt funding wisely – lower economic growth typically paves the way for a lower interest rate environment – where appropriate, take advantage of this for investment (not consumptive) expenditure that also reduces your business’ reliance on external power and water supply.

“Finally, support other local businesses and brands wherever you can. Do not underestimate how much your own personal and business buying power is helping to stimulate the local economy, creating employment and keeping fellow businesses thriving,” Bata concluded.