With the South African economy experiencing difficult times it’s important to ensure your business is in as strong shape as possible.
Fitch Ratings Ltd and Standard and Poor (S&P) have both recently graded the nation’s credit rating at BBB- (the lowest investment grade level) in the wake of the country’s economy contracting in the first quarter of this year.
A slump in commodity prices, a drought and weak export demand have caused South Africa’s main industries – mining and farming – to decline sharply.
How might you help ensure your business weathers the storm?
Ensure personnel can run the business if you or partners can’t
People often overlook what would happen to a business if one or more key people – often the founders – can no longer work in the business or need to reassign their time to other areas.
For example, if you feel you need to spend more time analysing different areas for diversification purposes, then can others run the business day to day to free your time up? What if you’re incapacitated?
To help with this you can consider key personnel looking after specific functions. For example, if you rely heavily on one IT professional with specific skills, can he or she be covered if they fall ill or abruptly leave? Perhaps a high salary or two can be saved by outsourcing this work?
If you’re running a small business and you want to be able to fuel fast growth through an injection of more money then maybe you’re thinking of spending time looking at other investment ideas such as stocks and shares or CFD trading to maximise the money you hold? If so, this can take time to research and undertake, so outsourcing some of your tasks might be worth considering.
Don’t skimp on marketing
It’s easy to put the brakes on promoting your business when finances are squeezed, but this can be counter productive. There’s no harm in conducting a marketing audit to assess marketing expenditure, but resist the temptation to starve your promotional efforts through lack of investment. If you don’t strive to let customers know about your products and services, no-one else will.
Make effective reductions in expenditure
By ruthlessly checking areas of expense and comparing costs, you’ll be able to reduce expenditure significantly. Can certain jobs be outsourced? This can be a worthwhile option in situations where the need for specific skills is occasional rather than having underused full time staff on the payroll.
The overall goal for reducing expenditure is to keep your baseline figure for running your business each month as low as possible.
Maximise cashflow
Ensure your payment terms benefit you as far as possible.
Suppliers: try to negotiate the best terms possible in terms of periods of credit and minimum stock purchases at any one time. While you’re checking your expenditure is a good bargaining tool with existing suppliers and something to bear in mind with possible new suppliers.
Customers: try to secure pre-payments and retainers as far as possible.
These two areas can help cashflow – and it’s often cashflow rather than purely lack of income or profit that causes financial problems.
Borrowings
If you are receiving funding, then check you’re getting the best deal possible; consider refinancing if other institutions offer better terms. If you’re seeking new funding, then compare and contrast assiduously – and don’t forget to check what type of relationship you’ll have with them. Is there flexibility in the funding package to help with changeable conditions, for example?
Understanding costs
By checking all aspects of business finances such as expenses and cashflow rather than just the obvious – income and profit – it’s possible to take steps to guard against the financial turmoil South Africa is currently experiencing. If you operate on a sound financial footing you’ll be able to weather the storm.
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