How small businesses can survive and thrive in tough economic times

Gerrie van Biljon

The ailing South African economy, exasperated by rising government debt and the weakening rand, poses a unique set of challenges for small and upcoming businesses. We have also seen in the last few years the number of South Africans interested in starting a business has halved since 2010. However, trying economic conditions don't necessarily mean a death sentence for smaller companies.

This is according to Gerrie van Biljon, Executive Director at Business Partners Limited (BUSINESS/PARTNERS) who says that by employing simple strategies, such as better expense and cash flow management, customer centricity and the streamlining of processes, not only can smaller businesses survive during these tough economic times, but they can thrive.

“Having recently revised its GDP down to 0.4% from 0.6% for quarter 4 of 2015, economic growth in South Africa has slowed down, and the inflation rate and unemployment figures remain ominously high. While this kind of economic climate is challenging for businesses, particularly small and medium-sized enterprises (SMEs), there are many measures that entrepreneurs can implement in order to survive these tough times,” he says.

First and foremost, van Biljon says that small businesses should review all of their processes and operations to ensure that they are achieving maximum efficiency. While expense management is essential for survival, he does warn that aggressive cuts can be dangerous for an SME. “Entrepreneurs need to look at the situation strategically and, rather than just cut expenses, ask themselves how the process by which their service or product is produced can be streamlined. The last thing a growing business should consider doing is shirking on quality, which links directly to customer satisfaction.

“In the early stages of any business, marketing is of utmost importance to get business. As small businesses might not have large marketing budgets, word-of-mouth advertising plays a large role in marketing a business. It is therefore essential to offer a high level of service to all customers as there may not be a second chance. Besides, when you delight your customers during tough times, they’re yours for life!” says van Biljon.

Another point that van Biljon brings home is the importance of a constant positive cash flow in any new or growing business. “Cash flow is essential because, simply put, you can’t spend money you don’t have and a certain degree of liquidity is essential to continue standard business operations. It is the life-blood of every business, without it the business is dead. In an SME environment, this may require negotiations for some breathing room from suppliers by extending payment to two or three months if possible. Alternatively, customers could be persuaded to pay a little earlier, even if this entails offering a slight discount or special offer.

“At the best of times, it is unwise for an SME to sell its goods on credit if it cannot afford to do so. The majority of smaller businesses can’t afford to finance their customers due to a lack of funding. Offering credit adds to the risk profile of the business. It loads an administration burden that costs money and there is always the possibility of bad debts. Small business owners should seriously consider whether to offer credit and not merely offer terms to get the business.”

Van Biljon’s closing piece of advice, looking for the silver lining, is that a business should never waste an economic downturn as many great multinationals were started during recession periods including Microsoft, General Electric, Revlon Cosmetics, Burger King and IBM to name a few. “These hard-hitting times give entrepreneurs a reason to relook at their business model and find out where there is wastage. This is also the perfect time to identify newfound gaps in their areas of expertise, turning tough times into an opportunity”.