Petrol will cost 82 cents more per litre from 6 June, as confirmed by the Energy Department last week. This follows the VAT increase by one percentage point to 15% that took effect from 1 April. For small businesses in South Africa, these additional costs are crippling and extremely tight financial controls are required to survive. “The reality is that fuel hikes have a negative impact on most businesses because every tangible product which needs to be moved from point A to B needs to be transported and therefore, incurs these extra costs. Service providers will also need to take increased transport costs into account,” says Jannie Rossouw, Head: Sanlam Business Market. Given that the SME sector is estimated to represent almost 40% of business in South Africa and is also a key employer, the mounting financial pressure felt by business owners should be of concern to everyone. There are also certain industries that are more at risk. “Agriculture, infrastructure and construction, ma...

Ben Bierman SME indicators of distress, in particular the number of liquidations, are increasing. “We have noticed a sharp increase in credit risk amongst our clients,” says Bierman. He points to the Business Partners Limited 2016/2017 financial results which reported that net credit losses had almost doubled during the financial year, highlighting the level of distress amongst SMEs. Bierman stresses that SMEs are critical engines for growth and job creation, and, as conditions are expected to get worse before they get better, SMEs need to prepare for the challenges ahead. “If business owners are to steer their companies through this almost perfect economic storm, and possibly emerge stronger, they need to set a clear course and actively stick to the plan. “Now, more than ever, business owners need to anticipate the future by forecasting and quantifying the cash flow implications for multiple scenarios. Should the country face further economic strain, business owners should a...

With the anticipated repo rate announcement happening later this week, and ongoing economic uncertainty experienced by South Africa in recent months, banks are unlikely to loosen the provision of credit any time this year. This means South African borrowers – both businesses and consumers – must continue to endure a harsh interest rate environment. Charles Meyerowitz, co-founder and CEO of Lamna , a specialty asset backed financier, says that in light of these persisting challenges, South African consumers and SMEs should carefully assess the type of debt they take on. “South Africa’s uncertain economic climate continues to pose significant challenges for borrowers and as a result people should consider alternative funding sources that don’t require personal sureties,” says Meyerowitz. “Traditional lenders usually require that you sign sureties and therefore put yourself at risk when taking on debt.”  With businesses needing access to cash in order to trade and grow, Meyerowi...

Kobus Engelbrecht The retail sector is notoriously known for being one of the toughest to operate in, especially for a small business. As South Africans’ discretionary spend narrows and consumers feel the pinch financially, pressure will inevitably be pushed onto retailers, and those who fail to adapt to the evolving needs of the market will likely struggle to stay afloat in the new retail environment. Kobus Engelbrecht, spokesperson for the 2017 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS , says that for many small and medium sized retailers, this increased pressure on consumers has demanded a creative approach to their business and operations to ensure both survival and success. “While some businesses have successfully managed the changes and adapted well, others have seen the ultimate demise of their business, simply from not responding effectively to the market.” He points to the imminent closing of one of South Africa’s largest and olde...

Jeremy Lang South Africa’s current economic environment poses a real risk for small and medium enterprise (SME) owners given its stagnant growth, and it is increasingly more difficult for local businesses to sustain themselves, let alone increase profit margins. This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS) , who was commenting on the June 2016 Quarterly Financial Statistics (QFS) released by Statistics SA this morning. While turnover increased in all eight industries covered in the survey from R1,99 trillion in the first quarter to R2,08 trillion in the second quarter (+4.5%) – after decreasing by 5.1% in the previous quarter – Lang says that the local environment remains strained for businesses, especially SMEs. The estimates for small, medium and large enterprises in the June 2016 QFS revealed that while net profits (across all industries, and before taxation) increased quarter-on-quarter for both small (from R33,0 bi...

A further hike in interest rates, whether it takes effect now or later during the year, would put more pressure on consumers, leaving businesses with no choice, but to absorb costs in the short-term as profit margins continue to shrink. Dawie Maree, Head of Information and Marketing at FNB Business, Agriculture Farmers that are still recovering from the impact of the drought would be hardest hit by a hike in interest rates given that the electricity tariff increase and tyre levy are coming into effect in April and October respectively. With profits under pressure and cash reserves gradually depleting, the ability to manage farm operations while servicing debt and keeping up with employee wages will take its toll on farmers. The impact would likely spread across the entire agricultural value chain with meat consumption heavily affected as struggling consumers cut back on spending and opt for lesser expensive sources of protein. Furthermore, if the price of meat continues to increase, ...

Given the current tough economic conditions locally and the highly uncertain business environment, SMEs should fully capitalise on the opportunities presented by the busy festive period by saving and investing profits wisely. Similarly, business owners that are less busy should avoid shutting down and going on holiday early, but rather use the quiet period to review their business plans and adequately prepare for the months ahead.  Elize Giese, Head of Business Investments at FNB says “profits earned during the festive season can go a long way to help SMEs prepare for the tough times and even quieter periods in the beginning of the year. One of the challenges we are seeing in the SME sector is that many business owners are failing to maximise profits earned during the festive season by overlooking the vast savings options available to them.” She says selecting the right investment and savings options largely depends on the nature of the business as well as its cash...