2019 Survival Guide for SME Development

2019 Survival Guide for SME Development

Achieving SME development can be tough at the best of times. Research shows that up to 80% of small businesses in South Africa fail within the first five years. Now, with the economy in decline, South African SME development faces an even steeper challenge ahead. During a recession, consumer confidence falls and businesses of all stripes struggle. Without large institutional or financial backing, SMEs tend to be the hardest hit.

It is not all doom and gloom, however. By establishing smart business practices, SMEs can not only survive the recession, but use it as an opportunity for growth.

  1. Back to basics

    Before anything else, make sure that your existing business processes are functioning smoothly. If excessive time is being spent on admin, evaluate whether these workflows could be streamlined to make them more efficient. If senior members of your business are bogged down by work that isn’t creating value, try to delegate more effectively. Above all, take good care of your customers. Ensure that every relevant procedure from sales to maintenance is simple to navigate. Create a satisfying customer experience.

  2. Form strategic partnerships

    In an era of rapid technological transformation, strategic business partnerships have become a key to success. Many SMEs in the same industry are struggling. So, for SMEs with limited productive capability, forming partnerships to share knowledge and expenses of production can allow businesses to thrive together where they may fail alone.

  3. Market smartly

    While it can be tempting to cut back on marketing when times are tough, this can end up crippling your business. If you lose some existing customers and can’t bring in new ones, it’s impossible to stay afloat, let alone grow. Rather, review whether your marketing strategy is achieving optimal returns on investment. For SME development, digital marketing and public speaking are low-cost and highly effectively, for example.

  4. Expand into new markets

    While a recession will lead to losses of clients in some markets, it can also create opportunities to expand into new ones. Typically, small businesses cater only to local markets – but this needn’t be the case. With the wide visibility provided by digital marketing and the weakening rand, now is the ideal time to expand into international markets – forming relationships that can help you grow even after the economy recovers.

    Additionally, look for new opportunities to expand what you are producing. As SMEs are more flexible, they have an advantage in being able to transform more rapidly.

  5. Keep innovating for SME development

    If innovation becomes stagnant during a recession, then it becomes impossible grow or even maintain steady business. On the other hand, innovating gives the business the opportunity to explore new business avenues. It also sets the organisation up for rapid growth when the economy recovers.

    Innovation can occur in a variety of fields, from improving efficiency of existing processes to creating entirely new products. Making sure that you have a strong research and development strategy is a vital starting point.

  6. Manage cash flow carefully

    Every point mentioned so far hinges on the availability of working capital. During times of recession, extending credit to make sales will be as necessary as ever, if not more so – but it can also be riskier for SME development. In a volatile economy, cash flow margins are tighter; and credit sales terms of up to several months can cripple a business’s productive capability. It is therefore vital to handle credit sales carefully. Conduct thorough credit checks on clients, establish clear terms of payment and follow up swiftly if customers forget to pay on time.

    Alternatively, you could try factoring. This business finance strategy enables you to offer credit sales terms that are favourable to your customers and draw cash back into your business. With factoring, you sell your accounts receivable to a factoring company, which pays you 75% of the invoice’s value up-front and the remaining 25%, minus an agreed admin fee, when your customer pays your invoice in full. The factoring company also handles your debtors’ book and credit control processes, allowing you to focus on steering your business through turbulent times.

Need working capital to survive 2019?

Merchant Factors is a factoring company with 30 years of experience in helping businesses to achieve their financial goals, through good times and bad.

For fast, flexible business finance – contact Merchant Factors today.

Finance beyond the Numbers.