How to Maintain Business Health during the SA Recession
South Africa experienced negative growth during the first six months of 2018, sending the economy into a recession. In this challenging environment, consumer confidence – and spending – is waning, which impacts business revenue. Small and medium enterprises (SMEs) can be the hardest hit as they lack the capital reserves required to survive tough times.
Let’s look closer at what happens during the SA recession and what you can do to maintain your small business health.
- Spending power plummets
After SA slid into a recession, the rand weakened against the dollar, pound and euro, as demand for our local currency decreased. This has increased the cost of all imported goods, including fuel and food, which stretches consumers’ finances even thinner.
- Banks come under pressure
During slow economic times, many businesses struggle to earn enough money to pay back their bank loans – effecting business health. Given the increased risk of companies defaulting on their loans, banks often become more cautious lenders during recessions, making it more challenging for small organisations to access the finance they need.
Right now, if a bank loan is your preferred option for business finance, you’ll need to make sure that your business and personal credit records are completely blemish-free. If this is not the case, or you’re unable to wait out the lengthy approval cycles, you may need to research alternative sources of finance.
- A good time for exports
On a more positive note, the SA recession offers companies that export products overseas with an excellent opportunity to take advantage of the weaker rand. Of course, cross-border trade often involves long operational cycles that can deplete your working capital before you’re able to claim payment for products delivered. This is where trade finance can help.
- Growth and innovation are put on hold
Many companies pause their expansion or innovation programmes to save costs. While it is prudent to keep a close eye on expenses, it is also wise to continue searching for new business opportunities as this is a key indicator of business health. In this environment, some of your competitors may fold and you need to be ready to snap up their customers. You should also keep innovating where you can so that your products stay relevant – and you’re poised for rapid growth when the economy does begin to recover.
- Protect your competitive advantage
As the market in SA’s recession contracts, competition among companies in similar industries grows fiercer. Everyone is fighting for the smaller slice of business. In this context, it’s critical to keep your organisation competitive by maintaining your quality standards and offering great service to your customers. It’s also important to nurture your corporate reputation by paying suppliers on time. This is not the time to cut corners – or you could risk losing your hard-won business and customer relationships to your rivals.
- Safeguard your cash flow
Carefully examine your business health and cash flow management strategy and identify gaps that could be eating into your working capital unnecessarily. If you sell on credit to your customers, you may want to negotiate shorter payment terms. You may, for example, be able to agree to a 30-day gap between the invoice and payment date rather than allowing this to stretch over months.
Without cash flowing into your business soon after the sale, you may struggle to meet your operational costs, especially when curveballs come your way (such as a further dip in demand as the recession deepens).
Need a cash injection to improve your business health?
Factoring is a smart way to access working capital when the banks increase red tape, or your customers refuse to renegotiate your credit sales terms. This time-honoured and globally-utilised business finance strategy can provide your business with fast and flexible access to funds.
Factoring allows you to pull funds back into your business before your invoice payment dates arrive, easing your cash flow pressure and giving you the capital you need to operate optimally, meet your growth goals and weather the recession with confidence.
Merchant Factors is an independent factoring company with over 30 years of experience in delivering tailored business finance solutions to businesses big and small.For fast, flexible business finance – contact Merchant Factors today.
Finance beyond the Numbers.