Small businesses learned three vital lessons last year

Many of us learned some hard lessons in 2023 and the tough trading conditions with many challenges also taught small businesses quite a few things that they can use to be more successful in 2024 as the turbulence of the global, political and economic landscape disrupted attempts to return to ‘business as usual”.

It is a fact that 2023 saw many of the country’s small businesses gridlocked in an uphill battle while post-pandemic effects and various other challenges tested their resolve to keep their ventures afloat amid the uncertainty.

Now, the beginning of a new year presents small businesses with the perfect opening to turn many of last year’s difficulties into valuable opportunities, particularly around how to manage risk, Jason Mellow, head of business insurance at MiWay, said.

This includes using localisation as a risk management strategy, getting ahead of the energy crisis and becoming more resilient against climate change.

Localisation as a risk management strategy

From a macroeconomic perspective, geopolitical tensions in Europe and the Israel-Palestine conflict late last year had a ripple effect on the rest of the world. In 2023, this effect materialised in energy and food price hikes and significant supply chain disruptions across the country.

“Many small businesses struggled to procure and import certain goods and services from abroad as a result of this.

“In addition, a recent CNN report claimed that the Israel-Gaza war, which has necessitated the re-routing of cargo ships, will inevitably lead to delays and price increases on the import-export front.”

Mellow said the ripple effects would very likely affect the cost of imports, shipping and certain consumer goods.

Therefore, he encouraged small business owners to recognise the potential for opportunity during times of disruption. He believed that one of the most important lessons of this experience is the value of local production and domestic supply.

“Global shocks can put businesses at operational and financial risk and the fallout can be significant. When small businesses are unable to fulfil their contractual obligations, factors such as cash flow can be affected negatively.”

He said small businesses must also consider long-term reputation and to mitigate this risk decrease their reliance on foreign imports and diversify their supplier network as much as possible. This way they have an option B if option A is not able to deliver.

Find ways to get ahead of the energy crisis

On the local front, load shedding was arguably the greatest hurdle for small businesses last year.

According to a report published by the Entrepreneurs’ Organisation SA chapter, the energy crisis resulted in financial losses for almost six out of every 10 businesses.

“Of particular concern is that, as per the latest SME Confidence Index published by Business Partners Ltd, as much as 27% of businesses cannot afford to invest in alternative energy solutions. It is important to mitigate this risk by having insurance to provide a buffer against energy-related damages.”

For instance, small businesses could take out additional cover for damages caused by power surges and dips. This is of particular importance for businesses that rely on heavy-duty machinery, equipment and appliances.

The need for climate change resilience

In November last year, parts of Johannesburg were hit by an overnight hailstorm that caused severe damage to some businesses.

This followed the intense rainfall and flooding throughout parts of the Western Cape in October which also had a profoundly negative impact on many small businesses, with the accumulative damage to farms in the region estimated to be more than R1 billion.

Mellow said these were just two examples of how climate change affects the frequency and severity of weather-related events, putting extra pressure on local businesses.

Some of the disruptions caused by adverse weather include staff absenteeism, damage to property and vehicles, destruction of equipment and moveable assets and business interruption.

He urged small business owners to revisit property and office contents insurance policies to ensure the coverage is adequate.

Recognise potential for opportunity in disruption