How to survive and thrive

Interest rate hike will put many SMEs under pressure unless they adapt.

Despite a strengthening rand and slight recovery of the oil price, the South African Reserve Bank (Sarb) announced the repurchase (repo) rate will increase by 25 basis points to 6.75% from November 23.

This increase pushes the prime lending rate up from 10% to 10.25% and is the first rates hike in South Africa since March 2016.

According to David Morobe, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), the impact on small and medium-sized enterprises (SMEs) is two-fold; debt will become more expensive and the spending habits of consumers will be negatively impacted.

Morobe points out that almost all small businesses have debt in one form or another.

“[More expensive debt] will have an immediate negative impact on a business’ ability to service their existing debt, as well as their cash flow.

“As SMEs typically have quite a limited cash flow – especially in the early days – the additional cash required to pay off the debt may result in some cash-flow shortfalls, which may have a knock-on effect on a business’ ability to pay suppliers and operational costs.

“By raising the cost of debt, consumers will have less disposable income [for] services and products provided by small businesses. Changing customer spending habits may also reduce cash flow further.”

Morobe's survival tips:

1.

Review costs and finetune efficiency and productivity. Plans for the future should include more than one scenario and staff should be drawn into

Plan ahead:

these exercises as this will help manage expectations. 2.

This is supremely important. Businesses with weak debtor management systems and leaky budgets will face an uphill battle. Timely debt collection, clear payment terms and credit policies, as well as thorough credit checks are essential. 3.

Increased competition means consumers will be tempted by other suppliers. 4. Keep your eye open for business opportunities:

Manage your cash flow: Improve your service:

Some of the most enduring businesses in the world were born during trying times – don’t let the challenge that lies ahead blind you of the opportunities that arise as a result.

Morobe concluded that business owners should remain positive and implement any tactics to survive and thrive during these tough economic times.

“While South Africa may be struggling to achieve the required economic growth to deal with its social and economic challenges, it remains a land of opportunity for the entrepreneurially minded.

"We have all the resources required to be successful – the people, the skills and the right mindset to overcome any obstacle.”