Is there light for SMEs in 2020?
CAUTION: SMALL BUSINESSES NEED TO AVOID OVEREXPOSURE TO ONE SECTOR
Funding is going to be harder to get as funders become more cautious.
When we look at the SME sector, we must recognise it is a paradox. It’s both good and bad. Some companies thrive, others die. Some people survive by cutting costs where they can, while others double down and focus on growing their revenues. Much like the paradox of the SME space, your philosophy must be paradoxical to balance your thinking, to create a clearing in the entrepreneurial jungle, to forge through, and continue to grow.
How will the SA economy affect SMEs? Generally, the macro-economy is not as important to SMEs as it is to bigger companies. What matters is the strength of your business model and ability to respond quickly to opportunities.
For example, we’ve seen some large companies close their doors in the past couple of years. But, as in any jungle, when big trees fall, it leaves space for the smaller ones to grow.
Even in sectors which are under pressure – like construction – we’re seeing smaller operators thriving, as there is still a demand for servicing in this sector.
The word of caution here is for SMEs to avoid becoming over-exposed to a particular sector – or worse, a single client. If that ship sinks, it may just take you down with it. That’s why it’s important to recognise risk and to manage it.
Insuring your debtor’s book, for example, may seem like a small task but it goes a long way in terms of mitigating risk.
Yes, but only on the periphery. Don’t try and control or lose sleep about that which you cannot control. It’s all good and well to be aware of what’s going on in the world and to see if it creates any opportunities for your business. But generally, focus on what you can control.
Remember, growth is about revenue – and revenue is about strategy, sales, and marketing. In your sector, what are the distressed areas – how can you take advantage of them? Look for three things you can do, and put some plans and budgets behind those. At the same time, identify the three red flags in your sector, and think about how you would adapt to those.
We all know that funding is getting harder to acquire. The whole sector is tightening, and funders are being more cautious than ever.
Our advice is simple: be alive to this reality, and plan for your funding needs early, as it’s going to take you longer to get funding.
Also, manage your expectations. It’s not going to be easy, but the funding is there – in abundance – and you must be 100% prepared and on top of your game for when those opportunities arise. Combine all these factors and 2020 should turn out to be a fantastic year, with plenty of sunlight ahead for you and your business.
Kumaran Padayachee is CEO of Spartan SME Finance