While load shedding, price increases, limited credit, and subdued consumer spending continue to place a strain on South African small and medium businesses (SMEs), not all is lost for growth prospects in 2023, provided they heed the lessons of last year.
Nobesuthu Ndlovu, director of SME for Old Mutual Limited, says that despite the challenging operating and economic environment for business in general, 2022 was a year of strong recovery, and this bodes well for SMEs going forward.
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“At the start of a new year, it’s common for business owners to set out on a mission to take the business to the next level, which needs a focus on finding opportunities to grow. However, growth often means looking at the small things the management team can act on immediately. Simple changes like enhancing operational efficiencies or optimising the marketing plan can be a game changer to securing the future of a business,” says Ndlovu.
To develop a structured and flexible strategic plan of action for the new year, Ndlovu says SMEs should heed the following lessons from 2022:
Lesson 1: Understand the funding options available
The number one limiting factor is access to finance. Ndlovu points out that in addition to the lack of access, the current funding model, in which traditional lenders such as banks demand stringent, exclusionary credit criteria, effectively penalises entrepreneurs by not considering their individual needs.
“Having immediate access to funds is critical for success in this challenging business climate, which often requires quick decisions and agility. The conventional financing model is inappropriate for this market, and South Africa needs to develop a different and more appropriate model for evaluating risk and individuals,” says Ndlovu.
She adds that because financial institutions are inherently risk averse, even in a more accommodating system, SMEs must consider that a clear strategy and an appropriate level of business acumen are key considerations for lenders.
Lesson 2: Access to markets needs a holistic approach
The issue of access to the market is viewed by many as the second biggest challenge to SMEs after funding. Old Mutual’s research found that SMEs cite it as a perennial issue amid significant pressure to keep the sales pipeline ticking over.
“The lesson for 2023 is that SMEs must have a holistic market access plan in place that allows the opportunity for businesses to provide their products or services in a particular market,” says Ndlovu. “From identifying potential markets to marketing and networking, the plan should encompass every aspect that can increase its success in accessing new markets.”
Lesson 3: Mitigate the load shedding crisis
Ndlovu says that while load shedding has had a big impact on SMEs, as productive business hours are lost, the lack of funding to mitigate these challenges compounds the situation. The lesson for 2023 is that there are ways to get funding for alternative energy sources, such as generators and solar power.
“In 2023, SMEs should be looking at alternative energy systems based on where they operate and the buildings and equipment they use. They should investigate renewable energy installations to provide protection, electricity back-up and even the options to go off the grid,” says Ndlovu.
“The energy crisis will likely be with us for some time, and businesses must prioritise systems to prevent disruptions to operations, theft and increase in crime, perishables going bad, and equipment damage, among others.”
Lesson 4: Prioritise efficiency
Ndlovu says that SMEs spend up to 70% of their time engaged in non-core activities and therefore need to find ways to refocus on core activities and use innovative ways to manage the other issues.
Business efficiency means maximising outputs from your given inputs – or making the most of resources. Improving efficiency in a business means looking for areas to cut down on the time spent on particular tasks.
“Efficiency saves money and human resources in both the short term and long-term reducing costs and maximising output. These are proven ways to be more competitive and increase profit margins,” says Ndlovu.
Therefore, one of the lessons for 2023 is a deeper focus on efficiency.
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