SMEs show resilience in adversity


Turbulent times have characterised the environment for South African small, medium and micro enterprises (SMEs) in the past year – but most have come through with their competitiveness intact. This emerged with the announcement of the results of the annual SME Survey which indicates that in the main, SMEs have held up remarkably well.

That’s according to principal researcher Arthur Goldstuck, who says rising fuel prices, inflation spikes, interest rate hikes, and infrastructural challenges such as crime and power outages have combined to dramatically change operating conditions for all businesses. “Despite this deluge of new problems, SME Survey 2008 shows that while these businesses are feeling the pressure, most are generally well-equipped to cope.”

Some 5 000 SME decision-makers were polled on a range of issues relating to their competitiveness, performance and the business enabling environment.

The most encouraging finding of all was that 81% of SMEs surveyed had a positive cash flow, given the environment, says Goldstuck. This was a somewhat surprising result, but it tied in with the 74% of respondents who believed that their organisations were competitive. He cautions, however that a positive cash flow did not always make for a competitive business, if operating margins were too tight.

In the prevailing tight economic times, Goldstuck says that a prime concern for any company is the heightened possibility of bad debt. “More than one in five, or 22% of respondents indicated an increase in bad debt over last year, however, an almost equal number [19%] reported a decrease. This shows the SME is managing debt well,” he says.

Furthermore 37% of respondents report an increase in outstanding revenue, while only 14% indicate a decrease in their debtor’s book; this shows that customers are taking longer to pay, as a result of financial pressures of their own.

Amrei Botha, head of SME propositions at Standard Bank, says that most SMEs provide goods and services to end consumers. Hence as consumers come under pressure due to rising fuel prices, inflation and interest rates, SMEs are faced with a decline in both the volume and value of their sales. It is therefore critical for SMEs to manage their debtors more carefully and rigorously in these economic times. Proper invoicing, keeping track of outstanding payments and putting a collection process in place will go a long way to ensure that SMEs regularly collect payments from their clients.

“SMEs should constantly strive to improve their cash flow – it should be a way of doing business and not a once off event when the business is under pressure,” she says.

Turning his attention to infrastructural challenges, Goldstuck says the shadow cast by load shedding persists. “37% of those surveyed say the load shedding of the first half of 2008 had a high impact on their business and only 11% said it had no impact. That compares to 21% who had said, at the halfway stage of the Survey in May, that load shedding had no impact. This shows that the full effect of load shedding only became clear in retrospect.”

While 14% of SMEs had already acquired a generator in 2007, a further 15% only bought one in the first quarter of 2008, and another 11% intended to buy one this year. “This indicates that SMEs are sensitive to infrastructural problems but respond quickly,” says Goldstuck. “When we add up all the severe challenges faced by SMEs and look at how quickly they respond, it brings to mind the old saying, ‘what doesn’t kill you makes you stronger’.”

While 5% of the respondents regarded themselves as uncompetitive and were in danger of going out of business, he added, the rest were generally learning to adapt to changing circumstances.

Danny de Beer, Business Development Director at Fujitsu Siemens Computers notes that the turmoil compels SMEs to review their efficiency and performance. “We see many SMEs looking to increase their efficiency and optimise their performance with many finding the benefits of new technology which allows them to optimise their processes and to respond more rapidly to market forces. This not only makes them more resilient in these challenging times, but also ensures that these businesses will be more favourably positioned for the long-term correction in the economy.”

SME Survey is sponsored by Standard Bank and Fujitsu Siemens Computers.
It is in its sixth year and tracks trends and opinions of more than 5 000 South African small, medium and micro enterprises

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