South Africa's SMEs (small and medium-sized enterprises) are proving surprisingly resilient to the current recession, with most business owners having accepted the inevitability of the downturn and adapting to meet the challenges.
This is one of the findings of the latest SME Survey conducted by World Wide Worx and Sponsored by Standard Bank, Umsobomvu Youth Fund (now operating as the National Youth Development Agency) and Fujitsu. Now in its sixth year, the SME Survey polls 2 500 SME business decision-makers on the issues they face and how they overcome these to remain competitive and sustainable in the current economic climate.
Since getting through the recession is a challenge on the minds of every businessperson, the establishment of a blueprint for survival and prosperity was a key focus of this year’s study. The findings of SME Survey 2009 into the strategies and tactics which companies are employing to weather the storm, serves up advice which is as simple as it is profound: It is business basics which will see you through.
Principal researcher Arthur Goldstuck explains that the survey asked respondents to rate the importance of strategies they were adopting to get through the downturn.
"Based on the responses, we have a very clear picture of what SMEs are doing to keep the wolf from the door in trying times. We believe the results of this specific aspect of the research are the single most important set of findings to date, as it gives business owners practical recommendations to follow," he says.
Topping the list is maintaining good cashflow and sound business administration and financial systems. Each of these two factors was rated by 93% of SMEs as key in supporting their survival.
"Cashflow is hardly surprising; it is and always has been at the heart of business viability. A little more surprising is the prominence given to systems; this tells us that business owners know that it is vital to have a finger on the pulse of the business. Managing cashflow goes hand in hand with such systems," Goldstuck remarks.
It is customers and their custom which results in top line performance. SMEs recognise this with loyal customers rated by 91% of respondents as important to surviving the recession. Winning new business achieved the same weighting, as did good staff.
"You have to know how your company makes money and often staff are key to the value proposition," Goldstuck says. "Meanwhile, high rankings for customer-related factors confirm the old adage that no matter what business you are in, you are in the people business. People buy from people; loyal customers and new customers are obviously essential to consistent income."
Cutting costs, which may appear to be an obvious tactic to support a better bottom line, was ranked by a somewhat surprisingly lower number of companies as important.
"At 83%, this is initially perhaps an anomaly, until one considers it in light of the shocks which SMEs have already suffered through last year, including high fuel prices and interest rates. Those factors mean most SMEs have already cut overheads to the bone and are operating on a lean basis in terms of which further cost cutting may result in loss of value creation," says Goldstuck.
"It is important for government funded institutions such as NYDA to be involved in initiatives such as SME Survey to help understand what makes SMEs successful and establish their needs. The majority of SME owners are youth and therefore it makes sense for NYDA to align its products and services with SMEs in order to be relevant and to make a lasting impact," says Malose Kekana, National Youth Development Agency CEO.
Lower rankings came in for access to finance at 81% and low or no debt at 80%. Location, location, location, a mantra of businesspeople of old holds true, with 79% of respondents indicating that they considered this essential for sustainability.
This contention is further borne out with the finding that good technology is ranked somewhere near the bottom of importance in recession survival, at 76%.
"This recession has forced a lot of companies to look into their operations in a lot greater depth," says Jane Tully, channel manager at Fujitsu. "Of particular importance has been the search for increased efficiency with an emphasis on cutting unnecessary costs. Whilst many companies slashed their costs dramatically over the past two years, they are still looking at all aspects of expenditure very carefully. We are finding an increasing leaning towards incorporating IT Services into the total business solution to ensure that systems efficiency is maintained and also to assess the companies’ investment in technology to optimise utility."
An indication, says Goldstuck, of the woefully inadequate government efforts to support small business can be seen in the mere 41% of respondents who felt this was a factor in getting through the downturn. "Those who have used government support rate it highly. For all others, it is irrelevant," he notes.
The good news, Goldstuck stresses, is that survival simply means go right back to business basics. "There is no mystery, no elixir in this blueprint. Just sound business sense."