The smaller channel is set to undertake a bumpy ride over the potholes left behind by the mismanaged South African economy.
By Henk Olivier, MD of Ozone Information Technology Solutions
In a recent report by Xero entitled The State of Small Business 2017, 67,9% of small businesses believe that economic volatility is their biggest challenge, closely followed by the standard concern of cash flow at 22,7%. At the same time, 62% have said that they’ve felt the burn of decreased customer spend.
In short, it’s been a tough year behind us and it is very likely to be a tough year ahead. So, what does this mean for the channel and the smaller channel businesses and what are some of the biggest challenges that lie ahead?
The first is cash flow management. Poor economic growth and consumer debt mean that businesses have less cash flow to work with, especially as customers delay on account payments or, worst case scenario, can’t pay.
Unfortunately, the latter is a scenario that happens all too often and the impact on the smaller business is considerable. The small to medium enterprise (SME) that is in self-manufacturing will experience significant risk around slow stock sales, and they may have to slow down on purchasing raw materials and production which has a knock-on effect with staff. The business is making less money, but still has the same running costs which puts pressure on budgets and people.
The SME in the channel distribution business is likely to face challenges around the distribution of physical products from vendors. These products may sit on shelves and stagnate – a risk for both vendor and SME.
Fortunately for those specialising in the online software services and solutions market, these are usually stable in a volatile economy, especially if the business focuses on good customer service and communication.
However, this can add costly complexity to operating costs as the business has to support products it may not have the resources for, and cannot maintain high levels of support.
This mercurial economic climate also tends to highlight issues around business processes. If there are few defined processes that influence how a business is run, then they can negatively impact on internal communications, customer service and growth.
It may be a daunting list, but there is one thing that every SME should remember – a boer always makes a plan. Use the good months to retain income and cash flow and to negotiate better and longer payment terms from providers. Gain a good control over your business – dig into all the corners and get all the insights you need around debtors, standard terms, outstanding amounts and more. Bad debt has a huge impact on cash flow so plug the holes and set standard terms now.
Those channel SMEs in self-manufacturing need to set triggers in the business, tipping points that alert when to increase or decrease production. Some SMEs can work on a quarterly or bi-annual review, but those with short shelf-life products will need to do live monitoring. Don’t assume that because of historical production stats, that it will be the same this year. It won’t.
If the SME is in distribution, it is vital to put proper systems in place so as to not sit with too much or too little stock on hand. This is difficult for the smaller business to manage as sales are your cash flow, but if you have bad debtors you cannot purchase stock and you cannot do sales.
Finally, those in online software sales and services need to invest in online marketing. This not only drives sales and builds the brand, but it supports long term sustainable growth and enhances customer engagement.
And, for all SMEs in the channel, regardless of specialisation, now is the time to put processes front and centre. Regardless of how much has been invested in the past, there is always something that can be improved on. Workflows and communications are the lifeblood of the SME to ensure they provide good products and excellent service so don’t skimp on the process planning.
Ultimately, the best investment for companies is into agility and the ability to prepare for the bad months. When times are great, set aside resources for the bad ones, and always remember that there will always be bad times. Many SMEs neglect this planning and the current climate can hit them hard.
However, there is one rainbow on the horizon. Research has shown that actually, bad economic times often see entrepreneurs and SMEs shine because they are more agile, quicker to pivot and ready to look for opportunity in the mayhem.