As 2026 gets underway, South African SMEs should consider pivoting from crisis management to strategic planning to navigate a landscape dominated by rising operational costs and logistical volatility.
This is according to SME services provider Lula, which highlights the critical need for proactive financial and operational adjustments to ensure business resilience and protect profit margins in 2026.
According to the company’s chief risk officer, Garth Rossiter, the core challenge for business remains the lack of predictability in key input costs, coupled with external factors that impact cash flow and access to financing.
The energy imperative: fixed costs over variable risk
Persistent electricity tariff hikes make reliable energy an unavoidable core operational cost. Scheduled tariff increases for Eskom, which include a 5.36% hike for 2026/27 (as per NERSA data), will continue to exert pressure on profitability.
“If you look at the average small business or SME, like a small manufacturer or guest house, that investment in basic solar or an inverter has gone from a nice-to-have to an absolute must-have,” states Rossiter.
He recommends leveraging the current window of opportunity to invest immediately.
The temporary lull in severe load shedding has created a market surplus, driving down costs significantly. This strategic investment not only allows SMEs to convert highly variable and unpredictable electricity expenditures into a more stable, manageable cost, but also provides the invaluable peace of mind that comes with energy certainty.
An alternative would be for businesses to adopt an operational cost adjustment model, calculating the percentage increase in their energy bill as an input cost. For example, a bakery could calculate the electricity cost per loaf and pass that price increase on to the consumer to protect margins, rather than absorbing the expense. However, the risk of this is losing a competitive pricing edge.
Logistics and inventory: The shift to ‘just-in-case’
Supply chain unpredictability, amplified by bottlenecks at key corridors like Durban and Cape Town ports, suggests that a shift from a ‘Just-In-Time’ model to a ‘Just-In-Case’ approach might be necessary.
This mandates maintaining a cash or stock buffer of 10% to 15% of high-demand items.
“Unfortunately, this is an added cost that directly impacts working capital, but it prevents lost sales, which is the real opportunity cost,” Rossiter explains.
He also suggests that small businesses could consider:
- Sourcing locally: Reduce reliance on key bottleneck corridors by exploring local, alternative suppliers.
- Negotiating terms: Secure flexible payment terms, such as 60 days, to free up crucial cash flow.
The true cost of credit quality
Businesses that struggle with creditworthiness face an expensive trap. A low credit score translates directly into a higher perceived probability of default, forcing lenders to apply a significant risk premium.
“The direct cost of a poor credit score is a much higher interest rate,” says Rossiter. “A business operating on low net margins cannot afford an extra expense on the interest line.”
The opportunity cost can also be severe, resulting in lower funding amounts than required to buy stock or finance peak season expansion. Rossiter advises businesses and business owners to check their credit history proactively and resolve any outstanding credit issues to secure more affordable capital in 2026.
He outlines three key pillars that SME owners should focus on to build a resilient operational and financial plan for the new year:
- Proactively manage costs that threaten profitability – Prioritise capital investment to fix rising costs, specifically those related to electricity or stock-outs. Where possible, secure and pre-pay for critical stock ahead of expected supplier tariff increases or potential supply chain disruptions.
- Accelerate your cash conversion cycle (Shorten the time it takes to get paid) – Improving cash flow is crucial, especially given that South African SMEs wait significantly longer for payment than their corporate counterparts. A high-impact solution is implementing digital, cloud-based invoicing (via platforms like Xero or Sage) linked directly to the business bank account. This move drastically reduces invoicing errors and speeds up collections.
- Actively protect your credit profile (Treat your credit rating as a financial asset) – “Treat your credit score as a profit protector,” Rossiter urges. Strategic borrowing – taking on debt only when it drives demonstrable, measurable growth – is critical, as is shopping around for the best available terms. Furthermore, a low-cost measure with a direct, positive impact on cash flow is incentivising collections teams based on recovery speed, not just volume.