SMEs can overcome rising inflation, fuel and load shedding
Johannesburg – Entrepreneurs have had to contend with some of the most challenging economic conditions in recent history. It would seem there is no respite for small and medium-sized enterprises (SMEs).
Statistics South Africa (Stats SA) announced earlier in the week that the inflation rate in South Africa quickened to 7.4 percent in June from 6.5 percent in May, and above market expectations of 7.2 percent. This is the highest rate since May 2009 when the rate was 8.0.
This high inflation rate will probably result in a further increase in the interest rate in a bid to curb the rising inflation when the Reserve Bank president Lesetja Kganyago makes his rate announcement on Thursday.
SMEs have also had to contend with the soaring price of fuel over the past few months, with the fuel price reaching record highs. The knock-on effects of the constant increase cannot be understated and have put pressure on the profit margins of SMEs.
The bout of load shedding has only served to compound the pressure as businesses lose out on valuable productivity.
This has had a negative impact on the economy. Large and small businesses have been severely impacted due to the unreliable power supply.
It is estimated power cuts cost the country over R400 000 000 daily in lost productivity.
Andiswa Bata, co-head of SME at FNB, said while SMEs have shown resilience by absorbing costs in the short term it is inevitable that businesses will have to pass some of their costs on to consumers.
“The rising pace of inflation may lead to operating models being unstable, leaving some businesses with no choice but to pass on some of these costs to consumers – who are regrettably also struggling to make ends meet.”
“At the same time, we are likely going to see employees pleading for higher wages as their household budgets struggle to keep up with rising food prices,” she said.
Bata unpacks five simple strategies that SMEs can consider in managing these mounting pressures:
– Every cent counts. So, use the stuff your business can access for free, eg low/zero monthly fee bank accounts, speed point devices with no upfront purchase cost or monthly rental fee, free accounting, and payroll solutions that save you money and time.
– Given the costly impact of an interest rate hiking cycle on the ability of small businesses to borrow and service their debt, they stand to benefit from the Bounce Back Loan Scheme which is currently available to businesses at a more favourable interest rate than what most may be able to access funding at elsewhere.
– Eliminate any unnecessary vulnerabilities by cutting non-essentials, streamlining business processes, sharing costs with other businesses (eg truck hire for deliveries) where possible, reduce redundant physical space you are occupying (especially if your business has a strong online/digital presence and your staff are working from home).
– Understand the direct costs that go into producing your business’ products and services. This helps to determine if the business can continue to make a profit in the event of rising input costs. Know how much pressure your profit margins can take and push back where you can, to help you stay competitive.
– The upfront cost may seem high, but there has never been a better time to pursue a green energy solution like solar. It will lower your future monthly electricity costs, and limit downtime from load shedding, not to mention the added benefit of protecting the environment.
“There’s no doubt that inflation, fuel, and load shedding will continue putting significant pressure on the bottom line of SMEs. However, there are steps businesses can take that will make a big difference on how SMEs will emerge from the current tough economic conditions,” Bata said.
IOL Business