Category SMMEs

Ways SMEs can recession proof their businesses

12 March 2020 FNB
Andiswa Bata, FNB Business Regional Head for Gauteng South West

Andiswa Bata, FNB Business Regional Head for Gauteng South West

Despite the country falling into recession, coupled with a dim economic outlook, it is not all doom and gloom for small businesses.

Andiswa Bata, FNB Business Regional Head for Gauteng South West, says for many small businesses the outlook for the year ahead seems bleak due to a lower forecast for economic growth globally, challenging local trading conditions owing to inconsistent power supply, currency volatility and rising operating costs, amongst several factors. However, opportunities still exist for SMEs who are agile.

Bata unpacks simple strategies that businesses should consider to navigate economic headwinds in the short to medium term:

• Cash buffer - a cash buffer can help your business to take advantage of opportunities quickly, survive unexpected knocks and remain competitive when price can be the difference between winning or losing market share.

“There may even be an opportunity to acquire/merge with a competitor or another company that complements your own offering. Having spare cash sets you up as a potential buyer, at a time when business valuations may be attractive. If the pie isn’t getting bigger, seek to secure a larger slice,” says Bata.

• Inventory management - move inventory into buyer’s hands quicker, collect on receivables quicker and reduce operating costs to free up the cash you have in the bank for investment in the right opportunities as they arise.

• Creative cost cutting ideas – consider cost cutting initiatives that will have a positive impact on your business and staff.

For example, consider sharing or renting office space and use that money to spare a job. Buy used or rent equipment/tools, if buying new is too costly. Make use of technology to improve your productivity and efficiency. Relook your operating model with the view to become faster and cheaper in the way you deliver your products/services.

• New markets - identify those markets and geographic areas where opportunities still exist. Tailor your offering to meet previously under-serviced markets. If a traditional, premium offering is not selling, evolve your offering to include solutions at lower price points – which may prove more resilient in tougher times. Know what customers are willing to spend money on and service that deliberately.

“You cannot expect to fill up the bucket if there is a leak at the bottom. So, if you are pursuing new markets (to top up the ‘bucket’), do not forget to ensure you protect your existing client base by striving to deliver superior quality and service every time,” cautions Bata.

• Use debt funding wisely – lower economic growth typically paves the way for a lower interest rate environment – where appropriate, take advantage of this for investment (not consumptive) expenditure that also reduces your business’ reliance on external power and water supply.

“Finally, support other local businesses and brands wherever you can. Do not underestimate how much your own personal and business buying power is helping to stimulate the local economy, creating employment and keeping fellow businesses thriving,” she concludes.

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