GIVEN that Small and Medium Enterprises (SMEs) are critical engines for growth and job creation, now more than ever, players in this market need to look at ways of expanding their businesses as dire economic circumstances may force businesses to think outside of the box if they are to survive.
The number of SMEs in distress is on the rise, which is evidenced by the number of liquidations that have come to characterise various SME markets in SA.
Ben Bierman, the managing director of Business Partners Limited said his organisation has noticed a sharp increase in credit risk amongst our clients.”
Recently, the institution released a survey titled: Business Partners Limited SME Index, which shows that business confidence indicators plummeted further in the second quarter of this year as the South African macroeconomic environment remains dire.
This has resulted in increased pressure on small and medium enterprises (SMEs) and their ability to deliver as one of South Africa’s leading growth engines. The survey measures the attitudes and confidence levels of South African SME owners.
“Small business owners’ confidence has slowly been eroded by the broader environment in which the country finds itself operating in. During the second quarter of 2017, SMEs’ confidence levels related to the growth expectations of their businesses and the likelihood of the South African economy being conducive for business growth in the next 12 months, reported a sharp decline of negative seven and negative eight percentage points respectively when compared to the same period in 2016,” explained Bierman.
Business Partners Limited 2016/2017 financial results reported that net credit losses had almost doubled during the financial year, highlighting the level of distress amongst SMEs.
“Conditions are expected to get worse before they get better; SMEs need to prepare for the challenges ahead. If business owners are to steer their companies through this almost perfect economic storm, and possibly emerge stronger, they need to set a clear course and actively stick to the plan. Now, more than ever, business owners need to anticipate the future by forecasting and quantifying the cash flow implications for multiple scenarios. Should the country face further economic strain, business owners should attempt to secure access to funding as a ‘financial cushion’ or shock absorber before they urgently require it.”
Bierman advised SMEs to critically evaluate the timing of possible expansion. “A bad set of economic circumstances might in some cases be the ideal time to invest so that when the economy turns, the business is ready to take advantage of opportunities ahead of its competitors.”
This depressed outlook is linked to the current political and economic volatility and uncertainty, said Bierman.
“The biggest knock to confidence in the second quarter was the official recognition that South Africa had entered a technical recession. In response, many large financial institutions scaled back their credit extension, as the full impact of the recession was assessed. Many SMEs realised that, in a time of financial distress, there were fewer options available to access a source of capital and this contributed to the decline of 9 percentage points in SMEs’ confidence levels that their ability to access finance would improve in the next 12 months. The outcome of the ANC policy conference that took place in June seemingly did not renew or inspire any SME confidence either.”
He adds: “The latest SME Index highlights the impact of these events, and those preceding it, such as the Cabinet reshuffle at the end of March 2017, and emphasizes some of the difficulties that SMEs have had to endure over the last couple of quarters.”