Small business can survive in a downward economy

July 16th, 2019, Published in Articles: PositionIT

During an economic recession or downturn, small businesses are often hit the hardest. Budget constraints, reduced spending power and inadequate preparedness for a recession can make it impossible for a small business to survive. Some industries are affected more than others, and typically luxury services suffer first as both business and private customers cut back on spending. But is possible for small and medium enterprises to flourish within a downward economy.

Hennie Ferreira

In many cases an economic downturn causes companies without adequate support to be unable to continue operating. In other situations, however, small businesses show remarkable flexibility and find creative ways to survive a downturn.

President Cyril Ramaphosa’s efforts to revive Africa‘s most advanced economy were dealt a blow last week when data showed gross domestic product had contracted by a quarterly 3,2% in the first three months of 2019, the largest contraction in a decade. Ratings agency, Moody’s, subsequently lowered its forecast for the country’s 2019 economic growth to 1,0% from 1,3%. Moody’s is the last of the big three international credit firms to rate South Africa at investment grade. There are also suggestions that South Africa could move into another recession. Many companies are struggling due to the current economic climate.

A recession or downturn is especially tough on small and medium enterprises. They struggle with issues such as reduced cash flow, loss of demand if customers reduce their purchase amounts and marketing constraints. At the moment many companies are closing down and in some instances, staff is being retrenched as part of measures to weather the storm.

When an economic crisis is looming, business should maintain a back-to-basics approach. Implementing these business basics will allow SMMEs not only to survive but to flourish.

You need to distinguish yourself from your competitors, and the way you stand out from the crowd is through value add. You need to determine how you can add more value to your service offering and customer service. This will attract far more clientele than spending time on a fancy logo or office space.

Equally important to ensuring a flourishing business is sales. Business people are sometimes too focussed on branding and marketing and they fail to pay enough attention on the sales aspect of the company. The fact is, you can have the best product in the world but if you are not selling it, there is no revenue and you don’t have a business.

Another important element is continuous improvement and growth. During an economic crisis the growth will be slower but there will be systematic progress. It is therefore important to ensure that your business grows with continuous momentum. Continuous improvement is a mind-set and needs to filter through the entire company. Take time to analyse changes such as technology and how it impacts your business so that you can adapt.

Lastly, compliance is a silent killer, and the lack of due diligence could sink flourishing companies. Business owners think you can deal with compliance, which includes accounting, tax and payroll, at a later stage. Your compliance needs to be correct from day one. Currently many companies, built on fantastic business concepts, are in the process of being liquidated because debts piled up over the years due to mere ignorance.

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