Time for SA Entrepreneurs to Take Advantage of Opportunities

With the New Year in full swing and the recession fast becoming a distant memory its time for entrepreneurs and small business owners to get their sights firmly focussed on a great year in 2011. As many would have found during the challenging times past, it’s the entrepreneurs drive, innovation and determination which will decide whether the business succeeds. Whether you are starting a new business or growing an existing one, the future lies firmly in your hands. Business finance is already becoming more readily available and business support in South Africa is there for the taking for those who need it.

Malcolm Rees from Money Web recently interviewed Nico Jacob from ABSA's small business unit and spoke about exactly what will set small firms on the road to success in 2011. A number of issues were raised, so of which a little unexpected but still very worthwhile a read.

Diversified client base

"The SMEs that will have a strong showing are those that have diversified target markets", said Arthur Goldtsuck, who heads World Wide Worx, which researches the health of SMEs through its SME Survey.

Goldtsuck added that some of the most profitable SMEs during the recession where those that targeted not only consumers but also corporate businesses, other SMEs and government.

Consumers are still haggled by high unemployment, which sits at 25% and household debt levels around 80% of disposable income

Although the majority of SMEs primarily target consumers according to Goldstruck, "those that service only consumers will struggle for a diminished disposable income", he said. 

Increased government spend in infrastructure as well as revivals in corporate spending in 2011 should create opportunities for SMEs to generate increased revenue through sub-contracting and outsourcing opportunities and a diversified client base will minimise risk resulting from fluctuations in marketplace demand.

Cash flow

Cash flow will remain a vital issue for small businesses in 2011, according to Xolani Meva, the Johannesburg regional manager for Business Partners, which provides finance and advice to SMEs.

The recession has affected not only SMEs but their suppliers and customers who have become both poorer and more nervous.

On the one hand SME suppliers are going to be less willing to offer stock on credit to small businesses or may demand a shorter repayment window while SME customers will be less likely to pay cash in advance for goods or services and may be a more risky debtor, according to Meva.

As a result SMEs may struggle with cash flow. Success in 2011 is going to require tight money management and strong accounting practices, reckons Meva.

He notes that if SMEs hope to secure finance from financial institutions which still consider the economy to be under an economic downturn and are thus nervous to dispense with cash, SMEs need to ensure that their accounts are in order and up-to-date and that they are able to provide potential lenders with convincing business plans that clearly demonstrate the potentials in their market place as well as their ability to capitalise on them.

And while SMEs may find it difficult to attract finance they could quickly become hampered by a burdensome debt book, according to Jacobs. He points out that small businesses must be very careful about crediting customers and other businesses with cash and that "a good collection strategy is essential".

Marketing

Marketing will be another key to success, maintains Jacobs who notes that as marketing remains important, word of mouth and direct marketing campaigns as opposed to expensive blanket campaigns, such as billboards and TV advertising should be the focus for SMEs hoping to penetrate consumer awareness.

"Websites, social media ... smart niche marketing and direct marketing", as opposed to "spray and pray" marketing campaigns are the way to go.

Companies that do well are likely to utilise social media, such as Facebook and Twitter to reach customers without incurring much expense he said.

Service

The "best advice" said Jacobs is for small businesses to make sure that whatever they do, they make sure they do it "exceptionally well".

The recession has acted as something of a "spring clean", he said, by flushing out many of the poorly managed SMEs but those that remain will be competing in tighter, more cash-strapped markets.

With less opportunities available Jacobs believes that SMEs should rather take on fewer contracts to serve those they have better.

This, he said, will ensure repeat business while enhancing the reputation of the business by word of mouth which should generate new, high quality, job offers.

There will still be plenty of weary investors out there so make sure your business plan is well thought out and your market research backs up the idea. The great thing is that consumers are gaining in confidence and competition is not nearly at the level that it was.