- Large corporates may be finding ways to conserve cash, but smaller entities don’t always have this option.
- The majority of small businesses were likely to close down if lockdown was extended beyond the end of June, according to a recent poll.
- In order to survive, small enterprises are being forced to survive or radically change their business model.
As large corporate companies look for ways for conserve cash in the wake of the devastating Covid-19 downturn, experts urge emerging enterprises to devise ways to future-proof their operations in case of later onslaughts.
A recent study by the South African SME Finance Association showed 75% of small and micro businesses would close down if lockdown was extended beyond 30 June. Yet the easing of restrictions under the current alert Level 3 has brought limited relief, with many businesses not seeing a full return to activity.
While restrictions have been partially lifted for some industries, operating costs such as rentals, payroll and inventory costs have been piling up, putting a strain on distressed entities battling to survive and wary about the future.
Jeremy Lang, regional general manager at Business Partners, which provides lending solutions to SMMEs, says the current environment calls for enterprise owners to re-evaluate their operating model and adapt to changing business and customer needs.
Opportunity
“Business owners need to not only adapt to the new normal, but use this as an opportunity to future-proof their operations,” he said.
He argues that the lifting of the restrictions won’t be enough to ensure the survival of small entities without implementing risk-reducing commercial plans that do not require heavy capital investment.
From reviewing sourcing methods to cutting down on expenses and shifting to tech-based solutions, business owners should use the Covid-19 downturn to carve a new chapter for their operations.
“A great example is how local alcohol delivery brand Bottles re-engineered their business and partnered with Pick n Pay to deliver essentials to customers during lockdown.
“We’ve also seen impressive case studies of other South African supermarkets upping the ante where delivery services are concerned, almost overnight, as well as local small and medium businesses, like clothing retailer Plus-Fab, swiftly diversifying their offering to include the sale of fabric face masks online for delivery.”
Tech is the future
The advent of Covid-19 has interrupted the supply of goods and increased shipping costs, in what has negatively impacted running costs and pricing.
While traditional bricks-and-mortar stores are still well entrenched, e-commerce is quickly becoming a new force in the business world due to its flexibility and cost scale.
“E-commerce has proved to be one of the resilient methods of doing business and is likely to see the fastest recovery. Business owners can only ignore technology at their own peril.”
The impact of online business has been evident in the recent financial statements of companies in the retail sector who managed to lift sales during the lockdown. But that was not enough to fend off the impact of the lockdown on operations as large retailers have also shown signs of strain and rushed to devise survival strategies.
Mr Price and The Foschini Group (TFG) have announced plans to raise cash in the wake of Covid-19. Mr Price proposed to raise up to 10% of the company’s ordinary issued shares while TFG said it planned to put out R3.95 billion as a precautionary measure against a possible Covid-19-induced downturn.
This is, however, a luxury that small companies do not always have. Lang says since emerging companies do not have sufficient financial reserves and different options of raising capital, finding the right funding partner could provide relief to entrepreneurs.
A report by McKinsey suggested that freeing up cash by deferring capital expenditures is one of the fastest and most substantial ways to mitigate the ill effects of a downturn.
It noted that companies across sectors had announced capital expenditure cuts ranging from 10% to 80%.
