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The Citizen
11 hours ago
- Business
- The Citizen
Mid-year financial check for SMEs: Tips to prepare for the next six months
'A thorough financial audit can now identify areas of strength to leverage and weaknesses to address, ensuring businesses are optimally positioned to thrive.' It is essential for businesses, particularly small and medium-sized enterprises (SMEs), to conduct a comprehensive financial health check as the year reaches its midpoint. This financial health check is important for navigating the current economic climate and ensuring sustained growth in the second half of the year. Garth Rossiter, Chief Risk Officer at Lula, said the economic landscape continues to present a mix of challenges and opportunities for small to medium-sized enterprises (SMEs). ALSO READ: Political events happening in June expected to affect South African SMEs Macroeconomic outlook for SMEs Rossiter said that the macroeconomic outlook in which SMEs operate is improving. 'The RMB/BER Business Confidence Index hit a five-year high in Q4 2024, while consumer confidence rebounded to pre-pandemic levels. Annual inflation has dipped below 3%, and the consensus appears to be that inflation will remain at lower levels for 2025; this will support the argument for lower interest rates,' he added. He highlights that the power supply is more stable than it was in the previous year, and consumer spending is showing signs of recovery. 'Despite lingering higher operating costs for businesses, the significant drop in inflation and declining interest rates make the future look brighter than it's been in recent times.' Access to finance for SMEs Rossiter notes that access to finance remains a significant hurdle for many SMEs, as traditional lending models often fail to meet the needs of smaller and early-stage enterprises. The global geopolitical events and domestic logistical challenges continue to impact supply chains and overall confidence. 'The agility and resilience of South African SMEs are consistently put to the test,' he added. Tips to check if your business is ready 'The halfway mark of the year is not just a calendar event; it is a critical juncture for self-assessment. A thorough financial audit can now identify areas of strength to leverage and weaknesses to address, ensuring businesses are optimally positioned to thrive,' said Rossiter. ALSO READ: Challenges and opportunities for SMEs in 2025 To measure SMEs' financial health and strategies for the second half of 2025, Rossiter recommends the following: 1. Revisit budget vs actuals: Compare your year-to-date income and expenses against your initial budget. Identify significant variances. Are revenues lower than projected? Are costs, particularly those influenced by inflation like fuel and utilities, higher than anticipated? 'Adjust your budget to reflect current realities and future projections.' 2. Assess cash flow: Analyse your cash inflow and outflow patterns. Are customer payments timely? Are you managing supplier payments efficiently? Calculate your cash flow runway – how many months can your business operate with its current cash reserves? 'In South Africa's environment, where payment delays can be common, robust debtor management is crucial. Consider offering early payment discounts or implementing digital invoicing to accelerate receivables.' 3. Review key financial statements: A. Income statement: Examine your gross and net profit margins. Are they shrinking? This could indicate rising input costs or ineffective pricing strategies. B. Balance sheet: Understand your assets versus liabilities. Are your debt levels manageable, especially with current interest rates? C. Cash flow statement: Provides a clear picture of how cash is generated and used within your business. Look for trends and potential bottlenecks. 4. Evaluate debtor days and working capital: A. Debtor days: How long does it take for your customers to settle their accounts? High debtor days can severely impact liquidity. B. Working capital ratio: Do you have enough short-term assets to cover short-term liabilities? This ratio is vital for operational liquidity. Adjust for any seasonality in your business. 5. External conditions: A. Interest rates: With current prime lending rates, assess the impact on existing loans and any plans for new credit. Explore fixed-rate options if suitable. B. Load shedding contingencies: Although greatly improved, consider any residual costs associated with power backup solutions (e.g., generators, UPS maintenance) and potential productivity losses that still impact your operational expenses and break-even point. C. Inflation and rand volatility: How are these impacting your procurement costs, pricing, and profitability? 6. Re-evaluate goals and forecast: Based on your financial review, are your initial business goals for the year still realistic? 'Adjust your targets and create a rolling forecast for the next six months, incorporating anticipated revenue, expenses, and capital needs. This foresight allows for proactive decision-making.' NOW READ: Entrepreneurship a solution to youth unemployment – but there are challenges
Zawya
14-02-2025
- Business
- Zawya
South African SMEs face cash crunch: Will the Budget Speech bring relief?
Small businesses, the backbone of South Africa's economy, will be watching next week's Budget Speech closely. They want to hear how they will be meaningfully empowered to succeed this year. Looking at the turnover data and cashflow insights that Lula has access to, this sector is clearly under immense pressure. "Our latest data shows that South African SMEs are facing immense pressure with a 50% drop in turnover year-on-year. The highest interest rates in more than 15 years have restricted consumers' ability to spend and this has had a massive impact on turnover across all industries. This has resulted in the South African economy showing almost no growth in 2024, and actually shrinking in Q3. This decline is not just a statistic; it's a stark reality that's pushing many business owners to their limits, forcing them to make tough decisions daily just to keep the lights on,' says Garth Rossiter, chief risk officer for SME financial services provider Lula. 'Despite some positive changes in the macroeconomic environment in the past year, like increased governmental stability, and a more reliable electricity supply, business owners striving to maintain operations are experiencing reduced cash flow,' he adds. 'When President Ramaphosa delivered his State of the Nation Address (Sona) a few days ago, he offered some encouraging commitments on SME funding, venture capital, and the easing of business barriers in the informal sector. These are key drivers of real economic growth, but the Sona was lacking in detail. 'It would be a welcome move if the finance minister would provide greater clarity on these commitments by filling in the blanks,' says Rossiter 'We have heard the same story year after year. It's not a secret that SMEs are the lifeblood of the country, employing between 50% to 60% of the country's workforce and contributing around 34% to the GDP. 'If the government were serious about unemployment, I would expect them to present a clear plan in this budget on how they intend to make life easier for SMEs, including, how they are going to remove red tape and regulatory burdens to allow businesses to operate more effectively. 'Instead of the government trying to create public sector employment (using tax-payer money) and adding to inefficiency, they should rather leverage the enormous potential of our small businesses and entrepreneurs. 'Government doesn't need to create the jobs themselves; government needs to focus on the simple things, and the jobs will be created as a result: this means providing reliable electricity and water, good infrastructure and efficient ports. 'South African ports are ranked among the worst in the world and this is disastrous for any importer or exporter. It's not complex, but if they get the basics right, the jobs will follow (and, as an added benefit, successful businesses will add to government coffers through paying corporate tax)!' The Budget Speech can play a major part in assuring SMEs that the Government is committed to getting the basics right. If they provide reliable energy, transport, security and water, the private sector will create jobs and drive growth. 'Small businesses depend on efficient transport networks—ports, roads, and rail—to trade. Hopefully, the Budget Speech will bring much-needed clarity on how SMEs will be empowered in the year ahead,' he says.
