Four ways to build financial resilience into your operations
South African businesses have faced significant challenges over the past few years, with the economic strain peaking during the national lockdown in 2020. Since then, a stagnating economy, high interest rates and ongoing power and infrastructure crises have made the journey to financial recovery difficult for many.
According to recent data from Stats SA, 1130 businesses were liquidated in the first three quarters of 2024. While this is an alarming figure, it represents an 8.3% decrease in year-to-date closures for January to September compared to 2023. This decline aligns with a broader downward trend in liquidations since the peak in 2020.
Amid these challenges, there are glimmers of hope. The Government of National Unity seems to have boosted market sentiment, load shedding has been suspended for over seven months and the South African Reserve Bank cut interest rates by 25 basis points in September. While these developments are encouraging, business owners must remain proactive and take steps to build resilience, regardless of economic conditions.
Here are four ways to make your business more financially resilient:
Build a cash reserve
Establishing a cash reserve should be a foundational step in securing your business’ resilience. This reserve acts as a buffer against unforeseen expenses or economic downturns and gives you the flexibility to continue operations when cashflow slows.
Small businesses should aim to save enough to cover three to six months of operational costs. You can build up this safety net over time by consistently setting aside small amounts. Consider setting up a separate business savings account to keep your reserve accessible but out of reach for routine spending and review it regularly to ensure it aligns with any increase in operating costs.
Optimise cashflow
Maintain operational stability by managing cashflow effectively. Start by tracking inflows and outflows closely to identify where payments tend to be delayed. Consider introducing incentives for clients to pay on time.
Review all expenses regularly and eliminate those non-essential or underperforming investments. Small steps, like renegotiating with suppliers for better terms, streamlining subscriptions, and reducing unnecessary overhead costs, add up. A disciplined approach to managing cashflow and trimming excess expenses will free up resources to reinvest in the business.
Diversify revenue streams
Don’t put all your eggs in one basket - it’s a cliché because it’s true. Relying on one primary revenue stream adds to your business’ risk because demand can change. You can create a more stable revenue base that can better withstand market shifts if you diversify your income sources. This can include expanding your product line, targeting new customer segments, or exploring add-on services related to your core offerings.
Some businesses also see value in introducing digital products or services, which have lower overhead and appeal to a broader audience.
Strengthen relationships with financial partners
Strong relationships with financial institutions, investors, and even suppliers can provide a lifeline in challenging times. From my experience financing entrepreneurs at Business Partners Limited, it is important to maintain clear and open communication with your financier and bank so you’re better positioned to access loans or negotiate favourable repayment terms when needed.
Establishing a solid track record with financial partners shows them your commitment to long-term growth and financial discipline and increases their willingness to support you. These connections can also provide valuable insights into financing options or economic trends that may benefit your business’s resilience strategy.
Ben Bierman is the managing director at Business Partners Limited.
BUSINESS REPORT