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Current economic challenges a major stumbling block for new SMEs

Current economic challenges a major stumbling block for new SMEs

As the local economy continues to navigate economic challenges, the knock-on effect on consumers is one of the main issues keeping new SMEs awake at night.

Head of SMEs at FNB Business, Sam Ikela, believes that despite the resilience of the SME sector; new franchisees are cautiously observing the economic headwinds and their anticipated impact on profit margins.

Ikela shared some key challenges faced by new SMEs.

According to Ikela the slowdown on the economy is making it very challenging for new SMEs to remain profitable – this means they need to adapt to this tough economic climate by managing their cash flow efficiently, because it plays a critical part on the health of a business.

Ikela said SMEs also need to build a closer relationship with their financial institutions and this will improve their working capital and also carry them through the tough economic times.

“Prioritise and invest in electricity efficient products and machinery early on in the business; this will save you a lot of time and money in the long run,” he said in relation to the electricity costs in the country.

With focus on the rising cost of rental space, Ikela said there is need to always keep in mind that rental costs go up on a yearly basis, when doing budgets factor in the probabilities that the rent will increase.

According to him staff costs need attention. “Having less money coming into a business simply means little profit margins which implies keeping fewer employees in the business to sustain it. Increase your staff complement only as the business grows and economy improves,” he added.

Furthermore Ikela said not having suitable skills is yet another challenge. “New franchisees often get anxious that they don’t have the necessary skills to operate the business successfully. They can eradicate this anxiety by looking for mentorship and guidance from an experienced business owner,” he said

“Given the unpredictability of the current economic climate, the sector still has room to grow despite the shrinking of disposable income for many consumers. Small businesses have a wide range of supporting structures that can be used. Use these structures effectively, and speak to FNB to see where we can assist you, because your success is our success,” he concluded.

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