4 traits that helped US SMEs survive

Robin Nicholson
Director: Corporate-911

I recently spent a few days of R&R in Saint Lucia on the KZN North Coast with my wife. One of the things that became immediately apparent during my trip was that many Small, Medium and Micro Enterprises (SMMEs) had to close their doors because of the impact of Covid. We had a similar experience in George on a similar trip earlier in the year.

This is sad because of the role that the tourism sector plays in South Africa. Its not only the airlines, hotels and tour operators that are impacted by the disruption that the sector faces, there is significant downstream risk that companies face.

I recently read an article on the Entrepreneur website which points to some of the coping mechanisms that US companies have put in place to survive the pandemic. Perhaps these mechanisms can be applied to the South African market?

They offer takeout and delivery
The article points out that restaurant revenues were down almost 27% from expected levels in 2020, and 110,000 restaurants are temporarily or permanently closed, according to the National Restaurant Association.

Diversifying away from sit-down service can thus be a critical survival tactic, as a third of those who made more of an effort to shop at small and locally owned businesses during the pandemic said increased takeout and delivery options motivated that support, according to the NerdWallet survey.

They have fewer people inside
The article points out that small businesses have been a physical refuge for many consumers, according to the NerdWallet data.

More than a quarter of those who’ve made an effort to shop at small businesses (27%) said they increased their support because those establishments were less likely to be crowded.

They have what other stores don’t
The article points out that the NerdWallet data also suggests small businesses that carry items that are frequently unavailable elsewhere can gain leverage against larger competitors, highlighting the impact of good inventory management.

About a quarter of those who increased their support of small businesses throughout the pandemic (23%) said it was because those retailers had the products they wanted when larger retailers were out, according to the survey.

They do more online
The article points out that many consumers are shopping online more, benefiting many small businesses that have pivoted to e-commerce. NerdWallet found that about 1 in 5 Americans who made an effort to shop at small and local businesses (22%) started spending more at establishments that were previously only brick-and-mortar stores once they expanded into online offerings.

Offering more options is a good strategy
Photo By: Bench Accounting via Unsplash

The pandemic has fuelled entrepreneurship
The article points out that pandemic-driven changes in consumer spending habits have boosted prospects for many new entrepreneurs as well. Despite the struggles small businesses have faced during the pandemic, more than 1 in 10 Americans (12%) have started a business since March 2020, according to the NerdWallet survey.

Although there were several motivations behind these entrepreneurial moves, for 1 in 3, the pandemic itself created the opportunity to start a small business. It produced a market for the goods and services those new entrepreneurs wanted to offer, according to the survey.

Often, small business owners need to be in charge of their own accounts. What are some of the tell-tale signs that they are approaching financial distress?

Cash flow
The article points out that cash flow, or the amount of money coming into and going out of your business, is one of the most important indicators of financial performance. Richmond uses the analogy of a business as an amazing Ferrari, and cash flow, the gas. “If you’ve got no gas, the Ferrari is nothing but an ornament sitting in the garage,” he says.

Most bookkeeping and accounting software platforms allow you to automatically generate a cash flow statement. Understanding how much cash you have on hand is the first step, Richmond says.

Then, you can create cash flow predictions and take action from those insights. For example, you can determine whether you need to tighten up expenses to make sure you’re well funded. On the other hand, if you’re experiencing growth and have a cash flow surplus, you can decide the best way to capitalize on that opportunity.

The article adds that profit is the big picture goal for most businesses. The profit and loss statement, which shows your profit (or loss) over a period of time, is one of the most useful reports to have at your disposal.

What percentage of revenue is generated from your top three clients or products? How many employees are needed to run operations?

These are numbers small-business owners need to know, said Marko Mijuskovic, via email. Mijuskovic is a certified exit planner and senior partner at WestPac Wealth Partners, a wealth management firm headquartered in San Diego.

Like the cash flow statement, you can generate a profit and loss statement automatically using accounting software. Then, you can identify opportunities to cut down on unnecessary expenses and prioritize your most successful products and services in order to maximize profit.

Paying attention to accounts payable and receivable is vital
Photo By: Patrick Tomasso via Unsplash

Accounts payable
The article points out that the common saying holds true: You have to spend money to make money. And by actively monitoring your accounts payable — the money you owe to vendors or suppliers for purchases made on credit — you can determine how much cash you’re going to need and when you’re going to need it.

You’ll want to make sure that you have enough cash to keep your business running and pay your vendors on time. Not having enough cash generated from business revenues to meet obligations is one of the top reasons that businesses fail, said Sallie Mullins Thompson, a certified public accountant who works with small-business owners, via email.

Making on time (or even early) payments allows you to maintain a good relationship with your vendors, take advantage of potential payment discounts and build business credit — which is essential if you’re looking for financing in the future.

Accounting software can help streamline your accounts payable at a basic level, but dedicated accounts payable software can automate the process even further.

Accounts receivable
The article asks some simple questions. Which invoices are outstanding? How long does it take for your customers to pay their invoices? How much of your cash is typically tied up in unpaid invoices? These questions all speak to your accounts receivable, the money that customers owe your business for goods or services that have already been delivered.

Tracking your accounts receivable has similar benefits to tracking your accounts payable: By determining how long it takes your customers to pay their invoices — and making sure they pay on time — you can better manage your cash flow and avoid losing out on profit.

Accounts receivable software can streamline this process, as well as provide tools to help improve communication with your customers. These platforms can also aggregate all of your accounts receivable data in one place so you can gather additional insights about your business’s performance.

Understanding your accounts payable and receivable goes a step further than strictly looking at your business on a cash basis. Tracking these movements allows you to think ahead and get a full picture of the business.

Robin Nicholson is a Director at Corporate-911 and is a Senior Business Rescue Practitioner.