In the three months ended October 2020, there was a 33,2% rise in business liquidations, according to Stats SA. The implications are serious: not only do more employees lose their jobs, adding to the already sky-high 2,2 million people who have suffered at the hands of COVID-19, but there is a knock-on effect among those who they support, which in turn affects the economy as fewer consumers have the means with which to purchase goods and services. Add to this that SMEs contributed R2,3 trillion to the 2019 financial year and employ between 50% and 60% of the national workforce, it’s plain to see that liquidations are in no-one’s interest. So says Miguel da Silva, Retail Capital MD.
Here he advises why SMEs must do everything that they can to avoid liquidation, but stresses this requires taking active steps early on to stop the potential closing of the business.
Talk to your creditors and landlords
Negotiate with them to get better payment terms and help them understand that if you lose, they lose. For example, changing your rental payments from fixed to variable based on turnover assists in managing your cash flow through difficult periods while, at the same time, allows increased payments when turnover increases.
Consider selling off or closing down areas of the business that are not profitable
Critically review your products and services to determine if they positively add to your cash flow. Removing low margin or breakeven offerings may lead to overall cost savings and allow for business growth.
Do this by reviewing your business model and increase efficiencies. Examples of savings include downsizing your office space, running your business from home, weighing up suppliers’ offerings and selecting the most cost effective among them. You should also switch your processes from hardcopy to cloud and de-risk your business by considering no-touch transactions (in light of the recent pandemic).
Adapt your business operations
Consider the hospitability sector. It has been significantly impacted by lockdown regulations throughout the pandemic. Some of these businesses have reduced their operating hours; reduced food options on menus to manage stock; reduced wastage; amended which courses they cater for by serving breakfast and lunch instead of dinner and have introduced take-out or pre-prepared meals. In addition, they reduced working hours to single shifts with the aim of reducing the wage bill whilst still keeping staff employed.
Try to diversify online
Consider SMEs that operate in fashion. According to recent research conducted by ovatoyou, 43% of consumers shopped for fashion and shoes through a combination of both online and in-store, compared to 18% who only shopped in-store. This trend is set to continue well into 2021 as consumer habits change. Make sure you’re on top of your customer’s needs and behaviours and try to adapt as required.
Don’t delay in seeking funding support
The biggest challenge businesses are faced with is not having enough liquidity to weather difficult trading periods. Avoid waiting until it’s too late and approach potential financial partners as soon as you sense you may require funding. They will be able to assist or advise you on refinancing your existing debt or how to open up new funding channels to help you navigate through difficult periods.
It’s important to be proactive to ensure you conquer challenging environments. Taking a step in the right direction earlier on, will put you in a better position to weather the storm.
Taking early pains and making the tough choices allows the business to, when the tide does turn, recover lost ground and have better growth trajectories than competitors. Da Silva stresses the need to laser focus on your customer experience, “they need to be your no. 1 priority.” This is echoed by Certified Customer Experience Professional, Julia Ahlfeldt, who says that it costs 5 – 7 times more to acquire a new customer than retain one. SMEs must also make every effort to stay connected to their existing customers who have remained loyal during this difficult time.
“SMEs typically have customer bases of hundreds or thousands, not millions like those of large corporates. This presents an advantage as deeper relationships can be formed and you can engage on a more one-on-one basis. They also make for a fantastic consumer panel: find out what they like or dislike about your offering, as well as what keeps them happy, all while encouraging them to become brand advocates.
You can add value to their experience and can up- or cross-sell when you identify an opportunity to do so. It also pays to take the time to understand the customer journey better, to gain more insight into their experience – and tweak it where necessary,” says Ahlfeldt.
Da Silva adds that SMEs need to partner with their customers as businesses that truly connect with; and fulfil their customers’ needs during these difficult periods, will build long term customer loyalty.