How SMMEs can weather the Covid-19 storm

Thami Moatshe is the Head of Mergers & Acquisitions at Servest

An article, Covid-19 Growth Revisions forecasts that the South African GDP will slow from 0.2% to -1.9% in 2020.

South Africa remains vulnerable to both domestic and international ramifications of Covid-19. Tourism and the mining sector are amongst those that will be hugely impacted. Furthermore, this grim forecast of the future will be felt more acutely by small and medium-sized businesses (SMMEs), many of whom were already buckling under the pressure due to subdued consumer spending and economic growth.

So, what can SMMEs do to offset the effects of this pandemic and the current nationwide lockdown?

There is no magic wand, nor is there a one-size-fits-all solution that applies to all SMMEs. Each business is different, operating in different industries, each with its dynamics.

Having said that, it would be incorrect to say that all SMMEs are facing the same fate. The nationwide lockdown presents an opportunity for SMMEs that are in the production and distribution of essential goods.

In fact, the nationwide lockdown presents unique opportunities for these businesses to ramp up their production and contribute much-needed services to plug the gap of shortages resulting from unprecedented global demand.

With the increased demand for medical supplies and non-food field services, the government has issued a request for proposals (RFPs) targeted at SMMEs to manufacture and supply these services: http://www.dsbd.gov.za.

Unfortunately, businesses in other sectors of the economy such as tourism will be hardest hit. With the travel ban, the tourism industry and the associated food industries are in distress.

As President Cyril Ramaphosa correctly put it: “This situation calls for an extraordinary response; there can be no half measures.” The coronavirus outbreak is the litmus test that will test the sustainability of many enterprises. It is therefore important that SMMEs take decisive steps to failure-proof their businesses to ensure that they offset the impact of Covid-19.

In order to mitigate the impact of the outbreak of Covid-19, SMMEs need to do a difficult and honest assessment of their businesses to ascertain the extent of the impact of this pandemic. In the short term, small and medium businesses should look at strategies that can ensure the survival of their enterprises. They need to identify what they can and cannot do during this time and pinpoint opportunities, if any, presented by this pandemic.

Equally important, they should ask whether this period calls for the business to shut down, and if not, explore what adjustments in terms of profit, people and processes need to be put in place to ensure business continuity.

Entrepreneurs should consider the following critical questions:

• Are there processes that can be automated?
  
• Can the business afford its current staff compliment?
  
• How can the business use the current relief facilities that the government and the private sector have availed for its benefit?
  
• What needs to be changed internally within the business to function better beyond this period?

Entrepreneurs need to scrutinize the cash flows of the business and assess to what extent it will be impacted by the current environment. Small businesses should seek expert advice from business support partners or incubators to assist with their strategic thinking.

A new normal

The pandemic is fundamentally changing the business landscape and ushering in an era of new normality that very few will be able to escape. It will no longer be business as usual. Small and medium-sized businesses are being called upon to re-examine their strategies and business plans. This pandemic presents an opportunity to restructure or expand their businesses for growth. For others, an opportunity to innovate exists as a means of survival.

Pandemics amplify the importance of having a proper business plan that factors in all potential eventualities. It is therefore, important to have a plan that is supported by proper governance structures. Such a blueprint would ensure that challenges such as Covid-19 would have a minimal impact on the business as SMMEs would be taking a long-term view.

Making use of business support partners in the public and private sector will assist SMMEs to solidify their plans and in addition, get the funding they will require.

In the public sector, these include the Small Enterprise Development Agency (SEDA), the Industrial Development Corporation (IDC), National Empowerment Fund (NEF), National Youth Development Agency (NYDA), National Small Business Chamber (NSBC), Land Bank and provincial agencies.

Private sector agencies include Raizcorp, Business Partners, Shanduka Black Umbrellas. This is not an exhaustive list of the support that is available for SMMEs.

More information can be obtained from https://smetoolkit.businesspartners.co.za

Financial institutions such as banks have also provided relief interventions in the form of payment holidays, restructuring of debt, bridging finance and other support mechanisms, as and when needed.

Before tapping into any of these funding mechanisms, business owners must sit and quantify the impact of Covid-19 on their enterprises. Such an exercise would go beyond funding, even if funded the business needs to have a turnaround plan and that plan must indicate when that turnaround would be expected. The business owner should be able to identify areas where they would need support.