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SMEs Company news South Africa

Efficiency is the key to surviving tough economic times as a small business – here’s what to consider

Small businesses have been put through the wringer in recent years. Sluggish GDP growth, fiscal constraints and rising costs coupled with load shedding have placed many small and medium enterprises (SMEs) under immense strain. Still, in the true spirit of resilience – a trait with which the SME community has become synonymous – many businesses have found inventive ways to weather the storm. Survival strategies vary, but the solution to sustaining a business in times of economic volatility lies in maximising efficiency.
Veroshen Naidoo
Veroshen Naidoo

This is the opinion of Veroshen Naidoo, regional investment manager at SME financier firm, Business Partners Limited. “Efficiency in business can be loosely defined as the optimal composition of labour, capital, time and materials (inputs) to achieve the highest level of output (products and services) – it is all about getting same or higher output without more time and money being expended.

In tough economic times, time and money are two commodities that business owners have very little of. The challenge is therefore for SMEs to find ways to reduce waste, make the most of any available resources and boost the business functions that produce the highest return on investment. Even the most well-run businesses can make improvements,” he says.

Naidoo recommends that SMEs look into these three business areas when evaluating which changes can be made to make your operations more efficient:

Be smart about spending

As a business evolves and grows, it begins to incur certain expenses that may not have been part of its financial outflows during its first few years. Some of these expenses could include subscription costs on software packages and tools, upgraded machinery and equipment, marketing costs, additional professional services such as consultants and legal advisers, and licensing fees. While some of these costs may be imperative to sustaining a business, runaway expenses can begin to add up when they’re not closely monitored.

As Naidoo advises: “Cutting unnecessary costs is one of the most essential parts of effective cashflow management. If left unchecked, these hidden costs are like leaks in your ship that cause revenue to slip away unnoticed. Becoming more efficient means plugging these leaks by cutting costs – even if just as a temporary measure, until stability returns.

Now is the time to close unused subscriptions and memberships, review your bank charges, cut back on non-essential travel, reevaluate your office supply budget and go paperless to reduce spending on printing and paper usage.”

Unlock your team’s potential

Another key focus area is staffing. In challenging economic times, SME staff members are often pushed to their limits and called upon to go above and beyond to make sure that the business keeps running. While asking staff to increase their efforts may be essential in surviving in the short term, it can take its toll on the team. In the long run, this could lead to greater levels of absenteeism, low staff morale, reduced productivity and increased human error.

Ultimately, these factors will cut into your profitability over time and decrease how efficiently your business is making use of valuable human capital. The answer is not to cut jobs or wages in a panic. More effective measures could be to implement flexible scheduling – to meet employee needs while ensuring that the business keeps running during peak periods.

“SMEs could also look into upskilling programmes that train employees on how to handle multiple tasks or roles within the business. Research available government-sponsored training programmes that can benefit your business and employees. Cross-training enhances flexibility, reduces reliance on specific individuals, and enables smoother workflow transitions during periods of high demand or staff shortages. This has the added benefit of helping employees to grow within their roles and advance their careers,” says.

Optimise your processes

In tough times, it’s also useful to evaluate the efficiency of processes. For example, inefficiencies in the way that inventory is managed and stored could cause wasted space in a warehouse. Likewise, if the SME’s raw material ordering system is not optimised, it could lead to materials expiring.

To guard against these types of inefficiencies, SMEs need to review their processes from end-to-end, to reduce waste and make sure that the protocols that are in place account for everything the business needs in the most efficient way possible.

You could start by documenting existing processes to gain a clear understanding of how tasks are currently being performed. Use flowcharts or diagrams to visualise workflows and identify potential areas for improvement. “Working with an expert business advisor or turnaround specialist from programmes such as our Technical Assistance programme can also help identify areas of improvement in your business,” says Naidoo.

The review could also include identifying bottlenecks where work is slowed down or resources are underutilised. These bottlenecks often represent opportunities for streamlining or automation.

As Naidoo concludes: “in the process of making your SME more efficient, remember never to compromise on quality. When budgets are tight, it may be tempting to switch to lower quality raw materials or spend less time on after-sales service. However, quality may be the key to differentiating your business in the marketplace and making sure you can continue to offer your customers value when cost pressures are high.”

Business Partners Limited
We're Business Partners Limited, one of the leading business financiers for viable small and medium enterprises (SMEs) in the world. We provide business finance ranging from R500 000 to R50 million to established entrepreneurs with a viable formal business. The finance we provide can be used for expansion, working capital, asset finance, takeovers, commercial property, revamps, management buy-outs or to buy a franchise.
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