How SMEs can mitigate rising operating costs

There is no doubt that the current operating environment for SMEs is among the most challenging experienced in decades. Covid-19 cut plenty of SMEs off at the knees, with many having to either close shop or reinvent themselves to adapt to the pandemic’s restrictions. What we are seeing now is a daily struggle to literally keep the lights on.  

Operating realities  

The “eish” of Eskom is far-reaching and, due to load-shedding, plenty of SMEs simply cannot operate for many hours at a time. Power cuts are affecting everything from production to food spoilage, from telecommunications failures to safety and security. Fortunately, SMEs can continue to make use of the bounce-back scheme — introduced during Covid-19 — to purchase alternative power solutions such as generators, inverters and solar systems. 

The extraordinary fuel price ebbs and flows the country has experienced in recent months have also taken their toll. Peaking at about R25/litre (August 2022), the petrol price has been disastrous for those businesses which rely on transport to move their goods. 

In addition, the Reserve Bank’s decision on January 23 to increase the repo rate by a further 25 basis points — after an upward cycle of rate hikes — continues to add to SMEs’ woes, as accessing funding or paying off debt becomes even more expensive.  

What can be done?  

Plenty, says Cheslyn Jacobs, chief commercial officer at TymeBank, which in August 2022 announced its expanded business banking offering. Here, he sets out a few key recommendations.  

Understand income and expenses  

First, every SME — even if you’re just a one-man-band operation — must have a clear forecast of money in and money out. Expenses cannot exceed costs, and SMEs ideally want to make a profit too.  

Consider everything that needs to be paid for — wages, power, premises, vehicles, sundries for the office, data, and so on — and then offset this against your total income for the month. Of course, not every month’s turnover is the same, so it’s key to keep costs as low as possible to avoid getting into expensive debt.  

Have an exclusive business bank account  

Many SMEs, especially those which have just started their business, use their personal bank accounts to receive income and pay expenses. This is not advised. Not only can a financier not see which transactions are personal and which aren’t, affecting your ability to secure funding when the time comes, it will also cause you pain if you have staff to pay or become VAT-registered.  

Your accountants will also have a hard time establishing which costs are personal and which are business costs. It is thus essential to open a business-specific account from the day your venture opens to ensure that your personal and business transactions remain separate.  

Offer only the best  

There is also that one thing that will never go out of fashion: good service. SMEs that focus on providing an excellent customer experience, from receiving a phone call or email, to delivering on time, to providing an impeccable product, will go a long way in securing repeat business or referrals.  

“The current operating environment is really challenging for SMEs, and it is unlikely to improve any time soon. SMEs need to go back to basics, treat their customers well, use all the digital opportunities available to them, and keep their overheads as low as possible. It’s not easy, but it can be done with the right attitude, behaviour and partners,” says Jacobs. 

• Jacobs is chief commercial officer at TymeBank.

This article was paid for by TymeBank.