DINEO TSAMELA: When to save and how to spend as you keep your new small business afloat
A few tips to help you avoid big costs that could burn a hole in your budget
For the owners of small businesses, surviving the first few years is hard. According to Bloomberg, eight out of 10 small businesses fail in the first 18 months. And with South Africa's economy in the state it is, it is increasingly difficult for the remaining 20% of those who make it past the first 18 months to stay in business.
Cost-cutting and cash-flow management are the two elements that will help you stay afloat.
We have a few tips to help you avoid big costs that could burn a hole in your budget:
Find an office sharing space
Image is important, but people are starting to appreciate that new small businesses are unlikely to have the capital to set up in a swanky Sandton office. You can visit sites such as flexibleworkplace.co.za or theofficehub.co.za to find office space to share.
Take advantage of discounts
If you work with inventory, always try to take advantage of as many supplier discounts as you can. Making cash payments, or settling items bought on credit early, can save you a lot of money. The caveat here is that rushing to pay all your suppliers at once could have a big impact on your cash flow. When taking advantage of discounts offered, be mindful of the rate at which you're selling your stock.
It's also pointless taking advantage of bulk discounts if you're not going to sell the stock. You must make sure the discount makes business sense and won't leave you with excess stock that you can't move.
Manage your own marketing
When you're trying to get started, you probably won't be able to go big on marketing and advertising. Social media is the new word of mouth, and you should take advantage of it.
Set up Twitter and Facebook accounts and use these channels to push your work out there. Be active, educate consumers about your product and ask people to boost you.
You can also use website builders such as Squarespace and WordPress to get online: there are templates you can tailor to your company's needs at a fraction of the fee you'd have to pay a web designer.
Use free or cheap software
Accounting packages such as QuickBooks can help you make sense of your business's finances without you having to pay big amounts to accountants. Although it's advisable to have an accountant to assist with tax matters, you should try to manage your own book-keeping if you run a one-man show.
Outsource noncore functions
If you have noncore business tasks that need to be completed that you have neither the time nor the expertise to handle, you should outsource them. These could be small, nonroutine elements that you don't need a full-time employee for. Outsourcing also saves you time because you don't have to go through a rigorous interview process.
Use credit wisely
Credit for business can be an amazing enabler and cash-flow regulator. But you need to be smart about how you use it. For instance, is it a good idea to take out a five-year loan to cover monthly shortfalls? Not at all. You're paying a lot more interest on a long-term debt that you're using to cover short-term problems.
It doesn't make sense to take out a R1-million loan that you'll pay back over five years because you've realised that every month you hit a dry patch and need R20 000 or R50 000 to pay suppliers.
Use your overdraft facility instead, because the interest you'll be charged is much lower.
• Tsamela is the founder of piggiebanker.com. You can follow her on Twitter @DineoTsamela