Your cashflows need attention now more than ever

SMMEs in South Africa are viewed as one of the most promising avenues or economic development and poverty alleviation. Through the growth of quality jobs and the provision of goods and services locally, SMMEs help lift families and communities out of poverty and create larger-scale socioeconomic prosperity.

In South Africa there are ~2.5 million SMMEs that employ ~10 million people across multiple industries. However, given the environment in which they operate, they face a host of barriers to scaling and sustaining growth. This is further compounded by the COVID-19 lockdown restrictions that have placed additional pressure on SMMES.
While things are returning to normal— through the lifting of restrictions— the negative impact will be felt in the long run given the contraction in consumer and business spend.

In the immediate term, maximising and preserving cash will be the name of the game.

This will require SMMEs taking a proactive approach to their cash management by adopting four overarching principles:

1. Develop robust frameworks for managing supply chain risk

Ensure that you understand the financial risks of your key trading partners, customers, and suppliers. This is critical to understanding how your operations are likely to be impacted and will thus assist in the development of mitigation strategies.

2. Ensure financing remains viable

Don’t assume the financing options will continue to be available. Undertake scenario planning to better understand current and future cash needs. Actively engage financing partners to ensure existing lines of credit remain available and explore new or additional options.

3. Focus on the cash-to-cash conversion cycle

Under normal business conditions, SMMEs primarily focus on the profits and losses— growing the top line while managing expenses. There is now a need to shift focus to the balance sheet, in particular— management of payables/suppliers, receivables/customers, and inventory can help free up additional cashflows.

4. Revisit variable costs

Reducing variable costs is often a quicker way to immediately reduce cash outflows than focusing on fixed costs.

As the impact of COVID-19 continues to be felt and we return to normality, the term cash is king will be more critical to SMMEs now more than ever. As an SMME owner it is key that proactive steps are taken to maximise cash. Let us, at Onyx Consulting, be your thought partner as your business takes a step into the new normal.