South African small and medium-sized enterprises (SMEs) are struggling with cash flow, with 72% resorting to personal funds to stay afloat. FIle picture: Pixabay
South African small and medium-sized enterprises (SMEs) are struggling with cash flow, with 72% resorting to personal funds to stay afloat, according to the latest South African SME Tech Index released yesterday.
Reabetswe Motsamai, the marketing and communications manager at MakwaIT Technologies, yesterday said that these businesses were already battling existing financial burdens.
Mostamai said they were now facing a perfect storm with fuel and electricity costs skyrocketing, interest rates being at a record high, and the exchange rate remaining volatile.
“These forces combine to make effective cash-flow management a matter of survival for SMEs. In this challenging environment, taking control of their finances is critical for these businesses to stay afloat,” Motsamai advised.
According to the index, 56% of SMEs were spending more than 5% of their budgets on information and communications technology (ICT), and around 28% splurging over 10%.
Emphasising the importance of how SMEs need to prioritise cost-saving measures, she explained that doing so enabled these businesses to not only prepare for expected expenses like rent and payroll, but also unexpected ones like sudden equipment failure or a cyberattack.
“A healthy savings buffer can also help SMEs weather disruptions caused by the potential return of load shedding, strikes, and economic volatility – all factors that can significantly disrupt cash flow. But most importantly, it empowers SMEs to invest in their future growth.”
Spencer Chen, Rectron CEO, said South Africans might believe load shedding was over but the abuse of the electricity network, coupled with the demands of economic growth, driven by power-intensive digital systems would continue to place energy security at risk.
Chen said while load shedding was officially suspended, power utilities would implement targeted load reduction in areas with excessive illegal connections, proactive load limiting on individual properties that needed to cap their usage, and load curtailment of businesses who voluntarily agreed to reduce demand during certain peak periods.
He said in the absence of new power station construction currently under way, South Africa’s power infrastructure would continue to be placed under severe strain, with overloaded transformers regularly exploding due to unstable illegal connections across Limpopo, Western Cape, Eastern Cape, Gauteng, Mpumalanga, KwaZulu-Natal and North West.
“To keep the lights on, and the economy growing, businesses and homes will need to continue to invest in alternative power solutions for their expanding needs and limited finances,” Chen said.
With 56% of SMEs spending more than 5% of their budgets on information and communications technology (ICT), and around 28% splurging over 10%, Motsamai identified this area as a prime opportunity for cost-cutting.
“There’s no need to eliminate ICT expenditure entirely, but rather, SMEs can be smarter about how they allocate these resources. These high ICT expenses can strain already limited cash flow. Often, a substantial portion of this spending might be due to inefficient allocation or outdated technology, leading to limited return on investment.”
Motsamai said managed IT services could help SMEs mitigate other expenses for SMEs, adding that managed IT services can lead to improved business outcomes.
“For example, with business owners able to offload their technical burdens, they can dedicate more time to strategic activities that drive growth and profitability such as product development, customer service, and marketing,” she said.
“In a climate of rising costs, SMEs need to take control of their spending. Doing so can mean the difference between simply surviving and thriving,” Motsamai said.
BUSINESS REPORT