How SMEs can navigate cost pressures and growth opportunities in 2026

As 2025 draws to a close, South African Small and Medium-sized Enterprises (SMEs) are finding themselves at a pivotal juncture.

While many have been entrenched in crisis management over the past years, moving towards strategic planning is essential to navigating an increasingly complex economic landscape.

With escalating operational costs and unpredictable logistical scenarios looming on the horizon, the time for SMEs to act is now.

Lula, a prominent SME service provider, highlights the urgent need for proactive adjustments to both financial and operational strategies.

Garth Rossiter, Chief Risk Officer at Lula, articulates the core challenges faced by businesses: "The lack of predictability in key input costs, along with external factors that directly impact cash flow and access to financing, continues to threaten the viability of many SMEs."

Key cost pressures and mitigating strategies

One of the most pressing issues for SMEs is the energy crisis, which Rossiter describes as an "energy imperative."

With Eskom’s scheduled electricity tariff hikes—forecasted at 5.36% for 2026/27—businesses must grapple with a crucial reality: reliable energy sources are no longer a luxury but a necessity.

Rossiter advises SMEs to seize the current opportunity created by a temporary lull in severe load shedding.

The market surplus has driven costs down for crucial setup investments like solar panels or inverters.

"This strategic investment not only stabilises electricity costs but also offers the peace of mind that comes with energy certainty," he explains. Alternatively, businesses may consider adjusting their operational cost models, by factoring energy costs directly into pricing strategies to safeguard profit margins.

Moreover, the unpredictability of supply chains, exacerbated by congestion at key ports like Durban and Cape Town, calls for a paradigm shift in inventory management from a 'Just-In-Time' to a 'Just-In-Case' approach.

This necessitates maintaining a buffer of high-demand stock that can prevent lost sales, which Rossiter describes as the "real opportunity cost." He suggests that businesses explore local sourcing options and negotiate payment terms to better manage cash flow.

The true cost of credit quality

Another significant challenge facing SMEs is managing creditworthiness.

A poor credit score can lead to elevated interest rates, creating a cycle of financial strain. Rossiter notes, "The direct cost of a poor credit score is a much higher interest rate, which businesses operating on low net margins cannot afford."

This restriction can hinder crucial funding for stock purchases or seasonal expansions.

He encourages SMEs to proactively monitor and improve their credit profiles, as securing affordable capital will be paramount for growth in 2026.

Building resilience for 2026

As businesses prepare for the year ahead, Rossiter outlines three foundational strategies:

• Proactively manage costs: Identify and mitigate costs jeopardising profitability, particularly related to energy and supply chain stability.
• Prioritise capital investment: Secure essential supplies preemptively, ensuring that businesses are shielded from anticipated pricing shifts.
• Accelerate cash conversion cycles: Emphasise fast payment collection using digital invoicing solutions, which can drastically improve cash flow.

Additionally, Rossiter encourages SMEs to view their credit scores as a fundamental financial asset.

"Treat your credit rating as a profit protector and engage in strategic borrowing to yield measurable growth," he advises. Such holistic approaches not only safeguard existing revenues but actively cultivate future opportunities.

In summary, as South African SMEs gear up for the uncertainties of 2026, those that take proactive measures to navigate operational challenges will be well-equipped to safeguard their growth and profitability. The transition from a reactive to a strategic mindset could very well define success in the turbulent waters ahead.

BUSINESS REPORT