OPINION: How SMEs can boost profitability in tough times
JOHANNESBURG - It is becoming increasingly difficult for entrepreneurs to maintain or increase profitability levels as the South African economy underperforms and consumer confidence dips to its lowest level all year. However, with a proactive, entrepreneurial approach, business owners can use the tough periods to streamline their businesses and reach new levels of efficiency.
Sometimes a major change of direction is called for, but more often than not, the trick is to make small improvements to various aspects of the business. Together, the following eight tweaks can add up to boost your profitability.
Drive down your production costs
Consider which processes in your operations can be streamlined or automated. Study every aspect of your cost of sales to eliminate inefficiencies and do so continuously.
Look for alternative suppliers
While there is a lot to be said for building steady business relationships, “loyalty” to one or two key suppliers can often be the result of habit. Shop around even if it is just to gather information that can help you negotiate better deals with your existing suppliers.
Reconsider your labour costs
Usually the surest way to bring down your overheads is to evaluate your salaries and wages, however, this should never be done outside the ambit of the law, nor without due consideration of other available cost saving options.
Squeeze your working capital cycle
The idea here is to get your clients to pay you as soon as possible and to negotiate reasonable payment terms with your suppliers. This will increase the supply of cash in your business and boost your profitability. It may require careful negotiations, but it may also be as simple as asking suppliers for the first time and offering clients an early-settlement discount.
Don’t stop marketing
Often the first thing business owners do when they hit hard times is to cut marketing spend. It is good to try to cut inefficiencies out of your marketing efforts, but resist the temptation to stop marketing until things get better.
Harness the latest technology
Keep a constant eye on the latest technological advances, any number of which can help you to increase your efficiencies and effectiveness and, ultimately, your profitability. These technologies can assist in how you produce goods and services to how you engage with your customers.
Don’t stop innovating
Businesses that stay the same are the ones that succumb during recessions. Innovation does not only apply to coming up with new or improved products, but also to the design of better processes and systems within a business.
Plan carefully and stick to your budgets
Many of these ideas entail a certain amount of spending before they pay for themselves, which is difficult in tough times. The only way to overcome this problem is to work according to strict plans and budgets, which are important in the best of times, and even more important during an economic downturn.
Ben Bierman is the managing director at Business Partners