SME's battle recession

The vast majority (86%) of small and medium enterprises (SMEs) claim the recession has affected their business.

This is according to SME survey 2009, now in its sixth year, which questioned 2 500 SME business decision-makers from companies comprising one to 200 staff members.

The SME survey is sponsored by Standard Bank, Umsobomvu Youth Fund (now operating as the National Youth Development Agency) and Fujitsu.

The aim of the survey was to assess the challenges posed to SMEs by the recession, from cash-flow to financing to profitability.

World Wide Worx MD and principal researcher, Arthur Goldstuck, explains that the survey asked respondents to rate the importance of strategies they were adopting to get through the downturn. “Based on the responses, we have a very clear picture of what SMEs are doing to keep the wolf from the door in trying times.”

Goldstuck says despite the impact of the recession, SMEs remain resilient in tough times. Topping the list of SME concerns is maintaining good cash flow, sound business administration, and financial systems. According to the survey, 93% of SMEs rated these factors as key in supporting their survival.

“Cash flow is hardly surprising; it is and always has been at the heart of business viability,” says Goldstuck. “A little more surprising is the prominence given to systems. This tells us that business owners know it is vital to have a finger on the pulse of the business. Managing cash flow goes hand-in-hand with such systems.”

Some 83% of SMEs deem cutting costs important, which Goldstuck notes was a lower percentage than expected. He adds, however, that last year SMEs suffered a perfect storm of challenges including power cuts, high fuel prices and interest rates. “Those factors mean most SMEs have already cut overheads to the bone and are operating on a lean basis, in terms of which further cost cutting may result in loss of value creation.”

Goldstuck says the inadequate government efforts to support small business is indicated by the mere 41% of respondents who felt government support is a factor in getting through the downturn. He notes: “Those who have used government support rate it highly. For all others, it is irrelevant.”

The good news, Goldstuck stresses, is that SMEs should go back to business basics. “There is no mystery, no elixir in this blueprint. Just sound business sense.”

While 45% of SMEs expect to receive a business boost from the 2010 Fifa Soccer World Cup, 55% say there will be no impact.

The survey found that technology is ranked near the bottom of importance in recession survival, at 76%. In addition, survey results show 73% of SMEs have an ADSL connection, wireless (8%), dial-up (4%), and satellite (1%). Some 10% of SMEs don't have any Internet connection while 38% use a 3G card as a back-up to ADSL.

Louis van Ravesteyn, head of SMEs at Standard Bank, says smaller companies are holding their own in the economic downturn, with a healthy 28% reporting they are strongly profitable, 39% reporting they are trading in the black, 24% breaking even and 5% indicating they were unprofitable.

According to Ravesteyn, SMEs tend to react faster to market changes than larger companies. SMEs claim they are confident in the areas of advertising (41%), communications (46%), IT software and services (42%) and wholesale (44%).