Some 60% of the South African labour force is currently employed by small and medium-sized businesses (SMEs). Contributing 50% of the country’s GDP, South Africa’s SME sector currently comprises some 1,5 million small, micro and medium-sized enterprises, with approximately 140 000 businesses with a turnover of more than R1 million per annum.
Despite these successful drivers, and the impact of SMEs on the growth of the South African economy, there is still an 80% failure rate among start-ups within the first two years of operation. Cash flow and access to finance, complicated regulatory challenges and restrictive labour practices are some of the factors that hamper opportunities for SMEs, and contribute to non-competitiveness.
“In a demanding economy that continues to battle unemployment, it is vital to recognise the contribution of SMEs to our economy, but also the challenges they face,” says Jannie Rossouw, head of Sanlam Business Markets.
Surviving a crisis
Regardless of what the reasons are for businesses going through hardship, turning around a declining business is challenging and complex. “It is not only external factors, but also the attributes, needs and motivation of the entrepreneur that hampers his ability to reach out in the time of a crisis,” Rossouw says.
“Business failure is a demoralising event in anyone’s life because it impacts both your professional and personal self-esteem,” But,” he says, “critical to the survival of your business, is your ability to reach out and get help – from the right source.”
Many owners of struggling businesses are often too proud to acknowledge failure, or are reluctant to invite external scrutiny into a business that has been driven by passion and personal ambition. The good news is that most businesses in distress can be saved if the necessary corrective actions are implemented within a clear and defined business turnaround plan.
“A turnaround plan identifies and corrects your business’ operational and financial challenges,” Rossouw explains. “It formulates the steps you must take to help your business survive in the short term so that you can turn it around and grow it into the future.”
In September this year Sanlam launched the Business Turnaround Book as part of the client value proposition of Cobalt Solutions for Business Owners, Sanlam’s portfolio of financial solutions for business owner.
This Business Turnaround Book has been designed as a workbook that empowers the business owner through a DIY, step-by-step process to accurately identify challenges facing his business, and implementing corrective strategies to help salvage the business.
“It is true that no independent outsider will understand your business better than yourself, but your passion for your business may leave you blind for some glaring, fundamental oversights that may be at the root of the challenge,” Rossouw says. “The processes outlined in the Turnaround book will force you to think through those critical challenges you may never have considered otherwise.”
“Most importantly, it provides useful guidelines on how to manage the stakeholders in a business in time of a crisis – from customers, suppliers, employees, banks, and creditors, to family and friends. Very few business owners realise the importance of the co-operation of these stakeholders, and the essential role they play in the success of your business turnaround,” Rossouw says.
Rossouw explains the rationale for the development of this workbook. “Most small business owners facing a business crisis are caught in a classic Catch-22 situation,” he says. “On the one hand, they require specialised business turnaround expertise to save their business. On the other hand, their financial crisis prohibits them from hiring the turnaround specialists who offer the expertise.”
He says this typically leaves the owner with one of three choices: walk away at great personal financial ruin; hope for someone to bail the business out of trouble, or simply battle on.
“Most battle on, often trying to work their way out of the crisis using the exact same strategies which led to the business’ failure in the first place. They change little or nothing about the business, hoping it will work this time – and it rarely does.
“Worse, far too many small business owners think that a cash injection is all that is needed to save any business. They plough the last of their life’s savings into the ailing business, and end up losing everything, the business included.
Rossouw says, given the challenges facing the SME market, and the current start-up failure rate in South Africa, a critical element of any business plan should be a turnaround solution. “It is important to remember that all is not lost when a business goes through a phase of hardship,” he says. “All too often business owners give up the fight too early due to the lack of turnaround know-how – the Sanlam Business Turnaround Book will empower you with both the knowledge and the courage to help steer your business back onto the growth path,” Rossouw concluded.
The Sanlam Business Turnaround Book is available to all business owners free of charge, and can be downloaded here. Please contact Sanlam at 0860100 539 for further information regarding the Business Turnaround Book.