Downgrade survival guide: No need to stress, rather plan better
South Africa’s Small & Medium Businesses should brace themselves for further economic volatility following more downgrades of the country’s sovereign credit ratings, says Viresh Harduth, Vice President: New Customer Acquisition (Start-up & Small Business) at Sage Africa & Middle East.
Standard and Poor’s Global has now downgraded South Africa’s local sovereign credit ratings to sub-investment (or junk) grade, following the downgrades for the country’s foreign debt rating earlier in 2017. Fitch kept South Africa’s local and foreign currency ratings below sub-investment grade. The third agency, Moody’s, has placed South Africa’s local currency credit rating on review for downgrade in the next 90 days.
Harduth says the results may include higher interest rates, a weaker exchange rate between the rand and other major currencies, and rising inflation - all meaning businesses and consumers will have less money to spend. With government shouldering higher costs to pay off its debt and already facing a shortfall in tax collection, higher VAT or personal income and company tax rates may loom in the budget speech early next year.
There are several steps you can take to ensure your business survives and even grows when economic conditions are tough, says Harduth. If you have the right mindset, you’ll position your business to really boom when the economy recovers.
Consider diversification or partnerships
If you think profits and revenues in your core business will come under pressure if economic conditions worsen, look at opportunities to diversify. Consider the assets, people and customers you have already - is there some way you could use them to create new revenue streams? Can you move into new markets to earn forex?
Even if your business is currently performing well, it’s not a bad idea to look for ways to reduce wastage and inefficiency. A robust accounting solution can help you better understand your expenses so that you can find ways to cut costs.
Look at the world through your customers’ and employees’ eyes
If you’re feeling the squeeze, your customers and employees will too. How will this affect customer spending? How long can you absorb rising costs (fuel, power, etc.) before you pass them on? How will customers react to a price increase? How are your employees managing as their transport and food costs increase?
Thriving through a downturn
There is no need to stop investing in your business because of blips such as the downgrading of South Africa’s sovereign credit rating. If you’re planning to start a business, have a good business plan and a valuable product or service, there is also no need to delay your launch plans.
General Electric, Disney, Microsoft, Revlon, FedEx and CNN are all examples of world-beating companies that were founded during recessions. They show that innovative and well-managed businesses can thrive through difficult economic times; indeed, they can help spark the next economic boom.