If there’s one thing the pandemic has taught small businesses, it’s that they need to create a financial safety net if they are to become more resilient in these tough economic times.
In line with National Savings Month, the South African Savings Institute (SASI), with support from Absa and the IDC, will again focus on financial education throughout July. This year’s theme, ‘Saving in YOUR language’, aims to promote debate around key aspects of saving in indigenous languages.
One important language not to overlook, however, is the language of business. More than ever before, small businesses need to find creative ways to save money and build resilience. Understanding the language of business is a crucial starting point.
Here are some top money-saving tips from South African small business owners:
1. Build a financial buffer
Although this may not count as a cost-saving tip per se, building a buffer is the culmination of effective cost-saving strategies that can future-proof your business from unforeseeable challenges.
Many small businesses have collapsed due to the lack of a savings to see them through tough times. All small business owners agree that if there’s anything they have learnt from the pandemic, it’s that a financial safety net is crucial to business survival.
Tip: Save at least 5% of all revenue. This will allow you to slowly build a cushion, which is much needed in these times.
2. Cut costs with technology
A simple piece of advice but every small business owner we spoke to highly recommends using technology to automate and streamline tasks and processes, which naturally results in cost savings.
According to Kaveer Beharee, founder and CEO of Ubiquity AI, the biggest savings for his business have come from technology and continuous innovation.
“We’re pretty much in a golden age of innovation, so keep your eyes peeled for new solutions to costly expenses. For example, I recently bought a metal business card from a provider called V1CE that uses NFT technology. Basically, you tap your card on anyone’s smartphone, which immediately uploads your contact details. You’ll never have to print another business card again.”
Technology solutions may help with everything from adopting new forms of marketing to streamlining HR solutions using digital platforms.
3. Switch to cloud computing
This is a common and effective cost-cutting route for most small businesses looking for technology solutions.
Cloud computing can help to simplify complex transactions and processes. It has the potential to help businesses increase sales orders, while efficiently managing the related increase in quotes, invoices, and returns. Small business owners also recommend cloud services to host data and to avoid the cost of expensive hardware.
Compared to traditional bookkeeping methods, cloud accounting helps businesses to significantly cut down on accounting and admin fees, as well as anytime mobile access, cost and time-effectiveness, and watertight security.
4. Outsource where possible
Most small business owners agree that outsourcing is one of the best ways to save money.
Keep your full-time staff complement to a minimum and get independent contractors to do the work that your staff cannot, recommends Forbes 30 Under 30 list-maker and co-founder of WealthSpaces, Zareef Minty. “Try to outsource as much as you can; it will lower your employee costs, since insurance, office space, and salaries will decrease.”
Small businesses tend to grossly underestimate the vast discounts generated by economies of scale offered by specialised companies, says Nigel Bhebhe, co-founder and CEO of diesel and petroleum distributor, Global Legacy Distributors. “Instead of buying raw materials to make T-shirts, you can buy them for a steal from huge specialised companies and just add your branding, for example.”
5. Lower office costs
Beharee believes that start-ups generally incur a lot of expenses on brand collateral, expensive office rental, stationery, etc, to impress potential clients. “This is a mistake and the COVID pandemic has forced businesses to carefully rethink their expenses. It’s perfectly acceptable to operate from home and collaborate using online tools,” he says.
6. Constant budget and revenue reviews
“Businesses should continuously review their expenditure to try to find efficient ways to do things. If you can save on costs, you can free up more cash to invest or save.”
This is according to Wandile Tshabe, co-founding director at No. Land Farming, who says businesses should treat their income/revenue like an individual would treat their salary.
“The idea here is to set aside a portion that goes to investments (saving for the future), a portion that goes to savings (for a rainy day), a portion that goes to operational expenses (salaries, etc.), and a portion to enjoy (like staff bonuses).”
7. Monitor working capital
Small businesses often struggle to maintain working capital, says Gcina Ntsonga, CEO at Africanize, an online store for African cuisine. He encourages businesses to be strict when it comes to how customers pay. “Because you’re a small business, try as much as you can to avoid giving extended lines of credit and try to shorten the cycle of debt.”
He adds that businesses need to make sure that their customers pay quickly, send invoices on time, and avoid credit as much as possible.
8. Tax monitoring
Both Tshabe and Ntsonga agree that small businesses need to be more rigorous when it comes to tax.
“Be on top of it. Businesses need to be mindful of expected provisional payments and ensure that they pay tax on time. If the business has complex structures, it would be advisable to get an expert to help them calculate their tax and ensure that their affairs are structured in the most tax-efficient manner to benefit from any tax savings,” Tshabe says.
According to Forbes, one of the most overlooked ways to generate extra savings for a business is to review and amend taxes from the last three financial years.
9. Financial goal setting
All small business owners agree that having a financial goal is an effective way to cut costs. They consider this a great way to plan for the future while creating a financial buffer.
Lonwabo Marele, founder and CEO at digital wealth magazine Successful Journals, says having a financial goal is important especially when you want to pitch to investors. “The first thing [investors] will ask in your business plan will be around the financial sheet. No matter how small or big you are, it is important to have your financial goal set to manage risk, avoid silly mistakes, and to gear you towards profits.”
10. Hire young talent
Almost one in every two young people did not have a job in the first quarter of 2021, with the official youth unemployment rate at a record 46.3%. Hiring young, motivated people is a great cost-saving and resilience-building route as it also helps talented youth to gain experience. According to one study, employers agree that young people are willing to learn (47%), contribute fresh ideas and new approaches (43%) and bring motivation, energy, and optimism to the workforce (42%). Qualified youth also bring up-to-date skills and education into the organisation.
Small businesses are advised to hire smart, inexperienced people. According to American Express, experience isn’t everything, and it costs more. Next time you put up a job ad, eliminate the line that says, “Must have X years’ experience” and replace it with “Graduates welcome to apply”. Interns are generally considered a good place to start.
11. Always negotiate
Last but not least, negotiating with your vendors is crucial during tough economic times.
“When the economy is struggling, entire business ecosystems are affected—not just small businesses. Vendors want to ensure continued cash flow, so they are often willing to negotiate lower prices, interest rates, and supplier terms rather than losing longstanding customers,” says Tshabe.
Have your own small business savings tips? Share them below.
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