“The short-term global economic outlook is negative. Things are going to become darker before they become lighter.” While these words from American economist Nouriel Roubini are not ones we’d hope to start 2012 off on, they are well backed by evidence of insufficient recovery from the last recession, growing debt and worldwide confidence crises.

And as a global player, South Africa, and indeed local SMEs, cannot expect to avoid the effects of this world condition. “While the last recession affected South African small businesses far less severely than it did their global counterparts, many ventures were forced to close down or move to survival mode,” says Gerrie van Biljon, Executive Director for Business Investments at Business Partners. He goes on to say that today’s economy is so integrated that no industry is safe, although certain sectors will feel the brunt more than others. “Businesses offering products and services in the category of discretionary spend will always be more vulnerable, as consumers are forced to cut their level of luxury spend. Tourism is an example of such an industry.”

On a positive note are the comments from Cees Bruggemans, Chief Economist at FNB, in light of the 15 November release of the FNB/BER consumer confidence index for the fourth quarter of 2011, who says that consumers are somewhat less exuberant than a year ago, but still show high levels of confidence. “This latest survey suggests that for some consumers, perhaps fearing the worst around mid-2011, the worst did not in fact happen, restoring some strength to the positive convictions still driving consumer spending onward.”

Factors affecting SMEs

Purely economic factors, aside, Dr Mike Herrington, Director of the UCT Centre for Innovation and Entrepreneurship at the UCT Graduate School of Business points to some overarching factors that he believes will affect South African entrepreneurs in 2012. The first is political instability. “Strikes and talk of nationalisation are just two areas that are creating a lot of uncertainty amongst overseas investors,” says Herrington. “I don’t think there is going to be a lot of capital coming in and businesses are not re-investing in the way that they would normally invest.”

A second area for concern that he sees are the onerous labour laws. “There is a direct correlation between the level of entrepreneurial activity in a country and the labour law practices. The statistics show that if it’s easier to hire and fire people, it’s easier to start businesses.” Herrington acknowledges that these laws have been brought into effect to protect employees’ rights and as such there is no current solution; but it is something to
bear in mind.

The third factor that entrepreneurs need to take into consideration is the lack of availability of finance. “Let me quantify that, there is a lot of funding that is supposed to be available from government,” says Herrington: “But if you speak to people who have actually had any joy, the figures are infinitesimal.”

Finding finance

And it doesn’t look like 2012 will ring in any changes on the funding landscape either. “Unless organisations like the National Youth Development Agency stop allocating 45% of their budget on salaries, entrepreneurs can’t look to government for help,” says Herrington. And the banks? “The banks are trying, but they’re restricted. And they do asset-based lending so are never the best option for start-ups.”

Herrington says that business owners will more than likely look to private organisations that support entrepreneurs in all areas of their start-up, including finance. “Or microfinanciers, though they are not cheap. Or angel investors, though they expect good returns too and are few and far between.”

Against this somewhat gloomy backdrop, Van Biljon is confident that business opportunities still abound. “With the right frame of mind, a positive attitude and an eye for business, there are gaps to be spotted.”

Herrington still sees tourism as a major opportunity. “And anything to do with sustainability. We know that we need to build a lot of houses, and these houses need to use less electricity and reflect green principles; so there is a lot of money to be made by people supplying good, solid materials for this industry.” He recalls a recent comment made by a visiting British businessman: “There are amazing opportunities in South Africa – from agro-processing to hydroponics to IT; there are just so many gaps.”

And of course, Africa represents great prospects too. Maria Ramos, Group CEO of Absa Group Ltd, shared her view at the 2011 Discovery Invest Leadership Summit that Africa (together with Asia) has the potential to become the epicentre of the global economy. “The challenges now faced by developed economies also present a unique opportunity to close the gap between them and developing economies,” she said.

Quoting Harvard economist Dani Rodrik, she said that rapid growth in the developing world is the only thing that could propel the world economy forward and generate increasing demand for rich-country goods and services; it’s the only silver lining in an otherwise dreary future. “The questions we must now ask ourselves are the following: What are the drivers of unprecedented growth in Africa and Asia? And perhaps, more importantly, what must Africa and Asia do, immediately, to capitalise on this historic opportunity to converge on developed economies?”

These are questions that South African business owners need to be asking too, bearing in mind the advantage of proximity to the rest of the continent that they have playing in their favour.

Herrington’s advice for entrepreneurs looking to start up in 2012 is therefore to look for these huge opportunities and to go after them. “But look for something that has not been done, and that is different to what has been done. Because if you start another me-too business, you won’t succeed.”

If the advice of the experts is anything to go by, 2012 won’t be easy. But being a business owner is never about having it easy, and perhaps it is in difficult circumstances that entrepreneurs thrive most. We wish you all the best for a challenging, flourishing year ahead.   YB

When Steve Jobs died earlier this year, the world went into mourning for the loss of one of the greatest technological innovators of our time. While there is no doubt about Jobs’ technical prowess, perhaps one of his greatest achievements was his business savvy in re-invigorating the Apple brand.

Jobs re-joined Apple as CEO in 1997, when the company was struggling to gain share against Microsoft in the personal computer category. His first act was to design the iMac, a sleek, powerful machine that became an instant hit and helped to lift Apple back to its winning ways. Shortly thereafter came the iPod, the iPhone and the iPad, each of which re-invented industries and created new categories that hadn’t before existed.

What changed that made Apple go from a company that simply responded to market shifts to one that drove these shifts, forcing competitors to constantly play catch up? And, using this story as inspiration, is it time to realise that your business could do with some re-invigoration, and what do you need to do to make this happen?

Feeling the itch

For Angela Barter, who owns PR company @Communications, it was the recession that made her rethink her business and personal plans as her agency reached the ten year milestone. “It had become more challenging to find new business. We realised that the PR pie was getting smaller and, in order to survive we had to do something different – we had to offer clients a service that would add real value to their business in a changing corporate world,” she says.

Anton Leal says that “the seven-year business itch” made itself felt in his telecommunications company XLink in several ways – he noticed that an element of complacency had set in on the new business sales front, that some processes had become stale and sluggish over time and that key operating expenses were being ignored, which had previously been kept under tight control in the early start-up days. He realised that the business structure needed to change to accommodate the fact that it was no longer a start-up, and this would affect everything from recruitment to company culture.

Weighing the risk

Realising the need for change is one thing. Implementing it is quite another. “Change is not easy and is very risky,” comments Warren Moss, CEO of digital email advertising company Demographica. Moss did a total re-brand of his company, which included a new name, look-and-feel and culture in order to reflect their more focused approach and desire to be seen as the creative, innovative team that they are. He feels that the difference between the business owner who realises that his business is stagnating, yet continues in the same fashion, and the one who makes the realisation and decides to take drastic action comes down to perspective, coupled with risk.

“External perspective helps you make those calls. And if the call is to make a change, your appetite for risk comes into play.” Looking back, Moss says that the re-invigoration of the company look-and-feel was one of the most significant strategic decisions that they took. “We genuinely haven’t looked back since.”

Some business owners may realise that re-invigoration is needed, and be prepared to take it on, but be unsure of where or how change should happen. A conversation with Barter’s financial consultant was instrumental in opening up a new way of looking at her situation, and she says it was the catalyst she needed to take some time out to think about all the “business learnings” she had gained from teachers, past coaches, business strategists and consultants.

“I compiled a massive diagram of where my business was at the time, and then listed some options available to revive my company, such as online PR, media events, a possible new event division and consulting,” she explains. She said he was also helpful in advising her against rash decisions, and encouraging her to take stock of what had been built up over the decade and how this solid foundation could be built on.

Taking steps

Inspiration came unexpectedly, as it often does. Barter had a developing interest in sustainability and, after being invited to be a guest speaker on the topic of “green PR”, was overwhelmed by the positive response. After months of research and networking with key players in the industry, she launched a dedicated green PR division, the first division of its kind for a classic PR company in South Africa.

To Leal, it was obvious what needed to happen; a “gut feel”. On the sales front, they restructured all their sales efforts into one team as opposed to individual teams. This has led to better synergy and shown itself in improved sales. To eliminate cost inefficiencies, each area in the business was segmented and costs were identified and changes made where necessary. Leal had 10 people reporting in to him, which was unacceptable, especially as the employee headcount was growing. He structured the business into four key areas, with an executive heading up each division, and clear lines of accountability.

Leal realises that they need to work hard to maintain the company culture of enthusiasm, which happened naturally when the organisation was small but now needs to be facilitated through monthly catch-ups with teams, regular updates and “walkabouts” through the office.

Reaping the rewards

For Moss, the energy and excitement that re-invigoration created well exceeded expectations – in terms of business performance the company grew over 80% in the first year. They trebled their staff compliment and employees felt a renewed sense of pride, with Demographica becoming a sought-after place to work. Personally, he found the re-invigoration critical. “I’d just come out of a difficult six months and this gave us the opportunity to start afresh; and gave me renewed energy.”

While Barter is still growing their “green clientele”, she says that the response to date has been phenomenal, with clients realising the need to enlist experts who understand sustainability issues and can effectively promote their green efforts. “After ten years I feel as revived, energetic, passionate and creative as when I started my business. This passion is contagious and my whole team is as excited as I am about being at the forefront of growing green PR in South Africa,” she says.

Setting the wheels in motion

If these stories have motivated you to start thinking about change, Moss’s advice is to start speaking to business owners who have made similar moves, so that you can learn through their experiences and find out what they did right and what they did wrong. Leal recommends some external assistance, whether it be a coach to help you take stock of where you’re at, an industry expert who can fill you in on market trends or a consultant who will help define your action plans and drive the process forward. “You’ll need to agree to a vision of where you’d like the see the business in five/ten years’ time, and then work out how you’re going to get there,” he says.

Barter agrees that planning and research is necessary, but there also comes a point where you need to take a calculated leap of faith. “I spent months tweaking my game plan and all that remained to be done was to go for it. A friend finally provided the push I needed by highlighting the risk that someone else would take the gap if I waited much longer,” she says. “So when you have an idea, research it, develop a basic framework, and take the plunge. There is no other way to turn your vision into a reality.”

Re-invigorating your business may be a case of taking drastic steps, as illustrated in the scenarios above. It may be a once-off change that propels your company into a flourishing state, or a commitment to continuous innovation that changes your fortunes forever, as in the case of Apple. Or it may just be a small tweak here and there, an adjustment that gives staff an injection of motivation, or something that renews your own enthusiasm for what you do every day. Whatever the changes are, the important realisation is that your business is a living, breathing, changing thing that needs the right amount of oxygen to sustain it successfully into the future.  YB

While the Consumer Protection Act guards the rights of franchisees more than has historically ever been the case, there can be no better protection than arming oneself with knowledge ahead of making a franchise purchase. Buying a business can be just as emotional a decision

as buying a house or car, so be sure not  to gloss over the finer details of the agreement by placing greater emphasis on the anticipated outcomes – such as the desire to build a successful venture or enjoy a better lifestyle.

It only stands to reason that the more you know about franchising, and about the particular franchise you are considering investing in, the more effective due diligence you can undertake; and the fewer surprises you can expect down the line. Here are the various elements to consider, along with some pertinent questions to find the answers to…

THE POTENTIAL FRANCHISEE

If you haven’t owned your own business or franchise before, start off with some self-evaluation in terms of your experience, skills, personality and working style. Ask yourself:

• Are you ready to be an entrepreneur: more work, longer hours, more risk, more responsibility?
• Successful franchises tend to be owner-run. Are you willing to be hands-on in your business?
• What is your industry background and experience? A franchise provides a proven business model, which works well for those who prefer less risk and less independence. Does this suit you?
• Are you passionate about the sector that the franchise you are evaluating is in?

 THE POTENTIAL FRANCHISOR

When you buy a franchise, you’re entering into a long-term partnership with the franchisor. The success of your venture will be inextricably linked to their vision and decisions, so it’s essential to know who you are getting into relationship with. Extract some information on their background and standing with the following questions:

Their credentials

• Who makes up the franchisor management team? Is the franchisor a one-person company or a corporation?
• How long has their business been in operation and when and why did they decide to start franchising?
• What is their industry background, experience and training?
• Are they members of FASA?
• How seriously have they investigated you, in terms of your ability to successfully operate the franchise at a profit to both them and you? Often their level of interest in you is a good indication of their motives for franchising.
• Does their business culture and personality seem to match yours?

Their success

• Is the franchisor successful, in terms of having built up a profitable business model? (Obviously you will want to scrutinise the figures but it is worth asking on a general level).
• Are their franchisees profitable? How long did it take them to achieve a successful profit margin? (Again, this should be verified through financial statements).
• What is the success rate of existing franchisees? How many franchisees have gone under/sold their businesses in the last few years? (Be sure to ask about the franchisee rather than the store, as stores can change hands and therefore not reflect potential “issues”).
• What are the company’s expansion plans and where will other new franchises be located?
• Are there any achievements or awards that the franchisor can boast of?
• Do they have any past litigation records or prior bankruptcies?
• What can the franchisor help you achieve that you wouldn’t be able to individually?
• What threats do they see in the current market and what strategy do they have in mind to deal with this?

Their reputation among other franchisees

• Asking franchisees about their experience with the franchisor can be extremely enlightening. Be sure to interview a cross-section of franchisees from different locations, including single and multiple unit owners, as well as those who are new to business and those who have owned their franchises for a long time. Speak to franchises outside of those recommended to you by the franchisor, and ask them:
• Does the franchisor have a reputation for honesty and fair dealing among franchisees?
• What is the relationship like between franchisor and franchisee?
• Have they held up their end of the obligations regarding ongoing support, assistance and training?

Do they feel that the franchisor exercises the right amount of control, or too much or not enough?

THE FRANCHISE AGREEMENT

This contract is the cornerstone of your relationship with the franchisor, and will form the basis of decisions regarding any future misunderstandings or disputes. The importance of reading, scrutinising and understanding this agreement, together with the disclosure document and business plan, cannot be over-emphasised. Review the paperwork very carefully with your attorney and be sure to present any discrepancies, questions or concerns to the franchisor. Get clarification in writing and don’t assume that the franchisor is responsible for something not stipulated in the agreement. Some questions to think through include:

Location

• Is the franchisor offering you an exclusive territory for the length of the franchise agreement? Or can they sell a second or third franchise in your market area?
• Do you have the right of first refusal to adjacent areas?
• Will they assist you in finding a location for your operation? (And assist with site evaluation and lease agreements).
• Do they sublet space to franchisees?
• Have you met the field representative who works in your territory area? As you will be working together, it’s important that you get along.
• What is the proximity of competition, and what are their respective strengths and weaknesses?
• Are they currently operating in areas with similar demographics to your proposed territory?

The costs

• Does the franchisor provide financing?
• What is the total investment required and will you receive a breakdown of all the costs you stand to incur?
• Are there any fees in addition to those described?
• How much working capital will you need, and what help will you receive in preparing proper projections?
• How does the franchisor use the initial franchise fees?
• If you decide to terminate the franchise agreement, are there any costs involved?

Training and support

• What is the extent of the training and support on offer?
• Do existing franchisees feel that they have benefitted sufficiently from this channel?
• Is the training and support provided in line with the franchisor’s fees?

Compliance and regulations

• Are there any obligations to the franchise company, such as supplies that have to be purchased through them?
• Are there any restrictions on what items you may sell?
• Are there any exceptions or conditions on the use of trademarks/symbols/names that the franchisor has?
• What are the terms of the agreement regarding termination, modification and renewal conditions?
• How long is an approximate time to wait between signing the contract and commencing with trade?
• How do they handle grievances with existing franchisees?

Marketing

• Does the marketing strategy outline how the business is going to attract new customers?
• What is your role, as franchisee, in funding and facilitating local marketing?
• Are there detailed advertising plans for the future, including time frames, budgets, tools etc?
• Are there any contributions to advertising/promotional costs that you are expected to make?
• Are you obliged to undertake advertising and promotions of your own, at your own expense? Is help offered in carrying this out?

Info you should receive

• Make sure the franchisor supplies you with the following information:
• Actual, average, and forecasted sales
• Actual, average, and forecasted profits
• Actual, average and forecasted earnings
• Existing franchisees and their names and locations
• Number of franchisees, financial statements and litigation history
• Contact details of suppliers and other operators involved
• Access to the operations and procedures manual prior to signing the franchise agreement

There are many different types of franchises, so not all these questions will be relevant. They will, however, get you thinking around the various angles involved, some of which may not have been fully clarified by the franchisor. Perhaps the last word of advice is to take your time before you commit to anything in writing. No responsible franchisor will pressurise you to make a quick decision, and the moment you are urged to sign in a hurry, you should terminate negotiations at once.   YB

As members of the digital era, we’re fully aware that the way consumers live and communicate has changed; and that there’s no going back. It makes sense that marketing has evolved together with these mediums; and that digital marketing has become as necessary a channel as traditional print advertising or television. Prakash Patel of Prezence Digital chatted about some do’s and don’ts for marketing in the online arena…

DO consider your business objectives first

“Like anything in marketing, you need to have an objective; you need to decide what you’re trying to do and achieve,” says Patel of the starting point for planning a digital strategy. Once you’ve figured this out, you can assess which is the relevant technique for your business – bearing in mind that the digital landscape is broad with many tools on offer. If your objective is driving people to a touch point for example, Patel says the obvious step would be to set up a website, mobi-site or Facebook page. “If it’s building awareness you might consider online advertising or e-newsletters, or if you want to create ongoing dialogue with your customers then social media might be the answer.” Ultimately you need to plan actions that will drive the greatest return on investment for your business. So start with the plan.

DO play where your customers play

Are you quite sure that your customers are online? And how do they get online? Presently, approximately six million South Africans access the web from their desktops and 13 million via their mobile phones – with a three million cross over. It is estimated that this will climb steadily to at least eight million (via PC) and at least 15-18 million (via mobile) by 2015. “If these stats from Google are anything to go by it points to having twice as much reason to have a mobi-site than a website,” says Patel. “Most people understand how to build a website, so a mobi-site becomes an afterthought, whereas having a well-constructed mobi-site that displays across various mobile phone devices should be seen as essential.” LSM levels come into play here too. If your target group have tight budgets and are cost-conscious of internet charges, an immersive and engaging website won’t necessarily do the trick, whereas a great functioning mobile site, with “please call me”, sms or mobile advertising campaigns are likely to be the best options.

Once you’ve figured out that your market is online, it’s time to embrace one of the greatest benefits of digital marketing – the ability to effectively target your customers. “If you’re in the auto accessories market, you can go straight to an online forum where car fanatics speak to one another, and advertise there,” Patel explains, “as opposed to traditional marketing’s blanket approach where possibly only 2% of your audience is relevant.”

If you find out where your customers play online, you’re halfway there in terms of achieving your marketing goals.

DO have a long-term social media strategy

Just because social media is instant, free and easy to use, doesn’t mean you don’t need to do your homework on it and plan ahead. Again, as you would with traditional marketing, know your touch points and target group, set desired outcomes and gather market research to find out which mediums they prefer – i.e. Facebook, Twitter etc. Some simple steps include:

• Listen to what is being said in the digital space, by who and where (eg, competitors, consumers)
• Monitor these conversations, dialogues, likes and comments
• Devise an “engagement plan”, including a rolling content plan
• Engage with honesty and transparency
• Monitor and evaluate on an ongoing basis

Patel emphasises that your social media fans and followers expect dialogue and relationship so you need to have resources available 24/7 to meet this expectation.

DON’T underestimate the negative flipside of social media

If you get complaints about your product/service/business on your social media networks you need to be prepared to handle these effectively, understanding the potentially damaging effects of a complaint that goes viral. “The biggest advice I have to give is to take the emotion out of your response,” says Patel. “You need to act in line with your brand’s social media persona, so think carefully. My advice is to type it, park it, think about it… perhaps run it by someone else…and then post it.”

While complaints are the extreme case, your social media campaign can also be hindered by inconsistency in the tone of your brand persona. “Don’t make the mistake of putting your intern in charge of your social media. It’s a highly strategic channel and your posts need to be well thought through,” Patel explains. It’s also important to always add value through what you say, and tell your customers things that they don’t already know.

If you get it right, social media can be extremely powerful. “An example I always think of is a small baker in Soho, London, who has literally thousands of followers. All he ever tweets is: ‘Fresh bread, ready’. He’s giving his customers information they want and need to know,” says Patel. Patel says that social media is the equivalent of a free customer relationship management (CRM) programme. “You know exactly who your customers are, their likes and dislikes, and what they do in their spare time.”

DON’T forget to measure your efforts

Patel says that the key thing that business owners aren’t currently doing enough of is analysing the results of their digital marketing. “There are some effective, free tools available to do this – Google Analytics is just one example – but there seems to be very superficial analysis taking place.” Unless business owners understand what they are doing, who they are reaching and how it is being received, they can’t improve on it in the next campaign.

Going deeper into your analysis means really examining click-through rates, and deciding whether the clicks are converting to sales, or followers, or whatever your objective points towards. Patel says that some sites have 1000 pages, and analysis will show that only five of these pages are being viewed. The logical conclusion would be to make those five pages particularly rich and engaging.

Perhaps a last piece of advice is to make sure that whatever you are driving people towards is worth their effort. “There’s no point in having a rubbish website that people click onto and then promptly decide to leave,” says Patel. “You’ll get the click and you’ll pay for it, but what’s the point?”

Essentially, it all goes back to the very first premise: before you even start to dabble in digital marketing, know what you want to achieve. Your plan doesn’t need to be mind-blowing, but it does needs a clear destination and some solid steps that will help you get there. Good luck!   YB

The Small Enterprise Development Agency (Seda) has announced that it is extending the deadline for entries for the Seda Small Business Stars business plan competition from 31 January to 29 February 2012. The competition, which was launched by Seda in October 2011, offers aspirant and existing entrepreneurs an opportunity to make their entrepreneurial dreams a reality.

Says Mr. Koenie Slabbert, COO of Seda: “Although interest has been beyond expectations with several thousands of entrants registering, many have indicated they require more time for thorough market research and to work on their financial projections.”

Participants can enter any kind of business idea or an exisiting business in any industry. More than R4-million’s worth of cash and business support prizes await the 40 winners.

Once the entries have been judged after the closing date, up to 300 finalists from around the country will be selected to present their business idea in person to provincial panels. From there, the 40 national winners will be selected. There are four special award categories for the Best Woman Entrepreneur, Best Entrepreneur with a Disability, Best Youth Entrepreneur and Best Job-Creating Entrepreneur.

The competition organisers also announced that in addition to the on-line entry system, printed entry forms would also be available from any Seda or National Youth Development Agency (NYDA) branch, for those without computer access. A printable entry form would also be available on the competition website.

“Everyone wins,” says Slabbert. “The prestige and credibility of being selected as a finalist or winner could catapult an entrepreneur or their business to a completely new level. And even if participants aren’t selected as finalists or winners, they are able to walk away with an actual business plan, and a much stronger understanding of the business planning process. The learning gained in developing a business plan is invaluable for anyone who owns or wants to start a small business.”

To assist participants with any queries they may have, and to take interested individuals through the competition entry process, Seda will be hosting information workshops in each of the provinces between 23 January and 17 February.

To enter the competition, or for more information about dates and venues for the provincial workshops, visit www.sedastars.org.za or follow Seda Small Business Stars on Twitter or Facebook. Entries close on 29 February 2012.

Cash vs. profit

Profit is the difference between the total amount your business earns and all of its costs over a given trading period. Cash flow (inflows and outflows) is the movement of cash into and out of your bank account.Good profits do not necessarily mean your business is healthy and bad cash flow management can leave you cash strapped and fighting for survival.

Cash reserves

To trade effectively and grow your business, you need to build up cash reserves by ensuring that the timing of cash movements puts you in an overall positive cash flow situation (inflows exceeding outflows). Income and expenditure cashflows rarely occur together (inflows often lag behind). You should aim to speed up the inflows and slow down the outflows. To improve everyday cashflow you can:

• Ask your customers to pay sooner;
• Chase debts promptly and firmly;
• Use factoring (obtain third party advance on portion of invoice);
• Ask for extended credit terms with suppliers;
• Order less stock but more often;
• Lease rather than buy equipment;
• Improve profitability;
• Increase borrowing (not to be used as long-term strategy);
• Put more money into the business (not to be used as long-term strategy);
• Set up cash flow management systems (Who is responsible for tracking cash flow? How regular should forecast be reviewed?);
• Arrange special terms with suppliers (30-day accounts, pay bills quarterly,etc.);
• Control cash outflows (Switch suppliers if necessary, negotiate once-off purchases);
• Get accounting software to track cashflow and make forecasts;
• Use forecast to spot problems;
• Bank money the instant it comes in;
• Shop around for better deals that could reduce costs;
• Monitor the effectiveness of your marketing and modify it as necessary (cash inflows).

 Cash flow problems and how to avoid them

No matter how effective your negotiations with customers and suppliers, poor business practices can put your cash flow at risk. Look out for:

• Poor credit controls – failure to run credit checks on your customers is a high-risk strategy, especially if your debt collection is inefficient.
• Failure to fulfil your order – if you don’t deliver on time or to specification you won’t get paid. Implement systems to measure production efficiency and the quantity and quality of stock you hold and produce.
• Ineffective marketing – if your sales are stagnating or falling, revisit your marketing plan.
• Inefficient ordering service – make it easy for your customers to do business with you. Use first class post and, where possible, accept orders over the telephone or internet. Ensure catalogues and order forms are clear and easy to use.
• Poor management accounting – keep an eye on key accounting ratios that will alert you to an impending cash flow crisis or prevent you from taking orders you can’t handle.
• Inadequate supplier management – your suppliers may be overcharging, or taking too long to deliver. Create a supplier management system
• Poor control of gross profits or overhead costs.

Cash flow forecasting

Cash flow forecasting helps you predict peaks and troughs in your cash balance, plan borrowing and predicts surpluses at a given time. Many banks require forecasts before considering a loan. The forecast is usually done for a year/quarter in advance and divided into weeks/months. The forecast lists: Receipts, payments; excess of receipts over payments – with negative figures shown in brackets; opening bank balance; and closing bank balance.

Established businesses can combine previous 12 months sales with predicted growth to compile realistic forecast estimates. Forecast figures must relate to sums that are due to be collected and paid out, not invoices actually sent and received. Accounting software makes cashflow forecasting and planning easier and enables “what if” calculations.

Adjust forecasts in line with long-term changes to actual performance or market trends, in light of your sales, purchases, staff costs and changes in legislation, interest rates and tax rates. Having a regular review of your cashflow forecast will enable you to:

• See when problems are likely to occur and provide solutions in advance;
• Identify any potential cash shortfalls and take appropriate action;
• Ensure you have sufficient cashflow before you take on any major financial commitment.

Have a contingency plan, such as retaining a minimum amount of cash in the business in an interest-earning account, to meet short-term cash shortages.

AUTHOR: Jacques Nel heads up Indus Consulting a specialised small business and franchise consulting hub. For more information visit: www.indus.co.za.

1. Don’t over-employ. Follow a strategic plan. If you’re unsure, employ on a temp/contract basis until there is clear direction. It is important to draw up job descriptions prior to recruiting to ensure you recruit at the right level. As a small business it is good to employ multi-talented individuals and remunerate them accordingly. Introduce low basic, high commission pay structures.

2. Valuable staff yield good results. Less valuable staff constantly cause strife and affect morale negatively. Small business owners need to focus on their bottom line and seldom have the time to performance manage individuals. An option is to make use of consultants to fill the gap for specialised needs.

3. Be prepared for the good months and the bad. Indima Recruitment has experienced good months and during those times I realised it was important to save for potential “rainy days”. We’ve felt the recession, but fortunately we haven’t had to close our doors. As a business owner, you need to be involved and physically engaged in the day-to-day running of the business. This means being involved in the mundane tasks yourself; this way you will not feel the pinch. Also consider partnering with other businesses to see where you can cut costs. Use this time to get closer to your clients. Another lesson I’ve learnt during this recession is that whilst business is quiet, you can engage in philanthropic work. This helps towards a good business journey.

4. Every cent saved goes a long way. Focus on your company’s policies and procedures to ensure that everyone is working towards the same goals. From a cost saving perspective, I’ve found that “shopping around” is crucial. Consider your pocket before buying anything. In our business, for example, we manage approximately 30 contractors for Woolworths and have opted to use a payroll company, which proved cheaper than taking on someone to manage this full-time in the business.

5. Find a financial advisor. If you aren’t an expert in a specific area, look for help, specifically when it comes to your business finances.

6. Invest your surplus cash. Investing your surplus cash is the way to go. Look for opportunities that yield healthy interest. It is important to also ensure that when needed these funds are available.

7. Don’t diversify too soon. Focus on the business at hand and making a success of it before exploring other ventures.

1. Invoice early in the month                                                                         

Bring forward your invoicing. Most businesses do a once-a-month cheque-run somewhere between the 21st to the 25th of the month. If you miss that cheque-run you will have to wait another 30 days to get paid, so don’t miss it. Submit your invoice early in the month to give it time to work its way from the post-pile, through the authorisation in-tray into payments.

2. Make friends with the Accounts Payable lady

Accounts Payable can be a tough job – all those suppliers hounding you for payment -so a friendly voice will cut through the noise. Every time you, or your staff, call a supplier’s Accounts Payable department work on creating a friendship. Your invoice will race up the payments queue and you will have more fun chasing your cash.

3. Follow up debtors quickly

It’s never too early to chase a debtor. Some businesses simply ignore their supplier invoices until they have been chased and then only make a payment when they have been harassed a few times

4. Follow up debtors consistently

If you don’t have the luxury of an accounts receivable department and are doing all the debtor collection yourself schedule in a regular time to do it. This works for two reasons. One, it will get you to actually do it – chasing debtors isn’t much fun and it’s easy to put it off – and two, it will remind you to make repeated calls to recalcitrant customers. So set aside some time (for example every Tuesday 9am for one hour) to commit to calling all your debtors.

5. Write it down

“The cheque is in the post” and other white lies come back to haunt Accounts Payable staff when they are written down verbatim by the supplier. It’s so much better to be able to say categorically “On Monday, May 25, you told me that you would send a payment on 1 June” than to vaguely recall a conversation.

6. Make it easy to pay you

Offer all the standard payment options. If you are dealing with consumers taking all the major credit cards is a must even though it is expensive. If you are a web-based business Paypal is extremely popular. If you are a service provider with regular customers (such as a day-care provider) offer direct debits, it makes it so much easier for you and your customer. And if you are dealing with businesses make sure you are set up for electronic fund transfers.

7. Call the person who hired you

If you are supplying a business that has more than a handful of people it’s very likely that the person who you “sold” to has little or nothing to do with the payments department. So as soon as your invoice passes the 30-day mark call up your contact and enlist their help. It really helps to have someone on the inside of a business batting for you – and they won’t mind. I have found myself in this position many times and have marched off to the Accounts Department incensed at the way my supplier has been treated.

8. Discuss the best way of getting paid before you start your work

Businesses mostly agree price but don’t discuss payment terms. So as well as making it clear that your terms are 30 days ask your customer what the best way is of ensuring that the payment will be processed quickly. If they are a large company for instance you might check whether it will speed up the process to address the invoice to the person who will actually authorise it rather than the Accounts Payable department.

9. Deposits and progress payments

If you are doing a project for a customer or buying something in especially for them always ask for a deposit and progress payments. This puts you firmly in the driving seat and you can simply down tools if they don’t pay on time.

So there we are, nine ways to improve your cash collections. But if you have room for one more, I have a tenth one – discounts.

Yes, offering discounts for prompt settlement of invoices is an option. But I didn’t include it in the list because the nine ways are free and this extra one will cost you real money.

If discounts work for you then go ahead and give them, but make sure that you factor this into your pricing. And be aware that many businesses will take the early settlement discount regardless of when they pay. Discounts are a bona fide option and can be very useful but try the options above – the free ones – first.

Author note: Australian Julia Bickerstaff runs two businesses: Butterfly Coaching and The Business Bakery. She is also a regular writer and speaker on small business matters.

Promoting a business using both modern and traditional methods has never been easier or more affordable…

Marketing is an essential business tool for getting the word out about your product, service or new company to attract customers and generate revenue. Large companies have substantial marketing and public relations budgets and often have a professional on hand to advise on spend and to identify appropriate target markets. For smaller, start-up businesses a marketing budget is often nothing more than a pipe dream. But there are ways of reaching your target market without spending the earth.

Digital marketing, includes all the more established forms of internet marketing (banner ads, pop up ads, site sponsorship etc), as well as cellphone marketing (SMS/ MMS), display/banner ads and digital outdoor, and can be an effective and inexpensive way of reaching your target audience. Digital or e-marketing is a global consumer trend that has been gaining momentum for the past few years since Tim O’Reilly of O’Reilly Media held the first Web 2.0 media conference in 2004. Here he described the phenomenon as “the business revolution in the computer industry caused by the move to the internet as a platform and an attempt to understand the rules for success on that new platform”.

While it is a complex term and has come to mean different things, for our purposes Web 2.0 refers to the way in which consumers or online users have taken control of information online and now have more say about what arrives in their inboxes. Users can choose to block spam and unwanted product information or sales pitches from coming through to their inboxes or feed readers. They can now choose what information they receive and read. With the rising prominence of blogs and “bedroom reporters”, it is crucial that marketers keep the consumer, agency or individual they are trying to convince to buy a product, in mind when marketing. These consumers are quick to turn to their blogs or websites to “report” on the product and if their experience is negative, the product will get a negative review. Consumers also have so many more options available to them these days, so losing them early on may mean that they never come back to try your service or product again.

Word of mouth, especially online, spreads faster than traditional print media or news reporting and one bad experience can tarnish your reputation amongst a network faster than you can say Web 2.0.

Digital marketing tips

• Consider first making direct contact with your target audience rather than just sending product or service information that hasn’t been requested. Unauthorised contact may see your email address or username blocked without them ever giving you a chance. First send a mail or phone your potential customer to let them know that you will be sending information, and ask if they are happy to receive it. If they decline the offer, don’t take the rejection too hard.
• Send an initial short introductory paragraph about your business or service and include contact details should the recipient want to get hold of you; a website address or phone number will suffice. Most people find too much text off-putting. Keep it simple and punchy to keep their interest.
• If you don’t hear back give them at least a week or ten days before following up. Don’t be aggressive; following up is just a courtesy in the event that they haven’t found the time to call you back. The personal touch is always worth the extra effort.
• Don’t make promises you won’t be able to live up to. Don’t promise to deliver work that you can’t do, or don’t have any experience in, just to get the business. The secret to longevity in any sector is repeat customers, a quick win won’t sustain you through hard times, a loyal client base will.
• For simple digital marketing campaigns, an introductory email with contact details, basic business plan or corporate profile, is sufficient. Don’t waste money on hiring a designer. Keep the format clean, simple and easy to read and understand; this is always appreciated. Let the work speak for itself. Once you have established a loyal client base and have a decent revenue stream, then contact a web design agency (search Google or bizcommunity.co.za to find an agency) to create a website (always include previous work done for reference purposes) and roll that design out to all corporate collateral. Consistency is key.

More traditional tactics

Traditional marketing tactics are effective and can also be inexpensive depending on the route you opt for. Research the available online, radio and print mediums relevant to your industry and area. Draft a clear marketing and advertising budget and be careful not to exceed the allocated amount. Don’t be seduced into thinking bigger is better – smaller businesses shouldn’t aim to appear larger than they are. This will only make prospective clients think that your prices will be high and they may therefore avoid you.

Also look at what your direct competitors are doing with regards to advertising. If all your competitors are in one particular trade publication then seriously consider advertising in the same publication – the fact that your competitors are there probably means that this is where the majority of clients are looking for their suppliers and service providers.

Remember that TV and radio are always going to be more expensive than print, especially newspapers, and if you don’t have the budget to produce a quality advertisement for your allocated slot it will be money wasted. Rather start small with a strip advertisement online or a column, quarter page or half page in your local community paper or trade magazine, and simply state what your company does with clear contact details. Once the company is up and running and the money is flowing in then you can start to conceptualise creative campaigns. Initially however, it is about getting the message across in a clear and concise manner.

Corporate collateral such as business cards, letterheads and branded stationery, a good website and service brochures are all musthaves for small businesses. Find a designer and printer that will give you a good price in return for your business in the future and print 500 or 1000 of each. Potential clients need hard copy reminders of what you do, and who you are, once they’ve had the chance to meet with you.

Finally always remember that you are your own best advertising – be friendly and professional at all times and always deliver work on time, within budget and to the highest standard.

FIND OUT WHAT YOUR COMPETITORS ARE DOING

Keeping your finger on the pulse of your industry is crucial as it will affect the products or services you offer, your business growth as well as marketing initiatives. Competitors keep you on your toes as they provide a good basis for comparison and benchmarking your impact in the marketplace. Knowing what your competitors are up to will provide insight into what works and what doesn’t. It will also give you a good idea of who their client base is made up of. By analysing your competitors you too will figure out what it takes to survive in the industry and will learn from their mistakes. Ways of staying informed include keeping an eye on the media. Scan newspapers, trade journals and consumer magazines for articles pertaining to your industry and make mental notes of important roleplayers. The same applies to television and radio and don’t forget to check the internet too. Attending industry-specific expos and conferences will also keep you abreast of trends and movements in your sector. Exhibitors will often discuss their business strategies and successes with passersby and could offer some valuable insight. Don’t be complacent. Most business sectors are vibrant and ever-changing and small business owners need to keep informed to stay competitive.

Kate Thompson is an account director at Magna Carta Public Relations in Cape Town. She handles all PR requirements for a variety of corporate and consumerfocused clients. Kate can be contacted on kate.thompson@cape.magna-carta.co.za or 021 417 5833.

How do you determine the right price?

The “right price” is determined by your consumers. Consumers are willing to pay for value and you must make sure your company is offering value, without under pricing its offering. The company has an obligation to itself, its shareholders and its consumers to determine the optimal price that results in sustained availability and results. Many companies are guilty of thinking that the lowest price is best. Remember that the price itself can create a value perception. Some companies deliberately increase their prices above parity competitor offerings and by so doing create an elitist niche type market. Not all categories allow for this, however.

Does price define a product or service?

Price on its own doesn’t define a product or service; rather it helps establish a value perception in the mind of the consumer. Additional factors, such as benefits,quality, branding, etc., aid comparison with other offerings in the particular category. Most categories are highly competitive and cater to specific market segments. As consumers become more knowledgeable of the choices available to them and increasingly sophisticated in their buying decisions, they expect greater benefits at lower prices. Price and value are at the top of consumers’buying criteria. Price is not so much about the amount on the tag, as it is about the perceived value of the item.

Once the products’ benefits, quality, branding, distribution channels etc. have been determined, the price tag will dictate where it is positioned in a category. Price decisions should be driven by a clear understanding of market dynamics, the target segment and its value perception of the offering. From this point on, supply and demand forces will determine the sales success of the offering.

Setting the right price from the outset is vital. It’s a crucial mechanism to ensure the business derives value; a profit in most instances. And for customers to derive a value; a benefit perception commensurate with the price charged.

What are the risks if it’s wrong?

Once an offering goes to market at a particular price it is extremely difficult to alter course, particularly if that price is too low. When the price for a product is set lower than the optimal level, volume demand may be inflated. This will place strain on the company to deliver on a product that may not be providing acceptable margins. Because resources are being used to ensure service levels on this product are maintained other, potentially more profitable, opportunities are forgone. If the product is withdrawn from the market, the company stands the risk of long-term damage to its reputation and will also place additional pressure on the remaining products to carry the increased fixed costs. This is far from an ideal position to be in from a cash flow perspective.

On the other hand, going to market with the price set too high can result in poor demand and will leave the company thinking that the product has failed because nobody wants it. The risk here is that the company may prematurely withdraw a potentially successful product.

Costs are incurred when developing or acquiring a product and inventories have been built in preparation for going to market. All this can be lost due to incorrect pricing.

What can you do if you got it wrong?

As the old adage goes: Prevention is better than cure. Nowhere is this more true than when applied to pricing. Take the time to carefully plan your pricing and base it on the best information you can lay your hands on. It is simpler to deal with over-priced than with under-priced products. There are many tactics that can be employed to increase demand for highly-priced items. These same tactics can be used to refine price levels over the longer term.Although several cautions should be raised when doing so as many of these activities do result in sales spikes.
Furthermore, before tampering with prices one must be satisfied that the other elements of the marketing mix are in place, particularly communications.

Tactics for correcting over-priced products include various forms of promotions. These may range from pure price discounts to buy-three-get-one-free promotions. Other promotional tactics exist but may not be suitable for determining optimal price levels. They may help increase sell through rates, however. These include competitions, co-promotions, bundled offerings etc.

When a product is under priced it may be necessary to simply increase the price and factor in the volume decrease that will come with it. The downside may be that the product suffers a bruised reputation in the short term. A better strategy may be to reposition the product. This would involve aiming the product at a specific market segment that appreciates the offering’s value and relaunching it. This can be a costly exercise.