10 out of 11 private airlines launched in South Africa have failed since 1991, a list which now includes 1time airlines. Many of these new ventures struggled when it came to support, financing and in particular, cash flow. The recent news of 1time airline’s decision to file for liquidation, after applying for business rescue in August 2012, also highlights the need for adequate research, planning and support when starting and running a new venture.
Cash flow management is key
According to Gerrie van Biljon, Executive Director of Business Partners Limited, a specialist risk finance company for SMEs in South Africa, a common downfall for companies, from small enterprises to large entities, is poor cash flow management. “Cash flow management is a key challenge and companies need to manage their cash flow according to the sector they operate in by taking into account the challenges they could, and are likely to, experience.”
Find a mentor
He adds that support and mentorship is another key area to business success, as it is vital companies are given guidance when deciding on certain business decisions, such as business rescue.
Van Biljon says that 1time’s situation is a common occurrence in the small and medium enterprise (SME) industry. “This situation is a key lesson to many South African businesses out there. It highlights that the old saying, ‘cash is king’, remains vital in any business as cash is the life blood of any business and without it, it is dead.”
1time was trading under the protection of a business rescue with an estimated R320-million in short-term debt and had been in negotiations with creditors since March 2012.
Big vs. small
He says as with 1time, when businesses compete with large players they are often not on equal footing. “Large businesses have the buying power, the muscle and the means to act, which makes it very difficult for smaller businesses to own a fair share of the market.
“When businesses compete on an unequal base, as 1time did in the South African aviation industry, they are very prone to encounter issues, especially if the competition receives additional funding from external sources.”
Van Biljon explains that if the cost of a product or service is dependent on external factors which are difficult to control, it poses a major threat to a business. “In the case of 1time, the cost of fuel was a threat. If the correlation between what businesses may charge the customer and what the costs actually are is out of sync, the business model becomes vulnerable.”
Move quickly and adapt
Van Biljon says that even if an SME is offering excellent service and good prices, there is no guarantee that the business will thrive. “However, the SME will have particular competitive advantages over a corporate. Entrepreneurs have the ability to move quickly and adapt to changing environment, which large business find difficult to do. They are very innovative and act in an entrepreneurial manner, which means that they are always on a lookout for an opportunity that can lead to more business or even a new venture.
“In these very difficult trading conditions, entrepreneurs have no choice but to make the business work as there is just too much at stake. It is also a good time to revisit the business model, change tack and explore new markets,” concludes van Biljon.