South Africa has just suffered its worst economic performance since the financial crisis, and the knock-on effects for the SME sector could be devastating.
It has been revealed that, in the first quarter of 2018, South Africa’s economy has shrunk by a shocking 2.2% – the largest quarterly drop since the financial crisis. Coupled with the fact that 70% to 80% of small businesses fail within their first five years, this means that SME’s will need to work even harder now to ensure their survival for the long term.
Retail Capital – a company which specialises in providing funding to Small and Medium-sized Enterprises (SMEs) – has recently attracted funding from three development fund investors (DFIs), including Developing World Markets. While Retail Capital can’t put a specific number on how much each of the DFIs has invested, the average international funder is putting in between US$1.5-million and US$3-million per funder.
Erin Louw, Chief Brand Officer for Retail Capital, says that businesses will really start to feel this drop in about three months’ time, while consumers will likely be seriously cutting back towards the end of the year – typically a time when they would be spending more through the festive season.
With this in mind, it would be wise for small businesses to start preparing immediately for a drop in business. It could also, however, be an opportunity to take the time to make any changes in your business that will enable growth in the future.
“Our clients primarily use advances taken in winter to renovate, expand and to purchase stock. For many businesses, this is probably the best time to invest in renovations and upgrades, when construction is least likely to inconvenience their customers.” – Erin Louw, Retail Capital
Even at the best of times (not that there is ever a perfect time), starting a business is no walk in the park. There’s much more to successfully running a business than simply having a great idea or product. When taking the leap to start your own business, it is essential to be prepared for the ride – and whatever hurdles you might meet along the way.
According to Thomas Koulopoulos, a global thought leader on the future of business and technology, the “entrepreneurial journey” is much like parenting in that “no matter how much you study it, observe it in others, ask for advice, prepare for it, or convince yourself that you’re ready for it, there is simply no substitute for doing it”.
Entrepreneurship, he says, is a “lonely journey filled with ups, downs, and a few directions you never knew existed”. But it also comes with great rewards, despite any unexpected challenges or sacrifices. Essentially, much like parenting, it’s all worth it.
Karl Westvig, CEO of Retail Capital, says there is a clear rise in entrepreneurs seeking funding. This he attributes to positivity in the SME sector driving small business owners to invest in their businesses to achieve further growth.
“People are investing in their businesses to get their concepts and products on the market. At Retail Capital, our primary goal is to provide SMEs with access to funding to make their business dreams become a reality, or to make the changes they need to grow their business and take it to the next level,” says Westvig.
“This can be risky, of course, but it can also be hugely rewarding – not to mention profitable. If you’re smart about your business, your investment will pay off in the long-term.”
How to get through the hurdles
Daan Dippenaar is the chief executive officer of The Fragrance Boutique, which has 23 branches and 25 franchises in South Africa.
“There’s no other option to get funding so quickly – literally within 72 hours,” he shares. “We have been using funding from Retail Capital for a number of years to replenish stock and make some wonderful refurbishments, much-needed in our industry to retain our clientele.”
He does, however, say that taking on additional funding should not be taken lightly as paying it back will always result in additional costs – as with any loan a business takes on. This kind of cost, he explains, should only be taken on when you need it most. And, as Westvig adds, when it can really be used to grow your business.
Retail Capital was established in 2011 to provide South African business owners with the opportunity to grow their business through access to funding. The company has since provided more than R1 billion to the SME industry in South Africa.
Louw says that investing in your business during a traditional downtime can have significant benefits – especially if your business is seasonal.
“Our data indicates that our clients primarily use advances taken in winter to renovate, expand and to purchase stock. For many businesses, this is probably the best time to invest in renovations and upgrades, when construction is least likely to inconvenience their customers,” says Louw.
“Investing in your business in months like July and August, which are often considered ‘slow’, can help your business to grow. We’ve seen our clients experience up to 200% growth in turnover, month on month, after taking an advance in winter.”
“Investing in your business in months like July and August, which are often considered ‘slow’, can help your business to grow. We’ve seen our clients experience up to 200% growth in turnover, month on month, after taking an advance in winter.” – Erin Louw, Retail Capital
She adds that it isn’t always large investments that make the biggest difference. In many cases, smaller investments (less than R100 000) reaped the greatest rewards, with less pressure on cash flow resulting in greater turnover.
A successful business is more than just investing money into it, however. Retail Capital’s partnership with businesses extends beyond just funding, with additional services offering added value and support for both new clients and those who have previously applied for funding.
For example, Go Social helps small businesses with their social media strategy – registering them with platforms such as Google for business, Zomato, Facebook, LinkedIn, and more, to get them on the digital map and leverage these platforms to their benefit.
Retail Capital also offers a “safety net”, an insurance product for potential interruptions to business that aren’t covered by a traditional insurance policy. They will also soon be launching a new product for existing customers, which will offer industry advice from a pool of retired professionals to help steer and grow their businesses.