I’m passionate about small business. That passion first emerged in 1972 when I worked for an Insurance Company in Johannesburg. My job was to persuade insurance brokers to give my company their clients’ insurance business. To provide the quote, I had to visit the client’s business premises and evaluate the risk. In those days, much store was given to the quality of the management; to the extent that a woodworking or plastics risk that would normally be uninsurable at normal terms would enjoy very reasonable premiums if the management was really good.
Not so today, of course, where the computer does the rating. It’s the same with banks. I wonder how many of you remember the days when the bank manager would look at your financial history before giving a loan and deciding on the terms.
Those early days exposed me to literally dozens of small businesses. I had insight to the plastics, woodworking, engineering industries and so many others. Moreover I became close friends with many business owners. They shared their problems and challenges with me, and I learned where the real challenges were. Problems with suppliers, penalty clauses in delivery contracts, and a poor quality workforce were dwarfed by bad debts. It’s the same today of course. I learned a long time ago that a customer that doesn’t pay is a whole lot worse than not having a customer at all.
It’s clear in my mind that bad debts and short payments are going to be an even greater challenge for small business in the months to come. During April, the International Monetary Fund (IMF) again revised downwards SA’s economic growth forecasts for this and next year, citing electricity shortages as the main reason. The IMF’s revisions follow the World Bank’s comments that the extent of damage of power outages on economic growth in South Africa should not be underestimated.
This brings me to my next real concern. I was in a fish and chip shop the other day (it was a Friday at 18h00 – one of the main trading times for fast food outlets) when the power was cut. In chatting to the owner, he told me that he could not afford generators to run his deep fryers and that power cuts are completely ruining his business. I wonder how many of our small business colleagues are also suffering like this – hundreds I suspect.
So what can we do? Bad debts can be covered by insurance, but it’s not cheap and there are some real limitations. The obvious solution is to be ultra-careful when providing credit but this is not always possible. However there are some basic rules that can be followed, such as asking your new customers for trade references or pay for an online credit check. You might even consider setting a lower credit limit for new customers until you are confident that they can and will pay you on time.
But how are we deal with power outages? It’s not just the office, factory or workshop that is affected. Every one of us has experienced the congestion on the roads – delivery of services has become a real challenge. If you have ideas that you are prepared to share, just let us know.
The best answer is really a repeat of what I said in my January “Pen”. That is to set up an additional business in a country where this doesn’t happen. And if you want to do this in the UK, that’s where we come into play – and a lot less expensive than you might imagine.
We’re just an e-mail away.