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 Time to start looking at income growth again

 

 2014 looks like the year in which business owners will be shaking themselves out of the mindset of survival through cost cutting to one of expansion through income growth, says Anton Roelofse, regional general manager of Business Partners.

His own gut feeling as an experienced SME financier is backed by surveys which suggest improving confidence among business owners. The latest results from the Business Partners Limited SME Index shows a five percentage point increase in the average confidence levels from 49% to 54% late last year. This is echoed in other surveys that show steady earnings in established small and medium businesses.

Roelofse urges businesses to join the changing tide. “You cannot build a business in the long-term by cost cutting alone. It is time to start looking at income growth again.”

But how ready are you for business expansion? Roelofse offers the following checklist of ideas for turning the year ahead into one of growth:

  • Look at adding new products, services and lines in your business that complement what you already have in place. This will ensure that your margins grow much more than your overheads. For example, a nursery may start a new line of garden furniture, or a bakery could start renting out catering equipment. The new line can share the cost of your overheads, including rent, staffing and marketing expenses, increasing your profit much more than it will increase your costs.
  • Faced with severe electricity hikes and constraints on the one hand, and business expansion on the other, it is time to look at doing things differently. The lifespan of wind generators and sun panels far outstrip the period they need to pay for themselves. Put your roof to good use and cut your electricity costs. Who knows, one day you may even be selling power back to Eskom.
  • Unfortunately, there is no such alternative for vehicle fuel yet, and the weakness of the rand makes each trip to the petrol station more painful than the last. Counter strategies include better trip planning, perhaps the use of telematics to improve the fuel consumption of your fleet and even teaming up with other businesses to share transports costs.
  • The weak rand is a major boost for local tourism business and exporters. The time is right for them to think about how to protect their existing market and expand it. On the other hand, businesses heavily dependent on imports are being compelled to look at alternative supplies, and need to adjust their prices before it is too late.
  • This may be the year for buying that property, either as an investment or as your business premises. Interest rates are still low, and property prices are probably at the bottom of the trough. Provided you do careful planning and checking, “get in there before the prices start running away again,” says Roelofse.
  • Do a spring clean of your business relationships. Aim to strengthen those that have worked for you, and change those that haven’t.
  • Even if you have been cutting costs to the bone over the past few years, it remains an important annual exercise. Check your banking costs and renegotiate. Are your phone contracts optimal for your needs? A relook can save you thousands of rands over the coming year.
  • While in New Year’s resolution mode, why not dust off your insurance policies and make sure they are up to date? Look at your short-term insurance needs, key-man insurance and structured buy-and-sell agreement with your business partners. It helps to make use of the services of a trustworthy insurance broker.
  • Businesses know better than to look towards government for help when times are tough, but governments are generally better at incentivising expansion of strong businesses than rescuing struggling businesses. Now that the tide has turned towards growth, have a close look at the many incentives available at the department of trade and industry for growing businesses. They include research grants, support for the commercialisation of new ideas, productivity improvement projects, investment in new machinery and grants for staff training programmes. The incentive schemes can be complicated, so it may be better to approach one of the many consultants who specialise in helping businesses access government subsidies. They tend to work on a success-fee basis, so the risk is small, says Roelofse.
  • It is early days for the government’s newly approved youth wage subsidy, officially called the Employment Tax Incentive, but it is certainly worth a look at if you’re planning to add to your staff. While you are at it, make sure your accountant has considered whether you qualify for the Small Business Corporation tax, or even Turnover Tax.
  • Beware of over-commitment. Don’t end up with an expensive machine if you’re only going to use 10% of its capacity.
  • Plan carefully so that expansion does not distract you from maintaining quality service to your loyal clients who stuck with you through the last few difficult years.
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