In a tough economic environment, small businesses should implement a savings strategy to have enough cash flow during quieter periods.
Business owners need to understand the cyclicality of their business, said Elize Giese, head of investments at FNB Business. Business owners need to evaluate their cash flow and save accordingly.
Unlike households which often save for long-term goals like a holiday or a child’s education, businesses save for different reasons. “These include having cash flow for the daily management of a business, for capital expenditure to acquire assets and for long-term expansion in the future,” said Giese.
By reducing operating costs, small businesses can use their savings to cover unforeseen expenses and emergencies.
Ways to cut costs
1. Some of these cost cutting options include travel costs to clients. “Businesses can save money through having teleconferences instead,” said Giese.
2. Businesses can also save by cutting out unnecessary marketing expenditure. Instead, business owners could use Public Relations to profile their businesses on the right platforms.
3. Business owners should also learn to negotiate with suppliers, she added. They can negotiate discounts for early payments, or negotiate to pay debt over a longer period of time at reasonable interest rates as opposed to not paying at all.
“Get quotes from different suppliers and make sure you choose the best [cost effective] deal,” she said.
4. Another area to cut down on costs is to get a consultant for the business. Use a consultant for a specific skill needed within the short term, as opposed to employing someone. “But at the same time, having a consultant over a longer period of time, could be expensive,” Giese cautioned.
Also make sure that the business’s insurance policy offers adequate cover for the risks faced by the business.
Ways to save
1. Pay yourself first.
2. Put money away in an investment account to make sure that you have money for quiet seasons.
3. To ensure that money is available for emergencies, have a short term investment account, where money can be withdrawn in short-notice.
Up your game
Meenil Kalian, an owner of a health shop told Fin24 that saving was a challenge, especially because of the nature of his business.
“We can’t compete with the bigger pharmaceutical companies who can get the benefit of buying stock in bulk,” he said.
Kalian has to stock specialist medicine which can’t be found anywhere else to have a competitive edge in the market.
However, he has found that saving works better for his other health store, which specialises in traditional medicine. “When we go out and do buying, we can negotiate with wholesalers and try save costs that way.”