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South African SME's: How to survive the looming "business bloodbath"


Serious Challenges Ahead:

On Monday Ryk van Niekerk (Moneywebs editor) published this sobering piece entitled Business bloodbath not far away and in it he makes these observations:

"The South African private sector is in deep trouble. The average South African business is on its knees and barely keeping the lights on.

In fact, the perpetual decline in economic activity of the past few years has eroded the profitability of the average local business to such an extent that business owners would earn more on their capital putting their money in a bank, than continuing fighting the entrepreneurial battle."

"Statistics South Africa’s (StatsSA’s) financial surveys clearly show that numerous businesses are on the proverbial precipice – and any further headwinds may force many businesses to close their doors or to scale down operations."

This dire situation is a result of (among other factors) that "the average South African business's profit margin has shrunk to 5%. This means that the average business only pockets 5c profit for every R1 of sales."


This scenario explains why the IMF earlier this month downgraded South Africa's projected growth for 2016 to 0.1% (See: South Africa Latest Outlook Shows Urgent Need for Policy Reforms)


Overcoming the challenges:

I am a firm believer in spending 10% of your time on the problem and 90% on the solution. It is my honest belief that with some urgent strategy and planning it is possible for many businesses to not have to retrench staff or worse close doors altogether.

It goes without mention that obviously the first step in this whole process is to take a careful look at all business expenses and overheads and ask "what can we eliminate or dramatically reduce?"

Because of the technology now available business owners can make some smart decisions so that you can keep operating until there is an upswing in the economy. (Which the IMF predicts for the latter half of 2017)

One way to bring down overheads, which I believe all business should look at seriously, is remote work. In the US during the 2008/9 recession many businesses looked to telecommuting to bring their overheads down (See A Silver Lining to the Recession: Increased Telecommuting)

In a Entrepreneur piece Drew Hendricks lists 5 Ways Telecommuting Saves Employers Money Lets take a closer look at No. 2 on his list. Lowering overheads: Recent US statistics found that remote work would have an economic benefit of $700 billion a year on the US economy. That is a staggering amount! Primarily the savings would come from:

  • Save over $500 billion a year in real estate, electricity, absenteeism, and turnover and productivity, that’s more than $11,000 per employee per year.

  • Increase national productivity by 5 million man-years or $270 billion worth of work.

  • Additionally save on utilities, janitorial services, security, maintenance, paper goods, coffee and water service, leased parking spaces, transit subsidies, ADA compliance, environmental penalties, equipment, furniture, and office supplies.

There is no doubt that remote work is one way businesses can cut costs by reducing the need for office space. There have been some pretty high profile examples of companies that have realised some major savings because of creating remote work programmes. Look at IBM: its team has decreased office space by 6 million square meters since 1995, and sold 5 million square meters of that space to the tune of $1 billion. Dell is aggressively working towards a workforce that’s at least 50% remote. Why? Because they’ve already seen results: just by having 20% of the 14,000 employees at its Texas headquarters work remotely in 2012, Dell saved $14 million.

There is another saving that remote work can unlock. Savings on Salaries. When you have a remote work programme in place you can hire people to work for your business in areas where the cost of living is lower, meaning that the salaries you need to pay can be less.

In a recent piece in BussinessTech entitled Salaries in SA: Joburg vs Cape Town vs Durban quoting a Quest Staffing Solutions report, they made this observation.

For instance if one were to take a manager position in the different categories the results are as follows:

  • A finance manager is paid 10% higher in Gauteng than in the Western Cape

  • An HR Manager is paid 25% higher in Gauteng than in the Western Cape

  • A marketing manager is paid 10% higher in Gauteng than in the Western Cape

  • An administrative manager is paid 19% higher in Gauteng than in the Western Cape

When the salaries of the above are aggregated this translates to salaries in Gauteng being 16% higher.

A 16% reduction in expenses as a result of a cut in wages is not to be scoffed at!

Obviously retrenching staff in order to rehire at a saving may not be practical for you. So an alternative is to speak to your existing staff and find out from them if they would be willing to take a pay cut in order to work remotely. A recent survey of IT workers found that 35% were willing to take a 10% pay cut for the privilege of working remotely!

It is our view that remote work should be a serious consideration for South African SME's as they face the challenges of low profitability going forward. However, remember that although this is an option it needs to be approached strategically and with necessary planning and training. There is work (and pain) required to put a remote work programme in place for a business but that is worth much more than having to retrench staff or close shop altogether.

If you would like to find out how we can help your company put a remote work strategy and programme in place for you, please email us (info at futureworkiq.com) or message me and we will setup an appointment to discuss the next steps in more detail.