4 under-rated skills you should learn to enhance your small business

You should never reach a point at which you can assert that your education is complete. Your greatest defence against uncertainty is continuous learning. Education comes in two flavours, neither of which should be neglected – learning for intellectual edification, and learning to acquire practical competence in some new area. The former category is the most free as you will be following your attention wherever it lands. The latter category, skills development, may also be interest-focussed. But the prerogative in this case is to create a functional understanding of actions that may enhance your life in some regard.

As a small business owner, you will have already acquired a working competency in financial management, marketing and sales, customer service, project management, negotiation, delegation, networking and time management.

When you’re a small business owner, you want to invest your practical learning time in areas that will show a return. Here are a few ideas that can enhance your small business’s performance.

  1. Take control of your knowledge

Too few small business owners know how to capture, process, and analyse their company data. Taking control of your data means capturing the useful information that comes to your company. Beyond your financials, this means getting to grips with people that enter your sales funnel at any stage. Too many businesses make the mistake of letting potential customers get away by not keeping track of the contact that they have with your business.

  1. Master mailers and modern marketing

Modern marketing techniques revolve around a golden axis of email marketing, search engine optimisation, paid search advertising, social media presence, and display advertising. For small businesses, the most effective means of advertising online is to set up a mailing list. Have a simple contact form on your website, and send regular monthly emails to those who sign up.

  1. Get to grips with negotiation

While you will have a great deal of experience in negotiating both with suppliers and customers, you may be falling prey to poor negotiation techniques that get you into contracts that don’t work in your favour and cut into your bottom line. Great negotiation involves being totally aware of your own situation, having as good an idea of your opponent’s position, and knowing how to leverage a few behavioural tricks to get your best offer. For the first half, you may need to rely on your ability to analyse your business position from a financial perspective.

  1. Organise your business better

There are default positions that people tend to use as a matter of course when it comes to creating a business structure – the top-down hierarchy predominates. But hierarchies can be unnecessarily rigid, and can restrain a business’s growth. Mastering structuring your business means learning about the various ways that you can move information across your business. If you’re looking to keep high-value employees, for instance, you might consider employee share schemes that incentivise your workers to give their best, and to keep going at the company.

How to help your clients expand their small business

As an accountant for small business, you act as your clients’ first point of contact for financial advice.

A business can look to expand in a number of ways. You can help your clients to choose the kind of expansion that best suits their current state, and once that path has been chosen, help them to reach their growth potential.

Choosing when to expand a business

Expanding a business can mean adding locations from which it operates, embarking on a new service or product line, becoming an exporter, buying up another business’s operations, taking on more employees, or improving marketing efforts to make deeper inroads in their current market.

Businesses are typically pursue expansionary strategies once they have reached a measure of success in securing their place in their market. A business’s lifecycle will take them through the establishment phase, then through the survival phase in which a business strives to achieve profitability and to increase cash resources, to the success phase, in which the business moves to create an institutional structure and begins to leverage its borrowing power. It is at this stage that a business should intensively plan its expansionary strategy.

Choosing how to expand a business

A business can expand in a number of ways. These include:

  • Adding a new location
  • Exporting goods overseas
  • Employ more workers
  • Introduce a new service or product line
  • Upgrade current premises or capital equipment.

With investment expansions, your primary role for your client will be helping your client secure the loans that they’ll need. To do this, preparing robust financial reports and cash flow projections will go a long way to convincing banks to give your client’s business a chance.

When the business growth regards expanding distribution overseas, your expertise will come in handy in ensuring that your client keeps to the letter of the law as regards the duties that they’ll need to pay, the sorting of currency issues, and making certain that they meet the legal requirements for doing business in their targeted country.

When a company wants to employ more workers, you can contribute by structuring the new payroll properly, ensuring that payments go off in good time. You can also provide great suggestions to business owners about how to distribute information among new employees – a transparent pay-grade system can reap huge benefits. When workers know what it takes to rise through the ranks, they’re more likely to work to achieve those goals. If a business is looking to keep performing workers, you may be able to help your clients manage an employee share scheme, to keep talent at their company, and to equitably distribute the rewards of a firm’s good performance.

Shock proof – how to protect your business from unforeseen events

Nassim Taleb introduced the concept of antifragility into the modern business world in his book Antifragile. For Taleb, something is antifragile when it benefits from uncertainty. Taleb distinguishes entities that are fragile and robust, from antifragile entities – fragile things break when they encounter harsh outside forces, robust things remain unchanged in the face of outside forces.

By distinguishing the third class that grows under stress, the antifragile, Taleb shows that we should reconsider the ideals from which we design things. Businesses are often confronted with uncertain externalities. For Taleb, our economy should be antifragile, our businesses should be antifragile.

With this new concept established, the key question becomes: How can I make my business anti-fragile?

Identifying antifragility

Antifragile entities are things that benefit from volatility and disorder. When faced with some event that causes harm, the antifragile entity learns from that event. Among the key attributes of an antifragile business is diversity.

Diversity means having a number of resources from which to draw when faced with a new, potentially harmful situation. Finding the best use for the resources can lead to mistakes – but for Taleb, mistakes are to be embraced. Mistakes are the means by which a business can learn and strengthen itself.

Absorbing mistakes

The key to diversity as a value is that it can allow your business to absorb the mistakes you may make, and change for the better in response. Diversity may mean having people in leadership roles who are adaptable and able to enact different tactics quickly, employing people with a strong sense of autonomy who provide a variety of perspectives when needed, or being able to pivot in terms of product or service when new opportunities or challenges are encountered.

Don’t be rigid

Fragility is created when a business’s structure is rigid. Rigidity emerges as a key trait for businesses that are reliant on debt and leverage – if you are unable to change your business because of your financial obligations, then you leave yourself open to breakage when a shock is encountered.

 

Likewise, insisting on a top-down hierarchy for planning and implementation created unnecessary rigidity – useful business information can come from any point in your business, and often the lowest paid employees will be able to identify business weaknesses that you are blind to because of your position at the top of the management pyramid.

When it comes to your employees, their work can create fragility under certain conditions. Taleb argues that salaried employees are fragile, while self-employed workers are antifragile. In order to put this into practice, a business might commit to an employee share scheme. Managers love to talk about employees taking ownership of their work, but if there is no reflection of this sentiment in reality, then it is advice that is condemned to be ignored.

Antifragile is a concept that demands attention. It can open your eyes to weaknesses in your business that you had overlooked, and it could show you hidden virtues in your business that you’d failed to appreciate.

South African small business environment, May 2017

In April, Statistics South Africa releases a large number of reports, detailing state of the country, across a number of sectors. We’ll look at a few sectors that are of particular interest to small businesses, including retail, liquidations and insolvencies, the producer price index, and export and import indices.

Re: Retail

Retail is in a period of decline. Retails sales were down 1.7%, year-on-year, in February 2017. The clothes trade (comprising textile, clothing, footwear, and leather goods) recorded -7.6% annual growth rate. Annual growth was negative for household furniture, appliances and equipment retailers (-6.5%), hardware, paint and glass retailers (-5.5%), and retailers categorised as ‘Other’ by StatsSA (-5.5%; these retailers include bookstores, jewellers, sports and entertainment stores, and second-hand traders).

The types of retailers that showed positive year-on-year sales were those trading in food, beverages, and tobacco in specialised stores (5.8%), general dealers (0.8%), and pharmaceuticals and medical goods, cosmetics and toiletries (3.3%).

The largest retailer types, by retail sales at current prices are general dealers (R35 million in February), textiles and clothing (R11.5 million), and ‘Other’ (R7 million). Total retail sales in February 2017 came to R73.7 million.

Out of business

Liquidations rose in March 2017, compared to the same month last year. Year-on-year, liquidations rose by 17%, with a total of 188 cases recorded, comprising voluntary (174) and compulsory liquidations (14).

Businesses in the trade, catering and accommodation industry were the hardest hit by liquidations, with a total of 51 cases recorded, 13 more than the previous year. Despite the year-on-year increase in liquidations, when the first quarter of 2017 is compared to the first quarter of 2016, the number of liquidations showed a 13% decrease.

The number of insolvencies recorded in February 2017 was 13% fewer than those recorded in February 2016. This decline in insolvencies held when quarters ending in February were compared from 2016 to 2017 – a 16% decline, amounting to 105 fewer insolvencies.

Producer price index

The producer price index (PPI) is a measure of the change in the prices of goods when leaving their place of production, or the prices as the goods enter the production process.

Between March 2016 and March 2017, the PPI for final manufactured goods changed by 5.2%. The sectoral drivers of this rise were food, beverage and tobacco products, and coke, petroleum, chemical, rubber and plastic products.

The annual percentage change in the PPI in March 2017 for intermediate manufactured goods was 6.8 %, for electricity and water was 10.8%, for mining was 6%, and, for agriculture, forestry and fishing was -4.2%.

Import and export value

The export and import unit value indices for February 2017 shows the trends in import and export unit values recorded in South Africa. The export unit value index (UVI) for February 2017 was -3.5% compared to January 2017, but when compared to the same period last year, showed a 2.3% gain.

The UVI for imported goods increased by 0.3% compared to January 2017, but the annual rate of change was -9%. The UVI for imported metal, machinery and equipment was an annualised -6.4%, which was the largest contributor to the total decline in the index.

South African small business environment, April 2017

South African businesses have had to brace themselves for difficult times in 2017.

The news that South Africa’s sovereign debt risk has been classified as “junk” by two of the three major credit rating agencies will define South Africa’s economy for years to come. This change in credit rating came as a consequence of President Zuma’s cabinet reshuffle. The finance minister, Pravin Gordhan, trusted by the markets, was replaced by Malusi Gigaba, a close ally to the President. This action led to wide-spread strike action, but has not yet led to a substantive reaction from the governing ANC party.

The ramifications of this redefinition of the national government’s ability to service its debt for small business are not immediately obvious. Here are a few things to anticipate in coming months:

Lapsing public services

If a government is not granted credit, as is now more likely following the changed credit rating, then that government may no longer be able to afford to pay for certain things, due to a cash shortfall. With no money to pay for these services, the quality of governance will take a hit – this could mean public sector strikes on a large scale, fuel hikes, and suspension of government-run services. As South Africans have come to know, disruptions such as these can cause havoc on the proper running of a business.

Outside influence on policy

When governments cannot borrow from conventional sources, they are often forced to borrow from institutions such as the International Monetary Fund (IMF) to keep basic services going. The problem with borrowing from places like the IMF is that governments lose their ability to spend money as they see fit. The IMF typically forces borrowing governments to adopt structural adjustment measures – this essentially amounts to a loss of sovereignty. With outside players interfering in the running of government, South Africa may face policies that run contrary to the best interests of the nation.

Interest rate hikes

As the South African state’s ability to borrow has taken a hit following the junk status announcements, so too has the ability of ordinary South Africans to borrow money. Interest rates determine the cost of borrowing money, and will rise in months to come. What this means for small businesses is that their ability to borrow will become more difficult. There is a greater disincentive to expand operations, as borrowing becomes more expensive, which in turn leads to stagnant growth in the economy at large.

Import and inflation problems

While the Rand’s weaker status is good news for South African companies that rely on outsourced work from developed countries and for exporters, the majority of South Africans will be negatively hit by the weaker currency. South Africa is a globalised country – many of the manufactured goods in South Africa have their origin overseas. For a South African small business that relies on overseas inputs, like capital machinery, the weak Rand will be devastating.

The knock-on effects of a weakened Rand may mean food and household goods inflation. For a country that has had a stagnant average real wage level for almost a decade, this may be devastating for ordinary households. For businesses, inflation pressures could precipitate insolvency, as the cost of running a business becomes too great.

A Look inside South African Micro Businesses

South Africa’s informal sector is large. Some estimates put the value of informal businesses to the economy at R450m in 2010 – a number that is a conservative estimate.

One of the great tasks in the nation is growing these businesses. Many informal businesses – or micro businesses – are located in low-income housing areas. Developing businesses in these areas has a number of positive effects – it brings more capital into these areas, it drives better conditions for living and business, and it encourages other entrepreneurial minds to give the business world a go.

South Africa’s informal sector is large. Some estimates put the value of informal businesses to the economy at R450m in 2010 – a number that is a conservative estimate.

One of the great tasks in the nation is growing these businesses. Many informal businesses – or micro businesses – are located in low-income housing areas. Developing businesses in these areas has a number of positive effects – it brings more capital into these areas, it drives better conditions for living and business, and it encourages other entrepreneurial minds to give the business world a go.

One remarkable recent study of South Africa’s micro business sector takes a comprehensive look at the business activities that go on in a northern Johannesburg, Gauteng area called Ivory Park. The project, called Emergent City, collects research from two main sources, the Sustainable Livelihoods Foundation, and UrbanWorks Architecture

The aims of this study are to better understand the dynamics in one particular location, in order to develop insights into how businesses operate currently, and how the environment for entrepreneurs can be improved. If a significant share of South African informal micro enterprises can move from being unregistered to registered, not only will the tax coffers get a boost, but the ability of these firms to grow will be improved as funding becomes available.

The project is divided into seven parts, with images accompanying text, in order to explain an environment that might otherwise puzzle the outside observer. The ‘Sections’ section, for instance, uses photos and diagrams to show and explain how public space is use in high streets, taxi ranks, and neighbourhood streets. It shows how different kinds of economic activity in different sections work with the allocated spaces. Paired with the ‘Annotated Street Life’ section, the viewer gets a deep insight into how space is currently used for commerce.

The ‘‘Trade’ and ‘Structures’ sections catalogue the various types of micro businesses found in the area – 17 in total – and then provides a series of narratives, provided by the micro business owners of the area. The structures that many micro businesses rely on can be incredibly small – a fire drum for braaied meat, mielies, and so on – or relatively large, like a shipping container.

The practical value for this research might not be immediately obvious. However, for a micro business lender, or a small business accountant looking to help micro businesses move into the formal sector, having a thorough catalogue of the kinds of commerce that currently exists provides a new way to interpret the capital owned by micro businesses. Seeing a business environment opened up with research is important for those whose experience has tended towards more conventional business environments.

Further, for those in the government, using this sort of research as a guide can help service delivery and interventions – for instance, a smart planner might push for wider pavements so as to accommodate more pedestrian traffic, in order to get more eyes on the product for street based vendors. If a property developer is looking to invest in low-income business premises, research of this calibre can inform the kind of developments, as well as the likelihood of successful business rentals.

The Emergent City looks at the many ways micro businesses work, and provides ideas as to how these small businesses might come to lead the elevation of the areas in which they operate.