Wednesday, December 15, 2010

What does 2011 hold for small Business ?

From the desk of John Brandow

This article compliments of Business Partners
Much of the same
Growth to continue in 2011


SME decision makers can look forward to a New Year where not much will change.

While this is not the best news ever, the silver lining lies in the fact that growth will continue.

Most economists predict a growth in GDP of about 3.5% for next year. This is nowhere near the levels experienced during the boom but it is higher than the growth experienced in 2010 which should level out at approximately 2.9%.

RMB Chief Economist, Ettienne Le Roux, says one should also see the increased growth against the backdrop of the 1.8% contraction experienced in 2009.

In addition, the average growth rate in GDP over the last 20 years was 2.5%.

As a result, Business Partners Executive Director Gerrie van Biljon, advises SMEs to approach the New Year with caution.

"A positive element of the expected economic conditions is that there are always niche markets available to those who seek and identify these business opportunities," he says.

"An example is where larger businesses decide to move out of non core activities or cut product lines that have become uneconomical. To the next person, this opens a market again. When businesses close, even if this may sound negative, doors open for others."
Global woes
Le Roux says the biggest driver behind the growth will be consumer spending.

"As this gains momentum, more businesses will invest and the 3.5% growth will be generated locally," he says, adding that this is good news for SMEs.

The South African economy was fairly insulated against the global crash but not immune. Similarly, Le Roux says that one of the biggest headaches next year will be the European debt crisis. If the debt crisis escalates, European growth will decrease and so will South Africa's.

"The international issues cannot be solved in the short term. So the global and South African economic outlook remain uncertain…

"Consumer spending has recovered well and there is momentum at the moment despite job losses. So the reason for the spending is locally based on high wage increases, low inflation and low interest rates."

The Efficient Group's Chief Economist Dawie Roodt echoes these sentiments, adding that another risk factor is capital markets. If investors make a beeline for the door, local interest rates could rise sharply.

Other global risks include a shake-up in the political landscape, a decline in the dollar's strength and a possible slowdown of the Chinese economy.
Local conundrums
On the local front, Roodt says that the leftward movement by the powers that be need clarification, especially when it comes to the budget and economic growth path.

However, he does not expect radical changes but a small move to the left.

Roodt believes that the rand will mostly stay strong next year, as will inflation. Interest rate increases in 2011 seem unlikely.

He also thinks that consumer spending will continue to grow, supporting the retail sector. Financial services can also expect a decent year.

Property expert, Rode and Associates' Erwin Rode, does not expect much to happen in the residential property market.

But, whereas these property prices probably won't increase, the office rental market has started to pick up: "I don't expect fireworks but a moderate increase in rentals is possible".

The industrial market in turn will continue to be under strain as the rand remains strong and manufacturing struggles.

"The construction industry is crossing deep waters and things are difficult. We have idle capacity and an oversupply of most types of property space. This oversupply must first be taken up (before growth returns).

"It is going to be one of the toughest years for the building industry," Rode says.

Econometrix's Tony Twine says that sectors exposed to credit markets, particularly credit extended to consumers, should not be too optimistic about demand levels in 2011.

"Consumers remain highly indebted and credit suppliers will continue to be cautious because of the provisions of the National Credit Act. The Consumer Protection Act will force all vendors of goods and services to consumers and throughout the supply chain to behave with greater caution and professionalism than ever before."

But, consumer debt to income ratios will continue to decrease, which will drive some new credit creation.

"However, 2011 will begin with interest rates at levels lower than at any time since the 1970's, reducing the debt financing burden and freeing up some discretionary spending power, although not impacting on disposable income. High wage settlements prevalent during 2010 are unlikely to be repeated during 2011."

Twine adds that SMEs supplying goods and services to local authorities "may have to sharpen up their act as voters and higher tiers of government put pressure on local authorities to increase both the pace and effectiveness of service delivery, which will be the major tipping point of the 2011 elections.

"In many instances, there could well be new political bosses in many local authorities after the elections, who will be looking around for greater efficiencies and effectiveness from suppliers than has perhaps been the case in the past."
Wise words
Roodt comments: "The time to start a business is not when everything is going well. If you have a good plan and good backers and if you are an entrepreneur, then now is the time.

"Be sure of your budget and do not overextend yourself. Budget conservatively. Those who take the risks now will benefit when the economy starts growing again."

Cash flow remains the mantra for 2011.

"In an economy where there is limited growth, cash flow is the name of the game. Larger customers of SMEs will take advantage of this position to stretch payment terms to the maximum and put smaller business under pressure as a result," Van Biljon says.

"To take on a client just to have the business, only to write the money off at the end, is a short term and unsuccessful strategy.

"Deciding when to dump a client or when to tolerate slow payments or cut margins, is one of the most difficult and painful decisions.

"2011 can largely be regarded as a year of consolidation. Costs should be evaluated and contained, the business model reviewed and alternative measures to weather the storm should be considered.

"To cut gearing and personal spending comes at the right time and the expansion dreams may only be a realistic option at a later stage," Van Biljon says.

Tuesday, December 7, 2010

Finance options

From the desk of John Brandow

Getting finance when you are an Entrepreneur is one of the biggest challenges business owners faces. The lack of this is also one of the main reasons for business failure.
Most of the times the Entrepreneur starts looking for finance when it is too late.
It is when he realizes that he cannot cope and cannot manage his cashflow. By now no-one wants to help. Credit records are already going bad and it becomes a daily battle to survive.

The management of your management statements (What is that !!!??) is the most crucial part of running a business. Drafting and managing a cash flow projection document is as vital as the management statements

Part of our offering to Entrepreneur is to help them GET FUNDED. We have a combined experience of over 50 years in the field of finance and banking and know exactly what to do and where to go. Watch this blog for details of how to go about applying for finance and what we can assist you with

The gate is wide open go and get that business

The gate is wide open go and get that business

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