Blog
| 27 August 2009
Cash flow & adaptability in micro enterprise
Times have been tough recently, the international economic crisis wasn't so much of a crisis as it was a poke in the ribs, but never the less some have been harder hit than others. Small businesses are said to be able to weather the storm in situations like this more than companies, largely due to adaptability and I would say that this is true in this case.
The strength of a micro enterprise is really its size! Being owner run, with a small staff complement there is no other business as capable of spotting change and adapting to it. Decisions are made instantly and actions taken, unlike a large company where instructions come from the top and take time to filter through the system. Invariably the owner of a small business is also the sales person, often they are also the manufacturer and the book-keeper so this ensures that they have their finger on the very pulse of their business, whilst large companies rely on paid staff to report trends and issues, and most of them rely solely on the figures at the end of the financial month.
They say that for every plus there is a minus and this is where the micro enterprise sector is extremely vulnerable, because not only does it thrive on adapting to various conditions it effectively relies fully on being able to adapt to various conditions. The businesses that have successfully survived this winter (a recession led winter at that!) are businesses that were already prepared or were able to adapt (and in fact probably both) but for those who hesitated or took a gamble and tried to make it through without capital it must have been tough - if they made it through at all.
And often it is external forces that create the biggest risk points. Take for example your Landlord, if you are sensible you have got enough capital to cover your rent and utilities, staff and expenses for a determined number of months before the debt collectors move in, but if a micro enterprise is billed during a weak period such as this for unexpected costs it could be the final straw that breaks the camel's back. All of a sudden you have a situation where a large company is responding to whatever issue caused the invoice (be it a system error, human error or just an increase) and being the powerhouse they are, they are not frightened to pursue outstanding monies to the full extent of the very expensive lawyer.
Micro to Small Enterprise relies on communication, planning and adaptability. In a sense they survive hand-to-mouth and whilst planning and provision is essential, every micro enterprise will go through the stage where they are scraping the bank account to cover their expenses. Hopefully, if they are getting it all right, then that doesn't last too long, but larger companies need to be considerate of this factor when dealing with micro-enterprise and give them the necessary space in which to operate their finances. Giving a micro enterprise seven days in which to pay an invoice that is more than their turnover for the whole month is not nice! Following that up with a solicitor's letter (and rather large bill!) is even worse.
The same applies for payments to micro enterprise. The government is all about helping small business these days and yet one of the biggest issues facing businesses that have tendered and won contracts for their start-up or micro enterprise is the 90 days (sometimes more) payment period. By the time the money comes through, a micro enterprise that has relied on a small number of customers with a high value of work could be bankrupt.
All small businesses need to account for threats such as this in the market place, especially when there was plenty of warning from the international arena that this was going to be a hard winter and consideration must be given to account for any orders (especially for large amounts of money) that may not be paid on time; by the same token though, larger companies must also account for micro enterprise's vulnerability at sensitive times such as these and make provision for the long term if micro enterprise is truly to become sustainable in South Africa.
