Mastering smart savings for small business resilience
By Jeremy Lang
In 2024, more than 1 400 South African businesses entered liquidation, including The Cross Trainer, due to mounting financial pressure. Professor Waldo Krugell, an economist at North-West University, pinpointed the impact that high inflation, increasing interest rates, and the energy crisis had on consumer spending over several years as a driving factor behind the closure of many of these businesses and particularly those in retail.
It would be easy to blame the economic challenges but I’m sure if we dig a little deeper, we will see that some of these businesses lacked financial resilience. Small and medium enterprises (SMEs), especially, need to ensure they plan for times of higher expenses or reduced income as we’ve just experienced these last few years when consumers tightened their belts and reduced non-essential spending. I believe there is one key tool at the centre of every strategy to build financial resilience: your budget.
Budgeting is a practice
If cashflow is the life blood of a business, your budget is what’s directing traffic and preventing any blockages or collisions. There are two sides to a comprehensive budget. For one, it should identify your fixed expenses, track your variable expenses, and provide a forecast for the timeline of your business goals. On the flip side, the documented history of your business spending should form the foundation for strategic adjustments. This flip side, if actioned consistently, is what I refer to as the art of smart savings. Like any art, it will require practice, mistakes, and many adjustments before you find your flow. In the case of an SME, this would be a healthy cashflow.
Review your budget
Setting a budget is a proactive task so when allocating funds to your variable expenses, it requires informed guesswork. The information you’ll need to reference is your spending history or expense report. In the week or month prior – depending on how often you review – did your actual spend exceed or fall short of the allocated budget? A regular review allows you to spot trends like seasonal fluctuations in utility costs or increasing supplier charges and to adjust accordingly. What I appreciate most about this practice is the ability to spot opportunities to save.
Refine your spending
If budgeting is new to you or if it’s a tool that’s been largely underutilised in your business operations, you’re guaranteed to have cashflow inefficiencies. Perhaps you’re paying for services that are not serving your bottom line, maybe one of the services or products you provide needs more investment while another is costing more than it’s bringing in. Your budget will help you track what’s going out versus what is coming in and allow you to see what needs to be pruned to enable more growth.
Re-allocate your funds
Once you’ve identified areas where spending can be trimmed or cut altogether, you now have savings that can be redirected. You could think of it as financial chiropractic treatment to get your cashflow completely in line with your strategic objectives. To ensure financial resilience, ensure your cash reserve is stocked, you’ve honoured your debt repayments, and you’re investing in growth areas like training or automation.
Let your budget become the plan and purpose for every rand coming in and out of your business to ensure your venture becomes profitable, remains resilient and survives an economic downturn.
Jeremy Lang is the managing director at Business Partners.
BUSINESS REPORT