What small business owners fear most

[Dave A]

This recent Gallup poll of small business in the USA is pretty revealing.

How different is the situation here in South Africa?

What poses the greatest threat to your business?
What gives you the most problems in your business?
What is your greatest fear?

[Mark Atkinson]

I'm not sure if my answers will be relevant because of the unique situation I find myself in as well as the way we run our business, but:

I'd imagine that the situation is similar, if not even worse in terms of government regulations hindering the growth of certain small businesses. My business luckily doesn't have to comply with very many regulations in order to succeed and I don't compete for tenders to government institutions We don't tend to get asked for BEE certification either. That being said, being in the personal service sector, we don't qualify for benefits as other small businesses do.

Our biggest threat would probably be our competition. Extremely saturated market with no barrier to entry - not easy to set yourself above the crowd because of all the "noise".

Our biggest problems aside from competition come from the sheer magnitude of the cost of marketing a business in our field. Targeting an online audience in our field is most certainly NOT cheap. Calculating our ROI and determining exactly what we are willing to pay for leads is a big part of our planning.

My biggest fear (again, probably unique and not relevant to this discussion) is that I won't be able to get the business into a position where it can thrive with very limited input from myself within the next 2 years - resulting in us having to close the business down. Reason being when I begin my articles it will mean 3 years of no time to run the business.

[IanF]

My biggest fears
Government red tape.
Changing technology, eg computer tablets instead of NCR forms.
Cost of new technology
Increasing cost of business from greedy municipalities and government utilities.

Anyway how do we strategise around this?

[mother]

My biggest fear the last couple of months has been cash flow... When I "retired" from the corporate world 4 years ago, I used my pension to start up my business, and I had enough savings to keep me (personally) going for 3 years. My business' setup costs have been high, and a lot of our expenses to date have been on R&D (very necessary, since we're in unchartered waters). The last couple of months I've had no choice but to draw a salary, even though we haven't reached the turnover target where the business can afford to pay me. This in itself wouldn't have been disastrous, if our debtors' payments were up to date. And I can assure you that the current economic climate is NOT the reason for debtors' non-payments. The debtors that are taking up to 90 days to pay a COD account, are the affluent ones, not the middle class ones. In total, we have over 1 months' turnover short in overdue accounts. THAT is disastrous! So right now I fear that if our cash flow problems continue, it could result in us not being able to pay our salaries, or force us to close our doors.

The biggest threat in our business, is the fact that I am the business. This will only change once we have grown big enough to warrant employing more head office staff (i.e. managers to take over specialist functions, a buying office to take over sourcing and a designer to feed the factory and customers).

What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.

[murdock]

What poses the greatest threat to your business?

customers who dont pay on time...and not at all.


What gives you the most problems in your business?

customers who dont pay or on time...the last bad debt took me around 5 years to recover...which affects all aspects of my bussiness


What is your greatest fear?

doing a project and not getting paid

just like the situation i am in now...i finished the project a month ago...then the promises of payments started...and so i start hearing all the excuses i have heard before...sooooooo many times over and over and over.

what does it do to my bussiness...it total f^&*% it up...why because people want prompt...fast response time...best quality...at the cheapest price blah blah blah....hello if you dont pay your bill how do you expect a company to offer all these things...and yes it doesnt affect your company right now because your project is completed and up and running it all my other customers who suffer because now my next project is on hold because i need the payment from the last project to pay for goods supplied...so that my supplier can pay his supplier and so it destroys the food chain...

in the industry i am in and the qualification i have...if my bussiness folds tomorow...i could walk into a job tomororw and would probably earn more as a salary than my own company pays me...but unfortunatley it still goes back to payments...because if i dont get paid then i take the burden with me...

they only thing that would pose a threat but it would also affect me personally is if i was totally disable...which in the past proved to be my biggest challenge because without my arms and legs functioning i am no use to anyone...i am lucky to only be physically challenged at this point in my life...well and mentally...by you learnt to live with it and adapt...it doesnt stop me from doing what i need to do.

[murdock]

My biggest fear the last couple of months has been cash flow... When I "retired" from the corporate world 4 years ago, I used my pension to start up my business, and I had enough savings to keep me (personally) going for 3 years. My business' setup costs have been high, and a lot of our expenses to date have been on R&D (very necessary, since we're in unchartered waters). The last couple of months I've had no choice but to draw a salary, even though we haven't reached the turnover target where the business can afford to pay me. This in itself wouldn't have been disastrous, if our debtors' payments were up to date. And I can assure you that the current economic climate is NOT the reason for debtors' non-payments. The debtors that are taking up to 90 days to pay a COD account, are the affluent ones, not the middle class ones. In total, we have over 1 months' turnover short in overdue accounts. THAT is disastrous! So right now I fear that if our cash flow problems continue, it could result in us not being able to pay our salaries, or force us to close our doors.

The biggest threat in our business, is the fact that I am the business. This will only change once we have grown big enough to warrant employing more head office staff (i.e. managers to take over specialist functions, a buying office to take over sourcing and a designer to feed the factory and customers).

What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.

ditto...20 years later i am still in this position...and if all the people who owed me money actually paid me the full amount outstanding i could start a bussiness and have the capital required to run my bussiness efficiently if i was the tax man and could collect all the money... interest and fees they charge i could literally pay off my bond and be debt free...but running a company in this country where it cost you more than the outstanding debts to collect the money...chances are i will be paying my bond to term

[Blurock]

My biggest fear the last couple of months has been cash flow...

What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.

Poor admin may lead to cash flow problems. Late invoicing, not posting statements, wrong costing/pricing, not following up on delinquent debtors etc.

Admin and accounting is very important in any business. Although admin does not generate income, it may save you time and money. The business owner's time spent on checking and fixing things could be more productively spent on generating business and profits.

Do not employ a bookkeeper or admin assistant who can not perform at the required level just because they come "cheap". An unqualified person required to perform above their ability will cause more harm than good. Rather pay a bit more and get the job done properly so that you can carry on with your business.

Often small businesses can not afford such a person. Then rather consider a half day position or outsourcing that function until you can afford someone. Implement systems to be followed so that everyone knows what is to be expected. In the process you and your staff may also learn from this person and apply best practices in your business.

[Newretailer]

It seems like we are all struggling with the same thing! Cash flow is a nightmare for me too. I recently landed orders from a large company and even though I take 50% on placement of the first order, I still need the remainder to be paid promptly. These will be regular monthly orders and cash flow will sort itself out, but right now it is a BIG problem. I belong in a circus with all the juggling I am doing.

What I find the biggest challenge is to grow. After years my hard work is finally paying off. Customers are finding us without marketing. I need to expand into bigger premises and I just cannot afford it. Sometimes I remember how easy it was to draw a regular salary and the temptation is almost there to go back.

[murdock]

just be careful of moving to bigger premises...i can think of numerous companies which closed due to expansion...moving to bigger premises...there are some many factors to consider when you go bigger.

i have seen companies which had prime location and operated for many years...got well established then took the plunge...the most recent one...within 2 years there was a lock and notice on the door...liquidation.

unless you are gona go big all round...rather wait until you can afford it...and make sure you have taken all the overheads you will incur int account...the relocation cost...extra monthly overheads...cost to maintain a bigger building...addtional admin...etc etc

[Blurock]

I recently landed orders from a large company and even though I take 50% on placement of the first order, I still need the remainder to be paid promptly. These will be regular monthly orders and cash flow will sort itself out, but right now it is a BIG problem.

In this instance an invoice discounting facility may be the answer. Factoring is the most under utilized tool in South African business. It is not there to bail out struggling businesses, but rather a growth tool that can take your business to the next level.

By leveraging on the credit rating of your reputable customer, you can get up to 80% of the invoice value paid on confirmation of the POD. The retention, less charges is paid to you when the debtor pays the bank/financier.

You may also consider single invoice discounting where you do not have to factor your whole book, but you only sell those invoices which will give you enough cash to process the next order.

For more information visit http://www.grocashflo.com/ which includes an article about factoring for the small business.

[adrianh]

Isn't factoring very expensive?

[Blurock]

Isn't factoring very expensive?

Losing a sale because cash flow does not allow you to buy stock is far more expensive.

Yes, it can be expensive if you use it for the wrong reasons. If your business is on a downward spiral, factoring will just delay the inevitable, at a cost. But if you are in a growth phase you will always be looking for cash to fund the next order. Having cash available may also allow you to negotiate a better price from your supplier.

The cost of typical factoring facility with a bank is the same as an overdraft, plus a monthly discount fee of between 0.5% - 0.8% of the debtors' book. For this the bank or factoring house will also manage your collections and send out statements etc. Invoice discounting is for larger entities with a debtors book of R5million or more. Normally a flat fee of R5k - R6k plus interest on the amount utilised.

An alternative is single invoice discounting where you only pay for the invoice discounted. E.g Inv R100k. The factor pays you R70k on POD. The R30k retention, less interest or a fee of R5k is refunded upon receipt of the debtor's payment. (Some factors levy interest at between 4-5% p.m. others charge a flat fee). By using single invoice discounting, the cost becomes a variable fee that you can budget for.

The benefits are; not having to put up security (although personal surety will be required). You stay in control of your business (no sleeping partners). Not having to wait 30 - 60 days for payment, you can immediately acquire more stock and process the next order.The facility grows with your needs. If the invoice value grows, the facility amount increases accordingly. No need to re-apply. Use the facility for as long as you require.

As long as you have credible debtors, you can leverage on their credit rating as the factor is paid by the debtor. This allows the small business to build their own credit rating over time. If required they can then apply for more conventional banking facilities.

Go Grow Your Business!

[Newretailer]

I am so glad I belong to this forum. Thank you for this information.

[Abdi]

My biggest fear the last couple of months has been cash flow... When I "retired" from the corporate world 4 years ago, I used my pension to start up my business, and I had enough savings to keep me (personally) going for 3 years. My business' setup costs have been high, and a lot of our expenses to date have been on R&D (very necessary, since we're in unchartered waters). The last couple of months I've had no choice but to draw a salary, even though we haven't reached the turnover target where the business can afford to pay me. This in itself wouldn't have been disastrous, if our debtors' payments were up to date. And I can assure you that the current economic climate is NOT the reason for debtors' non-payments. The debtors that are taking up to 90 days to pay a COD account, are the affluent ones, not the middle class ones. In total, we have over 1 months' turnover short in overdue accounts. THAT is disastrous! So right now I fear that if our cash flow problems continue, it could result in us not being able to pay our salaries, or force us to close our doors.

The biggest threat in our business, is the fact that I am the business. This will only change once we have grown big enough to warrant employing more head office staff (i.e. managers to take over specialist functions, a buying office to take over sourcing and a designer to feed the factory and customers).

What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.

This is exactly my situation and I dont want to be too demanding on clients and scare them off but at the end I suffer.

[Justloadit]

This is exactly my situation and I dont want to be too demanding on clients and scare them off but at the end I suffer.

I also use to fear asking my customers for payment, but as time passes, the fear goes. Everyone knows you need money to operate. Overcome this fear, and be polite and upfront with a question such as "Hi xxxxx, I am a little tight for cash right now, can I come and collect my payment?"

You are requesting requesting politely. Never as "Can i get paid please?" - you open up a door way for you client to make excuses. Being upfront places them on the spot, which requires commitment from them.