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Future-proofing your small business to weather the storm

When talking about the future, we need to look at the current situation and this may be uncomfortable at times, but we must plan to recover and future-proof our small business. But how can we do it? Mike Anderson (Founder & CEO of the NSBC) asked Anita Opperman (Mastercard – Commercial Sales Specialist) for some advice on future-proofing your small business to weather the current storm.

How has the pandemic impacted small businesses and the challenges it exposed?

There have been some serious challenges that have impacted small businesses during the last 500 hundred or so days. The lengthy lockdown in South Africa and the slowdown in the economy has impacted SMEs significantly. There have been some interesting statistics around the impact of the pandemic on South Africa. They are:

  • 43% of South African small businesses had to close their doors during the pandemic and analysts are predicting the around 60% of SMEs might close their businesses indefinitely.
  • 60% of permanent jobs were lost.
  • 70% of SMEs have reduced their spending because they were closed for long periods, had to lay off employees, and work fewer hours.

There has also been a shift in consumer behaviour. The rise in online shopping has skyrocketed. There has been a reduction in cash and cheques compared to online payment methods.

What are some of the changes since the onset of COVID-19?

Everyone has had to adapt the way they live, the way they work, and the way that they shop. If you look at how you shopped before the pandemic to now, it is very different. You think twice about where you need to go to shop and how quickly you can shop so that you can return to safety again. In a recent global study with 5500 major MasterCard merchants, they found that between Q1 of 2020 to Q1 of 2021 more than a fifth of the merchants globally had to increase the number of ways they connect with their customers.

There are two trends that we have seen. The first trend is the rise in contactless payments in-store. As people are not comfortable touching various surfaces and prefer contactless payments. The second trend is the rise in online shopping that has come through.

The top three items that are being purchased are:

  • Data and mobile top-ups
  • Clothing
  • Day-to-day supplies

We move beyond the physical and look at how virtual experiences have now moved online. Customers are doing their entertainment online, like watching movies and series through online subscription programmes. 60% of South Africans are using the pandemic as a positive learning experience.

71% of respondents on the survey said that they would continue to shop online post the pandemic.

What are some of the new emerging payment methods you are seeing and what is the takeout for SMEs?

The Mastercard new payment index, which surveyed 1000 South African consumers, saw a strong desire from South Africans to support small businesses, especially those that offered a variety of digital and e-commerce facilities. 66% have said they have tried a new payment which they would not have tried under normal circumstances. These new payments are scanning a QR code, using a digital or mobile wallet, or even using biometrics. 75% said they would be more loyal to retailers that offer multiple payment options.

Though it has been a difficult time, this is an opportunity to pivot your operation into the digital sphere and start looking at new payment methods that are available.

What are the challenges for SMEs who want to go the digital way?

SMEs don’t have the big teams who can work on ways to pivot their business. Many small businesses had to quickly figure out how they can change their operations and started looking at the digital options. But there is still a gap between those who have the skills to use the opportunity and those who are still struggling to figure it out.

The biggest barrier for small businesses wanting to trade online is the cost and the complexity of setting up an online platform. They need to think about the design, the compliance factors of doing business online, how they can protect their business from a cybersecurity perspective, and how to use digital marketing to attract their customer to their online store.

What is your advice for the e-commerce business over the next few months and beyond?

Consumers are looking for similar things from online shops and certain attitudes have developed with the pandemic.

Some consumers want faster delivery since the introduction of same-day delivery from apps like Checkers 60Sixty and Pick n Pay’s Bottle and are looking for instant gratification online. Furthermore, they have become more price sensitive.

Some advice for SMEs:

  •  Think about how you can differentiate. What is the specific value proposition you can deliver from a product point of view? and can this be adjusted to what your customer expects.
  • Be open to new opportunities and new ways of doing business. Look at the digital opportunities that are available to you and how you can leverage them in your business.

How can going digital help an SME rebuild and future-proof their business?

Going digitally has many benefits. With the increase in competition, the higher customer expectation, and the deeper financial experience, SMEs need to act swiftly and reimagine their customer engagement and their whole brand experience.

Data has shown that those SMEs who hadn’t gone digital before the pandemic were hit the hardest and were closed for longer periods. Those who had adopted a new way of doing business had a major payoff. Some SMEs reported that they have seen a jump in sales, leads and increased employment numbers. There is another study that says small businesses who digitise and invest in new payment technologies have the potential to increase their revenue by an average of 40%.

We know that the accelerated digital era can pose many risks for SMEs. How can SMEs protect their businesses in this new area?

Everyone can be attacked but smaller businesses have become prime targets for these cyberattacks. In March 2021, there were nearly 3600 fake COVID websites created. There was a 600% increase in email scams.  127% increase in exposed endpoints. 80% of companies have seen a rise in cyberattacks. With this in mind, there are four critical cyber issues to be aware of:

  • Authentication and passwords
  • Software updates
  • Phishing
  • USB and removable media

Do your research and investigate cyber security tools that can provide you with training and guidance in terms of how to recognise cyberattacks. Here is a toolkit to help you reduce the risk in your business.

How can the digitisation of collections boost business health?

Every step of the collections process is important. Many SMEs run their business on paper-based solutions but bringing some of the processes online could yield great benefits for SMEs.

There are tools available where SMEs can quickly create email invoices when they have done the job or delivered the product. Automate your billing process. There are tools available that can do this for you with very little manual intervention. This ensures your customers are invoiced quickly and reduces the errors made. It also helps to speed up the payment time.

Another aspect to consider is accepting payments online. 48% of the most efficient businesses in a Mastercard survey accept customer payments through their website compared to a third of their peers. Payment portal software provides a secure area within your website where customers can quickly view the bill and then make the payment.

What are some tips for businesses to bring in to improve cash flow?

The golden rule for cash flow is to keep your funds for as long as possible. Use some strategic habits to help you conserve your cash so that you will have cash for when your business needs it. There are four elements to remember when thinking about cashflow:

  1. Create a business plan and revisit it often. Remember a business plan is a living document.
  2. Time your payments strategically. By paying your bills electronically, you have greater control of when funds leave your bank.
  3. Engage with your vendors. Educate them on the benefits of accepting cards or electronic transfers. One of the points is safer and more seamless payments but it will also simplify the vendor’s receivables process.
  4. Rethink early payments. Many vendors or suppliers will offer you an early settlement discount but try to weigh out the benefit. You may save R20 on a R1000 invoice, but that money could be used to pay your employees or other vendors more efficiently.

What are some of the key challenges for businesses to get credit?

Getting access to working capital is one of the most pressing needs that our SMEs are facing. The government launched an SME loan scheme and according to McKinsey, the 200-billion-rand loan guarantee scheme launched with the commercial banks in South Africa has had a very minimal take up.

Five months after the scheme went live only 8% of the available funds were taken up. On the demand side, SMEs may be reluctant to take on new debt or further leverage their business at this time because they are uncertain if they will be able to repay the funds in the current economic climate. On the supply side, factors limiting the uptake of the COVID-19 loan guarantee are a bank’s lack of distribution agility to reach SMEs at scale, and a very slow bank lending process in terms of assessing SMEs and finding out if they have that credit appetite. Over a third of SMEs believe that their current cash on hand can only last them a month or less. Therefore, helping SMEs to get working capital is crucial.

Another challenge is the credit scoring model that is employed by banks places a heavy burden on SMEs and limits their access to finance. Some SMEs, especially the micro-SMEs, may not have access to the documents required for applications to the traditional model of finance like access to evidence of your tax status and financial statements.

How can SMEs utilise their credit more effectively?

Using credit efficiently can have a positive impact on your cash flow.

Three tips for utilising credit more effectively are:

  • Use a credit card to pay for your expenses. It lets you take advantage of the float period between making a purchase and paying for it. It gives you almost 30 days depending on when the statement cuts off.
  • Depending on the credit card you have, you could accumulate points which you could then pour back into your business.
  • Using a card could help you to automate the scheduling of your bills which in turn reduces the time you need to manage your finances. It also keeps you to be current with your vendors which could prevent you from paying late fees.

How is Mastercard supporting SMEs during the pandemic?

Mastercard has had extensive experience in financial inclusion and has committed to connecting 1 billion people and 50 million SMEs to the worldwide digital economy by 2025.

With this customer-centric approach, Mastercard has pledged R250 million dollars across the globe in financial technology products and services to support SMEs over the next five years. In South Africa, we have managed to support small businesses and help them to pivot online. Mastercard teamed up with Standard Bank and Google to launch an initiative to enable small businesses to open an online store, get paid quickly and attract customers. Through this collaboration, SMEs can access Standard Bank’s Simply Blu. It is an all-in-one e-commerce solution powered by Mastercard’s payment gateway and you get free Google ads to the value of R500. This offer is available until the end of the year.

Another area we are working in is providing training to entrepreneurs to start and grow their businesses. In South Africa, Mastercard has empowered 3000 women entrepreneurs aged between 18 and 35 to gain entrepreneurial skills and start their ventures and create new jobs through a decade long partnership with Junior Achievements South Africa.

Finally, by leveraging their expansive network and multi-rail capabilities to deliver secure digital experiences and new opportunities for SMEs, Mastercard helped Nedbank in June 2020 to became the first bank in Africa to unveil its new tap-on-phone functionality which allows all merchants and business owners in South Africa to convert their mobile phones into payment acceptance devices.

Mastercard is a proud Partner of the NSBC