The most recent Consumer Credit Index stats show a disturbing trend of households increasingly not being able to service their own debt.
Of the 56.9 million active consumer credit accounts measured in the first quarter of 2016, one million are three months in arrears and 3.8 million are one month in arrears.
For business owners, this is a particularly nerve-wracking time as economic and political crises continue to create a perfect storm fuelled by a weak Rand, high labour costs and rising inflation.
But anyone who runs a business is blessed with more than their fair share of courage and – with a bit of clever planning – they can baton down the hatches and ride out the storm with their books firmly in the black.
Here are 7 strategies to keep your business debt-free:
1. Separate your business ‘must haves’ from your ‘nice to haves’
This might sound obvious, but it is worth thinking carefully about where you cut costs in tough times and where you keep spending. Many businesses, for instance, quickly cut their marketing spend, but this could be a mistake – if yours is the one business that is still very visible through your current marketing spend, it can be a huge competitive advantage.
Spending on ‘must haves’ should include the assets you need to produce value, product, service and innovation, research and development, customer service training and staffing, as well as upskilling of your existing employees. These are all areas which allow your business to evolve and grow.
On the other hand, some of these could be considered ‘nice to haves’ in this economic climate: replacing vehicles, IT equipment, or updating branding, and upgrading mobile phones.
A good tip is ‘zero-base budgeting’ – starting a budget from scratch will allow you to scrutinise and minimise costs.
2. Cash is king
In tough economic times, your pricing strategy is everything. And cash, as always, beats terms. So consider offering your clients discounts for cash – but don’t discount for the sake of it, do this only as part of a carefully considered pricing strategy. Discounting for bulk purchases is also a good strategy to consider.
3. Credit sales
For credit sales, you will need to implement a stringent policy to ensure that your customers can service their debt. It can be tempting to loosen up a bit on credit granting to make your sales figures look good – but a sale is not a sale until the money is paid, so make sure your clients are good for it.
4. Optimise the processes in your business
Running the tightest ship possible is critical to trading in the ‘storm’. Spend time identifying any inefficiencies in the business and working out systems and processes to streamline these. Here, researching international best practices, working with specialists and networking with other business owners can offer invaluable insights.
5. Technology is your friend
There are so many ways that technology can make your business more visible, more efficient, more modern and more attractive. Don’t be afraid to embrace the change that good use of technology can make in your business. Keep your eyes open for advancements which will lead to your advancement.
6. Upsell to your existing clients
It is cheaper and easier to sell to your existing clients than it is to attract new ones. By gaining a deep understanding of your clients’ wants and needs you can tailor products and solutions to these and increase their spend with you in the process.
7. Manage bad debt proactively
Rather than getting a big fright when clients don’t pay you, factor bad debt into your business as a potential risk and plan for it. Chase up on unpaid bills early and offer payment terms to help clients settle debt when necessary.
About the author: Jannie Rossouw is head of Sanlam Business Market.
