Small businesses in South Africa last year found it tough to operate amid the many economic challenges faced.

This was according to Garth Rossiter, the head of credit and chief risk officer at Lula.

Lula is a fast-growing Business 2 Business digital credit and capital provider in the country.

Rossiter said that 2023 was a difficult year for SMMEs, marked by fluctuating market dynamics.

“The results of our recent business performance survey are sobering. Nearly 68% of businesses did not meet their own goals, with close to 40% of respondents reportedly falling significantly below their business and growth expectations,” Rossiter said.

Over 609 South African SMMEs responded to a survey promoted by Lula in December 2023.

The survey ran from December 21, 2023 till January 5, 2024 and asked SMMEs to look back on the year in trade and answer questions related to business, finance, and their challenges while also looking ahead to 2024.

Most survey respondents identified sky-rocketing operational costs, as well as continuous load shedding throughout the year as the main challenges stifling performance in 2023.

“The silver lining was that, of the 32% of businesses which met their business goals, results of more than half of these respondents exceeded expectations, highlighting that South African businesses are resilient. Broader economic stagnation led to shrinking customer pools, which in turn meant that businesses had to tighten belts in 2023,” Rossiter said.

“In our 2023 survey, general inflation emerged as the most significant challenge affecting more than 80% of SMME owners and entrepreneurs. The increased cost of fuel (reported by 75% of businesses surveyed) was also a major factor,” Rossiter said.

“In terms of business cash flow and financial management, access to working capital remains a top-of-mind concern. Many respondents also pointed to the high interest rates and fees associated with capital acquisition. Furthermore, around half of the responding businesses said they grappled with slow customer payments, which impacted their daily operations and cash flow. Nearly 40% struggled with effectively tracking and managing their cash flow; an obstacle we are working to solve with a range of digital banking and business finance tools.

“Our official trading numbers for 2023, suggest that, despite the challenging economic climate, we have seen notable areas of growth and resilience. It is clear that our focused approach to providing tailored financial solutions to SMMEs has assisted our clients in addressing critical pain points with which SA’s small businesses commonly grapple,” Rossiter said.

Despite the challenging year that was, most businesses Lulo asked (65%) are feeling confident going into 2024.

The survey revealed that this optimistic outlook suggested a sense of positivity and a prevailing belief that the business environment will improve in 2024.

“The most-cited rationale for this confidence is rising customer demand, and secondly, the galloping pace of technological innovation, which promises to boost operational efficiency considerably over the coming years,” Rossiter said.

“An overwhelming majority, almost nine out of every ten, anticipate a need for more funding or financial support in 2024. Most indicated they would use such capital to cover the costs of equipment and maintenance, with about half indicating they would primarily use it to drive growth and expansion. Inventory and materials purchases, and simply covering operational costs also featured prominently,” Rossiter told Business Report.

He further advised that 2024 would be a year shaped by trends like a focus on environmental and social sustainability; the steady rise of remote and hybrid work models; and greater personalisation and customer-centric approaches.

“On the tech side, get ready to embrace e-commerce and online marketplaces, and to create digital marketing content. Also, keep a cautious eye on the rise of generative AI, and try to spot any business opportunities or threats it might present,” he said.

“As the business year kicks off in earnest, we expect to see South Africa’s businesses target new markets and invest in the skills training needed to expand. Our advice is to consider upscaling the tech they use this year to help save time – and ultimately, money – in 2024. We suggest that companies self-reflect honestly, analyse their performance and try to identify their ‘low-hanging fruits’,” Rossiter said.

BUSINESS REPORT