Of the more than 2 000 SME’s surveyed in the sixth annual SME Survey, of which Standard Bank is a major sponsor, only 5% indicated that they were unprofitable.

The sectors in which a higher than average proportion of SME’s reported that they were strongly profitable were:

“In addition to the above results, SME’s reported that they were very confident in the future despite the current recession in the areas of Advertising (41%); Communications (46%); IT software and services (42%); and Wholesale (44%), with Communications, IT Software and Services, and Wholesale being the healthiest.

“It was significant that only 5% of SME’s reported low or no confidence in their ability to survive the recession, with only 1% saying they are not confident at all. A little over a third are neither pessimistic nor optimistic, which, in the context of a recession, is a positive. However, a massive 60% have high or very high confidence in their ability to survive.”

The SME sector had grasped the reality of recession, and was dealing with it, rather than denying it, and were further displaying their ability to weather the stumbling economy and its impact by working through the recession rather than relying on further loans and advances. This fact being displayed by requests for finance remaining at substantially the same levels as the previous year.

“Most have survived the stresses of the present recession by returning to the basics of business.  They have placed emphasis on tighter control of finances, optimising costs, and marketing and also concentrated on delivering higher standards of service. These are all major factors in ensuring sustainability and survival, van Ravesteyn said, adding that the areas of financial stress experienced in the SME sector is more evident in residential property and related areas (i.e. estate agents, builders, suppliers, and contractors), vehicle dealerships, restaurants and transport.

“The importance of the SME sector to the South African economy can be extrapolated from figures supplied by CIPRO, a division of the Department of Trade and Industry, which indicates that there are more than 2million close corporations registered in South Africa- vastly outnumbering the 3 445 public companies and 455 445 private companies. The fact that most report that they are strongly profitable or surviving the recession augurs well for the country and future employment,” said van Ravesteyn.

Aiding the responsiveness of the SME sector to the present economic conditions was   their size, agility, ability to make faster decisions and the entrepreneurial “ hands on style” and control of all aspects of the business.

Positive market factors which were starting to show signs of support to  the sector were declining interest rates, indications that inflation was being controlled and dropping steadily towards the acceptable level of six percent indicated by the Reserve Bank. These will all influence business confidence, whilst the real benefits will still follow in the months to come as there is a lag effect on the SME market.

“Although there are indications that there will be no further rate reductions in the near future, SME’s have benefitted through reduced rates to date. The reduction of 500 basis points over the last months has reduced the burden of loan repayments, with some of the savings being translated into available liquidity and becoming available for reinvestment.

“In the agricultural environment SME’s were able to out-perform their peers in some of the other sectors.  This is attributed to the fact that food remains a basic human need and demand remained moderately stable.  This relatively better performance of agric SME’s were accomplished through increased focus on cost management; optimal resource allocation and exploiting economies of scale, value addition and appropriate price hedging to ensure sustainability,” van Ravesteyn said.

SME’s with their ability to react faster to market changes than larger companies had also consolidated other aspects of their businesses.

 “The static requests for additional supporting finance have indicated that entrepreneurs are reducing their exposure. They are undoubtedly cutting costs on luxury items such as cars and digging in for the duration of the recession by focusing expenditure on the primary needs of their businesses,” said van Ravesteyn.

SME’s were relocating to cheaper premises, looking towards technologies like the Internet to expand reach and reduce costs, tightening up on financial controls and even offering favourable discounts to customers offering early settlement. 

“Many SMEs have moved swiftly back to business basics. Their ability to do so rapidly and effectively has no doubt contributed to the strong picture we see in a time when larger businesses are facing major challenges. Profitable business opportunities however also still exist, even in a recession and entrepreneurs whom explore these will definitely capitalise once the market improves,” van Ravesteyn concluded.