Small businesses learnt these three lessons in 2023

Many of us learnt some hard lessons in 2023 and the tough trading conditions with many challenges also taught small businesses quite a few things that they can use to be more successful in 2024 as the turbulence of the global, political and economic landscape disrupted attempts to return to “business as usual”.

It is a fact that 2023 saw many of the country’s small businesses gridlocked in an uphill battle while post-pandemic effects and various other challenges tested their resolve to keep their ventures afloat amid the uncertainty.

Now the beginning of a new year presents small businesses with the perfect opening to turn as many of last year’s difficulties into valuable opportunities, particularly around how to manage risk, Jason Mellow, head of business insurance at MiWay, says. This includes using localisation as a risk management strategy, getting ahead of the energy crisis and becoming more resilient against climate change.

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#1: Localisation as a risk management strategy

From a macroeconomic perspective, geopolitical tensions in Europe and the Israel-Palestine conflict late last year, had a ripple effect on the rest of the world. In 2023, this effect materialised in energy and food price hikes, as well as significant supply chain disruptions across the country.

“Many South African small businesses struggled to procure and import certain goods and services from abroad as a result of this. In addition, a recent CNN report claimed that the Israel-Gaza war, which has necessitated the rerouting of cargo ships, will inevitably lead to delays and price increases on the import-export front.”

Mellow says the ripple effects will very likely affect the cost of imports, shipping and ultimately, certain consumer goods.

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Recognise potential opportunity

Therefore, Mellow encourages entrepreneurs to recognise the potential for opportunity during times of disruption. He believes that one of the most important lessons to be learnt from this experience is the value of local production and domestic supply.

“Global shocks can put businesses at operational and financial risk and the fallout can be significant. When small businesses are unable to fulfil their contractual obligations, factors such as cash flow can be affected negatively.”

He says small businesses must also consider long-term reputational and to mitigate this risk, small businesses should decrease their reliance on foreign imports and diversify their supplier network as much as possible. This way they have an option B if option A is not able to deliver.

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#2: Find ways to get ahead of the energy crisis

On the local front, load shedding was arguably the greatest hurdle for South African small businesses last year. According to a report published by the Entrepreneurs’ Organisation (EO) South Africa chapter, the energy crisis resulted in financial losses for almost six out of every ten businesses.

“Of particular concern is the fact that as per the latest SME Confidence Index published by Business Partners Limited, as much as 27% of businesses cannot afford to invest in alternative energy solutions. Therefore, it is important to mitigate this risk by having insurance in place to provide a buffer against energy-related damages.”

He says for instance, small businesses can take out additional cover for damages caused by power surges and dips. This is of particular importance for businesses that rely on heavy-duty machinery, equipment and appliances.

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#3: The need for climate change resilience

In November last year, parts of Johannesburg were hit by an overnight hailstorm that caused severe damage to some businesses. This followed the intense rainfall and flooding throughout parts of the Western Cape in October which also had a profoundly negative impact on many small businesses, with the accumulative damage to farms in the region estimated to be more than R1 billion.

Mellow says these are just two examples of how climate change affects the frequency and severity of weather-related events, putting extra pressure on local businesses. Some of the disruptions caused by adverse weather include staff absenteeism, damage to property and vehicles, the destruction of equipment and moveable assets and business interruption.

“Considering the impending climate crisis, these kinds of volatile weather conditions are most likely going to be a part of our lived reality both now and into the future. Climate change-related risks therefore need to be at the top of the list of priorities for local businesses that need to find ways to circumvent the financial losses that can be incurred as a result.”

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Review your business insurance

He urges small business owners to revisit their property insurance policies as well as office contents insurance policies to ensure that the amount they are covered for is adequate, should the unexpected happen.

“It is also important for entrepreneurs and business owners to make discerning choices about where they base their businesses, as different geographical locations may be more susceptible to weather-related damage than others. These considerations will undoubtedly become more important as the effects of climate change play out.”

When it comes to staffing and working arrangements, small business owners could also benefit from putting measures in place to allow for blended or remote working environments, Mellow says.

“This may go a long way to ensure ongoing operations when adverse weather strikes and the safety of employees comes under threat. While we can never truly predict what lies ahead, emergency preparedness can be a lifesaver and give small business owners much needed peace of mind in uncertain times.”