How did SMEs transform themselves to cope with the recession? And what are the implications for their future sustainability?

Business basics will get you through the recession. That is the single most important and profound piece of advice to emerge from SME Survey 2009.

The annual survey investigates the factors behind the success of small and medium sized enterprises in South Africa. This is done by asking 2,500 SME business decision-makers about the issues they face and how they overcome these to remain competitive and sustainable.

Based on the responses, we have a very clear picture of what SMEs are doing to keep the wolf from the door in trying times. The responses also provide practical recommendations worth following.

Cash is king and strong systems essential

Topping the list were maintaining good cash flow and sound business administration & financial systems. These two factors were rated by 93% of SMEs as key in supporting their survival.

Cashflow is hardly surprising; it is, and always has been, at the heart of business viability. Somewhat surprising is the prominence given to systems; this tells us that business owners know that it is vital to have a finger on the pulse of the business. Managing cashflow goes hand in hand with such systems.

Customer is queen

SMEs also recognise that it is customers and their custom that result in top line performance. 91% of respondents rated having loyal customers as important to surviving the recession. Winning new business achieved the same weighting, as did good staff.

The high rankings for customer-related factors confirm the old adage that no matter what business you are in, you are in the people business. People buy from people; loyal customers and new customers are essential to consistent income.

And what about cost cutting?

Cutting costs, which may appear to be an obvious tactic to support a better bottom line, was ranked by fewer companies as important. At 83%, this is initially perhaps an anomaly, until one considers it in light of the shocks which SMEs had already suffered, including high fuel prices and interest rates. Those factors mean most SMEs have already cut overheads to the bone and are operating on a lean basis. Further cost cutting could result in loss of value creation.

Some other sustainability strategies

Eight out of ten respondents ranked access to finance and low or no debt as tactics to ensure survival.

Location, location, location, an almost ancient mantra of business, still holds true. 79% of respondents believe that this essential for sustainability.

An indication of woefully inadequate Government efforts to support small business can be seen in the mere 41% of respondents who felt this was a factor in getting through the downturn. However, those who have used government support rate it highly. For all others, it is irrelevant.

Strong management a must

The implications of these findings for the future sustainability and prosperity of SMEs is clear: sound business management and strategy is imperative. If these tactics are effective in sustaining SMEs through a recession, they are likely to be even more effective in growth of revenue and profitability when the economic cycle turns.

The bottom line is that both survival and growth require going back to business basics. There is no mystery, no elixir in this blueprint. Just sound business sense.