“If you ran your household finances like government runs the country’s money, your bank would shut your accounts faster than you could say ‘Bosasa'”, says Bruce Whitfield on Business Insider following Tito Mboweni’s budget speech. But what are the takeaways? What can your business learn from the SA economy and this week’s budget speech?
It is hard to shine a positive light on the 2019 budget speech. And it is mainly because the economy is in such a tough spot – Mboweni’s budget can only be a reflection on the current state of the SA economy. Having an optimistic budget with plans for growth and job creation is difficult when there are so many problems to deal with. As per President Ramaphosa’s State of the Nation address: “Public finances are constrained, our capacity to borrow is extremely limited. It is, therefore, necessary for us to prioritise, to make trade-offs.” (Biznews.com)
Poor economic sentiment affects all and leads to poor growth. It is true for governments and it is true for business. Here are some insights form the budget speech I think all businesses should keep in mind.
The Danger of Debt. Debt is a part of life and there are but a few businesses that can start and grow without incurring some kind of debt along the way. “Borrowing is a positive thing for working economies unless it goes unchecked and gets out of hand”, says Nat Berman on Moneyinc.com. Borrowing when your economy is taking strain is however problematic. Having to incur further debt to cover existing debt obligations is the start of a vicious cycle. And that is true for anyone who borrows money. And then it is not only about the debt, but also the interest. “This year the government will spend R243 billion more than it earns. This will require it to borrow R1.2 billion a day. This year it will pay R209.4 billion in interest or R1 billion a weekday.” (Citypress.news24.com). Borrowing money to grow your business is the accepted practice, but interest rates have to be carefully negotiated and debt closely monitored and managed.
Minding your Management. You can have a sound business plan, a well-considered budget and even a strong economic environment, but if your business is miss-managed, you are in trouble. Conditions might not always have been ideal for economic growth during the Zuma years, but the mismanagement, maladministration and corruption have put us in a much worse position. Management that stays true to the company’s focus, are trustworthy beyond doubt and have the company’s best interest at heart is a massive business advantage.
People Problems. All levels of management are important and one of them is Human Resources. According to Business Insider, government staff salaries take 34.4c of each R1 in government expenses. An effective work force can make a big difference to your operation and I strongly believe in looking after the wellness of your employees. But too much staff, unmotivated employees and a culture of carelessness can cost you dearly.
Uncertainty is a killer. Uncertainty when it comes to policy, such as land reform, is not doing the SA economy any favours. Uncertainty leads to poor sentiment and is a threat to investment and economic growth. Uncertainty within a company structures does exactly the same and can do a lot of harm. Insecurity kills business confidence. Employees can look for other job opportunities or their discouragement can lead to poor performance at work. Perhaps one of the reasons our state employees are often criticized for their lack of efficiency?
Adding up. In the end, for any business to be successful or even just sustainable, it has to earn more than it spends. It is an issue for Eskom, for SAA and for the SA Government. It is, however, also the reality for many businesses – both for big corporates and small initiatives. It is also true for the individual. Slow months, certain spikes in expenses, etc. have an influence on our bottom line, but the overall picture needs to be in the green. And in tough economic times, this is much harder than one would think, even for established businesses.
All your eggs in one basket. Such a single-minded focus might be great if you are a boutique establishment focusing on one exceptional expertise. When it comes to your finances though, perhaps you need some other investments as well. There is no better example than Eskom. Government has all its electricity eggs in the Eskom basket and there are no substantial alternatives. What a predicament and embarrassment! Eskom is of course a case study of note also touching on mismanagement, corruption…
Responsibility. Regardless of how you ended up in a predicament, to enable change, we have to take responsibility. “We are masters of our own destiny”, said Mboweni. If it means we have to be prudent, so it is. Taking responsibility means to stop blaming others and finding a way in which to move forward. Perhaps it means not having salary increases or bonuses. Prudence is however an interesting subject, it is not only about spending less, it is about being clever about it, having insight and foresight. To stop marketing expenses might cut your overheads, but how does it impact your product’s performance? Can you afford to lose visibility in the market?
Perhaps there are more questions than answers, but if the budget speech makes us think about our businesses, rather than just worry about the fuel levy, sin tax and income tax, in the end, we might actually contribute to a healthier South African economy.