The weak and volatile rand is having a significant impact on local SMEs, making it more expensive for these businesses to import goods and supplies. The unpredictable nature of the currency also adds risk to any long-term plans a business makes. On the flip side, it’s making exports cheaper for the overseas customer, potentially increasing demand and opening up new markets.
Weak Rand’s Impact on Small Businesses
The prevailing economic climate, characterised by a weak rand, presents significant challenges for South African small and medium-sized enterprises (SMEs). The weak rand directly impacts the cost of imports, making it more expensive for businesses to bring in essential goods and materials. This increase in operational expenses can erode profit margins and strain financial resources.
A weak rand is also likely to reduce an SMEs competitiveness versus larger local businesses which may rely less on imports or have been able to hedge the cost of imported supplies. As import costs rise, SMEs are often compelled to increase prices in a bid to maintain profitability. However, this could render their products or services less attractive to increasingly price-sensitive consumers, potentially resulting in loss of market share.
Furthermore, the unpredictability of currency fluctuations makes medium to longer term financial planning more challenging, adding another layer of complexity to business operations.
“The weak rand is a double-edged sword for South African businesses,” says Tom Stuart, Chief Marketing Officer at SME services provider Lulalend.
“While it makes importing goods and services more expensive, it also presents opportunities for offshore exports. The key is for businesses to adapt and find ways to mitigate the impact.”
Lulalend advocates for strategic financial decision making like hedging contracts, which can serve as a buffer against the unpredictability of the market. Hedging contracts allow businesses to secure future costs at the current exchange rates, offering a degree of stability amidst the fluctuating economic landscape.
“The approach ensures that businesses are not caught off guard by sudden shifts in the exchange rate, thereby safeguarding their financial health,” says Stuart.
In addition to hedging, having swift and easy access to additional working capital is crucial. Exchange rate fluctuations can lead to unexpected price increases and extra costs, or even present new business (export) opportunities.
With a range of options tailored to common SME business challenges, Lulalend’s flexible financing solutions let you secure the necessary funds within 24 hours, empowering your business to effectively manage turbulent waters.
“A combination of smart financial planning and access to contingency funding will ensure businesses are well-equipped to navigate the challenges posed by a weak rand,” Stuart reiterates.
Diversification is another crucial strategy to dealing with volatility. By expanding their product or service offerings, or exploring new markets, businesses can spread their risk and open up new revenue streams.
And as ever, cost management is also essential. By scrutinising their expenses and finding areas where they can cut back without sacrificing quality or service, businesses can add in the financial buffer required to cope with increased import costs.
However, these strategies often require an injection of capital, which is where Lulalend comes in. As a leading provider of business funding, Lulalend offers quick, easy access to funding, with a simple online application process and fast approval times.
“We understand the challenges that SMEs face, and we’re here to help,” says Stuart. “Our flexible financing solutions can provide the funds businesses need to implement these strategies and navigate the current economic landscape.”
For more information about Lulalend and their services, visit www.lulalend.com.