If it were debt, this would be a seriously catchy title for my blog.
Sorry for you, but it isn’t debt unless you are one of those very fortunate few who have been wise and able to reduce your lifestyle to zero debt; more of that later.
It is the prospect for future growth in a given scenario in South Africa. And the really good news is that it seems we will avert it if can all work together. This blog will toggle a little, but I really want you to know two things up front:
- I believe we will not see Zero growth in our country.
- In case you have a jaundiced view of SA growth, bear a thought for Britain as it falls asleep economically at 0.5% growth post Brexit. SA is not the only egg in a tough economic tray. Brazil is -1.22% over the last 5 quarters, Russia was -3.7% in 2016 (estimate) and -1.2% in 2016 (forecast). India and China, both slower at present, carry BRICSA at 7.5% and 6.7% respectively.
The Medium Term Budget Policy Framework was another brilliant outline by Pravin Gordhan. At the heart of it was mutual co-operation. My belief is that SA Inc does understand that pulling together at this time could bring us through without a downgrade. In addition, despite the national debt at an all-time high, [frightening at R2tn and interest per year of R149bn!], he projects a reduction of Debt:GDP over the next 2 years. Unfortunately, in the absence of growth, that reduction will come through cutting government expenditure and higher taxes. I have made the comment many times before that our economy is well-managed under Treasury and SARB but we need, with SARS, to dig ourselves out of a (w)hole (lot) of debt.
So why Zero if all this positive belief abounds? Well, Pravin reduced our growth forecast yesterday from 0.9% to 0.5% before telling us this would change upwards next year. You can argue with me, but with the IMF also downgrading the growth forecast to 0.3% and the Sword of downgrade Damocles hanging over us, whatever the growth will be before the upturn of it, Zero sound like a number to capture my attention. Bear in mind that when you have a dramatic, quick drop in growth, you cope abruptly. It is this slow [“zero”?] growth that worries me on behalf of my readers. You can be lulled into believing that “everything seems to be okay” and then only get caught that first month salaries are late. The same applies for companies as for individual households, so whether you’re a housewife, an estate agent, a principal or a company owner, the rules apply.
If you buy what I’m saying, let’s look at how you cope with this slow growth scenario. No rocket science, just some sage input from 40 years of being in business. The real good news is that you can survive and even flourish if you just heed some simple actions.
Nothing beats a careless attitude oblivious to reality. The good times end so slowly in low growth that complacency can set in easily. Remember the Rand when it bounced up to R15:US$1 and then came back “as it always does” to under R8.50? Oh really! Well it’s a little stickier this time and struggling to stay under R14. But, complacency says, we’re learning to cope. Oh really! If you’re reading this and thinking: “Hmmm….”, you’re probably not complacent. You’re probably aware that the only thing that is saving the world’s bacon right now is the Oil price and quite low inflation, both of which retain low interest rates. An attitude of: “Ag, we’ve coped with bad times before”, may belie the slow constriction of your business causing things to simply slow down.
Let me be clear, I would take what is currently happening any time, rather than some of the sudden sub-Prime medicine of recent economic history and the Boom/Bust cycles of our past economic history. The former was a gut-wrenching blow to every part of every business; but the latter was completely unstable. It was easy then to solve the problem of inflation by raising the interest rates, suppressing demand, until you could release the throttle again – binary monetary policy with a little fiscal help. These days, with the world so small and money flows almost instant, the monetary and fiscal armoury is far more complex and difficult to assess. In all of this, complacency settles in and weaves the relaxation of business to the reality that is gathering like storm clouds. Beware!
Costs creep up on you like complacency. Simple really – you start complaining how expensive things have got. The stationary bill rises 12% year on year, your staff need increases, transport gets expensive as fuel taxes rise, your medical aid goes up 10.2% [that’s Discovery for real in 2017 and rising!], and SA communication costs are world record-beating. But the first year you don’t feel it, the second gets tough as you discuss business over a beer and then the third……… well, that’s when you realise that it’s not about the costs, it about whether the cost is really necessary. Big difference!
Reinstate your quarterly meeting with your accountant and start to analyse those Income Statements year on year and one year before that. Have a look at the trends that highlight movement upwards. Go home and sleep on it. If no trend is too dramatic, pat yourself on the back and make sure you diarise the next meeting; your turn will come. If there is something obvious, begin the journey to recuperation sooner rather than later. One of the great ways to do this is to assess each line of cost as a percentage of Total Cost or as a percentage of Turnover. It is much easier to go up than come down. But, coming down saves businesses despite the hardship for some. Little is sacred when it comes to cost reduction. You probably never had the cost or its proportion a few years ago. Now you have allowed it to escalate out of proportion and it’s dragging you down. Ke Nako – It’s Time – to deal the issue before Zero tightens its grip.
Cash is king. Old but ever-true. Let me bottomline Zero when it comes to cash in your business – if your cash reserves are draining, you have a problem; plain and simple. Cash reserves accumulate when you have a healthy turnover with healthy margins, controlled expenses, managed capital investment and paying debtors. In our blog, Overtrading, we discussed growing too quickly and running out of cash to carry investment and debtors. Here in Zero, we consider turnover and margins declining while expenses and debtors increase. The answer to the latter is spelt N-O-N-E and it refers to your cash in the bank. Please remember if you’re reading this blog but you don’t have a business that you are nothing more or less than a one-person business. If you are not experiencing cash accretion, Zero could be at your back door. Awake from complacency, assess and manage every cost downwards or out of the system, and then re-build your cash reserves.
I say this many times but it bears repeating. Quoting Jack Welsh, “Take control of your life or someone else will”. In this blog I have offered some advice to stir any complacency and ensure the health of your business. In Part 2, I will continue this down-to-earth message as we all cope with very low economic growth. “This too will pass”, said Og Mandino and the one thing I know is that despite the tough times [Mr Gordhan says two years], we can and will come out stronger.
Yours in Property.