Sink or swim: The choice South African businesses face in 2024

Over a year ago, South Africa was grey-listed by the Financial Action Task Force (FATF), a global inter-governmental body that promotes policies and sets certain international standards according to a set of financial risk factors and deficiencies.

This decision follows the country’s 2021 mutual evaluation, in which South Africa did fairly poorly. Apart from the severe reputational damage and impact on cross-border transactions of this listing, one of the biggest business concerns is decreased foreign investment, which will reduce capital inflows.

Simply put, South Africa’s grey listing has raised the cost of doing business in our country.

Increasing inflation, decreasing consumer spend

With running an enterprise already challenging under normal circumstances, the South African business environment face increasing inflation rates. According to Stats SA, “in January 2024, the annual inflation rate for goods was 6,6%, up from 6,4% in December 2023; and for services it was 4,0%, up from 3,8% in December 2023.”

While this may not seem that significant, one only needs to look at the past four years to get concerning picture. In 2020, the national inflation rate sat at 3,28%.

These two major roadblocks are only the macro-economic factors SA’s business owners face. Compounding the problem are load-shedding, the state of national transport infrastructure, pressure on consumers’ spending ability, and industry-wide skills shortages.

Considering these circumstances, it is no wonder that between 30 – 50% of South African business fail. For SMEs, the percentage is even higher, with 70 – 80% of small to medium-sized businesses having to close their doors in the first five years (Source: IOL).

Inflation, load-shedding, and consumer spend

While one can look at these dynamics and feel despondent, there are solutions that South African business can incorporate to increase their profitability by decreasing their operating expenses. However, most of these strategies require an investment period that places an already strained cashflow under even more pressure.

From marketing activities, on-site infrastructure improvements, employee training, portfolio expansion… While these solutions may ensure a competitive business edge, it may sink the company during the implementation period due to the high cash injections needed.

This means a business must find a solution that doesn’t divert critical cashflow from its operations while ensuring uninterrupted ‘business as usual’ and long-term profitability. With so many business boxes to tick, it’s understandable that many businesses believe such a solution doesn’t exist.

Make the best choice for your business
Fortunately, an increasing number of businesses are realising that this isn’t true. By switching their operational strategy from purchasing IT equipment to financing IT solutions, they have unlocked immense value – and cashflow – for their businesses.

This is because IT rentals benefit businesses by allowing cash to be geared towards growth; enabling cost scheduling; maximising purchasing power; and contributing to budget certainty. Instead of purchasing business technology and being burdened with the responsibility of repairs, upgrades, and responsible asset disposals, companies opt for asset rental agreements.

By choosing a leading asset rental company such as RentWorks, you and your business are covered for various unexpected business scenarios:

• Business expansion
• Contraction cycles
• Ad hoc projects
• Downsizing asset inventory
• Obsolete technology or equipment

What’s more is that RentWorks offers a Sale and Rent Back facility, which provides your business with cash while you rent the needed IT equipment or business assets. This means that you can conserve the business’s cashflow, replenish cash reserves, benefit from flexible end-of-term options, and align assets to their optimum long-term use – without any interruptions to your sales cycles, daily operations, or employee productivity.

If you want to partner with an asset finance company that is invested in your South African business, RentWorks is the answer you’ve been searching for to not only make your business swim but make it a success.