25 Jun Economic indicators affecting Small Businesses Operating and Financing costs as at April 2017
Economic indicators affecting Small Businesses Operating and Financing costs as at April 2017
Small businesses continue to operate in the environment of uncertain probability of revenue but with certain running and capital costs. Given their opportunity to grow, understanding the economic indicators that affect the business is vital in order to manage the risk of costs overruns and not close down before realising full growth potential.
To the much welcomed news, the Department of Energy (DoE) has announced drop in fuel prices by average of 20 cents for petrol and 10 cents for diesel. It may be not substantial decrease everyone would be hoping for but every cent counts in the small businesses world. The decrease emanates from a mixed bag of factors which minimally turned to the decrease of the fuel prices. Every April we see the effect of the fuel levy and RAF increases that were announced by the minister of finance in the budget speech and for April 2017 the increase was 39 cents in total. Rand was one of the best performing currency in the emerging markets until the recent political developments touching its best at R12.90 to the dollar. It was further supported by crude oil touching its lowest at 51 dollar per barrel due to the stock increase in USA.
Depending on each business model, between 15% and 30% of the small businesses operating costs may be attributable to transport. The April 10 to 20 cents decrease is likely to bring 1% to 1.5% saving to your business transport costs. To better manage fuel costs Syro Accountants would encourage small business among others to opt for low fuel consumption vehicles upon fleet replacement time.
Statistics South Africa has released the February 2017 year on year inflation figure which is currently standing at 6.3%. This is outside the South African Reserve Bank (SARB) target of 3 to 6% however prospects are looking good for the remainder of the year with expected lower food prices from good rains experienced lately. For the same reason SARB left the repo rate at 7% and prime interest rate at 10.50%, this is likely to remain so for the rest of the year giving small business the much needed consistency in term of finance costs if not much better should there be cut in the interest rates. Interest are those cost you have to pay no mater your revenue level and the consistency brings the better predictability level that would improve the management of the finance risks small businesses exposed to.
Given the current political turmoil rating agencies are signalling downgrade to South Africa which will negatively affect our currency performance and risk the possibility of stable finance costs and inflation rate.
These economic and political developments are out of the control of small businesses however technically better approach on finance and operating costs can give a business a better lead compared to its peers.
Jones Kobela CA (SA)
Partner |SYRO ACCOUNTANTS