Ezra Ndwandwe's Blog

CASH FLOW MANAGEMENT

One of the reasons why many SMME’s close shop within 3yrs of operation is cash flow management. This reason has become even more important given the current economic crisis. It is my view that many entrepreneurs are unable to map out the inflow of cash (ie) simply put: what business activities bring us cash and what activities cost us money.

1.       The idea is to maximize what brings in cash and minimize what costs you money.

2.       Make sure that the business has a separate account from your personal one. Do not spend business cash on personal stuff.

3.       Restrict your terms with clients if need be in order to collect your cash sooner and enter into agreements with creditors that will allow you to keep the cash longer (eg) 45-60 days payment options. Follow up on what is due to you even with government departments.

It may seem like simple and obvious steps but…

4.       Generally our relationship with cash needs to change in order to support business through difficult times. Some people get to spend money based on a contract or tender value even before they’ve issued the first invoice for work done.

STRIKE SEASON

The looming mass actions are a great concern. The timing - I suppose from a union perspective - could not be better but from a business or even economic perspective, the timing is just not ideal. Think about it, the Confederations cup which is supposed to be a 2010 dress rehearsal is days away and you have even the SABC threatening of black outs.

Holding business at ransom.

1.      Occupation Specific Dispensation (OSD) not implemented.

2.      12.5% increase in wages

·         Bus drivers (based on experience want to earn the same as doctors)

·         Civil servants (Teachers, doctors and nurses)

·         SABC Staff

·         COSATU (flexing its muscle)

It has always been clear that salary negotiation will be tricky this year. But tough decisions need to be made. The economic pressures do not seem to support the union demands for wage increase. The choice, I suppose in the end is how many members/businesses will be affected by the current increase demands. Metrobus has already indicated that it would have to close its’ doors if it does not meet demands so both labour and business need to find creative solutions to make up for the demands (eg) Non-monetary benefits to sustain both business and labour.

v      Wage increases followed by massive retrenchment excercises.

SASOL ANTI-COMPETITIVE

When organisations collude to fix prices or even to set discounts, that simply raises the barriers of participation by other players and restricts competition. Needless to say this is not good for business and/or the economy. Sasol recently, and of course Tigerbrands towards last year, were dealt serious blows for colluding to fix the price of bread in the case of Tigerbrands and the prices of wax in the case of Sasol. There’s more to collusion though, the benefits of competing companies such as quality of product, price of product and other related consumer benefits are not passed on to consumers which of course is a shame.

Results of collusion:

1.      Barriers(New entries will find it difficult to enter the market) of entry-Business level

2.      Loss of consumer benefits-Consumer level

SA NOT BAD AS FAR AS TRANSPARENCY

Graft amongst top government and private sector leavers

v      Enerst & Young findings (from surveying 2200 individuals from 22 countries across Europe) suggests that there is laxity around what is acceptable, what is unacceptable behavior amongst both public and private sector office bearers.

 Funny how all of a sudden because of recession the rules of engagement have been laxed making payments (bribery) to win business or overstating financial performance to mask disappointing results have become a means to keep businesses afloat. It is interesting given that these are people who want the rest of the world to measure its moral or ethical standing against their standards. There is a media hype in South Africa that seeks to suggest that state officials and/or indeed SA business leaders especially those that are black (don’t mean to pull the race card) are unethical. Comparatively speaking though, SA leaders in business or in politics are absolutely corruption sensitive and our level of transparency is ranked amongst the top in the world including our parliamentarian declaration procedure  - this I point out in light of the Minister of Transports’ latest debacle. If Europeans find it acceptable to pay bribes in order to win or attain business and as they claim, because of tough economic times, I say if you are inherently unethical, you will be in good and bad times!

Speaker of the house of Commons (Michael Martin) - travelgate similarities.

Sense of entitlement by politician is but some of the similarities that can be drawn with SA.

RECESSION

Industries hardest hit include: Mining, Manufacturing and Retail.

An economy in recession is by definition a contracting economy characterized by at least two consecutive quarters of decline. A recession manifests itself in the form of slow economic activity which means some businesses may have to shut down also by way of job losses as has been the case up till now in SA. An economy in recession simply means business has to gear itself to trade in tough/challenging economic times. I am afraid business luxuries would have to fly out the window. In times like these the Reserve Banks’ strategy in terms of stimulating the economy is very important – This may mean cutting rates to get us out of the slump. I guess the argument right now is how long will we be in recession. Some economists argue that the recession is likely going to be brief and cushioned by the governments’ infrastructure spending programmes and lower interest rates, others believe that for 9-12 months we will still be battling to get our way out of the recession. Challenging times indeed, more so that we are in strike season.

Tips to survive the recession:

1.      Over indulging (moderation)/cut down on indulgence (ie) needs vs. wants

2.      Prioritise your debt- Your home loan takes priority.

3.      Look out for value when buying items- Longevity of items must be the key value driver.

4.      Engage your bank to restructure your loan if need be, should you encounter difficulties.

MTN BHARTI MERGER

Both Bharti and MTN are sizeable wireless operators in their own markets. MTN is dominant in Africa and the Middle East, whereas Bharti is the biggest in India. Both parties desire to play in each other’s backyard and expand their footprint and it seems therefore sensible for both companies to merge their interests. This is the second time that this transaction is open for discussion. The first attempt was ruined by ego and saw Bharti wanting to take over MTN which MTN responded by wanting to take over Bharti. After the deal collapsed, MTN pursued another family owned wireless operator in India but to no avail. Family squabbles brought those attempts to a screeching halt.

What is the new deal though: both parties have agreed to co-exist and thus to increase shareholder value. It is through this merger that both parties would be able to take full advantage of their economies of scale and to fend off potential buyers or a hostile takeover. Unlike Vodacom, MTN has given guarantees that the deal will not result in any job losses in SA, that it will remain listed on the JSE and that it will still go ahead with its BEE transaction.

But MTN shareholders may see a share swop as a result of the merger, ie. you may now be a Bharti shareholder based on the percentage ownership/partnership between these two companies.

I personally think there is more to this merger; these may just be baby steps towards a takeover by either…… Let’s keep an eye on the developments.