SMEs Small and medium-sized enterprises, text, inscription, note on sheets. Business concept, enterprises.
2025 was a year of pressure, but also growth for small and medium enterprises (SMEs). The sector has delivered measurable value, and with more support, businesses can do a lot more.
However, it does not look like 2026 will be any easier; therefore, it is important for entrepreneurs to consider pivoting from crisis management to strategic planning to navigate a landscape dominated by rising operational costs and logistical volatility.
Garth Rossiter, Lula’s chief risk officer, says the core challenge for business remains the lack of predictability in key input costs, coupled with external factors that impact cash flow and access to financing.
Key cost pressures and mitigating strategies:
The energy imperative: fixed costs over variable risk
He says persistent electricity tariff hikes make reliable energy an unavoidable core operational cost. Scheduled tariff increases for Eskom, which include a 5.36% hike for 2026/27 (as per Nersa data), will continue to exert pressure on profitability.
“If you look at the average small business or SME, like a small manufacturer or guest house, that investment in basic solar or an inverter has gone from a nice-to-have to an absolute must-have,” states Rossiter.
He recommends leveraging the current window of opportunity to invest immediately.
“The temporary lull in severe load shedding has created a market surplus, driving down costs significantly,” he says.
“This strategic investment not only allows SMEs to convert highly variable and unpredictable electricity expenditures into a more stable, manageable cost, but also provides the invaluable peace of mind that comes with energy certainty.”
Logistics and inventory: The shift to ‘just-in-case’
Rossiter says another thing that small businesses need to prepare for is supply chain unpredictability, amplified by bottlenecks at key corridors like Durban and Cape Town ports.
To stay on top of challenges like these, he suggests that a shift from a ‘Just-In-Time’ model to a ‘Just-In-Case’ approach might be necessary. This mandates maintaining a cash or stock buffer of 10% to 15% of high-demand items.
“Unfortunately, this is an added cost that directly impacts working capital, but it prevents lost sales, which is the real opportunity cost,” he adds.
Rossiter suggests that small businesses could consider:
- Sourcing locally: Reduce reliance on key bottleneck corridors by exploring local, alternative suppliers.
- Negotiating terms: Secure flexible payment terms, such as 60 days, to free up crucial cash flow.
True cost of credit quality
Rossiter warns that businesses that struggle with creditworthiness face an expensive trap. A low credit score translates directly into a higher perceived probability of default, forcing lenders to apply a significant risk premium.
“The direct cost of a poor credit score is a much higher interest rate,” he says. “A business operating on low net margins cannot afford an extra expense on the interest line.”
The opportunity cost can also be severe, resulting in lower funding amounts than required to buy stock or finance peak season expansion.
Rossiter advises businesses and business owners to check their credit history proactively and resolve any outstanding credit issues to secure more affordable capital in 2026.
How to make a business run forever
Nkosinathi Mahlangu, Youth Employment Portfolio Head at Momentum Group says far too many small businesses do not survive and the consequences of this go beyond the entrepreneur; it unsettles households and disrupts local economies.
He says the first thing entrepreneurs need to prioritise is their mental health. “Things such as their mental health and critical soft skills can be invisibly reflected in the numbers.
“Running a business demands psychological endurance; anxiety and fatigue can make choices reactive and simple tasks feel insurmountable. All of which could an impact on how entrepreneurs approach their finances.”
Importance of financial education
Mahlangu adds that what influences financial outcomes sits outside traditional financial education. Things such as confidence can determine pricing of goods and services, communication can help with customer retention and emotional maturity can turn conflict into business wins.
“While many successful entrepreneurs start with nothing more than an idea or a need the reality is that turning those great ideas into an operational business takes more than creativity, it demands financial know-how and the ability to manage money wisely,” he says.
“Many entrepreneurs know their product inside out but struggle to track income, manage debt, or forecast growth. They might invest in branding, equipment, or staff, but overlook the most critical tool – a ledger.
“However, financial discipline requires mental resilience and the right advice and tools.”
Financial advice gives a solid plan
Mahlangu says without proper planning and financial literacy, inexperienced business owners risk a legacy not of business sustainability or financial security for themselves and their families, but of an over-indebted future.
The first step in financial planning is to identify goals, knowing what you’re working towards. These goals need to be mapped out into short-term and long-term, supported by realistic budgets.
And when things change, whether the business grows or experiences difficult times, your financial plan should be flexible enough to adapt without derailing your vision.
“This is where finding the right partners including financial advisers and mentors to guide you on your entrepreneurial journey makes a difference,” says Mahlangu.
“A small business fails and succeeds at the intersection of financial literacy, behaviour and well-being.”
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