There are many challenges SMEs in the tourism industry face on a daily basis, but trying to keep cash-flow positive and remain profitable may perhaps be the toughest of them all.
Rob Hetem, Business Development Director at T-Cubed Consulting, said maintaining cash flow remained a major obstacle, along with the challenge of finding someone to fund an idea or innovation.
He went on to say that the problem was not banking or the processes and documentation required to apply for financing, but rather the collateral, as tourism SMEs generally do not have a high asset value. Banks needs to assess that the applicant will not result in a liability and will be able to pay back their loan with interest. SMEs have little cash flow as it is, so the question arises as to where they are going to get the money to pay back the loan while keeping afloat, especially if they start off with negative cash flow.
Hetem also discussed the challenge of needing to collect payment from their clients and still pay back suppliers, which generally happens at different times, resulting in a time lag, further impacting cash flow.
Semadi Manganye and Sifiso Molotshwa, co-founders of the Hub, based in Alexandra, Gauteng, agreed that finance was hard to come by and that the various obstacles encountered along the way could be tricky to navigate. The partners relied on their own savings to start their tourism operation, and recently took on a private investor. Manganye told Tourism Update that initially cash flow had been the key issue.
He said, due to their location in Alexandra, it was even more challenging to attract visitors, a result of negative perceptions of the area. Manganye said it was difficult to position yourself in the industry as a small tour operator, as the dominant operators saw you as competition and could use their clout to nudge SMEs out of the way.