Navigating Rising Costs: Strategic Accounting Insights for SMEs to Thrive

By Kenny Archer – Visionary Advisor | Accounting Strategist at The Tax Shop

As a business mentor and visionary advisor to South African SMEs, I’ve walked alongside many owners through the thick and thin of trading conditions. Today’s topic is particularly pressing: rising input costs.

Whether it’s fuel hikes, rand volatility, logistics constraints, or load shedding increasing your overheads, every SME is feeling the pinch. But adversity also brings clarity. When you layer financial discipline with strategic accounting, you gain more than survival — you uncover hidden profit and long-term agility.

Here’s how we apply sound accounting principles to turn rising costs into a catalyst for smarter operations.

1. Diagnosing Cost Pressures with a Strategic Ledger Review

Start with your general ledger. It’s not just an archive — it’s a goldmine of behavioural data. Do a comprehensive year-to-date variance analysis on key expense lines: cost of sales, utilities, wages, transport, advertising. Then benchmark them against budget and prior-year figures.

Key questions to ask:

• Are certain costs growing faster than revenue?
• Are your gross margins compressing month-on-month?
• Which cost centres lack controls?

Use ratios like Operating Expense Ratio or Cost-to-Revenue Percentage to flag inefficiencies early. For example, if delivery costs rose 18% while revenue only grew 6%, it’s a red flag for review.

By reconciling these variances, you’re not only explaining the past — you’re preparing to act on the future.

2. Leveraging Book of Original Entry Controls

Your accounting starts long before month-end. If you’re not capturing transactions accurately at the source — cashbooks, journals, receipts — you’re losing visibility. Use your subsidiary ledgers (debtors, creditors, fixed assets) to cross-check the general ledger regularly.

Ask your bookkeeper:

• Are petty cash transactions properly recorded?
• Are creditor reconciliations being done monthly?
• Is the debtors’ ageing accurate and aligned to real cash flow?

Controlling your books of original entry is your best defence against creeping cost errors or overlooked wastage.

3. Inventory Controls and Working Capital Tightening

Inventory is often the sneakiest place costs hide. Over-purchasing, stock losses, and slow-moving items tie up capital and inflate warehousing costs.

From an accounting standpoint, apply the following:

• Use FIFO or weighted average costing consistently.
• Perform monthly stock counts — not just year-end.
• Write down obsolete stock to net realisable value.
• Review inventory turnover ratios to trim fat.

This isn’t just hygiene — it directly improves cash flow and strengthens your working capital cycle. Less sitting stock means more agile pricing power.

4. Pricing and Profitability Analysis

SMEs often hesitate to increase prices in a tough market. But the question isn’t “Can we charge more?” — it’s “Where are we bleeding margin?”

Use break-even analysis to test different cost structures. Map out:

• Variable cost per unit
• Contribution margin
• Sales volume required to maintain profit

Then implement tiered pricing strategies. For example, bundle services, introduce value-based packages, or adjust prices for different customer segments.

An accountant doesn’t guess — we price with precision. Let your financial statements show where value lies.

5. Automation for Accounting Efficiencies

Spending too much time on manual entries or reconciliations? Then you’re not investing your time where it counts. Xero and similar cloud platforms can automate:

• Bank feeds and reconciliations
• Debtors follow-ups
• Supplier invoice matching
• VAT calculations

Your accounting system should be your operational command centre, not just your tax filing tool.

Bonus: Real-time dashboards allow faster decisions — and faster decisions reduce exposure to shifting costs.

6. Supplier Negotiations Through the Accountant’s Eye

Before you sit down with your suppliers, bring your accountant into the conversation.

Use data to:

• Identify cost trends per vendor
• Model savings from bulk purchases or early payments
• Suggest switching to local suppliers where forex risk is high

Accountants can quantify the impact of terms like 30/60/90-day credit or rebate structures on your cash conversion cycle.

This is how you renegotiate from strength — with numbers, not hope.

7. Staff Engagement with Measurable Results

As accountants, we know that people costs are often the biggest line item. But staff aren’t just costs — they’re contributors to cost control.

Train your team to understand key cost metrics in their roles. For example:

• Sales teams should understand gross margin per product.
• Admin staff should monitor printing, fuel use, or courier spend.
• Workshop staff should track material usage efficiency.

When employees know the score, they help you win the game.

8. Budget Forecasting and Scenario Planning

You need more than a budget — you need a dynamic forecast. Integrate your accounting software with cash flow tools like Float or Fathom, and stress-test different scenarios:

• What happens if fuel costs increase by 15%?
• How do wages affect EBIT if you hire one more sales rep?
• Can you absorb a 5% rent increase in Q2?

An accountant’s job isn’t to be reactive — it’s to see around corners and prepare for multiple outcomes.

9. SARS and Compliance Cost Minimisation

Don’t overlook compliance overheads. These often escalate due to poor record-keeping or late submissions.

Ensure:

• VAT reconciles to turnover monthly
• PAYE, UIF, SDL are accurately recorded and paid
• Provisional tax is estimated from your actual income, not guesswork

Avoiding penalties is a form of cost saving too — and accountants are your compliance risk insurance policy.

10. Beyond the Numbers: Quality Control and Governance

Cost management isn’t just about rands and cents — it’s about systems. Use TaxShop’s quality control standards to embed:

• Monthly checklists
• Journal entry reviews
• Trial balance reviews
• Tax accrual tracking

Quality accounting leads to better cost control, clearer decision-making, and stronger investor confidence.

Final Thoughts: Profits Aren’t Found, They’re Engineered

The truth is: profit doesn’t fall from the sky — it’s designed, tracked, and protected.

As the accounting advisor behind your numbers, my message is simple — run your numbers like your business depends on it, because it does.

You don’t need to be big to be strategic. With the right ledger discipline, the right dashboards, and the right mindset, your SME can absorb inflation, dodge volatility, and thrive through every cycle.

Let’s make your numbers work for you — not against you.

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Kenny Archer
Visionary Advisor | The Tax Shop Business Coaching Unit