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SMME CHALLENGES IN SOUTH AFRICA

SA businesses

Small businesses represent more than 90% of enterprises in all economies and also constitute a majority of a country’s employment virtually worldwide.

Facebook, the OECD and the World Bank have teamed up to create an online monthly survey of small businesses to understand their sentiment, activities, and challenges.

The survey has now collected a set of data from SA businesses that have a presence on Facebook.

The survey also underlined the top five challenges faced by businesses:

  • Attracting customers;
  • Maintaining profitability;
  • Increasing  revenue;
  • Uncertainty over economic conditions;
  • Securing financing for expansion.

According to a research by the University of the Western Cape approximately 70% to 80 % of the small businesses are failing within 5 years, and why certain entrepreneurs are more successful than others.  Only about 1% of micro enterprises who have started with less than 5 employees have grown to employ 10 people or more.

Ravi Govender, Head of Small Enterprises at Standard Bank, says although statistics vary, on average about 50% of all start-up businesses in South Africa fail within 24 months due to the inability and inexperience of their owners.

“One of the main reasons for the premature failure of small businesses in South Africa is that they are started as survivalist ventures. It is almost inevitable for them to fail because their owners do not have the skills, experience or resources to build a sustainable business,” says Govender.

Sometimes you find entrepreneurs who have a passion for business and more capital available, still struggle to build sustainable enterprises.

Govender says there are several common reasons for the high rate of business failure in South Africa, namely:  

  1. Poor planning 

Many potential entrepreneurs have no formal business training, and tend to ignore the vital step of developing a business plan. As a result they do not have a realistic grasp on the costs, responsibilities and medium- to long-term requirements of a business. 

  1. Access to finance

Many start-ups rely on financial support from family and friends. However, as many business owners have not planned correctly, they often find that the money they need to start and subsidise the business is not enough. Costly trial and error in the use of capital often results in business failure. 

  1. Lack of experience

A lack of management experience and training results in new entrepreneurs not fully coping with the range of responsibilities within a business.

  1. A lack of financial expertise

Many entrants do not understand the financial requirements of a business or the VAT, tax, costing, financial controls and other obligations that are part of the business mix.

  1. Poor stock and cash flow management

The link between stock on the shelves and the costs attached to having too much, too little or incorrect stock on hand is not appreciated as proper controls do not exist. Poor calculation of margins and cash flow often lead to crippling pressures impacting on the business. 

  1. Related: Silent killers of great businesses and how to avoid them

“The bottom line is that people enter business to make money, but are not properly equipped with the knowledge required to manage cash flowing in and out of the business. Failing to plan correctly and manage budgets simply leads to errors and business failure,” says Govender.

“Filling in the knowledge gaps, and then taking steps to keep operating costs down, controlling payment terms and tight control of credit can go a long way to reversing the current business failure rate,” says Govender. 

 

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