There is broad agreement that SMMEs are the key drivers of employment and job creation in South Africa. The NDP’s Vision 2030, government focus on SMME development among others, shows that the South African government is serious about SMME growth and economic improvement. However, things are tough for SMMEs. There are certain obstacles that make it difficult for South African SMMEs to proposer.
Five biggest challenges facing SMMEs in South Africa today
The Small Enterprise Development Agency (SEDA) conducted a research study in 2012 looking at challenges faced by SMMEs in the Agriculture, Manufacturing, ICT and Tourism Sectors in South Africa. I have summed these up into the most common challenges, coupled with my experiences as an SMME, and other SMME’s I know.
Lack of Skills
Most entrepreneur lack the skills, mindset and business acumen to run a business. This is exacerbated by the lack of experience of the business owners, including lack of expertise of the sectors in which they operate. This in turn leads to the owners not doing proper planning for the business, and experience difficulty in accessing markets or meeting industry requirements or standards.
Access to Funding
Let’s get one thing clear. Business is here to make money. One of the key requirements to establish a business and make money is capital. Entrepreneurs need funding to manufacture products and services, as well as to acquire tools and infrastructure to get the businesses up and running. Stringent requirements make it difficult to access funding, and with the banks being the primary source of funding, alternative sources are not immediately available, or accessible to entrepreneurs.
Profitability and sustainability
The majority of SMME’s are barely ‘making it’, especially the small, and micro enterprises. Cash flow is a big problem, and profits are hardly realised. Sadly, without proper cash flow and profits, the business cannot be sustained, and most entrepreneurs find themselves having to close their doors. The high failure rate of business start-ups is shocking. Trade & Industry minister Rob Davies told the national assembly when delivering his budget speech in April 2013: ‘Five out of seven small businesses started in South Africa will fold in the first year.’ I’m not shocked, nor surprised.
South Africa, like any other country, has mandatory and regulatory requirements that every business has to comply with. However, the ineptly administered regulations that SMMEs have to contend with on a daily basis hinder their ability to grow, prosper and be successful. A panel of SMME owners participating in the 2013 Small Business Project (SBP) SME Growth Index reported that they spend ‘75 hours a month dealing with red tape’. This can be anything from loads of paper work that have to be completed, the number of laws (up to 45) to be complied with and the number of returns (up to 24) that have to be submitted in a year. The worst thing is that government itself seems to perpetuate red tape and bureaucracy – if they’re your client, you’d be lucky if you’re paid within 30 days – payment can take anything between 60 and 365 days.
There are at least thirty two (32) state initiatives that provide support (financial and non-financial) to entrepreneurs across all sectors and industries. This support is however, fragmented and unco-ordinated, and most of would be beneficiaries don’t even know about the programmes and how to access them. For the majority of those that have participated in the initiatives, there is no direct evidence that the support has enhanced their growth. In fact, many of the start-ups have closed down even after the interventions.
There are a lot of other challenges faced by SMMEs, but I decided to focus on the five above, which affected me quite significantly when I started my business a few years ago, and had to close it down about 4 years after starting it. The thing is, all of the challenges raised above, savvy entrepreneurs can do something about whichever one is affecting them. They have the power to improve their situation, although this could be time consuming and onerous, the important thing is to remember your vision for your business – why did you start your company, and what are you willing to go through, and sacrifice, to achieve your vision? I do realise that the information presented in this article can go either way: It can discourage any aspiring entrepreneur who wants to start their own business, or it can positively influence anyone to ensure that they not only focus on doing things right, but on doing the right things, the right way.
My challenge to you? Hang in there…
‘I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.’ Steve Jobs, Co-Founder and CEO, Apple