New hope for SMME development

Lindi Engelbrecht
Entrepreneurship has long been touted by government as the answer to unemployment.

The basic idea: create businesses and businesses will create jobs. This is exactly what the National Development Plan (NDP) stipulates, that Small, Medium and Micro Enterprises (SMMEs) should deliver 90% of the new jobs required to eliminate poverty and radically reduce unemployment by 2030.

But, to deliver profits for the entrepreneur, and jobs for the nation, first you need to start a business, then you have to keep it alive, then you have to grow it.

Anybody that has attempted any one of these three phases will testify that this is no easy task.

Statistically the odds are stacked against you.  According to the 2016 SMME Insights Survey conducted by the South African Institute of Chartered Accountants (SAICA) only two in ten SMMEs make it past two years.

In life and in business “success” is a relative term. In the SMME arena “success” is often, on the way to achieving a dream, seen as the absence of utter failure. A more realistic assessment of the initial set of objectives is survival rather than success. To be of true benefit to the entrepreneur, and to the nation’s aim of reducing unemployment, however, SMMEs need to thrive – not just survive.

While the nature of the entrepreneur is optimistic and typically focused on the end goal, a counter intuitive approach to SMME ‘success’ could involve defining the most likely steps to failure. Then, the obvious modus operandi is to avoid these pitfalls at all costs.

The specific causes of business failure are varied yet there seem to be a few common themes. These are:
  1. Lack of market research
  2. Inadequate funding
  3. Poor cash flow management
  4. Lack of leadership 
  5. Poor risk analysis
By understanding the biggest challenges facing SMMEs, SAICA has been able to work closely with strategic partners and government in an ongoing process of finding solutions to the struggles SMMEs face. In SAICA’s acclaimed SMME survey, small and medium sized businesses have told us of the greatest obstacles that get in their way. They are:
  • Too much ted tape from both government and big business
  • Employment laws that make hiring dangerous
  • The lack of tax incentives to grow or to employ
  • Slow payment from government and big business
  • The difficulty to raise growth capital
New business ventures are innately risky, and risk cannot be eradicated. However, SMMEs can avoid some risk, and government and big business can alter the environment in which SMMEs operate so they are more likely to succeed and to create GDP growth and jobs.

This process of internal reflection to avoid the risk of failure, and a concerted effort to create conditions that suit SMMEs would give them the best possible chance of success. By implementing the strategies below, government would be giving SMMEs a fighting chance to take their business beyond just their first two years, and of meaningfully impacting employment. 
  • Penalising government departments, State-Owned Enterprises (SOEs), Municipalities and big business that don’t pay SMMEs in 30 days or rewarding those that do
  • Decreasing and simplifying the red tape required to run a small business. It has been done in other fast-growing, developing economies both in Africa and abroad
  • Re-examining the relationship between SMMEs and labour. Allowing SMMEs to grow and reduce their labour requirement more flexibly, thus encouraging labour-intensive rather than capital-intensive growth paths
  • Introducing tax relief for startups and tax incentives for SMMEs who grow, employ and create jobs
Lindie Engelbrecht, the Executive Director of  Members and Global Alliances at SAICA agrees: “SMMEs stand ready to grow and to create jobs. They just need to be enabled to do so. All we need to do is pay them on time, take away red tape, relax employment laws for them, and create a stimulatory tax environment under which they are rewarded and incentivised for growth and employment.”

“SAICA’s Enterprise Development will also grow South Africa's entrepreneurial ecosystem through advancing the sustainable growth of small Black businesses (as defined by the BEE Codes). Through this we want to provide a full suite of affordable business services for the SMME market so that businesses and their funders will be able to operate with the assurance that the accounts and records produced are of a standard and quality that can sustain them,” Engelbrecht concludes.

The entrepreneurial road will never be easy.  It is a path requiring courage, confidence and a tolerance for (calculated) risk. Yet, in this atmosphere of social, economic and political change there is hope that the fetters constraining entrepreneurial development will be considerably reduced. This will serve as a catalyst for renewed economic growth and the reduction of unemployment.  The SMME “cause” is one for the benefit of all. SAICA, through its members, is determined to facilitate the rally.