What Can Stakeholders Do to Help SMEs?
In our previous two articles, we discussed how SMEs are contributing to employment and SME age in South Africa.
Some key findings:
The National Development Plan (NDP) envisioned that by 2030 SMMEs will generate 90% of the 11-million new jobs in South Africa. While we believe that SMMEs have the potential to play a crucial role in reducing the level of unemployment, in reality, this is not currently the case.
Data from SME South Africa indicates that 87% of SMEs employ less than 5 people in their businesses and only 13% of SMEs employ more than 5 people, indicating that we are far from reaching the desired result.
According to SME South Africa, just 15% of SMEs in the country are more than 5 years old. Furthermore, several papers note that between 70% - 80% of small businesses fail within five years.
SME Employment Statistics in South Africa
Source: SME South Africa, An Assessment of South Africa’s SME landscape Challenges, Opportunities, Risks and Next Steps, November 2018.
Evidently, we have work to do to improve the SME landscape in South Africa. So, what can stakeholders do to help SMEs? The list below is not exhaustive, however, highlights some of the key areas we have noticed in our work with SMEs.
1. Big businesses can help SMEs by providing opportunities and market access. In our experience, there are many entrepreneurs with an excellent product or a great service, however, they need an opportunity to get started - big businesses can provide this opportunity.
2. Education and training is key for SME owners. This does not necessarily have to be formal education, but education that provides business owners with the skills they need to run their businesses effectively. In many instances, SME owners are excellent in their trade, however, may not have the other skills required to run their businesses. Government can play an important role in this regard.
3. Government and private sector buyers should pay SMEs on time so that their cash flow is not negatively impacted. Cash flow is a serious challenge for SMEs and late payments from clients further fuels this challenge. Xero found that South African small businesses spend around 6% of their time (working days) chasing payments. This is significant given everything else SME owners need to do. Furthermore, Fin24 notes that SMMEs in the country average receivables that run over 100 days late – after the average 30-day payment terms. These figures refer to late payments from government and private sector buyers.
In conclusion, to improve sustainability and longevity, various stakeholders can assist SMEs by providing market access, skills and training, and ensure that SMEs are paid on time so that they do not run into cash flow challenges.
Boraine Consulting assists SMMEs with a full suite of accounting, tax and consulting services. Our focus is on improving the sustainability of SMMEs through financial literacy and empowering SMMEs with tools and information to make sound financial decisions about their businesses.
If you’d like a consultation, contact us at firstname.lastname@example.org
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