Unfortunately, the harsh reality is that a staggering 80% of small businesses fail due to common challenges. By accurately identifying and addressing these challenges, government can turn the tide for this crucial sector of the economy, ensuring higher success rates for small business that will translate into accelerated economic growth and job creation. They know this and they are doing something about it.
So what are these challenges that prevent small business success, and thus hamper economic growth and job creation? This question was recently addressed through a survey among almost 900 SMEs throughout South Africa. It was conducted by the South African Institute of Chartered Accountants (SAICA), which is ideally positioned to address the question, given that approximately 20% of all SAICA members work in practices that provide auditing, independent review financial services and business advice to SMEs. When asked to rate the specific obstacles to their growth, the SMEs participating in the survey showed a large degree of consensus in identifying bureaucracy, tax, labour and funding as the main challenges.
Whilst these are the externally based challenges, the most important reasons for failure and an inability to grow are likely to be found inside these SMEs. To deal with these challenges, SMEs require specialised skills in budgeting, cash flow management, business management, compliance, tax and accounting. While large companies have specialist tax, accounting, compliance, HR and legal departments to navigate these challenges, small businesses often feel that they can't.
It is certainly encouraging to note that these issues are being addressed by government. The establishment of the Small Enterprise Finance Agency (SEFA) in 2012 is a case in point. With access to R1.4bn in funding to provide the gamut of micro finance up to R5m in individual loans to entrepreneurs wishing to start small businesses or small businesses ready to expand, SEFA is certainly a step in the right direction. So too is the creation of South Africa's Department of Small Business Development (DBSD). Also encouraging are the announcements relating to SMEs in the recent Budget, including tax relief for SMEs, a small business desk in SARS' revenue offices to assist small businesses and R3.5bn allocated to the DBSD to provide mentoring and training support to small businesses.
However, to ensure that these government initiatives make a tangible difference to the success rate of SMEs, and therefore translate into real economic growth and job creation, government and the private sector really need to collaborate. The old concept of public-private partnerships (PPPs) needs to be replaced by a new trust, and a new energy that recognises that neither sector can succeed in this endeavour on its own.
A pertinent example is SAICA's Enterprisation Hub, an enterprise development division within SAICA established in January 2013, as a PPP between the Economic Development Department (EED), SEFA and SAICA, through which SMEs can access quality, affordable, specialised skills in financial and business management, payroll, tax and accounting, at extremely low cost due to SEFA's subsidisation of the fees and the fact that the Enterprisation Hub is a social entrepreneurship initiative.
The Enterprisation Hub's intelligent two-pronged approach trains young previously disadvantaged accounting graduates in a unique back office-support hub where SMEs can access the necessary accounting and management consulting services. The result is that graduates gain practical business consulting skills, sector experience and exposure, which will improve their chances of employment and enable them to start their own businesses, while simultaneously providing the crucial back-office support and advice SMEs would otherwise be unable to afford.
