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Issues faced by SMEs – and how to solve them

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Research shows that a very high percentage – 80% or even 90% – of small to medium-sized enterprises (SMEs) fail within the first three years. Faith Ngwenya, acting CEO of the South African Institute of Professional Accountants (SAIPA), says that three common challenges undermine the viability of SMEs.
She argues that a Professional Accountant (SA) can act as a trusted business advisor by providing value-added services to help SME owners overcome these challenges.
“Problems with cash flow, managing growth and a lack of information that supports effective decision-making are the three main challenges that sink SMEs,” Ngwenya says. “A professional accountant (SA) can help overcome these challenges, and thus support this vital sector.”
Ensuring better survival rates for SMEs should be a national priority as they are expected to provide the bulk of the jobs so desperately needed, Ngwenya adds.

Ensuring cash flow
No business can run for long if it does not have funds in its accounts to pay creditors and employees. Too often, says Ngwenya, SME owners depend too much on their balance sheets and income statements. However, these documents only provide a snapshot of the movement of cash over the reporting period, whereas what is needed is a clear picture of how cash will flow into the business day by day.
“SMEs need to know that they will have cash in the bank come month end, not that it’s due to them,” says Ngwenya. “A Professional Accountant (SA) can help by providing cash and liquidity reports that will not only give information about historical cash management but also provide forecasts that will indicate the business’s long-term sustainability.” These reports are required by the Companies Act.
In addition, Professional Accountant (SA) can provide financial-distress analysis reports, which integrate the financial statements, business activities and qualitative information. Such reports will give SME owners an indication of potential financial and cash challenges that the business may encounter in future.

Managing growth
Many SME owners find themselves caught up in revenue-generating activities such as sales, particularly when the business is doing well. However, warns Ngwenya, pursuing growth at all costs can actually place a strain on a company’s reserves, both of capital and people.
“For example, a company that takes on too many orders can find itself having to buy new equipment or acquire new premises, negatively impacting cash flow and overstretching management,” she says. “Ironically, growing too fast can be just as dangerous as not growing at all. A Professional Accountant (SA) can help SME owners by providing an integrated report that allows them to see the big picture, and to focus their attention and resources on those parts of the business that generate lasting value. In this way, SME owners can manage growth to ensure long-term sustainability.”

Accessing the information to make the right decisions
The typical SME owner is an expert in a particular area, and has relied on instinct and experience to build up his or her business to a certain level. “Gut instinct is a part of business success, but it’s not something one can depend on, particularly as the business gets larger,” Ngwenya observes. “Today’s business environment is highly competitive and complex, which makes decision-making both crucial and extremely difficult.
“The professional accountant (SA) can really help here by harnessing technology to keep accounting records current in order to provide information that is accurate and up-to-date. He or she can also create reports that will assist SME owners in making specific decisions.”
Ngwenya adds that, as trusted business advisor, a professional accountant (SA) can coach SME owners in how to use the information provided to make decisions that make good business sense.