While the small business sector is a rapidly growing sector in SA, unfortunately very few start-ups make it beyond their first year – and of those that do, only 50% survive past year three, says Darlene Menzies, CEO of SA developed business software product SMEasy.
This is a concerning situation that must be more proactively addressed as the country is relying on the SMME sector. As the engine room of the economy – it has the potential to significantly reduce our high levels of unemployment.
Acknowledgement of the causes of start-up and growing small business failure and a concentrated effort to understand and address these issues will help to avoid what right now seems to be the inevitable for many. Such causes include:
* Understanding the basics – there is a lack of awareness and understanding of the multitude of things that have to be done when setting-up and building a business – from company and tax registrations and other regulatory requirements; to branding and marketing; administration, costing and customer billing; and cash flow and financial management. While you may be exceptional in the service or product you offer, ignoring these business basics is detrimental.
* Support and assistance – there is a lack of easily accessible information and effective support to assist entrepreneurs in the start-up and early growth phase of business. Entrepreneurs across the country are running from pillar to post re-eventing the wheel on the basic essentials; this is a waste of valuable time, money and energy during the crucial early years.
Entrepreneurs need one place to go to get a comprehensive list, complete with tips and advice, of what they should be addressing in the setting up of their business.
* Compliance – compliance requirements are onerous, such as those for our tax system; few entrepreneurs have the know-how to meet them all with ease. Often business owners find out too late about the required registrations or thresholds and have utilised their available money for operations, later finding out they have tax incurred liabilities they haven’t budgeted for. This issue alone is causing many small businesses to liquidate.
* Infrastructure and services – broadband infrastructure for example can be challenging; technology can be confusing and intimidating for non-IT literate entrepreneurs and added to this, broadband it is not always easily accessible and is expensive.
Business owners often struggle to understand the various options and the basic set ups. It is important to take time to learn a little about the services and explore your options. Remember it’s cheaper to use a professional upfront than getting an amateur to assist you for ‘free’.
* Access to finance – then there is the difficulty of accessing credit or finance as an early stage business, especially seed funding or vital bridging finance. Banks seldom extend credit to start-up and early stage businesses. Owners often have no proven managerial skills and they can’t provide financial records to prove their liquidity. Banks don’t lend based on the future potential of the business they want to see the historical track record.
Where funding is available red tape and vetting processes make it virtually impossible to actually get the money. That’s if the business owner is even aware of where and how to access the funds in the first place.
Then there’s the challenge of admin and financial management.
If you examine the start-ups that have failed, you’ll likely find they were good at doing business but not so good at the business administration side in addition to the issues outlined above. The reality is that most entrepreneurs have limited accounting or financial know-how and subsequently struggle to keep proper financial records.
In fact, research shows that on average a small business runs four to six months behind the current month in its record keeping and admin! It’s no wonder that only 7% of businesses survive past their third year.
If you took a closer look at many a failed business you’d probably also see that the business didn’t have a reliable system for creating and tracking customer quotes and invoices and didn’t produce staff payslips. Often, the business “filing system” involved piles of papers stored haphazardly on a desk or ‘stored’ in a box somewhere waiting to be given to a bookkeeper or accountant.
You’ll likely find that the business owner didn’t keep track of the use of their personal cash within the business or it wasn’t properly recorded and they didn’t manage their cash flow. Consequently the business would have struggled to produce monthly management accounts and didn’t have annual financial statements.
Without financial statements, securing finance from a bank or an investor is virtually impossible. Poor financial management impacts on the company’s ability to obtain a tax clearance certificate and a BEE certificate, which further hampers efforts to secure business.
In cases where the business owner can afford to purchase an accounting system, their limited accounting knowledge and understanding of the accounting jargon further sabotages them. This unfortunately means that the money spent buying the system in the first place is wasted as it can’t help them at all.
Fortunately there is an innovative new solution available that has been specifically developed for small business and which understands and addresses the issues entrepreneurs face. SMEasy, is a small business management tool that takes the pain out of record keeping and makes business and financial administration very simple.
Its strength lies in the fact that it’s not written in accounting language (or “accountanese”) so you can easily enter all your daily slips and info in a way you understand. The system converts these inputs into the information needed by the accountant to produce your financials and also ensures SARS compliance. SMEasy enables the business to secure a better chance of accessing finance and investment.
At the click of a mouse, SMEasy also handles your quoting, invoicing, your staff payslips as well as customer and supplier communication and invoice tracking, and more. The system provides good support, with training videos, a live chat facility and contact centre support. And by virtue of the fact that it’s an online system means it’s available to you from anywhere at any time.
At only R150 a month including VAT, small business owners are able to access this software solution; it’s a no brainer – especially since you only need one licence for your business regardless of how many users you have.
We believe this solution makes a tangible, real difference to SMMEs. It gives small business owners a simple, effective way of addressing some of their biggest headaches. In turn, the business will find it easier to secure financing, to retain customers, to survive, to generate profit and to grow.