Advice for SMEs in SA’s Current Environment

Estimated read time 5 min read

Small and medium enterprises (SMEs) are the backbone of the South African economy as well as the likely vehicle to tackle the country’s rising unemployment levels.

McKinsey and Company states that small businesses in South Africa contribute between 50% and 60% to the country’s GDP. If these businesses can grow and prosper, SA could start carving away at its 32.7% unemployment rate (42.6% in Statistics SA’s broader definition).

Despite the importance of SMEs in South Africa, they face a long list of challenges, exacerbated in the last couple of years by the Covid-19 pandemic, rising inflation and a sluggish, if not stagnant, world economy.

Remarkably, a study by accounting software provider Xero found that 87% of South African small businesses were optimistic about their outlook throughout last year, with 99% indicating that they were positive about their survival in the next five years.

“I’m in awe of how small businesses have been fighting for survival and continue to remain optimistic,” said Xero country manager for South Africa Colin Timmis in the report. “With the appropriate cautiousness, it is possible for small businesses to turn their eyes to growth, expansion and opportunity.”

Of course, there is no denying the challenges, as the lights are off more often with load shedding, the Financial Action Task Force officially greylisting South Africa, and interest rate hikes pushing the prime lending rate up to 10.75% in February.

Nicole Rousseau, co-founder and head of PKF Ignite – a cloud accounting platform specialising in tools to support small businesses – says the top three challenges for small businesses remain access to finance, cash flow management and the inordinately high burden of administration that is still placed on these businesses.

Amendments to the Businesses Act have been touted for a while, promising to address the regulatory burden on SMEs, a promise that was reiterated by President Cyril Ramaphosa in his 2023 State of the Nation Address.

Outside of waiting for additional government support, what can small businesses action or put in place now to ensure their survival, or perhaps even thrive?

Tapping into technology

The Covid-19 pandemic has accelerated the adoption of digital technologies, also for small businesses. When consumers were restricted in their movement, many SMEs had to take their business online as quickly as they could.

Apart from operating in the digital sphere, the adoption of the right technology is also key for SMEs to become more efficient and have the right insight to make informed decisions, says Rousseau.

“I don’t believe a business owner can make truly informed decisions based on up-to-date, relevant information if they are still running their finances off of spreadsheets,” she says.

“Digitising and using cloud accounting applications make it possible for you to have an immediate, always-on view and can help you, or the service providers that you use, identify challenges before they become problems.”

The right software can take the pain away from tax filing, simplify accounting processes and allows for collaboration with a business’s accountant. For example, software like Xero allows users to file their value-added tax (Vat) returns directly with the South African Revenue Service (Sars) via eFiling – reducing time and errors when it comes to taxes.

Technology and the right software can also unlock access to finance.

For example, Rousseau says by using platforms like Xero that integrate with non-traditional bridge funding providers such as Retail Capital and Bridgement a business can share their financial position and could get access to funding within 24 hours.

“Funding is always a ‘now’ problem and traditional banks don’t operate that way,” she says.

Automation is your friend

Running a small business often involves a limited number of employees having to manage all operations. Anything that can assist, support, and save time is beneficial.

Technology and software that automates some business processes can do exactly that, says Rousseau.

“Being able to switch on invoice reminders, or utilise the automatic bank feeds that will provide insight into what’s going on with your cash flow and so on might sound like small things, but it makes an incredible difference in day-to-day operations.”

Automation can help manage PAYE, bank reconciliation and debtors as well. SMEs could also connect whatever accounting software they have with other applications that help them run their business.

Understand the benefits available

While there may be much work still required from a regulatory and state support perspective, a lot of benefits are already available for SMEs if they are aware of and actively seize them.

Finding the right partner to advise SME owners is the determining factor of success here. If tax rules change, the right tax advisor can help one benefit from them immediately.

Rousseau advises SMEs to use existing skills development support. The government, for example, has announced its intention to invest in digital skills through the National Skills Fund to the value of R800 million; having a business advisory service in place can help SMEs unlock this opportunity.

She points out that many of the benefits available hinge on the company being compliant – specifically tax-compliant.

“You won’t be able to participate in tender processes, renew facilities at the bank and so on if you do not comply. It becomes a hindrance and that is why finding the right software support to ensure compliance is so important.”

Continuous guidance in a murky world

The most important step for SME survival, says Rousseau, is getting the right advisor to help them navigate the maze of doing business.

“South Africans are tenacious. No matter the challenge thrown, we will make a plan. But you need to get someone, or a service, on board that provides continuous guidance, as the landscape changes quickly,” she adds.

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