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The 3 biggest challenges South Africa’s small businesses face and how to overcome them

Posted 6 months ago in Small business by Colin Timmis
Posted by Colin Timmis

With the South African government predicting a 0.3% dip in GDP by the end of the fourth quarter of 2016, the country’s economic climate is evidently not an easy environment for small businesses to operate in.

While the government has promised a well-intentioned allocation of R3.9bn to stimulate growth in the small business sector, it’s not enough to make a meaningful difference in the long-term.

Economic uncertainty is just one of the factors working against South African small businesses. Here are three of the adversities these enterprises face on the daily, and how to resolve them.

  1. Funding access

With banks becoming increasingly unwilling to approve loans, many entrepreneurs are turning to self-funding their endeavours. Xero’s 2016 State of SA Small Business report found that this is the case for the majority of small business owners — 63 percent used their personal savings while 20 percent secured an investment or loan from a family member, partner or friend.

Facing challenges in accessing capital to get their operations off-the-ground and scale, it’s important for entrepreneurs to consider alternative options such as bootstrapping. Getting your business off to a lean start can enable you to do so with more control and a laser focus — no need to report to financial institutions or potentially meddling investors.

  1. Late payments

Late payments are the number one financial challenge for half of SA’s small businesses. Not only do they negatively impact a company’s cash flow, they diminish productivity — Xero research found a small business spends, on average, 10.4 hours a month chasing late payments. It’s a cyclical phenomenon — for every late payment a small business receives the effects are passed on to its suppliers; often small businesses themselves.

The simple solution to late payments comes down to using good, cloud-based invoicing software, such as the capability available in Xero. With the ability to send personalised invoices from any device – featuring a ‘pay now’ button – and automate the invoice chasing process from end-to-end, businesses can collect online payments quickly and simply; stamping out late payments almost for good.

  1. Red tape

The South African business environment is notorious for excessive red tape, which hampers growth, competition and survival. Although the government has made positive steps towards eliminating bureaucratic slowdowns, such as digitising the business registration process, the country still has one of the highest startup failure rates in the world — an estimated 75% of these fledgling organisations don’t make it according to The Small Enterprise Development Agency.

Government websites and organisations have not fulfilled their promise to provide the necessary support resources for SMEs — forcing them to seek professional advice and assistance to navigate regulatory requirements and ensure compliance. Although the government has pledged to make it easier to do business in the country, they need to do more to create a supportive environment for these enterprises.

Despite the challenges they face, South Africa’s small business sector is mostly bullish about its future; 58 percent of small businesses expect to grow in the coming year according to Xero’s research. Although the government needs to step up, small businesses that succeed will empower themselves using the right technology and advice to achieve their objectives; subsequently lighting the fire in the engine room of the country’s economy.

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