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The Big Trap of Small Business

If what you are offering is relevant and needed then your customers will force you to grow.

Vusi Thembekwayo

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Discovery Ltd was started in the year 1992. Its turnover is R34 billion & market capitalisation is over. R57 billion.

Curro Holdings Ltd was started in the year 1998. Its turnover is R487 million & its market capitalisation is just over R9 billion.

Yet in the same time countless entrepreneurs have started their own small businesses and more fail than those that succeed. You’d be forgiven for thinking that the founders of companies like Discovery, Curro, First Rand, GijimaAST and BCX are all geniuses. They’re not. They just understand that if a business is not scalable and is built to inherently “stay small”, then it will die.

Related: Want to Start a Business but Questioning Your Passion? Try This

So why is South Africa so deeply focused on creating small businesses?

Why do we have a legislative framework that seems to encourage and even incentivise entrepreneurs to stay small and fly under the radar?

There are few fallacies about starting and running a large business that many entrepreneurs have that need some correcting:

1. Its harder to run a big business

I sit on the board of several very large businesses. I am a partner in a private equity outfit & often engage with business leaders when are looking for opportunities to buy into businesses. Not only that, I have run a R500 million a year business and today influence over R4 billion in capital.

The task of running larger business is more complex but is not of itself harder. The effort is the same. You often work the same hours, manage similar issues and have to answer the same burning questions around the future and you will get there.

What changes as you move from small to medium and then medium to large is the “complexity” of the business. There is a deeper interdependence of factors and the stakes are higher but the effort is the same.

2. I want to own everything. I am the boss of me.

Too many small business entrepreneurs actually think they are “free”. If you have to go to work and be at the office to make a living then you are not free, you simply have the illusion of freedom with higher responsibilities than corporate employees.

Sometime ago I realised that I needed a better pool of talent in my business. I needed deeper insight, better technical expertise and more proven track-records. But I couldn’t hire these people into the business.

 

Related: 10 Ways Entrepreneurs Think Differently

Not only could I not afford them, but I would never be able to get the best out of them as conventional “employees”. So decided to create a floating shareholding structure through which “key people” could have equity in the business apportioned by the percentage contribution to the bottom-line.

This is hard because having other shareholders means you must ensure that corporate governance is in place and that apply the very same “corporate-rules” that you left employment for. However, this was the best decision I ever made.

I couldn’t have hoped for a better team and the business has grown 121% on average every year for the past 3 years. This year we are on track for a 208% growth in top-line revenues. This is not because I am smarter or working harder but rather I gave a portion of my business away to people that were best able to help me create wealth.

Caution: taking your time choosing these people. It is not a decision to betaken likely. Test the out first. Give them tasks. Give them an opportunity and see what they deliver. Too many people have learnt how to “interview” well.

3. Hire cheap. It’s just a job.

This is the Achilles of most entrepreneurs. Hiring the cheapest person in an effort to contain costs often leads to other “implicit and non-direct” costs like bad workmanship, poor quality of work, tardiness, laziness, disengagement and the myriad of HR issues that follow this type employee. These also happen to the hardest people to fire. They are bad at their jobs so as a survival tool, they have had to be good at labour relations.

When it comes to developing your business in the early days, then the laws are “first brains in seats then bums in seats”.  Get the right people. Pay them correctly. Inspire them to believe in the future. Give them ownership of the future and watch them WOW you.

In the end, no small business ever changed the world by staying small.

Related: 3 Reasons Your Business is Dying

Mr. Vusi Thembekwayo has been an Independent Non-Executive Director of at RBA Holdings Ltd. since May 14, 2013. Mr. Thembekwayo has already collected numerous accolades and awards as businessperson, entrepreneur and international public speaker. Mr. Thembekwayo completed a PDBA and a course on advanced valuation techniques with the Gordon Institute of Business Science and completed a Management Acceleration Programme (Cum Laude) with the Wits Business School. His speaking achievements include the international hit talk “The Black Sheep” which he delivered to the Top 40 CEOs in Southern Africa, addressing the Australian Houses of Parliament and speaking at the British House of Commons. To add to this, Vusi speaks in 4 of the 7 continents over 350 000 people each year.

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Small Business

How The SA Government Can Help Small Businesses Thrive

The Xero report has gathered the top five priorities – as identified by South Africa’s small business owners.

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Small businesses are a critical component of the South African economy. They account for 52% of the country’s GDP, contribute millions in tax revenue and help address the nation-wide unemployment problem by creating more jobs. The government does acknowledge this to some extent and has made some effort to support their growth – but more needs to be done.

The Department of Small Business Development launched in 2014. Its aim is to support South Africa’s entrepreneurial community. However, the initiative hasn’t quite achieved its objectives and, according to Xero’s 2017 State of Small Business report, only 4% of small businesses feel that the department has helped their organisation. A surprising 89% say it is has not helped their businesses in any way.

The reality is, the current national and global economic climate is putting South Africa’s small businesses under immense pressure. They require specific attention and support. The Xero report has gathered the top five priorities – as identified by South Africa’s small business owners. 

1More funding options

Almost half (48%) of small businesses would like to see more help from the government with regards to funding. Currently, 85% of South African start-ups are self-funded. This route requires personal resources that are out of reach for many would-be entrepreneurs. And even those who do manage to fund their own companies, won’t necessarily have enough to grow their businesses to their full potential.

Related: Smart Money For Small Businesses

Access to outside funding options is thus crucial. If the government makes more money available to small businesses through subsidies and grants, then more new companies will be able to launch – and grow.

To limit the number of South Africa’s successful entrepreneurs to those with enough money to fund their own companies, perpetuates economic inequalities, frustrates individual ambitions and does little to help the country’s progress.

2Less red-tape

red-tape-business-restrictions

South Africa is a country of rules. Our regulatory environment is notoriously restrictive and 44% of entrepreneurs would like to see less red-tape. It’s not necessarily the regulations themselves that are the problem – but rather the level of bureaucracy. The government expects full compliance, yet offers little official assistance to help businesses navigate the corridors of power.

Small business owners, who typically don’t have much time to spare, have to spend valuable hours travelling to and from various government agencies and departments. The issue is the current lack of co-ordination between these offices and their individual legislative interpretations. Entrepreneurs are often shunted from one to the other, seeking a signature here and a stamp there – only to be told that they’ve missed a step and have to start at the beginning.

Compliance is of course, crucial. However, small business growth should not be interrupted by unnecessarily obstructive rules and regulations. If the government would like to boost the economy even further, it needs to create a legislative environment in which small businesses can thrive.

3Offer tax breaks

High taxes keep 16% of South Africa’s entrepreneurs up at night and 42% would like the government to offer tax breaks. Prohibitively high taxes can hurt the country’s economy: Businesses move overseas to more tax-friendly locations and take jobs and revenue with them.

Tax breaks benefit both the small business community and the government. They make it more affordable for would-be entrepreneurs to start a business. And, as more companies launch, tax revenue increases.

Related: Cash Flow Tips For Small Businesses To Survive Rocky Times

4Improve access to finance

Access to finance is a recurring issue. With so few subsidies and grants available, small businesses battle to secure the funding they need to grow. Banks are hesitant lenders, especially when it comes to start-ups – and 35% of entrepreneurs look to the government to help them access the financial solutions they need.

The good news is, the government can help. The Department of Trade and Industry, along with its various satellite organisations, offers loans with flexible repayment terms and lower interest rates. Of course, this doesn’t meet the growing demand, and more finance options need to be made available to help entrepreneurs get their businesses up and running. 

5Education investment

The high unemployment rate in South Africa is compounded by a severe skills shortage. Small businesses need very specific skills and have to hire carefully – the wrong recruit can become an expensive mistake. Too many entrepreneurs struggle to find the right people with the experience and skills that they need – which limits their growth potential.

Almost a quarter (22%) of small businesses believe that the government needs to invest more in education. While this is no short-term solution, it is a necessary step towards building South Africa’s talent pool and safeguarding its economic future. If this doesn’t happen, neither the companies nor the country will be able to function at maximum efficiency.

The government has much to gain from working in the best interests of the small business community. The sooner the two parties are on the same page, the better for the economy.

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Small Business

Smart Money For Small Businesses

Being smart with your money leads to smart business practices and you don’t need more reason than that to keep reading.

Tasmin Copley

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Starting out or keeping it small, it’s time to be smart with your money as a business. Below you will find smart ways of managing your money, as well as simple ways to save money as a business.

Being smart with your money leads to smart business practices and you don’t need more reason than that to keep reading.

Things that start with business…

A few things that start with business and end in smart money choices are:

  • Business car leasing: Leasing a business car means you don’t have to worry about depreciation in value and struggling to sell your car at the end of its term. If your business requires a more-than-average amount of time on the road, for clients and site visits, then you should consider this business car option. You’ll also save money leasing a car by paying lower monthly installments than if you chose to purchase the car.
  • Business credit card: Besides the obvious advantage of building a credit score – for necessary equipment, office space and other contracts – using a business credit card is an easy way to keep track of your expenses. You also have the chance of cashing in from some type of rewards program. Be sure to research your credit card options and find one suitable for your business ventures.
  • Business expenses: Tax deductible. Look it up. Know what classifies as a business expense and that can be claimed back at the end of the financial year. You’re welcome.

Related: Cash Flow Tips For Small Businesses To Survive Rocky Times

Budget

As important as it is in your personal finance life, setting a budget for your small business is equally as important. Monitor money coming in and leaving the business and make sure you know how it’s making its entrance and exit. Take note of fixed monthly money allocations and budget for new expenses and profits.

Creating and implementing a budget places everyone on the same page with regards to how money moves in the business and that all movements are being tracked. In any business, it’s also a means of keeping tabs on how the company is doing with regards to reaching their business goals.

And save

saving-money

Don’t be quick to give yourself a raise when the business starts doing well. There’s constant instability in almost every business market and that extra money is better “spent” sitting in a savings account. Find ways to save money in your business and where you do save, put that money away for a rainy day.

Implementing green practices in your business will save you time and money. Energy-efficient lighting will reduce your electricity bill and using less paper and printing equipment will save you those costs as well. And if being completely paperless isn’t possible, be sure to recycle.

Save money on a marketing department while you’re still small and head it up yourself with the help of media management applications and building media connections.

Use technology

This will save you time and ultimately money. There are so many different kinds of business technology software designed to make running your business easier. Whether you need accounting services, mass mailing, social media schedules, customer service, internal collaborative platforms, invoicing, project management or data storage, you will be able to find an automated system to help you out.

Schedule your payments, posts and admin tasks with automated solutions. As a small business or start-up, you may not be in the financial position to hire someone to do these tasks and your time is better spent working on the front lines of your business.

Related: Why Small Business Deserves To Be A Bigger Priority

Smart hiring

Don’t throw your money at hiring a team of salespeople when you only, in fact, need one (for the time being). Quantity will come as your business grows and you have more clients and credibility in the industry. For now, all your small business needs is one or two quality sales professionals who can get business flowing.

Take the time to interview a variety of candidates and take into consideration their experience and skills, not only relating to the job position. The chances of them having to help out in other departments is likely and you will find more value in an employee of many talents than one great salesperson who cannot contribute to anything else in the company.

Every business has their own plans and needs so keep them in mind when making smart money choices in their small business.

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What Is The Impact Of Late Payments On Your Business’s Sustainable Growth?

As one of the largest accounting professional bodies in the world, we at ACCA have a birds-eye view of the key issues affecting SME business performance.

ACCA

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Today’s economic and political environment places a number of challenges upon entrepreneurs and small businesses growth. One of the most prominent is uncertainty – and the impact this has over the cost of doing business.

This has the potential to affect the ability of businesses to access finance, invest, export, and ultimately, grow. Consequently, the provision of tailored guidance and business support plays a vital role towards shaping the prospects of small businesses at an individual as well as the wider growth prospects of the South African economy as a whole.

Chartered accountants play an equally important role in this regard. Research indicates they remain entrepreneurs and SMEs’ most trusted advisors, with half of those small companies in the UK that have sought business support having approached their accountant. And as one of the largest accounting professional bodies in the world, we at ACCA have a birds-eye view of the key issues affecting SME business performance.

Problem of poor payment practise

Perhaps one of the biggest problems we hear about from small businesses and entrepreneurs is poor payment practice. Delayed payment affects businesses in a number of ways.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

Evidence clearly shows that it reduces business productivity, with businesses that would otherwise be spending time growing and investing in their business instead chasing debts owed to them and being a substantial distraction to business staff.

Part of the reason for this is because small businesses suffer from a lack of bargaining power when dealing with established businesses and government because they do not have the resources (time, labour or capital) to dedicate to dealing with relevant disputes.

Typically, in a small business, all resources are focused on growing and sustaining the business and in particular, maintaining cash flow. Further resource is targeted at meeting key legal requirements, such as paying tax or regulatory compliance.

Small companies are, therefore, often relatively unsophisticated when dealing with contractual issues and no better able to protect themselves than individual consumers.

Remedies

Both for small businesses and the South African economy, this is unacceptable practise. The knock – on effect results in potential job losses, unsustainable businesses and might in the long term translate the SME sector as a weak contributor to economic growth, increase barrier to entry and thus reduced competition in sectors where the late payment is rife.

At the moment, poor payment practice is not taken seriously enough in the boardrooms of larger companies. Given the impact of poor payment practices by large companies on smaller ones, it is essential late payment becomes a central focus for policymakers going forward.

Suppliers can protect themselves through careful due diligence and in-depth receivables analyses building on ageing debtors reports. They can make more realistic

provisions for bad debt, informed by first-hand information gathering, and incorporate these into regular cash projections. There is also a lot that they can do to improve the administration of receivables, from better understanding of customers’ systems and the use of automation to bringing in outside expertise on credit control and collections.

Related: 7 Factors To Determine Who Are Your Employees (And Who Aren’t)

For suppliers, the fight against late payments continues with contract design: Businesses should ensure that their terms of credit are clear and explicit and that contracts give them appropriate rights over goods that remain unpaid for, as well as the right to withhold services or delivery as appropriate. Even the methods of payment can make a significant difference and must be specified in advance.

In addition, despite receiving very unfavourable press coverage, prompt or early payment discounts can be an acceptable means of aligning prices with the cost of servicing individual customers – as long as they are not imposed unilaterally and at short notice. Managing early payment discounts is easily managed in QuickBooks.

Financing and liquidity insurance is a major element of the fight against late payment, and small suppliers in particular need to replicate to the extent possible the protection provided by the internal cash pools of diversified business groups.

Exploring and securing alternative sources of finance (including factoring and trade credit insurance) is important, but ultimately directors must be alive to the implications of providing credit to major suppliers and be willing to take on some risk through equity injections.

Finally, suppliers need to be able to distinguish quickly between late payment and genuine credit risk. There is often no substitute for first-hand inspection and probing. When customers are struggling but ultimately viable, forbearance can work.

Businesses should seek to shield themselves from further cash disruption and reduce services to struggling customers but should also use payment plans to maximise recoveries and help customers surmount their problems.

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