The 2015 annual SME Insight Survey commissioned by the South African Institute of Chartered Accountants (SAICA) yielded a number of findings that the institute believes can assist policymakers in government, NGOs and business as they seek to encourage growth in the SME sector.
Small and medium enterprises (SMEs) have been prioritised by the National Development Plan (NDP) as engines of job creation, with a rapidly growing small business environment seen as the only viable solution to mass unemployment.
By 2030, the NDP aims to ensure that 90% of new jobs will have been created by SMEs. Last year’s survey attracted more than 1 300 responses from business owners, and SAICA have launched their 2016 version – designed to help policy makers create an enabling environment for SMEs to thrive and to create employment. SMEs are encouraged to give up 20 mins of their time and to participate [2016 SME Survey].
One of the findings highlighted in the 2015 SME Insight Survey Report is the number of entrepreneurs who start multiple businesses. Of those surveyed, 61% have started at least two companies, with more than a third starting three or more, and 3% starting ten or more.
The research also shows that the SMEs with the highest turnover are generally those that have been in business for five years or more, and that the number of staff an SME employs increases sharply with turnover. Two conclusions can be drawn from this information: Firstly, that once the entrepreneurial bug has bitten, SME owners have a tendency to start more businesses and provide more jobs.
Secondly, and most importantly for the purposes of job creation, SMEs can only become major drivers of employment over time, providing they see sustained growth in turnover.
Funding start-ups that fail within two years – and as many as 63% do – cannot be the primary way to turn SMEs into an urgent and effective solution for unemployment.
Support and mentoring of SMEs crucial
Business Partners Limited, the biggest private funder of SMEs in South Africa and one of the most successful of its type in the world, has long believed that one of the most effective forms of risk-mitigation when lending to SMEs is to ensure mentorship and support in areas of business that many entrepreneurs are initially unaware of.
SMEs need advice about setting up and managing systems in their businesses; including people management, VAT returns, sales, bookkeeping and cash-flow forecasting, because many entrepreneurs are unaware of where to find help in building these systems, they simply focus on production and neglect the other aspects of running a successful business. General knowledge and business skills mean the difference between survival and business failure. This is why young entrepreneurs should continually tap into older entrepreneurs’ knowledge and experience.
In 2015 government allocated a new budget of R3.5-billion to support and mentoring of SMEs through the Department of Small Business. However, it is clear that the majority of this funding is to be spent in support of micro-enterprises, which are typically one-person operations. Whether it is a doctor opening a solo practice or a merchant starting a spaza shop, the primary focus of the micro-business owner is to support themselves and their families, not to create jobs for others.
While mentoring and support for micro-businesses is of course important; they face the same challenges as larger firms, and need the same guidance if they are to survive and grow, they are not and will never be significant drivers of employment. Government has in 2016 announced its intention of raising a R10bn fund to finance SMMEs. Detail is still short but one hopes, for the sake of the unemployed that this funding will be aimed at growing and grooming the SMEs that have weathered the first two year storm, and are capable of growth and significant employment.
Related: EOH 702 Youth Job Creation Challenge
Established SMEs are better job-creation engines
The findings of the 2015 SME Insight Survey suggest that it would be more cost-effective for government, NGOs and private funders to focus more on mentoring and supporting existing SMEs, especially those that have cleared the “two-year failure rate” hurdle.
SAICA, for example, runs a project that offers mentoring and advice to SMEs on issues such as budgeting, bookkeeping and cash forecasting, provided by qualified Chartered Accountants (South Africa) [CAs(SA)] who have graduated and completed their training, but have not yet found full-time employment. This allows the CAs(SA) to gain more real-world business experience, while at the same time demonstrating to SME owners the value of consulting a CA(SA) for business advice or mentorship.
The survey findings, in conclusion, suggest that those who counsel SME funding as an investment in creating more employment opportunities will see the best return on that investment by channelling it into established SMEs. Providing mentoring and advice to these businesses will allow them to grow and thus increase their staff complements; a vital prerequisite if SMEs are going to help make a significant dent in unemployment by 2030.