Despite the fact that SMEs make up approximately 50% of the gross domestic product in South Africa, have a higher production output than large companies, greater capacity to innovate, a more direct impact on cultural and social issues, and a greater role to play in the future growth of an economy, many of them also have a high rate of failure. Although figures available vary, it is commonly thought that 50% to 75% of SMEs fail after five years.
In a study conducted by Grofin founder and MD, Jurie Willemse, these high failure rates are due to a poor quality of management and decision-making, lack of access to finance, and inadequate planning.
Sirdar South Africa’s Carl Bates explains in his book, The Laws of Extreme Business Success, that SME business owners simply fail to treat their business as they would if it were a large corporate.
Perhaps the future improved success of the SME sector requires the application of the same governance principles that are the cornerstone of the corporate environment. A 2008 study by the Rotman School of Business indicated that governance practices in Canadian SMEs lag five years behind larger companies.
Following big business lessons
With South Africa’s progressive King Code guiding governance in large corporates, there are important lessons to be learnt from these principles as SME business owners seek to ensure they do not become another failure statistic.
Corporate governance is a set of rules, practices and structures which aim to drive an organisation to achieve its goals, build sustainable growth and fulfil the investment objectives of its shareholders, while playing a positive role in the greater community.
According to the King Code of Governance Principles (King III), good governance requires leadership that focuses on ethics, responsibility, accountability, fairness, sustainability, and the moral duties found in the spirit of Ubuntu. You can begin to implement concepts of King III by focusing on the following areas:
1. Implement a formal board process
This means a lot more than your monthly management meeting. Get independent directors not involved in the business to challenge your thinking on a regular basis with accountability and formal reporting. If your vision is exciting, you will find directors who are willing to support you with their time and experience. Be creative in how you compensate them, especially for the liability carried for being a director on your board. Avoid using family members on your board as independent directors.
2. Keep your roles separated
Recognise that there are differences between your roles as shareholder, director and manager and, as such, they require different decision-making processes.
Bates describes this principle in The Laws of Extreme Business Success as the Law of Three Hats – a shareholder focuses on their investment return, a director focuses on setting strategy and ensuring performance, and a manager ensures the job gets done.
Most SME owners get stuck in working in their businesses and forget their strategic responsibilities as a director and their investment goals as a shareholder.
3. Be prepared to be performance managed
As a business owner running your business, there is often no-one to hold you accountable for your actions. Who is watching that your personal expenses are not paid from cash in the till, or that you do not take Fridays off?
Good governance requires that even though you are the owner, manager or director of the company, you are willing to be performance managed just as you would expect of any other member of staff. That includes the risk of being fired should your conduct warrant it. Your board makes the decision whether you are capable of fulfilling your role as managing director or
4. Keep your eye on sustainability
While many SMEs struggle to lift their view out of survival mode, King III requires that a business focuses on its long-term sustainability. This includes profitability, solvency, returns to shareholders, business practices that ensure the business endures in the long term, and that the business can run without you. If your business only pays its bills and your salary, then it is in no way geared for future sustainability.
Use the strategic focus and long-term view of your board to keep the business geared towards delivering the results required, and take action where necessary. This may include rethinking your business model, getting tougher with yourself and your team, cutting personal expenses out of the business’s overheads, setting clear targets and getting realistic about
5. Get on top of your financials
The Achilles’ heel of the SME is the availability of accurate and timely financial accounts. This fundamental business practice is essential in staying on top of where you are and enabling you to make good decisions when you need to.
If this is not your strength, outsourcing this function may be the best decision you could ever make. If you are a (Pty) Ltd, then your fiduciary duties as a director are to understand your financials and make good decisions with accurate information.
While running two sets of books may seem like a good idea to put money into your own pocket, it does not create real and sustainable value in your business or promote trust for investors.
6. Manage your risk
Risk management plays a key part in good governance, and large companies have teams dedicated to it. Having a realistic view of the risks your business faces and their potential impact is essential. This allows you to plan accordingly and mitigate risks before they cripple you.
With the amended Companies Act coming into effect, directors carry a heavier responsibility for not taking action on risks that threaten a business’s solvency, legal status and operational ability. In order for SMEs to increase their positive impact on economies, business owners need to think differently about what ‘business as usual’ means. To create long-term growth and sustainability, applying the principles of governance is essential business practice.
If there is only one action step you take, it should be the recognition that a board of directors operating under the principles of governance, and including at least as many independents as there are executive directors, will take your mindset and your business to a new level of strategic thought, challenging debate, and improved decision-making.
We Need To Unite For A Better Entrepreneurial Future!
Here are my key entrepreneurial tips from The Passport Showcase.
In our modern world, where nationalists walk the street and xenophobic beliefs are on the rise, as a Zimbabwean serial entrepreneur and motivational speaker, I’ve identified that we need to bridge this division and unite us all through celebrating our diversity.
We need to come together not because it’s the right thing to do, but because united, we can work towards a profitable future. However, before this can happen, we need to change the global mindset. That’s why I transformed my book The Passport into a showcase in which performers from across the continent took part and showed off their talents.
While preparing for the show I noted some important lessons that I learnt along the way. Here are my key entrepreneurial tips from The Passport Showcase.
Success can’t happen in a vacuum!
Setting up The Passport Showcase took a lot of collaboration. As an entrepreneur and a believer in a united Africa, I’ve learned you can’t operate a successful business if you’re not willing to work and deliver services to everyone. It’s for this reason I invited fashion designers, artists, and dancers, to come together and educate us about the dangers of xenophobic beliefs through their art forms.
We need to be able to blend skills and overcome our preconceived notions, in business and the arts, so that we can achieve great things.
Education is the key to every problem
It’s a part of starting any business; educating the public about your company and quickly converting them into consumers. Arguably the same was true of the showcase, creating a truly unique experience to inform the public about celebrating diversity.
Helping individuals understand that acceptance is key for a better future is critical for business expansion. If any of us want to expand our businesses, we need to be able to engage with different markets – who won’t chase away the unknown.
Identifying a new opportunity is one of the fundamental building blocks for a new business. Finding unique solutions is a truth that echoes across corporate industries and the arts. But change can cause concern and adverse reactions.
On our continent, ideas that disrupt the norm are needed to catapult our brothers and sisters to a brighter future. But this can only be achieved when we celebrate our diversities and collaborate.
9 Ways To Elevate Your Small Business To The Next Level
The South African economy is strongly supported by the nation’s entrepreneurial spirit, which encourages a culture of growth and development in communities.
With the unemployment rate currently at 27.71%, people of all ages and backgrounds are looking for an opportunity to work.
Although many entrepreneurs have enjoyed great success on their small business journeys, choosing to start your own business comes with many risks. One of these risks is the financial burden it can bring. While there are various challenges faced by small businesses, it is possible to overcome these and jumpstart your business with these useful tips from FedEx Express, the world’s largest express transportation company.
1. Connect with customers
As a small business owner, it is important to know who your customers are, where they spend their time, what they are looking for and how your business can meet their needs. Times have changed and waiting for customers to come to you is no longer a feasible business strategy. In today’s evolving business environment, entrepreneurs need to be approaching their customers and building strong relationships with them to form a lasting impression. If your small business cannot grow its customer base, it cannot grow profits.
Attending networking events will allow you to find professionals and other small business owners who offer services your business may require. Many small business owners get this critical aspect of starting a new business wrong by networking purely to gain customers, not realising that networking with other business can assist you in acquiring the services you need to continue the growth of your business. Small businesses have a lot to gain through networking at the right time and at relevant events.
3. Use social media
There are a number of social media networks and social networking platforms that can drastically grow your business, however, it is important to understand your customers and identify the channels they prefer to communicate on. By implementing a comprehensive social media strategy, you can ensure social media works as a driver of new business that positively promotes your service offerings.
4. Build customer loyalty
Building customer loyalty begins with great customer service. Great customer service starts with a positive customer experience and first impressions are vital in this regard. If a customer has an enjoyable experience when using your services, it is likely they will return and use your services on an ongoing basis. By ensuring your business has a user friendly website and informative brand collateral, new business prospects will increase and those who have experienced quality customer service from your business are likely to refer you to friends and colleagues.
5. Ask for help
All small businesses face challenges, particularly in the early operational stage. This is why asking for help from your peers/mentor who may be more experienced than you is critical. Tapping into the mind of someone with more experience and a broader knowledge base will ensure you learn and acquire the skills needed to make a success of your business. The FedEx Small Business portal offers business owners useful advice that will assist you on your small business journey. Visit www.smallbusiness.fedex.com for tips and success stories that will inspire and help you to grow your small business.
6. Hire the right people
Each person that forms part of your business needs to share the same vision with you that will drive growth. Your workforce will be responsible for the success of your business therefore, ensuring your staff remains motivated is important. When hiring a new employee, implement a check list that includes traits that you feel are imperative to the culture of your business.
Asking out-of-the-box questions in the interview will also assist you in determining if the potential employee is a suitable candidate to fill the open position.
7. Manage cash flow well
Many small businesses close due to cash flow problems. Managing money spent versus money earned is critical as it provides you with a clear indication of whether your business is running at a loss or whether you are excelling. If your small business is losing money, you can implement a strategy to iron out the issues that are contributing to this and identify ways that will ensure your business generates profits.
8. Work to build success
Work to make a success out of your business with your employees by being involved in the everyday activities that are critical to your businesses success. Being involved will ensure employee morale remains high while allowing you to identify areas that need improvement.
9. Find inspiration
There will always be someone who has been in your current position, even if it is a different business to yours. Learning how they made a success of their business during hard times will provide you with the knowledge you need to succeed as a business owner. Starting your own business is a learning experience made easier by speaking to others who inspire you.
A business can safeguard its success if it continues to innovate. For example, e-commerce has changed the way the world conducts business, and the rise in technology has made it easier to interact with customers quickly and across borders. With economies becoming more interconnected, companies large and small are now able to access markets that were previously unattainable. E-commerce will assist small businesses in establishing their territory in the market and as a result, guarantee growth and longevity,” concludes Higley.
How Algorithmic Forecasting Can Improve Business Efficiency In Challenging Economic Times
Harnessing the power of predictive analytics, in-memory computing, and artificial intelligence to forecast risks will help entrepreneurs stay ahead.
The ability for businesses to accurately predict risk and develop insights has traditionally involved manual drudgery, spreadsheets, and been confined mainly to the finance department.
With the advent of new technologies such as predictive analytics, in-memory computing, and artificial intelligence (AI), smart Chief Finance Officers (CFOs) are harnessing their power to automate the process, free up human capacity, and get deeper, more accurate insights.
The success of any business, from small start-up to large enterprise, depends on how accurately they can predict future performance, as well as recognise and respond to warning signals.
Deloitte recently launched a report titled Forecasting in a digital world, the sixth in its Crunch Time series for CFOs, which delves into the advantages of algorithmic forecasting and why it will change and challenge the way businesses look at and consume data.
There is a shift away from having people gather, compile and manipulate data, to handing over the menial work to the machines – which employ data-fuelled, predictive algorithms to sift through historical data and use statistical models to describe what is likely to happen in the future.
It is a process that relies on warehouses of historical company and market data, statistical algorithms chosen by experienced data scientists, and modern computing capabilities that make collecting, storing, and analysing data fast and affordable.
Algorithmic forecasting is a well-oiled machine, with more than 80 percent of the work happening automatically. Every piece of financial data a decision maker could want is available on their device and all they need to do is ask—literally.
How it change the workforce
While it seems like the machines are taking over, humans are not left entirely out of the process. The success of algorithmic forecasting depends on collaboration with the machines and among people from different teams, including finance, data analytics, and business.
The business finance talent model should evolve to keep up with changes in how work gets done and that will likely require a different mix of people than what organisations have in place today.
However, once they hit their stride, these teams can move across the range of forecasting needs, embedding capabilities in the business and driving integration. These teams are integral to establishing an algorithmic solution that can work for the business, bring insights to life within the organisation, and support continued business ownership of the outcomes.
How it changes the workplace
The new teams required for algorithmic forecasting to succeed and the pulling of human resources from other departments will need the workplace to evolve into a more collaborative space, banishing outdated silos.
Forecasting is not limited to finance but all functions, from marketing to supply chain to human resources – basically all functions that need to predict the future to drive important decisions.
While CFOs may not lead function-specific forecasting, they should help shape these forecasting initiatives since finance will inevitably use the outputs they generate.
A shared forecasting infrastructure — even a physical Centre of Excellence (CoE)—can help improve collaboration and coordination while providing efficiencies in data storage, tool configuration, and knowledge sharing.
The beauty of algorithmic forecasting is that once the work is done to solve one specific problem, the same process and capability can be extended and applied in other areas.
Algorithmic forecasting doesn’t create anything out of thin air and it doesn’t deliver 100% precision. However, it is an effective way for getting more value from planning, budgeting, and forecasting efforts.
A commitment to algorithmic forecasting is both cultural and statistical. Making it happen involves people working with technology – neither is enough on its own. Every company will make its own unique journey from its current approach to planning and forecasting to an improved approach.
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