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How SMEs Can Defeat The Red-Tape Bugbear

South African SMEs see red tape – from both government and big business – as a major brake on growth. The truth is that perception and reality are often different. By seeking expert advice, SME owners can make tackling the red tape much easier, while at the same time adding to the strength and sustainability of their business.

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The South African government’s National Development Plan (NDP) identifies SMEs as primary drivers of job creation, and has set a target of 90% of new employment being created in the SME sector by 2030. Many economists agree that rapid SME growth is the only sustainable way to reduce unemployment and expand the middle class.

One would have thought that this was great news for SMEs – most South African small, medium and micro-business owners are unlikely to disagree with the policy. In practice, however, there are certain obstacles to be overcome before the majority of our SMEs will commit themselves to growth as a deliberate contribution to job creation, alongside each company’s primary aim of improved profitability.

A poll of more than 1 300 South African companies, the 2015 SME Insights Survey commissioned by the South African Institute of Chartered Accountants (SAICA), revealed that 76% of the respondents employ fewer than 20 people, and 46% have fewer than five employees.

Related: HR Management Basics For The Small Business

There was also a very interesting correlation between SME longevity, turnover and staff size. By and large, the 25% of SMEs that report turnover above R10-million per annum are also those who have been in business 5 years or longer, and furthermore they are the firms likely to be employing more staff. Only 1% of the sample claimed a turnover above R500-million per annum, and 1% also employ more than 1 000 people.

The implication is clear: If SMEs are to be engines of job creation, the task will be accomplished by SMEs that have survived long enough to achieve substantial annual turnovers on a sustained basis. The government is to be commended for supporting micro enterprises, but their job creation goals will need a new focus.

Longevity vs employment graph

Longevity vs turnover graph

Barriers to SME growth

These statistics make sense. Most small and medium enterprises actually begin as micro enterprises, with just one out of two entrepreneurs forming their own company. For the first two or three years, they will be totally focussed on the challenges of creating a sustainable business: Funding, production, distribution, cash flow, and market penetration. In many cases, entrepreneurs are also breadwinners, so their immediate priority is providing for their dependants.

This is not to say that they cannot also perform a socially conscious job creation role, and be committed to the NDP vision; but the harsh economic reality is that they cannot afford to focus on providing jobs for others until they are sure that their business will be able to continue supporting them and their families. And they will not be turned into job creation machines until government provides compelling incentives for them to do this.

More than 60% of SMEs fail within their first three years. A rational conclusion from all this data is that supporting and mentoring existing SMEs who have survived three or more years, so that they can achieve the longevity and turnover that allows them to employ more staff, would be an important policy direction, and possibly a more rapid road to the achievement of the NDP goals than a concentration of funding on thousands of new micro-enterprises.

starting a business barrier

Asked to identify the biggest barrier to entry when starting a business, respondents said the three primary obstacles were government red tape, access to funding and red tape when dealing with big business. If these factors make starting a business harder, it is logical to infer that they remain a deterrent as a business grows, bringing with it more red tape and the need to fund further expansion.

It is hoped that policymakers will take the findings of the 2015 SME Insights Survey into account when trying to formulate policy that will help SMEs address these obstacles, but at the same time, SMEs themselves can take proactive steps to lessen their impact.

By engaging the services of a Chartered Accountant (South Africa) [CA(SA)], an SME owner can lighten the dual burdens of dealing with red tape and the acquisition of funding, while at the same time getting sound business advice that will increase their chances of long-term success.

Related: Getting Your Growth On

SMPs offer multiple benefits

A significant number of CAs(SA) work in small and medium practices (SMPs), providing financial and accounting services to other SMEs. But the value they can offer to these SMEs goes beyond the bookkeeping and tax consulting that most small business owners see as their primary function.

As successful South African entrepreneur Alan Knott-Craig Jr put it when asked about the value of his CA(SA) qualification: ‘There’s a lot of admin that isn’t fun when you’re setting up a business: Registering a company, getting a trademark, doing legal agreements, cash-flow management, accounting, etcetera. All of that gets taught to CAs(SA) – you get so comfortable with statutory company secretarial and regulatory accounting work. It’s something non-CAs(SA) don’t pay much attention to when they get their own small businesses off the ground. And then one day they forget to pay VAT, and SARS comes and takes out their business. A CA(SA) is not going to drop the ball in those areas.’

For many entrepreneurs, the first problem when dealing with red tape is knowing what red tape is even relevant; a consulting CA(SA) will have all that information at their fingertips, whether dealing with government or big business contracts. For example, 55% of the companies in the 2015 SME Insights Survey either do not know how they will be ranked under the latest Broad-Based Black Economic Empowerment (B-BBEE) codes, or presume they will be non-compliant.

Another 12% are unsure if their status will even change. Yet under the new B-BBEE codes, any SME with a turnover less than R10-million per annum qualifies as an Exempt Micro Enterprise (EME), and as such receives an automatic B-BBEE Level 4 or better rating, allowing it to bid for contracts with government and big business. A full 75% of the businesses surveyed qualify as EMEs, and any CA(SA) would be able to tell their owners that they can achieve Level 4 status simply by submitting an affidavit about their turnover.

Business and funding assistance

Apart from the ability of CAs(SA) to deal with red tape, South Africa’s small business bankers agree they can be a great help in mentoring and advising small businesses with an outside perspective – and even in helping to prepare them to be attractive prospects for bank funding.

Thakhani Makhuvha, CEO of the Small Enterprises Finance Agency, thinks that SMEs could consider contracting SMPs to perform the functions of a non-executive director, without a formal appointment to the role. ‘It would be a significant value-add,’ he says. ‘

A small company might not be able to understand the risks that they are facing – it might be in invoicing, creditors, filing, following up with the debtors, etcetera. An audit firm that will provide that insight will definitely be adding value to the small business – if those risks are identified and mitigated, it gives us a firm degree of confidence. You don’t have to be appointed a director – just an independent person who is behaving like a director, questioning the strategy and viability of the business on an on-going basis.’

Related: Funding And Resources For Young SA Entrepreneurs

As Makhuvu’s remarks illustrate, advice and mentorship from a CA(SA) can also help SMEs overcome another barrier: Finding funding. A 2014 survey of all the major SME funders in South Africa revealed that the input of a CA(SA) was seen as a positive advantage, and that lenders felt more secure about providing finance to SME owners who were prepared to rely on qualified guidance and expert financial oversight.

‘If a lender knows you’re a CA(SA), they talk to you differently; it’s just a fact,’ says Alan Knott-Craig Jr. ‘The CA(SA) designation provides instant business credibility.’

The conclusion is readily apparent: entrepreneurs, who want to build long-running, profitable SMEs that can eventually turn into large enterprises and employ significant numbers of people, need to be able to handle red tape and applications for funding along with all the other financial and strategic minutiae of business, both on a day-to-day basis and within a long-term strategy. They would do well to consider consulting a CA(SA) to provide value advice and expertise in all these areas.

If you’re an SME and would like to participate in the 2016 SMME Insights Survey commissioned by SAICA, click here: 2016 SMME Insights Survey

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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It’s Never Too Late To Start A Business

Entrepreneurship at any age is key to minimising unemployment in SA.

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Whilst the country continues to battle a high unemployment rate – which increased to 27,5 percent, according to the Quarterly Labour Force Survey for the Third Quarter of 2018 – the narrative of entrepreneurship as a viable career choice should be widely promoted and encouraged across all generations.

However, according to Anton Roelofse, regional general manager at Business Partners Limited (BUSINESS/PARTERS), the recently released 2018 Real State of Entrepreneurship Survey, compiled by Seed Academy and Old Mutual, revealed that 80 percent of entrepreneurs in South Africa are under the age of 45, with the majority of entrepreneurs reported to be between the ages of 25 and 34.

“In light of the high prevalence of unemployment, there is no reason that entrepreneurship should be reserved for the younger generation. Considering that only 20 percent of entrepreneurs are over 45, it is now more important than ever for older aspiring entrepreneurs to realise that the country needs them and it is never too late to start a business,” he says.

Delving into the reasons for this low rate of entrepreneurship among older generations in South Africa, Roelofse refers to the 2016-2017 Senior Entrepreneurship Report. “According to the report, older individuals have the lowest confidence in their ability to start and run their own businesses, and many believe that entrepreneurship is a young person’s occupation because the majority of entrepreneurs are young.”

Related: How To Start A Business With No Money

In contrast to these beliefs, Roelofse says that it has actually been shown that older entrepreneurs are more adept at building resilient businesses, which is especially crucial during times of slow economic growth.

“If more older entrepreneurs follow their entrepreneurial dreams, not only will more jobs be created, but the idea of entrepreneurship will become more socially accepted for all ages and hopefully have a ripple effect.”

As such, it is vital for older aspiring entrepreneurs to realise that they are more equipped than they think to start and run a business, says Roelofse, who lists three pointers to boost older aspiring entrepreneurs’ confidence:

  1. Work experience: Starting a business at a later age means that the entrepreneur will have a lot more work experience. This will be extremely beneficial as it will contribute to the entrepreneur’s leadership skills, business management and acumen, problem solving skills, and industry experience, should the entrepreneur decide to open a business in the same industry.
  2. Personal networks: It is often said that it’s not what you know, but who you know, and as one grows in age, so do their personal and professional networks. Older entrepreneurs will therefore be more likely to know other established professionals who they can turn to for advice, collaboration, and offer their services to.
  3. An established passion: Older entrepreneurs tend to be less restless in their pursuits, as they have had more time to figure out what they are most passionate about, which can often be a driving force to start a business as well as motivate their success in the future.

These are just a few of the reasons supporting the notion that more older aspiring entrepreneurs should start their own businesses and contribute to increasing employment opportunities in the country, says Roelofse. “Age should be seen as an added strength, not a hindrance, when it comes to entrepreneurship. And aspiring entrepreneurs, regardless of their age, should be encouraged and supported to contribute economically,” he concludes.

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Johnson & Johnson Launches Africa Innovation Challenge 2.0

Calling on African Entrepreneurs to Submit Ideas in Six Categories: Mental Health, Consumer Packaging, Botanical Solutions, Health Worker Support, Digital Health Tools and Essential Surgery.

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Johnson & Johnson today launched the Champions of Science Africa Innovation Challenge 2.0, the second continent-wide competition calling on African innovators to submit ideas for innovative technologies, products and solutions that have the potential to create positive impact for African communities. The challenge focuses on identifying scalable and sustainable solutions to six major health and environmental problems for Africa’s population.

“The growing number of innovation hubs throughout Africa is sparking a new generation of entrepreneurs who are innovating and finding new solutions for issues facing their communities,” said Josh Ghaim, Ph.D., Chief Technology Officer, Johnson & Johnson Consumer Inc. and member of the Johnson & Johnson Research & Development Management Committee, who is launching the challenge today at the Africa Women Innovation & Entrepreneurship Forum in Cape Town.

“Our goal with the second Africa Innovation Challenge is to expand our support for the region’s entrepreneurs by pushing the boundaries of creative solutions to meet several areas of urgent need. With six new solution categories, Africa Innovation Challenge 2.0 represents an extraordinary opportunity for the region’s growing community of innovators to showcase new ideas with the potential for broad societal impact,” added Ghaim.

Related: 10 SA Entrepreneurs Who Built Their Businesses From Nothing

“At Johnson & Johnson, we believe a great idea can come from anyone, anywhere, and we work with entrepreneurs around the world to relentlessly pursue innovations that advance and enhance the health of everyone, everywhere,” said Seema Kumar, Vice President, Innovation, Global Public Health and Science Policy Communication, Johnson & Johnson and member of the Johnson & Johnson Research & Development Management Committee, who is simultaneously launching the challenge today at the Women Leaders in Global Health Conference in London.

“This is an exciting time to be part of Africa’s rapidly advancing innovation ecosystem, which recognizes that people and patients across the continent are waiting for urgent solutions. The Africa Innovation Challenge provides an important platform to support emerging entrepreneurs and help accelerate the development of unique, sustainable health care and environmental solutions.”

The Africa Innovation Challenge 2.0 is designed to address the critical unmet needs of the continent and local communities in Africa while providing support to Africa-based entrepreneurs in creating innovative health care products and services. Among the selection criteria, entries must demonstrate the potential for scale from proof of concept stage to long-term sustainability. Challenge participants with the best solutions will receive up to US$50,000 in funding and mentorship from the global network of scientists, engineers and business managers within the Johnson & Johnson Family of Companies to bring new solutions forward.

“We are thrilled to be collaborating once again on the Africa Innovation Challenge,” said Thierry Zomahoun, President and CEO of the African Institute for Mathematical Sciences (AIMS) and Founder and Chairman of the Next Einstein Forum (NEF). “Earlier this year, at our biennial Next Einstein Forum event, we had the pleasure of hearing from the first challenge winners. The incredible success of their businesses provides wonderful examples of leadership and entrepreneurialism and is a testament to the amazing young talent across Africa. We look forward to the winners of Africa Innovation Challenge 2.0.”

“The Johnson & Johnson Family of Companies comprises of one of the world’s largest health care companies and is drawing on over 85 years of engagement in Africa in over 25 countries, and we are proud to support Africa’s rapidly advancing innovation ecosystem,” said Alma Scott, Vice President, Operations and Partnerships, Global Public Health, Johnson & Johnson.

“We’ve learned over time that solving last-mile challenges through local empowerment offers the greatest potential impact in the fight against public health challenges, and that it can also help fuel the local economy and catalyse infrastructure investments.”

Related: 10 Young Entrepreneurs Under 30 Share Their Start-Up Secrets

Solution Categories for the Africa Innovation Challenge 2.0

The challenge’s six new solution categories aim to address significant threats to Africa’s health care systems and environment:

  • Botanical Solutions: Sixty to eighty percent of households in Africa still rely on traditional medicine to care for themselves and loved ones. We are seeking naturally-derived, plant-based solutions that tap into traditional knowledge and deliver consumer health and wellness benefits through topical application.
  • Packaging Innovations: Managing packaging waste from the increasing consumption in Africa is a challenge for many communities. We are seeking sustainable innovations for packaging of single-dose units and other affordable product sizes that will reduce or eliminate waste, while protecting the product.
  • Mental Health: Caring for someone with mental illness, especially the youth, can be very challenging for rural communities. As a result, 75-85% of persons living with mental illness in Africa may not have access to mental health care. We are seeking innovations that create awareness for mental illness as a public health problem and offer solutions for patients, caregivers, and their communities to address these issues.
  • Health Worker Support: African frontline health workers experience high rates of stress and burnout due to the heavy burden of disease and marked health system challenges. We are seeking innovations that support the wellbeing and resilience of nurses, midwives and community health workers at the heart of delivering care.
  • Digital Health Tools: The African continent has the world’s poorest health outcomes, with HIV, TB, Mental Health, Maternal Health and Ebola having especially large impact particularly on women. We are seeking digital tools (including apps and other mobile/web/data enabled tech) for these important health care areas that can inform, educate, communicate and connect people to treatment, support and care through their reach and information and improve health outcomes especially for women.
  • Essential Surgical Care: A significant portion of the burden of disease in Africa can be treated with surgery. However, many health facilities in certain areas do not have the capacity to deliver even basic surgical services. We are seeking innovations that promote access to timely, safe, and skilled surgical care.

Challenge submissions may originate from anywhere in Africa, and from one or more individuals, teams or companies; subject to certain eligibility requirements set out in the terms and conditions for the challenge. The submitted health care solutions will be evaluated based on their ability to meet the following criteria:

  1. Idea submission addresses at least one of the six challenge categories
  2. Idea submission is innovative and creative
  3. Idea submission is scalable
  4. Idea submission outlines how the award would help the applicant(s) reach a critical milestone within the timeframe of a single year and provides a full commercialisation plan.

To apply to the Challenge and review the applicable terms and conditions, please visit the Africa Innovation Challenge website. The deadline to submit applications is January 16, 2019. Neither Johnson & Johnson nor any of its companies is granted any rights to applicant ideas as a result of their participation in the Challenge. Applicants and winners remain free to continue the further development of their ideas on their own. Award recipients will be announced in Spring 2019.

For more information on the Africa Innovation Challenge and the stories of innovation from past winners, please visit www.jnjinnovation.com/africachallenge/.

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Entrepreneur Today

5 Reasons Why Co-working Spaces Are So Great For Entrepreneurs

If you need an office or command centre, but don’t have the money or time to spend on all of the administrative duties that come with running an office, these are the benefits co-working offers.

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Co-working spaces are designed to be dynamic by offering functionality and flexibility and are particularly well suited for companies and entrepreneurs who want to grow their businesses. 

Linda Trim, Director at FutureSpace, a co-working joint venture between Investec Property and workplace specialists Giant Leap with two offices in Sandton Central, said: “As your business grows, a co-working office can become a viable option to scale up your team. It gives you the benefits of a fully fledged office at a much more affordable price than a traditional space – typically 25 to 30% cheaper.” 

If you need an office or command centre, but don’t have the money or time to spend on all of the administrative duties that come with running an office, these are the benefits co-working offers:

1. Low start-up cost

Co-working spaces offer entrepreneurs and start ups a chance to work in a fully equipped office without worrying about the costs of setting up an actual office.

“By getting a shared space, you can operate your business without needing to compute and allocate funds for building rent, insurance, office equipment and various other expenses that come with starting a business,” Trim noted. 

Even if you can afford it financially, the time spent on sourcing equipment and furniture and talking to contractors is a precious resource that should go to building your business.

2. Flexibility

It is extremely easy to scale up a shared office space as your team grows. Said Trim;”You can tailor your space to suit a one-person business, a team of two, a company of five – or even fifty. And add more space as you go. It’s very cost effective and better than trying to constantly guess what future headcount will be.” 

3. Central locations

Good co-working spaces should be right in the thick of business nodes so it’s easy and convenient for your clients to find you. “Renting your own private office may force you to sacrifice location quality for a more affordable monthly. By moving your business into a co-working space, you get an address in the heart of a business district, along with access to transportation, cafés, gym and shopping.”

FutureSpace’s co-working offices are at 96 Rivonia Road and 61 Katherine Street in Sandton Central, Johannesburg and within walking distance to the Gautrain and Sandton City. More FutureSpace offices will open in business nodes across South Africa from next year. 

Related: Five Lessons In Leadership From Someone Younger Than 25 Years Old

4. Networking opportunities

Renting space in a shared office means surrounding yourself with goal oriented and high-achieving entrepreneurs and business people. This means every day is an opportunity to network with small business owners, great thinkers, consultants and other entrepreneurs. 

“Being part of a co-working community means you are surrounded by potential partners, clients, and mentors – giving you the ability to easily outsource to talent when you need help with projects,” Trim added. 

5. Promotes work-life balance

‘All work no play’ is a phenomenon you’ll never experience when in a shared office. 

“Co-working spaces promote work-life balance by providing social events, coffee bars and gyms to de-stress and recharge during a day of work,” Trim concluded. 

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