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.
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.
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.
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.’
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
Uber-like Insurance Platform Is Revolutionising The World Of Insurance Claims
the 4-Sure platform, which was launched two short years ago by actuary Shalen Moodley and a collective of seasoned tech gurus, is to provide value-added services that benefit the financial services industry. All partners had substantial success across Africa introducing loan origination platforms for leading banks before deciding to tackle the problems existing in the insurance claims fulfilment process.
A multi-sided, digitally-driven business platform that has been wholly-developed and launched in South Africa is ‘uberising’ the local short-term insurance industry by transforming the traditional claim fulfilment landscape.
Developed locally by Insuretech sensation 4-Sure and headed up by actuary-turned-entrepreneur Shalen Moodley, the 4-Sure platform seamlessly connects the claims ecosystem consisting of the customer, broker, insurer, service providers and suppliers and manages all complex interactions and sequencing required to deliver superb customer experience, optimal claim cost and fast turnaround times.
“The new system, which eliminates virtually all the manual processes and “waste work” involved in dealing with a claim, also provides enhanced opportunities for small businesses to compete for insurance claim work traditionally only available to a select few. Simultaneously, it reduces the fraud risks associated with the manual allocation of claims, and reduces costs across the board”, says Moodley.
“There are several weaknesses inherent in the appointment of the traditional insurance panels, “says Moodley. Relationships between the insurer’s agent and supplier base can result in some contractors being favoured above others. The payment of “incentives” by service providers as a reward for getting work can also skew the allocation process and drive massive cost inflations. Furthermore, costs can vary for similar jobs and the use of assessors for approval of routine jobs results in time delays and increased administration costs.”
“Most seriously for most insurers, is that contact with the customer is lost during the claim fulfilment process – they are disintermediated. Often, the result is dissatisfaction on the part of the customer, disrupted processes, unnecessary delays and often the possibility of an unhappy customer withdrawing their insurance and other investments with the associated brands of the insurer.
After extensive discussions with the industry regarding problems faced with settling claims, 4-Sure concluded that reformation of the system should be based on shorter, effective communication structures, the ‘democratisation’ of the panel system and the strategic use of technology to improve customer delivery and satisfaction levels.
The answer was the building of an entire ecosystem based on the use of sophisticated regressive algorithms that made the ‘Circle of Service’ between insurer and claimant transparent and frictionless. Creating an extensive database, making software available to service providers and connecting suppliers of raw materials as well as early payment mechanisms completed the service circle. As well as speeding up claim response times, the process was also efficient and fundamentally more effective.
Taking inspiration from the concept launched by the Uber transport system, the insurance platform includes a vastly increased list of qualified and rated service providers. As in the ride-sharing service, becoming listed requires that several stringent criteria are met by service providers. When a claim is registered – including the time when the customer requires assistance – it drops into the platform. Appropriate service providers listed can then respond and confirm their availability. They are then required to be on site at the time stipulated by the customer, undertake the work and then complete a Mobile App-driven reporting process for the insurer’s records (including before and after photographs, assessments and costings).
To participate in the platform a service provider must have a smartphone and the software, provided free by 4-Sure. Part of the package includes a service provider ‘scheduler’s’ desktop package that enables job scheduling, field technician allocation and all the information relating to the job to be collated and electronically submitted for payment to the insurer.
“For a sole trader or SME, one of the greatest challenges to building a sustainable business is controlling cash flow. Service providers on 4-Sure do not have to carry an extensive array of raw materials to fulfil allocated insurance claims work. Once they are on site, have assessed the repair work and had it approved within minutes, the service provider is able to visit a 4-Sure approved partner supplier (Builder’s Warehouse, Penny Pinchers, Buco, Plumblink and others) and pick up the required stock.
“They are then using their 4-Sure Mobile App to get the necessary materials and the outlet then bills the insurance company concerned directly through the 4-Sure software for the expenditure. Because of the volumes involved, we have been able to negotiate favourable prices for these services which are now on offer at more than 400 service points across the country. The service provider bills only for the time and labour spent on the job at the agreed rates. Their bills are then submitted using the 4-Sure software, go directly to the insurer and are generally settled within 24-48 hours.”
“As smaller operators are no longer waiting between 30 and 60 days for their money, they are happy to complete routine jobs for a set fee. Depending on the service they deliver and the ratings they receive, they are in control of just how much work comes their way. As a job is loaded on the system and service providers then bid for the work, competition is assured and opportunities for work are equal across the spectrum of service providers – a new paradigm which rewards performance with more work and manages the non-performers off the platform.”
Further value is added to service providers by free access to geo-positioning systems, which not only plots their way to their closest parts supplier but also to the customer’s property. Jobs that appear on their systems also cover the areas in which they choose to operate. As is the case with their Uber driver colleagues, those closest to the customer can make their presence known and compete for the work. Those who feel the costs of reaching the site do not make a job worthwhile simply do not respond to the job alert,” says Moodley.
For insurers, who can track the response times of service providers in real-time and contact them electronically if they are late on site, the major benefit is that the loss of customer contact at the point of handing over a claim to an incident manager no longer exists.
The typical flow of a job is made easier by:
- Insurers were able to use a sophisticated eco-system that is a centralised platform connecting all players in the supply chain, facilitating a seamless claims fulfilment process.
- Customer contacts their insurer via their contact centre, their website, or a digital self-service channel and this claim, is electronically dropped into the 4-Sure to facilitate the claim process automatically.
- A claim’s details being logged directly on the 4-Sure platform instead of being referred to an incident manager. The message enables specific skills, customer location, a time required for service and other factors to be selected so that it can be responded to by competing service providers.
Explains Moodley, co-founder of 4-Sure and one of the innovators behind the home-grown platform that caters specifically for local needs and is believed to be the leading services of its type anywhere in the world:
“4-Sure has succeeded in becoming the first, fully-digital insurance claims platform to provide a truly customer-centric experience. The system is flexible and although the present focus is on non-motor claims, other avenues, including motor insurance and non-insurance opportunities are being investigated and developed,” says Moodley.
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Off The Beaten Track
What Tourism Month means in South Africa and how Mango Airlines is focusing on local opportunities.
This September, being Tourism Month, we have so much to talk about in South Africa, and so many people to engage with, both domestically and abroad. We are privileged to be able to leverage a broad range of destinations – arguably world-class in nature, and they expand way beyond a beautiful mountain, and an ecosystem of game.
The vast majority of leisure tourists, however, remain attracted to the Mother City and various Safari destination, while business tourists tend to stick to hub cities for short durations of time before departing again.
“There is a golden opportunity to expand on the same offerings – while not detracting from them in any way. Our responsibility is to drive tourism into new areas, really emphasising the differentiators that are incredibly attractive to local and international tourists,” said Benediction Zubane, Head of Marketing at Mango Airlines.
“Often tourists visit one of the more well-known sites in an area, and are completely unaware of the other features and destinations close by. We’re seeing a lot of success in township tourism which goes to show how diversifying can really drive new tourism opportunities,” explained Zubane.
According to Statistics South Africa survey on Tourism and Migration, nearly 3.5 million international travellers visited South Africa in August 2017. Top numbers were tourists from USA, UK, Germany, France and The Netherlands, with African visitors primarily coming from SADC countries. Zubane added, “This means there is vast opportunity to begin engaging with travellers in new countries across the globe. We need to become our own best ambassador, talking-up our famous and lesser known destinations, proudly showcases our uniqueness. We should also be tourists in our own country and start exploring the wonders of the Rainbow Nation.”
Mango is passionate about helping its SMEs and entrepreneurial community to successfully overcome the unique challenges facing the tourism industry: “There has never been a more opportune time for small businesses and entrepreneurs to benefit positively from tourism in South Africa, and we hope to celebrate alongside our SME community as they fly high – both literally and figuratively,” he concludes.
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