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Challenges facing small businesses

Posted By IRMSAInsight, 02 February 2015

This article explores challenges faced by small businesses and ways the corporate sector can better support SMEs.  Small business is defined by the National Small Business Amendment Act of 2004 as: ‘any entity, carrying on small enterprise concerns in any economic sector, with an aim of making a profit’.

There are a number factors that influence an entity’s ability to succeed, these factors currently include:

•             Labour challenges

•             Power supply

•             Black Economic Empowerment

•             National Development Plan

 

Labour challenges

The South African labour market has been volatile in recent years. 2014 was arguably the most difficult year which saw the first five months of the year consumed by the platinum belt strike. Issues around labour are arguably an entrepreneur’s biggest challenge.

On the one hand, labour movements have become a lot more militant – with more frequent disregard for the bargaining process and an increase in sporadic formation of informal groups/committees seeking to negotiate on behalf of workers. There is also lots of debate around the labour brokers, which often are used by small businesses. The risk around labour is arguably one of the main risks that an entrepreneur will face for the foreseeable future. 

Power supply

With load-shedding again on the cards, businesses are bracing themselves for significant power interruptions.  As this issue has been a challenge dating back to around 2008, most major corporates have (as best as they can) planned and mitigated against this risk. Small business however, may not necessarily have the resources to formulate comprehensive continuity plans – however, this is a major strategic risk for SMES and entrepreneurs need to find ways to minimise the impact of the interruptions on their businesses.

Broad based Black Economic Empowerment (BBBEE)

With the revised B-BBEE codes coming into effect in April, small businesses will be better positioned to use legislation to benefit their businesses:

•             Big business are compelled to invest in the growth and development of SMEs

•             SME’s that are black owned will achieve a Level 1 status making them more attractive as business partners and suppliers to organisations

SMEs need to obtain credible BEE advisors to provide support on how they can take advantage of the opportunities of the new codes.

National Development Plan (NDP)

The NDP makes it clear that getting South Africa onto a high-growth trajectory demands that the country places small businesses and co-operatives at the centre of our war against poverty, inequality and unemployment. The government has taken a step by establishing a Ministry of Small Business Development. Small business owners will be well served by understanding the mandate of this ministry and some of the practical help that it has set out to provide for this sector

Other (internal) factors impacting small business

Small business owners also face a number of internal challenges that they must navigate in order to succeed in their business ventures. The micro factors may include challenges around:

•             Marketing

•             Cash flow

•             Legal requirements

•             Information overload

•             Motivation

Marketing

Being able to package, promote and sell a business’ product offering and services is crucial to the success of a business. Not only are challenges around formulating a compelling marketing strategy (usually by a non-specialist in Marketing) and the costs that go with promotions or advertising.

Cash flow

Money in the bank always brings sanity to any entrepreneur, however arriving at that point has a number of pitfalls and all these issues relate to how well the cash flow of the business is being managed. For a very small business owner (vsbo), any delay in payments that exceed a 30 day period is a major risk and a constraint to the operation as well as the success of that business.

Legal requirements

The legal processes in running a proper business can be cumbersome. The challenges not only start with the setting up or registration of company, but extend to a variety of general legislative requirements on governance, compliance and reporting activities. At times, these come at a cost (especially for legal advice), however in order to run a solid business all these challenges have to be navigated.

 

Other challenges may include:

•             Expectations of clients on doing pro-bono work (which does not add to profits)

•             A reliable sound wall to bounce ideas with

•             Raising profile of the business

•             Sifting and navigating information overload from various media (including social media) for sound advice and opportunities.

•             Credible Research and information (reliable/independent) sources - What information do you trust and believe when there is no “hard data”? Where is this information found?

•             Assessing value of your own business value proposition, being agile to ensure that the business model/offering remains relevant to the changes in the business environment.

It is clear that the challenges that face small businesses are many and different. As a company that works with small business, being aware of these challenges and having a commitment to assist small business by minimising internal obstacles is key.

For small business owners, it is about collaborating and finding partnerships that can provide advice and support especially for (non-core) areas where the entrepreneur is not an expert. The key is understanding and minimising these obstacles and ensuring that most of the focus is on getting the product to the market to make a profit.

 

Key questions

-How is your organisation supporting the growth of small businesses?

-As a risk professional – what specific tips do you have for small businesses around Risk?

Management?

-Is there more support that you feel IRMSA can provide to small businesses?

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