JOHANNESBURG – Small, medium and micro-sized enterprises (SMMEs) are lauded as the backbone of any economy and collectively they are the largest employer and contributor to sustainable income for millions of households.
Yet in reality, they are the pariahs of big business and the outcasts that bear the brunt of a capitalist world that favours the established and moneyed.
The fact that about 50 percent of small businesses fail to survive beyond their second year of doing business says it all.
Many have attributed this reality to multiple tangible issues such as inexperience, lack of access to funding, lack of marketing budgets and know-how etc. Having been in business for over the critical two-year litmus-test period, none of these reasons is as significant as the elephant in the room.
The main reason SMMEs fail is that they are heavily regulated with very little or no support from big business or government, save for loads of talk and PR rhetoric. That SMMEs are expected to adhere to the same levels of reporting and compliance as big companies is a shame. The playing, therefore, is neither level nor in their favour.
The following examples should help put things into perspective:
Financial management and reporting
Like any other big company, SMMEs are expected to comply with the same laws in terms of filing their returns ie income tax, PAYE and VAT etc. And they absolutely should be expected to comply. However, this has been proven not to be their strength and it is a no brainer to understand why. SMMEs are not experts in this field and do not have the necessary budgets to outsource this function to professional accounting firms.
Understanding Legalese and effecting it
Closing deals requires SMMEs to have sound legal advice, support and understanding in order to protect their interests.
Often SMMEs find themselves agreeing to contracts drawn out for them by the other contracting party with little input or influence on the contractual terms. For them to have an equal input on their contracts they need to pay for legal opinion and again this is a luxury they can’t afford. The desperation of having to take whatever job comes because that might just be the only one you get regardless of the terms and conditions of the contracts is their everyday reality.
This ranges from payment terms to exit clauses to the ownership of the intellectual property of the work done et al. I don’t know how many times I have had to turn down business from prospective clients who insist on signing a 90-day to 60-day payment terms. My argument has always been once the work is done, I must pay my employees for work done on a monthly basis, why should I subsidize multimillion if not multibillion-rand companies with my little resources. These are listed companies that do not need to withhold small change from SMMEs, yet it happens day in and day out and under the watch of those in positions of influence. What a shame!
Human Resource Management
A business succeeds by hiring the right people to the right positions and talent comes at a cost. The cost of hiring and firing and the tedious associated with onboarding and offboarding employees is an onerous one for SMMEs. They are at a disadvantage because they can’t afford top talent salaries that are given by big corporates nor are they in a position to offer competitive benefits it any at all. They must work with what is within their budget and limitations.
Pro-Bono work
Most established companies plead poverty and entice SMMEs to do pro-bono work with the promise of possible business in future. They waste the little resources they have with the hope that this will unlock opportunities for them in future and instead it costs them the little money they have with no guarantee of future business.
I was once approached by a big global infrastructure company and after the meeting the CEO and getting the brief, we duly sent the cost estimate. I was never ready for his response which was: “I thought you could do this first project for free, so I can motivate with my superiors at HQ to use you in future.” The nerve!
My response to him was “do you normally construct big commercial buildings for free in order to get follow on order?”. His answer was a quick “no” and my response was I would not either and that was our parting shot.
Belief in B-BBEE rating
The reality about B=BBEE is that it means a lot to those who harp on it the show and publicity. It means zilch! I have never gotten business because I am a level one 100 percent woman-owned business. I have, however, gotten business because of my ability to deliver and my track record. Corporate South Africa says one thing and does the opposite when it comes to procuring from B-BBEE suppliers. They get the suppliers that will deliver on their needs and tick the boxes for the scorecards for reporting purposes only. I am ok with this because no one owes us anything we owe ourselves everything, however, its laughable when politicians and corporates claim that this is working and benefiting those it should benefit.
The only real intervention that the government and corporate South Africa can do to support SMMEs is to give them access to professional services that are essential to running a business.
Through the Enterprise and Supplier Development contributions by corporate government could encourage the firms to contribute their expertise and quantify the contribution in money terms. Imagine if Delloitte, PWC and the other provided accounting and auditing support to SMMEs as part of their enterprise development and law firms, IT firms and HR firms did the same.
They would have lifted a heavy load off the shoulders of the already overburdened SMMEs.
SMMEs do not need handouts but they need support to secure exorbitantly priced professional services that ensure compliance and smooth running of their businesses. This would ensure that a small business could enter the industry and focus on what it does best while getting the operational support it needs without paying a fortune.
Everybody thinks they know what it takes to run a successful small business, but the government and all external stakeholders need to get into the business of asking small business owners about their pain points.
If we actually take the time to listen to what our entrepreneurs need in order to make it past two years of trading, we can grow lasting businesses and change the South African economy for the good of everyone.