SME’s Challenging Landscape
Studies reveal that when compared with other developing nations, South Africa has one of the highest failure rates for small to medium enterprises (SME’s), with a failure rate of between 60% and 80% during the first and second years of business.
The high failure rate can be linked to the entrepreneurial climate, which is not conducive to the expansion and growth of businesses.
The most common factors cited as reasons for failure or restrictions impeding small business growth include arduous regulation, high labour expenses, a lack of funding, challenging local economic circumstances, and high municipal costs.
One of the most prevalent things that keeps small and medium enterprise (SME) owners up at night is however cash flow; especially when the business is seeking to scale and succeed in the current economic climate. Without cash flow, SMEs do not have one of the key resources to foster sustainable growth. Even more important than cash flow when it comes to scaling a business, however, is the access to flexible funding and resources.
Thomas McKinnon, Chief Growth Officer of SME services provider Lula, explains, “Running an SME in South Africa often costs more than it does for big businesses. Higher interest rates, steep rental costs, and weaker buying power make it tough to balance costs and cash flow. SMEs also face the challenge of offering longer terms to debtors while having to pay creditors faster, so they get squeezed on both sides in the market. That’s why flexible funding options are essential for managing cash flow and adapting quickly in our uncertain economy.”
Flexibility Key Aspect of Successful SME’s
This need for flexibility in business, has become more dominant globally, from flexible working hours to flexible funding opportunities. Similarly, flexibility when it comes to physical space has become even more important considering the current demand. SMEs require adaptable business space, efficient warehouses, scalable workshops, adjustable workspaces, and they need these spaces to be suitable for multiple purposes.
“This is a huge shift,” says Chief Marketing and Product Officer for Inospace, Jodi Sher. “Inospace manages, owns and operates serviced logistics parks offering numerous facilities as last mile logistics hubs for SMEs. By providing scalable space, value-added services and flexible leasing terms, Inospace is uniquely positioned to help entrepreneurs, especially when there is need to adapt, which is incredibly powerful when you’re looking to grow a business,” adds Sher.
Despite the upturn in sentiment since the formation of the GNU, the economic landscape of South Africa remains unpredictable. It is therefore vital that SMEs have the support of partners who are purposeful and passionate about seeing SMEs succeed. This is especially true for SMEs that need help to navigate limited resources and various operational challenges. Access to flexible and fast capital, operational support, and communities of like-minded entrepreneurs provide SMEs the practical tools to avoid the pitfalls of isolation, and cash flow crises that can too easily hinder the growth of a viable business.
Reducing Barriers for Growth
While the government has made some efforts to reduce the red tape that can hamper running a business, more is needed to support SMEs.
SMEs would grow faster and more sustainably if they had access to:
- flexible funding options for growth and cash flow management,
- scalable, adaptable workspaces designed for modern business needs,
- access to logistics support and technological solutions,
- skills development and training programmes, and
- supportive communities to foster collaboration
- Better tax incentives for small businesses when launching and scaling
Access to the Right Partners a Must
Both Lula and Inospace are the kinds of private sector companies that offer SMEs this support. Lula, as a registered member of the South African SME Finance Association (SASFA), is in a strong position to offer not only alternative lending services, but bank accounts that allow flexibility with various affordable fee structures. This is immensely advantageous for SMEs that wish to manage their banking fees with more agility. Lula therefore aims to bridge the funding gap that exists for established SMEs who need access to capital, often at short notice, in order to maximise opportunities to grow.
Inospace has built its brand around empowering SMEs. The facilities and products offered are specifically designed to elevate SMEs around last mile logistics and e-commerce, and offer access to technologies that businesses of this size would not ordinarily be able to afford.
In addition, both companies offer support for their clients with some self-service portals, but also access to people. When SMEs want help to understand the impact of decisions on their business, the certainty and security of interacting with a person who is invested in their success goes beyond mere efficiency. Lula and Inospace are therefore strategic in assisting the SMEs with whom they work to achieve success.
South Africa is uniquely entrepreneurial and resilient. Ensuring that SMEs can flourish starts with recognising the central role that they play in the economy and providing the resources for them to do so successfully. With approximately 40% of the contribution of the South African GDP being made up by SMEs, ensuring that resources are available in a challenging market is more than a sentiment: it is essential. Building growing and thriving SMEs equates to rebuilding the economy and therefore building a better South Africa.
