Most South African Small businesses are high start up failors

According to the University of the Western Cape, South Africa has a higher start-up failure rate than any other country in the world, with 70–80% of small enterprises failing within the first five years. Here are some tips to make sure your business doesn’t run out of cash, which is essential for keeping it afloat.The main cause of startup failure in 2021 will be financial difficulties. Managing your cash flow well can help you expand your firm while doing otherwise could bring a sudden stop to your entrepreneurial journey.

Cash flow is the difference between the amount of money coming into and leaving your company. Although the idea may seem straightforward, one of the most difficult obstacles you’ll encounter as an entrepreneur is keeping a solid cash flow. Remember that your profit and cash flow are not the same. In actuality, even if your company appears lucrative on paper, you can actually be experiencing negative cash flow. Here are several elements that affect your cash flow.

According to recent data from Stats South Africa (Stats SA), the overall number of liquidations in South Africa increased by 44.8% in August 2022 compared to the same month a year prior.During this time, there were 62 more cases of close corporations being liquidated and 12 more examples of firms being liquidated. In the three months ending in August 2022 compared to the three months ending in August 2021, the overall number of liquidations increased by 18.8%. However, compared to the first eight months of 2021, there was only a 0.8% increase in the first eight months of 2022.

Absa noted in a research report that seasonally adjusted liquidations rose by 30.2% m/m in August after falling 3.4% in July. “Despite the notable m/m rise in August, liquidations are just 0.8% higher year-to-date,” it said.“At this stage, we can see no particular reason why liquidations would have jumped so sharply in August and, for now, view it as a blip in the data rather than a big break to a more deteriorated pattern,” said Absa.

In August 2022, there were 239 liquidations in South Africa, most of which were in the financial, insurance, real estate, and business services sectors. The second-highest number of liquidations were recorded in the trade, catering, and lodging sector, followed by community, social, and personal services.

The country’s tourism activity is showing signs of growth, but the numbers are still well below any encouraging standard, and the industry is still facing severe pressure. Even so, the quality of the nation’s energy grid may have a significant influence on small enterprises in particular and their capacity to remain open.

Following a number of liquidations in 2022, the country’s airline industry is in a mess, and the insurance sector is still working to recover from the Covid pandemic, civil upheaval a year ago, and flooding in KwaZulu-Natal. In the upcoming months, individuals and companies will continue to be threatened by higher interest rates and other governmental reactions to the nation’s rising inflation, with the real estate sector in for a difficult time.

State of South African Small Business 2022

According to the State of South African Small Business 2022 study, they have been embracing new technology at previously unheard-of rates and consulting their accountants for advise on how to run their businesses to aid in the country’s economic recovery.

It is safe to conclude that the small company sector’s resurgence is essential to the country’s overall economy because it employs about 80% of the labor force in South Africa. However, until we all come together to help them, our small company economy won’t be able to fulfill its full potential. To enable these businesses to play their part in revving up the country’s economy, they will need backing from large enterprises, banks, tech companies, the government, and other business stakeholders.

One of the main areas where small businesses require assistance from their accountants is tax. According to the most recent SARS tax statistics, tax income collection (for the fiscal years 2020–21) decreased alarmingly by 7.8% from the prior year. This demonstrates how important it is to support small businesses so they can grow the economy and close the tax gap. About a million of the 3.8 million registered enterprises in our country are required to file tax returns. There are also roughly 850 000 VAT-registered businesses, of which 440 000 file their returns on time and are engaged in VAT trading.

How many corporations are registered but only fail to submit returns is interesting. In the past ten to twelve years, the amount of tax paid by businesses has been cut in half, from a rate of 32% to 16%. We must cooperate to provide small firms with the resources they require in order to develop and foster a more equitable trading climate. Small businesses might be urged to take part in a cooperative setting that will ultimately be to their advantage and development.

Small business contribution to the south African economy

Small and medium-sized enterprises (SMEs), which account for more than 98% of businesses nationwide and 39% of the GDP of the country, are the backbone of South Africa’s economy. The importance of SMEs to our economy will only grow as a result of that contribution expected to rise in the upcoming years. These companies are particularly susceptible to externally influenced economic swings, though.

In a similar line, discussions about sustainability in business are becoming more and more important among many stakeholders, especially when it comes to small enterprises. Investors are included here. In fact, 88% of investors gave environmental, social, and governance principles in corporate operating models the same weight as financial factors when making investment decisions, according to a recent survey by the World Economic Forum.

Sustainability is increasingly used to measure effective management. It is seen as a crucial vector for fostering innovation, risk management, and worker engagement. According to the survey, 58% of customers favor supporting or purchasing brands that share their values and beliefs, and 60% of workers prefer to work for companies that do the same.

Governments and the private sector have a critical opportunity to empower entrepreneurs and SMEs to ensure sustainability over the long term in terms of finances, operations, and the environment. There are several approaches to accomplish this, all of which involve educating people about sustainable financial best practices, increasing awareness of opportunities, establishing partnerships, and embracing technology as an avenue to sustained success.

Financial best practice

For SMEs who wish to grow, improving awareness of sustainable financial best practices is essential. Many people struggle to get funding because they don’t have the proper financial documents in place. While some business owners have adopted contemporary techniques, many continue to use antiquated paper-based systems. Many financial institutions, including banks, require proven financial conduct before approving loans. Even though numerous banks have begun assisting SMEs and are cooperating with the government to do so, more has to be done to educate business owners about banking revenues so that they can be monitored and documented. Applying for a loan will be simpler as a result of this.

Small businesses have a higher chance of succeeding when governments and the private sector work together on projects that educate, encourage upskilling, resource, and fund them. Many people may not fully comprehend what sustainability means in terms of business because it is such a broad concept. For SMEs, this entails figuring out how to borrow, consume less of, reuse, and return the resources the company needs without wasting them. Governments must keep working with incubators to support, inform, and enable SMEs in a market that is already unstable. To do this, SME networking services, technology testing and demonstration access, specialized information, partner matchmaking, educational seminars, and similar services can be made available.

The process of enhancing chances for SMEs appears to be lacking. According to a McKinsey and Company report, 36% of South African SMEs do not receive government funding or loans, and a quarter does not take use of payment reduction options like UIF and PAYE. In addition to not being eligible, two other reasons that contributed to this were either entrepreneurs’ ignorance of the opportunities or their inability to locate the information required to apply. Therefore, it is essential that the government expand these chances. Using media like online news sources, social media advertising, and other niche trade media is one way to achieve this. It can also be made easier for people to share good ideas and success stories about funding and other support services.

Last but not least, companies of all sizes have come to understand that in order to succeed, they must embrace technology and its unmatched advantages. Among South Africans, mobile adoption is at an all-time high (there are 41.19 million active internet users in the country). The commercial dominance of convenience and on-demand models will only spur ongoing growth in technology use. Management teams must consider whether implementing new technologies would help them achieve their sustainability objectives. Governments can also help SMEs survive by offering training and upskilling personnel and company owners in cutting-edge technologies. It is important to give real-world examples of how technology is used and the benefits it produces.

Your business model may benefit both traditionally and environmentally if you incorporate sustainable business strategies. The capacity of SMEs to satisfy the needs of environmentally conscious customers and products can contribute to improvements in public health and the environment as well as boost positive brand associations, ultimately resulting in the creation of business environments that are future-ready and have a positive effect on the economy as a whole.

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