SA small businesses are resilient despite major challenges

Most small businesses have adjusted to load shedding and several other challenges that are unique to South Africa, and are able to handle way more than similar businesses in other parts of the world.

However, the small and medium-sized enterprise (SME) market is still fragmented and businesses do themselves no favours by operating in a fragmented and disjointed manner, says Colin Timmis, country manager for cloud-based accounting software company Xero.

Read: Some good news for SMEs in the 2023 Budget, but more nuanced incentives required

The SME market seems to be viewed as a homogeneous entity while it should be seen in terms of its different segments. Most plans and solutions are based on the needs of “small businesses”.

An SME that employs taxpayers has vastly different needs from one that does not. There is a lot of focus on support for start-ups and less so on businesses that are already contributing to the fiscus.

Different thinking

“We always talk about the small and medium-sized business struggling to get access to either funding or markets, or skills. I think the opposite is true. In many instances it is rather that the stakeholders cannot get access to them.”

Timmis believes the adoption of technology will remove barriers and enable increased connections. This has already been happening in the lending environment.

Platform or digital technology enables third parties such as banks, lending companies, and accountants (with permission of course) to push and pull data from software.

Digital technology enables banks and lenders to pull all the information (for example from the accounting software) needed to make financial decisions. They have an algorithm that checks the integrity of the data and can decide in minutes, compared to previous process that could take weeks.

Read:
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A small business can apply for a loan without having to supply data other than, for example, accounting data and a few personal details.

The desktop technology of the 1990s was designed and built in a way that created a barrier to use. The purpose was to charge fees for access and the use of the information. The companies that developed the desktop software charged licence fees as well as fees for training, education and reporting to make more money.

New technology

The issue is not whether people are ready for new technology. The issue is whether the technology is built with the end user in mind. Traditionally accounting and tax software was built for the accountant or tax practitioner, says Timmis.

“This caused a separation between them and the SME. This has now changed. The software is easy to use and does not only focus on accounting and tax compliance, but also has new features that enable the business owner to manage their debtor’s book or even a sales campaign. It is operational issues being solved by technology.”

The South African Revenue Service (Sars) has upped its game in terms of technology and automation.

“There are several projects on the go to make compliance easier if businesses use the right technology. It is commendable,” says Timmis.

Businesses that are still using a receipt book from a stationery shop or Excel to invoice customers will struggle with the compliance burden.

“The real cost is opportunity costs – what else could you have done to grow your business?”

Honesty is the best policy

Timmis says entrepreneurs or business owners who start a business should be realistic about their own skills and abilities. They must find the right support.

Established business owners should ensure their tax and accounting information is recorded in an “efficient and accessible” format for stakeholders. He believes technology must be the foundation of any business’s underlying value proposition.

“If it is not, they will have operational frustrations or incur opportunity costs without creating the customer satisfaction that people are demanding.”

Struggling companies must be honest with themselves. Diagnose the real problem, he says – adding that maybe it is not load shedding, which we all find so easy to blame, that is the issue.

It is critical that small businesses grow. According to the 2022 Sars Tax Statistics the South African economy only has 371 large companies (0.2% of the companies with positive taxable income) with taxable income of more than R200 million.

However, they were liable for 57.1% of the corporate income tax assessed.

Listen to Akhona Matshoba’s podcast interview with Small Business Institute CEO John Dludlu (or read the transcript):

You can also listen to this podcast on iono.fm here.

Listen to more Small Business Conversations podcasts here.