SME sector ‘not as gloomy as studies suggest’

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Christo Botes

Workplace Staff

The results of recent research and studies into small and medium enterprises (SME) may be painting an overly gloomy picture of the sector, which is in far better health than statistics suggest.

That is the view of Christo Botes, executive director at Business Partners, a specialist risk finance company for SMEs, who says the situation on the ground is far more encouraging than recent studies indicate.

He suggests there are a number of factors that may be skewing the negative findings of studies such as February’s Adcorp Employment Index, which reflects that about 440 000 small businesses closed in the past five years.

“Firstly, when tendering for government contracts at national, provincial and local levels, as well as parastatal companies, it is usually necessary to have a registered company and, in the past, businesses also needed to obtain a VAT number,” he said.

“As a result, thousands of companies are registered each year for tender processes, the vast majority of which will be deregistered should they fail to secure the intended contracts.”

Botes says another explanation is that the Companies and Intellectual Property Commission cleaned its register of companies that did not file their normal statutory returns timeously.

“Many of these deregistered companies have not been activated again as they were, in any case, not trading.”

He says companies that were registered as shelf companies but never started trading have also since been deregistered, mainly because of the cost of compliance in submitting returns.

It could also be a result of the new Companies Act and requirements to comply with international accounting standards, which has resulted in increased costs.

“As such, many businesses operating multi-company structures have consolidated their operations and deregistered any unnecessary entities.”

He adds that acquisitions could also be playing a part in skewing the numbers.

“As part of many acquisitions, the acquiring company will often choose to wind up the acquired business and form a new entity that will be protected from any claims that might arise from business dealings before the acquisition. It is important that the correct processes had been followed should such steps be taken.”

Botes says all these issues are exaggerating the SME closure figures, but although the situation isn’t as bad as made out to be, there is room for improvement as SMEs play such an important role in the economy.

“The initiatives that both the government and the private sector have implemented so far, such as the Small Enterprise Finance Agency and the Job Fund, could improve the situation, but much more should be done to assist entrepreneurs and SMEs.”

He explains that SMEs need more than just finance to succeed. “They need technical assistance and support to grow and flourish into profitable and successful entities. Mentoring and advice to provide skills transfer is also a critical part of the process.”

The private sector can play a big role in procurement programmes when it comes to SME growth and assistance.

“Big businesses can break down requirements in bite-size components and engage with smaller businesses instead of giving the big corporations more business. If SMEs can provide the same product and compete on both price and service levels, they should be considered to fill the necessary contracts.

“In fact, smaller, owner-managed businesses can often provide services and products at better quality levels and prices than their larger counterparts.”

Botes supports proposals that the BEE codes should be amended to include incubator models, whereby businesses are able to score points by running incubators for SMEs that house and nurture new businesses.

“In these incubators similar SMEs can share knowledge as well as resources, equipment and premises.

“The government’s 2030 objectives state that 90 percent of all jobs created should be in the SME space. By pushing initiatives in the SME sector, this objective can be fulfilled.

“By lowering bureaucracy and barriers to entry as well as facilitating training for entrepreneurs from school and tertiary level, entrepreneurs and SMEs will develop and grow from strength to strength,” Botes concludes.