South Africa’s government has made efforts to help its small businesses, and rightly so – they comprise over half the country’s GDP. Giving them the right incentives where possible, and staying out their way where not, is good for the economy and the nation.
Opening the Department of Small Business Development in 2014 was a well-intentioned attempt to do exactly this. But if you ask entrepreneurs, it’s been something of a disappointment: 89.4% believe it has not helped their company, and only 3.7% believe it has.
These are likely not the results the government expected, but there is a way to turn it around. Xero’s 2017 State of Small Business report surveyed South African entrepreneurs, and the responses highlighted five key things the department can do to make a material difference to their prospects.
Here they are:
1. Offer more funding
Overall, 48% of those businesses surveyed expressed a desire for more funding. It’s not altogether surprising.
Great CEOs aren’t always the ones with vast reserves of startup capital, and good ideas don’t just come to those with money. Yet 85% of South Africa’s entrepreneurs are self-funded – restricting business ownership to those with enough cash to bring their dreams to life. Even those with this cash can struggle to keep their company afloat.
This immediately limits the opportunities – and the possible economic benefits – available to South Africa’s business community. To counter this, the government should aim to offer comprehensive funding packages to entrepreneurs with great ideas. They may cost money, but they will pay off in the long term.
2. Provide tax breaks
Raising taxes on businesses is, on some level, intuitive to governments, but 42.8% of entrepreneurs take issue with their level of contribution to the state – with 16% saying it keeps them up at night. This is an obvious issue: if South Africa’s business owners feel the state is hostile to enterprise, they will simply take their enterprises elsewhere.
Accordingly, lightening their tax burden should be a priority. The government may lose revenue from the lower contribution levels, but as they enjoy further success and employ more people, it will ultimately benefit.
3. Remove barriers
South Africa’s regulatory situation is considered less than ideal by 44.3% of those surveyed. The rules themselves have precious little to do with this: it’s the way they’re implemented.
The government demands rigid adherence, but provides little in the way of guidance and coordination between various agencies and departments. For a newbie entrepreneur with a number of other things to consider, it can be a bit overwhelming.
The government should remove red tape where it is plausible to do so, and foster greater understanding of the rules where it isn’t. New business owners require a bit of hand holding before they find their feet, so more guidance is always appropriate.
4. Open up access to finance
If businesses are ineligible for government finance, they should be able to borrow money. Banks aren’t always forthcoming with funds, so many entrepreneurs have come to rely on the state.
There are some options: the Department of Trade and Industry provides loans with flexible repayment terms and affordable rates. Nonetheless, there is always more to be done in this area – as some 35.8% of entrepreneurs believe. Expanding access to finance should be high on the South African government’s agenda.
5. Investing in education
Some 22.3% of small businesses have identified problems with finding qualified individuals to work for them. It’s understandable: if the right skills aren’t available, it can be hard to work at maximum operational capacity.
Should the government invest more in providing educational opportunities, South Africa’s professional skills base will dramatically improve. This will create better employees with higher incomes, who pay more income tax.
Of course, that isn’t going to happen any time soon. In the meantime, small businesses need to become an object of greater focus for the government. When they succeed, so does the country.
Colin Timmis is the head of accounting at Xero.
- BUSINESS REPORT ONLINE