“Why do approximately 70% – 80% of small businesses fail within five years? Why are certain entrepreneurs more successful than others?” (Extract from UWC
Recent research by the University of the Western Cape on the rate of failure of small businesses makes for interesting reading and provides insights that we all really need to take on board, particularly in these hard economic times.
SMMEs, their importance and their failure rates
Globally 60 to 70% of jobs are found in SMMEs (Small, Medium and Micro-Enterprises) but in South Africa this figure is only just over 28% despite more than 95% of businesses in South Africa being SMMEs.
South Africa has a higher failure rate of SMMEs than elsewhere in the world (70% – 80% of our small businesses fail within 5 years). In previously disadvantaged communities only 1% of businesses progress from employing less than 5 people to having staff of 10 or more.
6 factors that can make or break an SMME business
The research indicates that in terms of success factors, 40% can be attributed to the entrepreneur. The characteristics of this person are crucial and they need to show:
1. Persistence, being proactive and being a self-starter,
2. That they do not react to events but are continually planning (good planning is an important success indicator), innovating, having an ability to learn and apply this learning and having a culture of achievement.
The factors contributing to failure are ones we are aware of:
3. Lack of skills – government and large corporates snap up almost all of South Africa’s limited skills,
4. Difficulty in accessing finance – lending institutions require a track record before providing funding to businesses,
5. Poor accounting records and limited information systems,
6. Late payment by state institutions and large corporates (Kenya is considering passing legislation that compels paying SMMEs on time).
There are others too like corruption crowding out legitimate SMMEs and low bargaining power.
Entrepreneurs – what can you do?
Have a look at the 6 factors listed above. Maximise the positives, and do something about the problem areas.
Remember, your accountant is there to help you succeed so don’t be shy to ask for advice.
What can government do?
Clearly the country is missing a sizeable opportunity to grow the economy and to reduce our 27% unemployment rate.
One way to get this going is through mentoring and training. Government programs are having a limited impact and there is space for business to also play its part. Why not interview some SMME owners and determine if they have the characteristics as shown above? Those that have the attributes can be successfully mentored to get good accounting records and systems, skills can be addressed as well as access to finance.