SMEs much healthier than stats suggest - Business Partners

That is the view of Christo Botes, executive director at Business Partners, a specialist risk finance company for SME's, who says that the actual situation on the ground is far more encouraging than recent studies would suggest. He suggests that there are a number of factors that may be skewing the negative findings of studies such as the February's Adcorp Employment Index, which reflects that some 440 000 small businesses closed in South Africa over the last 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. As a result, thousands of companies are registered each year for tender processes, the vast majority of which will be de-registered should they fail to secure the intended contracts."

De-registering could play a role

Botes says that another explanation is that the Companies and Intellectual Property Commission cleaned their register of those companies that did not file their normal statutory returns timeously. Many of these de-registered companies have not been activated again as they were in any case, not trading. It could also be a result of the New Companies Act and requirements to comply to international accounting standards, which has resulted in increased cost of compliance. "As such, many businesses operating multi-company structures have consolidated their operations and de-registered 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."

Enterprises need more than finance

Botes says that although the situation isn't as bad as made out to be, there is definitely room for improvement as SMEs play such an important role in the economy. "The initiatives that both 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 in order to grow and flourish into profitable and successful entities. Mentoring and advice to provide skills transfer is also a critical part of the process."

"Government's 2030 objectives state that 90% 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," concludes Botes.