SME and Start-ups are the solution to job creation
Small enterprises are the key to job creation, especially in developing countries. We should start to see a drop in interest rates and inflation from 2024 onwards, and it is these changes that will make it possible for small business in the private sector to ignite growth again in the economy.
There should also be a proportionate increase in business registrations in 2024 as inflation stabilises. This will create the environment in which businesses will be able to start again and this is where employment will pick up.
SMEs are the engine of job creation. The stats of new businesses are the following:
- Businesses often fail in their first 12 months
- Approximately 30% succeed after the first 12 month period
- Businesses lasting longer than 3 years have a better chance at survival
- Businesses lasting longer than 5 years reach the turning point and start landing better contracts
It is also seen in practice that entrepreneurs who have more than one business have a better chance at survival compared to their peers of which approximately 70% of businesses who don't make it past 12 months.
So what are the challenges with Small Businesses?
Many small businesses get into a debt trap far too early in their existence and are unable to service this debt and then close as a result. Another challenge is access to the right skills as the business scales. Many small businesses consist of very few people who do everything, as the business grows it becomes impossible to do everything. Not being able to deliver on the things you need to when you start scaling can cause a decline in the business.
In South Africa there are approximately 2.6 million SMEs and many struggle with funding and access to markets. The access to funding becomes difficult without a proven track record on which to qualify. Another reason SMEs buckle is not making the right provisions as they grow. Zeelie Professional Accountants SA has seen many small business owners doing well in the onset of the business however when they grow to the point of reaching revenue of R1m and beyond this often leads to the business having to register for VAT.
Many small business owners don't adjust correctly when they register for VAT, they end up spending the money they are meant to pay SARS for their VAT and this leads to requests for debt compromises and a resulting decline in the business being able to keep up.
What is our advice to Small Business Owners?
- Don't try to dodge the responsibility of VAT, instead focus on proper financial management and make provision for your VAT by creating a separate savings account to which you set up a regular weekly transfer for a VAT provision, this way your VAT submission won't put your business in financial difficulty (which often leads to the business closing).
- Change your outlook on Tax. Paying tax means you are a successful and prosperous business. Yes there are many ways to be tax efficient however there is a distinct difference between tax avoidance and tax evasion.
- Maintain your compliance on a consistent basis - Often small business owners focus just on the start up phase, neglecting their compliance obligations and when they eventually wake up they are being penalised for non-compliance and find themselves with tax debt they can't afford to pay.
- Respect your accountant and tax practitioner for their skills and ethics. A good practitioner will help you stay on track and the right side of the law. This should not be undervalued as it is the very thing that will help you survive in the long run. Never choose a practitioner that is willing to bend the rules, it will always come back to bite you (especially with AI improving the revenue services ability to pick up on non-compliance and non-disclosure).
- Don't rush into small business funding in the early stages of your business. Chances are you might not be able to furnish the debt and when you reach that point when you really need enterprise funding, you won't be able to get funding as the small business would already be too highly geared.
- Make sure that you are making provision for your future tax obligations. Not having a provision would mean when your taxes are submitted you wouldn't have the funds to pay and this is in most these cases a major setback, almost always erasing the success of the small business.
- Make sure you set up your business plans early in the small business development phase. This will provide the roadmap of the way forward and also be an invaluable tool when you do eventually apply for enterprise finance. A business plan will also help you figure out the nitty gritty of your business model.
So as the economy starts recovering from inflation and interest rates, if you are a small business owner contact Zeelie Professional Accountants SA today and partner with Business Partners you can count on.
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