SMME

Zinhle Sokhela:  PCB Director 

If ever a term was misunderstood in this country, it is SMME.   This stands for Small, Micro and Medium Enterprises and is a universally-used classification of businesses.    In South Africa, each of the different sizes is defined in terms of a number of employees and turnover, indices which vary from sector to sector.    For example, a ‘small’ business in the agricultural sector is not the same as a ‘small’ manufacturer.    If one considers that, generally, a business falls within the SMME category if it has fewer than two hundred employees, it is obvious that some of these companies are quite large, are very formally structured and resemble corporate entities in the way in which they are managed.    However, the common South African interpretation of the acronym SMME is that it describes emerging, black-owned businesses which are mostly micro or very small in size.   Indeed, if one stages an SMME conference, for example, many of the people who attend have not yet started a business and come to seek opportunities to do so.    This tends to conflict with the reality that SMMEs are actually formal, properly-registered businesses that are in productive operation.   They actually exclude informal enterprises that do not have proper financial accounts.   Within the PCB we find that there is a conspicuously wide gap between a functional, formal SMME and an emerging, micro or very small enterprise which has little record of trading or production.     In fact, very often the SMME is shortened to SME and the M that is then excluded is the micro and not the medium, showing that micro businesses are often not formal enough to warrant inclusion in the sector.

The formal SME sector is surveyed from time to time and the results are of great interest.  This is the sector where the potential for employment lies.  Large companies are seldom able to employ more people and, in fact often employ less as they embrace technology and other business rationalisation processes.    The importance of SMEs is that there is a growth path.   A successful small business may grow into a medium-sized company, thus enlarging its workforce from the less than fifty that defines it as a small business up to two hundred.    A recent survey (in 2009) of successful SMEs found that there were four main factors that were regarded as key issues by the entrepreneurs concerned.  The most significant of these was crime.    The global financial crisis and the threat of recession were the next most critical issues, while interest rates, which were higher at the time of the survey, came in next.  

Contrary to popular perception, money is not always a pre-requisite for starting a business.   Indeed, it is extremely difficult to access loan finance for a venture that is simply an idea on paper.   Who is to say, after all, that the idea will be brought to successful implementation?    It is only a generous donor, like government, that will assist entrepreneurs in this way.    Banks and other loan finance institutions will support growth, but even then require assurances that the growth will happen and will prove profitable.    The most compelling evidence that a loan is justified lies in the success of the business since its founding.    It is not surprising that just about 40% of SMEs reported that finding money to enable a business to grow, remained a major issue.   A similar percentage reported that cash flow was among their most difficult obstacles.    Unfortunately, government departments and large companies are often slow in paying for the services or products they have received.    It is for this reason that a company, particularly one engaged in trading, should be slow to extend credit.   Cash is king and there is no safer protection for a small business than money in the bank.

SMEs also reported that they found the cost of labour difficult to meet while in more specialist spheres, particularly, adequately skilful and experienced staff were hard to find.    Government seems reluctant to accept that our labour regimen is not conducive to growth in the SME sector.   It’s not only the cost of salaries and wages, but also the time that is required to deal compliantly with employees and to ensure that procedures are not open to challenge.   The common belief that an employer may not fire an employee is a myth, but it is possible only if the company has gone to the trouble of getting all its processes right.      

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