Small Businesses: How to Survive and Thrive
“Why do approximately 70% – 80% of small businesses fail within five years? Why are certain entrepreneurs more successful than others?” (Extract from UWC article below)
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:
- Persistence, being proactive and being a self-starter,
- 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:
- Lack of skills – government and large corporates snap up almost all of South Africa’s limited skills,
- Difficulty in accessing finance – lending institutions require a track record before providing funding to businesses,
- Poor accounting records and limited information systems,
- 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.
Travelling Abroad – Do You Have To Declare Your Personal Possessions On Re-Entry?
There is some confusion over whether to declare your laptops, golf clubs, iPads and other such valuables that you travel out of the country with.
The answer is no you don’t have to declare these items, but you do have to carry with you proof of purchase in South Africa of these goods and show it to Customs officials on request. Invoices or insurance policies are usually adequate proof for Customs.
Alternatively, you may, when exiting South Africa, complete a TC-01 which digitally captures the relevant assets. On completion, the Customs official will get you to sign the form and will give you a copy. This form is valid for six months and if you are a frequent traveller, it is bound to make your life easier.
How To Detect and Dodge Financial Scams
“If it sounds too good to be true, it probably is” (wise old adage)
In the USA, $40 billion is lost every year to scammers. When you consider statistics suggesting that 65% of scam victims don’t report their losses (usually they are too embarrassed to admit they have been conned), as much as $120 billion could annually be skimmed from gullible people.
Scammers normally target people who are financially vulnerable (they have lost their jobs or their business has folded) or they take advantage of economic downturns where a large percentage of people experience financial hardship.
The quick con
Typically, it is difficult to fully get to grips with the scheme they sell you as the scheme’s workings are hard to fully understand. But the conmen tell you that the real issue is you will get astronomical returns and they will show you for example pictures of yachts cruising in the Mediterranean – messaging you “this is the life you will lead once you have made your quick fortune”.
Because they prey on the financially vulnerable, the conmen spin conspiracy theories – the reason you have fallen on hard times is the system has crushed you and this scheme bypasses all the financial regulation “nonsense” – and the like.
Conmen are also hard salesmen and they will pressurise you into making this “investment”.
The long con
You need to be really careful of these as you are up against some sophisticated operators. The main principle is to get assurance from people in your social circle that the scammer or the scheme is credible and achieves high returns (these people are wittingly or unwittingly part of the con). In addition, the scammers can point you to well-known financial experts who will vouch for the scheme (they typically are part of the con).
It is usually a Ponzi scheme which will operate successfully until no new funds come into the scheme. It then unravels very quickly, and the vast bulk of investors lose their investments.
Another type of scam is “pump and dump” where salesmen extol a little-known share, and this drives the price up. These salesmen make aggressive pitches to unsuspecting victims who get carried away by the upward momentum of the share. Once the share has gone way over its value, the conmen sell it short (the dump of the scheme) and the share price collapses.
Who is vulnerable to these scammers?
Strangely enough it is often well-to-do people (usually men) who are experiencing financial stress and are happy to take on risk. These people are well educated and financially literate.
The combination of factors that makes them gullible is (apart from being under financial stress):
- Being put under pressure by the conmen (they need to get in “before it’s too late” and their friends “are making a killing”)
- The scheme can be complex or opaque and so they rely on their intuition
- Most of these people are decent and trusting, so they tend to believe the conmen and they don’t want to let the conmen down (no doubt the scammers are aware of this vulnerability)
- Emotional. Greed is a very powerful emotion and can lead to impulsive decisions which you will regret later.
Sir Isaac Newton was a great genius, but he lost all his money in the South Sea Bubble scam in the 1720’s.
So before you get caught up in a scam step back and think rationally. You should also analyse yourself and if you have any of the above traits, then be very careful of any investments that are “too good to be true”.
