In this time of (Covid induced) trial many small businesses are battling to survive while the climate for start-ups is extremely negative. This is especially true for small black owned businesses.
McKinsey reports that, while 98.5% of South African companies fall into the SME sector and a full 30% report that they expect a fall in revenue if up to 50% with an attendant fall in profits
A significant percentage have not been able to access government funding/support. The reasons vary from lack of knowledge of availability of such assistance or the inability to qualify. McKinsey reports that the majority of private equity funding has largely been focused on mature businesses with around 90 percent of funding going to businesses that are more than five years old. This was largely due to a lack of knowledge of available funding options as well as challenges in managing cashflows and earnings before interest, taxes, depreciation, and amortization (EBITDA) to deliver sufficient results to secure funding.
At the same time significant lack of operational and financial skill hampers the SME’ ability to manage its way out of the crisis with the result that the reaction is simply to cut expenses – primarily employees.
McKinsey reports that, of all pessimistic SME’s surveyed, a full 69% report that they will, at best, reduce capacity and at worst (20%) will close their doors.
So, what is to be done?
Skills development in all areas of a business but especially finance, operations, sales and marketing
Simplified access to funding
Investment in research and development to drive innovation – taking good ideas and developing these into viable products/services
While certainly government has a role, we would suggest that private industry can, very quickly, make a difference – and this need not be seen merely as a donation: There are several significant benefits that the private sector can enjoy by the intelligent recruiting, training and investment in/of SME’s that will add profit to the bottom line over time. For example:
Help build Sustainable Small Businesses in your Supply Chain who are better able to meet the requirements of their Service Level Agreements
Help build more production capacity in your Supply Chain
Help build Sustainable Small Businesses that contribute to the Economy as a whole (GDP and Job Creation)
Talk to us today, whether you are an SME looking for help or you are a corporate that wants to explore opportunities to help.
-An Article by Jean Barnard with contributions by Lauren Campbell