Small and medium enterprises (SMEs) are crucial to South Africa’s growth, but many of them fail in the first year of business, says Innovative Accounting Solutions director Stefani du Preez.

According to the Global Entrepreneurship Monitor (GEM) 2015, SMEs contribute 36% to South Africa’s GDP, but starting a new business in not an easy task, especially in a country which has a World Bank ‘Starting a Business’ rating of 131 out of 190.

“Starting a new business can be an exhilarating experience, but it requires careful planning and the ability to keep several balls in the air simultaneously. Understanding some of the common pitfalls small business owners encounter along the way can help new them succeed where others have not.”


Understanding the broader business context

Local and global economies are in a constant state of flux. Services and products that are in high demand today might become redundant tomorrow. Pricing can change at the drop of a hat. Anyone looking to start a new business needs to know what the economy is doing, both locally and globally.

Du Preez, says many start-ups operate in a silo. “Start-ups can be so caught up in the day to day running of their businesses that they take their eyes off the bigger picture. This can be devastating for a small business, particularly those operating in volatile markets. It can also lead to missed opportunities.”

Subscribing to industry newsletters and business publications (online or otherwise) is one way to remain in the know, while networking at industry or business events is another. “New business owners are often so busy that it is hard to find the time to attend a conference or read the newspaper, but not doing so could result in a fatal blow for the business,” adds du Preez.

Next, business owners need to pay attention to what is happening in the business. “It is important to try and create a balance between all tasks, maybe outsourcing some of the administrative tasks to so that they can focus on growing the business,” says du Preez.


Planning and managing finances

A common mistake made by new business owners is to get caught up in the excitement of starting a new operation and not put enough effort into planning and managing their finances properly.

Du Preez says small businesses are often started with limited funds. “If these are not managed properly, the business can encounter problems such as not being able to make repayments or pay employees on time.”

She says small business owners would do well to outsource their financial function to experts. “By getting financial specialists to help with the finances, including budgeting, cash-flow planning and monthly reporting, business owners can spend more time on keeping their customers happy and following up on new business leads.”

Du Preez says managing cash flow is one of the greatest challenges experienced by first-time business owners. “I have witnessed several new business owners rush to buy themselves an expensive new vehicle with the funding they receive for their businesses.

“If they had enlisted the services a financially responsible person to advise them on the prudent use of their funding from the outset, they would have avoided this type of mistake.”


Getting to grips with the regulatory environment

Du Preez says people looking to start their own businesses can encounter hurdles when trying to obtain the necessary permits and licences from government. “While government has tried to enhance new business development in South Africa, there are still areas where bureaucratic requirements can be onerous. Potential new business owners need to be cognisant of this and build contingency measures into their business plans.”

Notably, everything may be going well for start-ups in the first months of business until the South African Revenue Services (SARS) comes knocking. “It is really surprising how many business owners relegate tax returns to a list of not-so-important-things-to-do while they focus on getting their operations off the ground. Administration tends to fall behind and suddenly they are faced with a tax bill they had not anticipated.”

In addition, many new business owners fail to brush up on the country’s labour laws. “South Africa’s labour laws make it difficult to lay people off if they are not performing or the business can no longer afford them. If business owners make the mistake of dismissing a staff member unfairly, they could be confronted with a CCMA hearing and having to pay several months’ worth of salaries,” notes du Preez.


Setting the business apart

SMEs tend of operate in highly competitive environments, so setting themselves apart is a priority.

Du Preez says when several businesses offer the same service or product, it is important to stand out in the crowd. “Businesses can do this by identifying and leveraging their unique selling points.

“It may seem like a given, but the importance of being attentive to customers and providing good service cannot be stressed enough. Becoming complacent can be the death-knell for a business operating in a fiercely competitive milieu.

“It is especially important to pay attention to repeat customers. They are the ones keeping the business going and it is important for start-ups to nurture their relationships with them,” concludes du Preez.