Tips to close the operational knowledge gap for small businesses

The small and medium enterprise (SME) sector contributes a significant 39% to South Africa’s GDP and the failure rate is between 50% – 95% depending on the industry.

However, the average failure rate for SMEs is 75%, which proves more support and knowledge must be given to these business leaders as they play a crucial role in the country’s economy.

Vuyelwa Nyakaza, Managing Director of Sukume Consulting says conversations on entrepreneurship usually focus on external factors impacting small businesses, such as the country’s sluggish economy or infrastructure challenges.

However, she believes more focus and conversations should be had around how entrepreneurs conduct their business, as this is a key determinator for success or failure.

“Some of the biggest challenges facing the sector are limited knowledge, technical skills and a lack of wise and implementable/practical advice or mentorship,” says Nyakaza.

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Limited Sector Knowledge

It has been discovered that some entrepreneurs have little knowledge about the sector they have chosen to operate in, and 9 out of 10 times this impacts the way they run their businesses. Nyakaza says very few entrepreneurs actually invest time and effort to understand what basic dynamics of the industry they are involved in.

She advises that small businesses operating within agriculture, hospitality and fashion must understand that those sectors are highly seasonal.

So, one would need to understand the trends and fluctuations of the business, as this is important for cash flow management. 

“Business owners must ensure that their cashflow projections accommodate the lower demand cycles. It is these types of mistakes that entrepreneurs make and once they are on the backfoot, make it harder for them to stay afloat,” she adds.

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Technical financial skills gap

Skills, training, and cashflow management have been identified as challenges most self-employed people and business owners face.

The 2023 Momentum SMME and Side Hustle report is based on how SMMEs define success, and the type of income they earned during 2023, amongst other things.

The report revealed that 34% of self-employed respondents said that good financial understanding is one of the top five needs for them to reach their business ambitions.

35% of business owners said they need an understanding of financial planning, forecasting and budgeting. While 34% also listed good financial understanding as a need to achieve their business ambitions.  

Value of the right advice

Nyakaza believes some entrepreneurs undervalue the importance of receiving business advice.

“Some people in the world of business do not view sound business as a tool to help their businesses grow. 

“This can be attributed to the fact that they are caught up in the hustle to deliver, like working in and not also working on their businesses.”

Another big obstacle for SMEs is access to the right capital and funding.

Often the line between personal and business finances is blurred because entrepreneurs would decide to fund their businesses from their own pockets.

Nyakaza says using personal finances for business purposes could have devasting repercussions for their personal finances and savings, so advice is very important.