Small and Medium Enterprises (SMEs) since 1995 have been provided with various assistance to ensure that they not only survive but thrive within the South African economy. As one of the major players in job creation, innovation, economic growth and development one can really see why the government has a keen interest in SMEs. An evaluation of 2013 to the first quarter of 2019: SME contribution to GDP grew from 16% to 32% while employing over 29% of the formal workforce.
Such growth has seen a few strategic developments being made by the South African government include the creation of ministries such as Small Enterprise Development Agency (SEDA), assisting in the legal process of company formation and other services, Small Enterprise Finance Agency (SEFA) which offers various forms of finance and The Technology and Innovation Agency (TIA) for the furtherance of technological innovation just to mention a few.
Despite all these efforts, there is not only a lack of growth within the SME sector but a lack of survival by existing or newly established SMEs seeing 67% of SMEs not making it through the first 2 years of establishment as stated by SADA 2019. The sector lost over 170 000 businesses in the period of 2019 to 2020, a huge number over just a year.
Despite all the available sources of finance and assistance form the government a vast number of SMEs can’t access these funds due to a number of restrictions or managers simply not knowing about the funds or how to go about applying for the funds.
Could funding alone not only be the major problem? Would an introduction of sound Financial management practices (FMPs) or skills be required to serve as a lifeline for SMEs? Could equipping business owners with such skill see a change in the growth rate and sustainability of SMEs?
Some would argue that the latter is true, and in practice, this seems to be the case: that implementations of FMPs globally do have a positive impact on SMEs. What are these financial management practices one may ask? Well, these include working capital management, financial planning, analysis and control, budgeting and financial reporting. And all these assist managers and owners in handling the finances of the business enabling it to operate and conduct business successfully in an effective and efficient manner.
The adaptation of these practices has seen a drastic change in the performance of SMEs helping managers identify and take advantage of business opportunities. The identification of change in FMPs as the business environment changes is key not only to the day-to-day operations but to the strategic goals as well.
Small businesses need to adapt their financial reporting metrics as the business grows. Cash may be king at the beginning of a small company’s life but as the business grows and becomes more complex so should its financial reporting practices. If this happens within the product life cycle why not within the finance department and the reporting side of the business. After all, information is power and in this case, the power is in your hands.