The slowing economy, recent rating downgrades, on-going political instability, and a growing budget shortfall is leading to low business confidence. SMEs are certainly feeling this: in our recent Key Funding Challenges for South African SMEs report, only 30% of SMEs believed they would achieve revenue growth of more than 50% over the next year.
Conditions are unlikely to change dramatically over the next few months, prompting many SME owners to wonder how their business will survive and thrive in 2018. During the course of preparing our recent research report, we spoke to a hundred SMEs across the country to find out what their key challenges are.
Here’s our round-up of the biggest challenges SMEs are likely to face in the year ahead, and how to overcome them:
#1 – Funding
With traditional lenders shying away from unsecured short-term business funding, many SMEs are left without the working capital they need to grow, take advantage of new opportunities, and negotiate more favourable terms with suppliers and customers. Access the credit emerged as the biggest challenge faced by South African SMEs, with three out of five stating it as a key obstacle to their growth. SME owners should therefore turn toward the new generation of digital-first lenders that can take the business’ overall health into account when assessing applications for funding, instead of relying on antiquated box-ticking exercises.
#2 – Marketing
Marketing, customer acquisition, and customer retention were among the top challenges among our SMEs surveyed. This is alarming, since nearly half said expanded marketing efforts would have a direct positive impact on business growth. Entrepreneurs should become familiar with cost-effective marketing tools such as websites, email marketing, social media, and public relations to build relationships with current and potential customers.
#3 – Cash flow management
Improved cash flow management emerged as a top challenge for local SMEs, with financial reporting and admin not far behind. One issue may be that of financial literacy: many entrepreneurs start businesses out of necessity, and lack the basics of proper financial management. There are a plethora of free online courses available to entrepreneurs that can help build a better understanding of financial management. Online accounting tools such as Xero can also provide excellent support to SMEs by automating much of the day-to-day accounting processes.