Download State of South African small business

State of
South African
small business
A report produced by World Wide
Worx in partnership with Xero
Index
Start-up finance pg 4
Financial management pg 6
Profitability and success pg 8
Work-life balance pg 9
Challenges pg 10
Technology pg 11
Business confidence pg 12
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It’s hard to overstate the value
that small businesses provide
to the economy. In addition to
their financial contribution and
job creation, there’s the personal
enjoyment they bring to those
who strike out to become their
own boss.
For this research we surveyed
400 small business owners
across 22 sectors to better
understand the state of
South African small business.
THE RESULTS...
Start-up finance
The majority of small business owners are self-
turned to business angels or venture capitalists.
funded, with 63% reporting using personal savings
It is possible that this is not by choice – 27% of
while 20% found investment or a loan from a
small business owners cited access to funding as
family member, partner or friend and only 6%
the biggest challenge to starting their business.
SOURCES OF FUNDS TO LAUNCH BUSINESS
6%
6%
2%
3%
Personal savings
Personal loan
Other
20%
Investment or loan from family
member/partner/friend
Investment from a business Venture capitalist
63%
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Bank Loan
The initial start-up funding required was below R100,000 for more than half (62%) of
businesses surveyed, with only 4% raising more than R1,000,000.
INITIAL START-UP INVESTMENT
4%
8%
23%
3%
None
Below R20,000
R20,000 - 100,000
R100,000 - 500,000
27%
R500,000 - 1,000,000
More than R1,000,000
35%
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Financial
management
While over half (51%) the small business owners
using either a spreadsheet (31%) or paper records
surveyed use desktop accounting tools, only 8%
(9%), which is pretty worrying given that according
have moved on to cloud accounting software.
to studies, 88% of all spreadsheets also contain
Over a third still manage their finances manually,
errors of some kind.
The maths: If you consider that the economic output of small and medium-sized
enterprises (SMEs) in South Africa is estimated at 52% of GDP, that’s a potential
R1 trillion of GDP that’s at risk.
HOW ARE THE MAJORITY OF YOUR FINANCIAL RECORDS MANAGED?
1%
31%
Manually, using a spreadsheet
Manually, using paper records
51%
Using online/ cloud accounting software
Using desktop accounting software
Other
9%
8%
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South Africa’s SMEs are confident managing
to falling sales, 10% to late-paying customers and
their companies’ finances, with 87% reporting
6% to the need to reinvest in the business.
they feel “very confident” in this area, and only
1% feeling “not confident at all”. This is perhaps
not surprising, as the majority (88%) use an
accountant or bookkeeper regularly, and 93%
report a “good” or “very good” relationship with
their advisor.
This number drops to 31% of those businesses
that use cloud accounting software, which could
be explained by the real-time benefits of cloud
accounting software – enabling businesses to
issue invoices and get paid more quickly.
That said, cash flow remains a worry for 39%
small business owners, with 21% attributing this
ARE YOU WORRIED ABOUT CASHFLOW?
2%
6%
20%
No
Yes - customers often pay late which affects
the cash flow
21%
Yes - falling sales/low seasonal sales have
affected day-to-day finance
Yes - we have faced an unexpected cost/a
client has been unable to pay
10%
41%
Yes - we have had to invest or reinvest in the
business,which has hit the cashflow
N/A
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Profitability
and success
An encouraging finding was that 94% of the
founders: 75% of SME owners believe they make
businesses surveyed are profitable, with over
more money running the business than they
a third (37%) profitable from the start. And
would in a job, and for 91% their business is their
these businesses are serving the needs of their
only source of income.
WHICH FACTORS ARE CRUCIAL TO BEING
A SUCCESSFUL BUSINESS OWNER?
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Taking time off for myself and family
27%
Marketing training
23%
Personal resilience
18%
Management training
15%
A business degree
9%
Financial training
4%
Having a mentor or coach
2%
Work-life balance
However, this prosperity comes at a cost. 95% of
do take holidays, 98% are unable to switch off
small business founders work more than 8 hours
completely, with almost two thirds (65%) working
a day, with 42% working more than 10 hours and
at least an hour a day and one fifth (21%) working
16% working more than 12. Only 4% reported
more than six hours each day. In addition, while
working less than 8.
27% reported that taking time off was crucial to
Furthermore, when asked about taking time off,
over a quarter (27%) reported working every
day throughout the year, while a further 19%
being a successful business owner, only 2% cited
improving work-life balance as a priority for the
next year.
take only one day a week off. And when they
HOURS WORKED PER DAY OF HOLIDAY
22%
33%
0 - 30 mins
1hr
2-3 hrs
4-5 hrs
14%
6+
15%
16%
“
Annual leave is one of the many employee benefits that small business owners
sacrifice, because it could have a detrimental impact on the bottom line. Getting a
good work-life balance is very tricky, but it’s really important that we all switch off
occasionally. It’s a question of balance: if you’re waiting to board a plane, relaxing
with a coffee or stuck in a queue, why not log in and check your emails or accounts?
On the other hand, when you’re spending time with the family or headed for the
beach or mountains, I say leave your work behind.”
GARY TURNER
Xero co-founder and managing director for Xero in the Europe, Middle East and Africa region
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Challenges
Stiff competition was cited as the biggest challenge (42%) to starting
a business, followed by access to funding (27%) and marketing (11%).
BIGGEST CHALLENGES TO LAUNCHING
4% 2%
5%
Competition
6%
Access to funding
Marketing
11%
Recruitment
42%
Managingthe finances
Generating cash
Regulation
27%
WHAT KEEPS SMALL BUSINESS OWNERS UP AT NIGHT?
10
Keeping ahead of the competition
27% Crime
3%
Cashflow problems
20% Skills shortages / finding good people
3%
Economic volatility
18% Dealing with regulatory red tape
3%
Future sales
17% Data security
3%
Tax / interest rate rises
13% Stress-related health issues
2%
Access to finance
4%
1%
Increase in cost of doing business
Technology
Technology is becoming increasingly relevant
although for those who were uncomfortable with
to South Africa’s small businesses. 66% cited
the technology, the top three concerns were:
technology as “very important” (47%) or “essential”
(19%) to running their business, with only 4%
marking it as “not very important”. 55% claimed that
smart devices and cloud apps have made running
their business easier and most (60%) do not
Privacy: 17%
Reliability: 12%
Security: 9%
have any concerns about using cloud technology,
Gary Turner, Xero co-founder and managing director for Xero in the Europe, Middle East and Africa
region, suggests that as the world of business becomes increasingly digitised, choosing cloud accounting
software is a “no brainer” for small business owners.
“
When you consider that 52% of South Africa’s GDP is generated by small businesses,
SMEs need to be smarter and more connected to ensure they’re at the forefront of
economic recovery.”
Most revenue is still generated offline, with almost
Only 4% counted a smartphone as essential.
a quarter of small businesses (23%) having no
Nearly half (41%) use their smartphones for social
online sales channel, and only 29% generating at
media, whilst the second most popular function
least half of their revenue through this channel.
was email, at 39%. 34% use online banking
Surprisingly, in our increasingly digital age, just
over a quarter (26%) of those surveyed consider
a PC to be an essential business tool, whilst only
6% deem an internet connection to be necessary.
Old fashioned bricks and mortar was valued
on their smartphones and 19% make mobile
payments, suggesting that there is definitely room
for improvement when it comes to how small
businesses use technology - 10% did not have a
smartphone at all.
most highly, with 49% considering an office or
commercial premises to be essential.
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Business
confidence
South Africa’s small businesses are bullish about
When asked about growth priorities for the next
the future. 58% expect to grow in the next year,
two years, efficiency was a clear priority: 50%
while 29% expect to stay the same and only 12%
cited growing sales to improve profit margins, 5%
expect to shrink.
focused on cutting operating costs, and 2% want
to improve financial control.
THE FACTORS PREDICTED TO HAVE THE BIGGEST POSITIVE IMPACT ON BUSINESS
GROWTH WERE RANKED AS:
44%
Economic growth
27%
Increased consumer demand
Tax breaks from government
11%
Access to finance
9%
Access to faster internet:
Access to better technology:
And a significant 86% of small business owners
did not feel the government provides enough
support for small businesses.
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3%
2%
Top tips from Xero for building business
confidence and becoming a striver:
“
Small businesses are significant economic drivers, improving their outlook lifts the
entire economy. My advice to these businesses is to have a firm grasp on your
finances and don’t be afraid to enlist the support of a strong collaborative network:
family, advisors and mentors, an accountant or financial advisor.
This is the formula for success.”
GARY TURNER
Xero co-founder and managing director for Xero in the Europe, Middle East and Africa region
1
2
3
Enrol great
advisors:
Try, try and
try again:
Know your
numbers:
Enlist the support of
A positive mind-set and
It goes without saying:
a strong, collaborative
a willingness to fail—
being able to have a tight
network: family, advisors and
successful small business
grasp on your finances is
mentors, an accountant or
owners are more likely to
key to business confidence.
financial advisor
see failure as a good thing,
Managing your finances
learn from mistakes and
and cash flow should be a
want to try again.
fundamental part of your
business strategy, not an
afterthought. This will give
you the knowledge you
need to keep your company
running and help it to grow
when the time is right.
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About Xero
Xero is beautiful, easy to use online accounting
software for small businesses and their advisors.
The company has over 700,000 subscribers in
more than 180 countries. Xero boasts more than
500 third party integrations, and was ranked No. 1
by Forbes as the World’s Most Innovative Growth
Company in 2014 and 2015.
About
World Wide Worx
Arthur Goldstuck heads the World Wide Worx
research organisation, leading ground-breaking
market research into how change is affecting
business and society, and presents his findings
and insights to audiences across the globe. World
Wide Worx produces the most widely accepted
statistics for Internet use in South Africa, and has
conducted research across Africa since 2001,
unravelling the complexities of operating on the
continent.
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