Overcoming financial literacy: How SAICA is helping SMMEs conquer this major stumbling block to success

APRIL 5, 2016

Fact: There are nearly 53 million people in South Africa. Yet, more than half live below the breadline. Unemployment is the biggest reason for this.

Look at these statistics again and it is easy to see that encouraging entrepreneurship is the obvious fix. The only problem is that the country’s inherent economical structural inequality makes it more difficult to implement than many think.

Yes, thousands of new businesses start up every year. Yes, some of them do grow into medium enterprises employing more than just a handful of people. Most do not. In fact, global studies reveal that only one in every five new businesses survives past their 18th month. The number that goes on to become real players in the economy is unknown.

What this illustrates is that South Africa’s business environment essentially favours existing business at the expense of entrepreneurs. While many criticise the system – saying government is to blame for such a skewed economy – the truth is private sector has as much responsibility to change this as government does.

Fixing the problem starts with fixing what stands in the way of an entrepreneur’s success

Studies show a small business needs to be four things to be successful: Innovative, solution-driven, profitable and sustainable.

Chief to achieving these last two points is financial literacy.

Sadly, this is something the vast majority of Small, Medium and Micro-sized Enterprises (SMMEs) business owners in South Africa simply fall short in.  

The impact of this shortfall is huge. Without this financial knowledge, reaching a level where their business is both profitable and sustainable is near impossible. As a result, these business owners battles to:

  • Attract the right investors and adequate funding;
  • Appropriately cost their products and/or services;
  • Set and put in place proper plans that include budgets and timelines;
  • Understand or comply with industry rules and regulatory authorities such as SARS and CIPC.   

Unless someone guides them, it is safe to say South Africa faces a slowly dying entrepreneurial economy. A future where innovative ideas and dreams will never erupt; where unemployment is endless and where monopoly markets continue to dominate.

Start-ups with business support do better than those without

Three years ago, The South African Institute for Chartered Accountants (SAICA) recognised this fact.

SAICA realised it had a role to play in rebalancing South Africa’s entrepreneurial landscape. After all, poor accounting practices hand businesses a one-way ticket to failure. To survive, a small business owner must know, down to the last cent, where the money is coming from and where it is going and understand the implications of this on the entire business.

It was to this end that, as the foremost body involved in the development of chartered accountants, SAICA established Enterprisation: An Enterprise Development and SME support hub that helps SMMEs overcome their lack of financial management and provides them with accounting support.

Enterprisation improves the survival rate of start-ups by helping them become financially viable

SAICA’s Enterprisation Hub’s mission is to develop sustainable SMMEs by providing a full suite of affordable financial support services.

Because, while different businesses have different business support requirements, there are certain aspects of business that present common challenges. To this end, this back-office support hub focuses on helping SMMEs put key disciplines like management accounts; budgeting; proper record keeping; SARS’ compliance; payroll systems; and proper VAT and tax practices in place. This ensures its business clients develop a level of sustainability where it can handover the reins so these businesses can turn into real players in the economy.

In addition to financial skills, the hub also collaborates with other organisations in supplying the 121 SMMEs currently on this programme with:

  • Free governance and legal training;
  • Workshops, business events and seminars where mentors offer their business management expertise, knowledge and guidance to steer SMMEs towards stable growth and sustainability; and
  • Access to free Internet in the workplace.

The model’s success is tangible

Moiloa Office of Architecture and Design (Pty) Ltd (MOAD) is a 100% black-owned, female architectural designer that started in 2012 and operates in Johannesburg and Pretoria.

While passionately and innovatively run, the company soon found itself in trouble:

  • It did not have an accountant who could prepare its annual financial statements or management accounts;
  • It was not compliant with SARS and CIPC;
  • It had not registered for VAT or tax;
  • It did not have a debtor’s management policy in place;
  • It could not compile budgets;
  • It did not have a payroll system in place – this meant staff members did not receive payslips and, since the company did not have salary wage reports, it could not produce IRP5/IT3A forms;
  • It had no record of the company’s source documents. 

The company was heading for financial collapse.

MOAD’s situation, like many SMMEs, reflects the myriad of financial management challenges entrepreneurs in this country face. A situation that, if not rectified quickly, would have turned MOAD into yet another failed-business statistic.

But MOAD’s story has a happy ending…

Three short years after MOAD became one of Enterprisation’s first clients, the company not only survived the 18-month danger period all start-ups face, it also managed to successfully reach a level of sustainability and growth.

Today, business is booming and the company:

  • Is fully compliant with SARS and CIPC;
  • Produces up-to-date annual financial statements and management accounts that management can interpret;
  • Understands the role of preparing monthly budgets;
  • Has an active payroll service where it accounts for and keeps records of all its employee reports; and
  • Has a system in place where it keeps source documents should it need to account for them in its financials.

The Enterprisation hub is something company owner, Tshegofatso Moiloa, says MOAD could not have survived without. “Thanks to SAICA Enterprisation, MOAD has shown steady growth. The company intends to be a pioneering African innovative design hub – not only to marvel at the great building currently changing our global design environment, but also to participate and be a leader in contributing to the design industry.”

More than just individual business, Enterprisation help build industries too

Some of the key priorities in the National Development Plan (NDP) are the creation of a stable and supportive macro-economic and regulatory environment; appropriate skills development and education systems that are increasingly integrated with the needs of the industrial economy.

For this reason, government dubbed the manufacturing sector as a key area where it could unlock the potential of entrepreneurs, as well as promote localisation through designation.

Seda Ekurhuleni Base Metals Incubator T/A Lepharo, Enterprisation’s first incubation client, is an initiative making huge headway in this sector. This incubation hub creates new businesses in the engineering and manufacturing sectors in the Ekurhuleni district. Enterprisation not only provides back-office accounting services to 75 Lepharo clients, it also trains them on proper record keeping, analysis of financial statements and compliance. These training sessions give business owners, among other things, the ability to confidently improve and understand their business operations; properly assess and comprehend their annual financial statements and management accounts; comply with SARS and CIPC regulations; and manage the business records.

But SAICA’s Enterprisation business model does more than just focus on SMME development.

Finding other ways to curb unemployment

Central to addressing the challenges of unemployment, SAICA also recognised that it could also use the small businesses it helps to create jobs for unemployed accounting graduates. Enterprisation does this by giving them a platform where they can develop their accounting skills, while providing the hub’s SMME clients with accounting back-office support.

To date, the hub has groomed over 270 graduates with this initiative – 95% of which have been placed in employment when they leave the programme. 

SAICA’s model illustrates why private-public partnerships are necessary to rebalance SA’s entrepreneurial landscape

In developing Enterprisation in 2013, SAICA recognised that South Africa needs small businesses and large corporates to integrate if we are going to rebalance the ecosystem that governs our economy.

Through its model, SAICA has shown just how much of an impact public-private partnerships can have in turning SMMEs into meaningful and viable businesses.  Now, it is your business’ turn.

Numbers count!

It is up to business leaders like you to get involved.

There are several ways to do this: You can do business with more SMMEs to support the integration of small businesses into the economy. You can set up similar ventures that give small business owners in your industry a hand up. Or you can choose to partner with existing initiatives like SAICA Enterprisation.

All three will resuscitate South Africa’s waning entrepreneurial landscape and help build a nation that supports entrepreneurs.

For more details on this initiative, visit www.saica.co.za/enterprisation or contact Byron Riddle on [email protected] or 011 621 6631.

Image: The hub has helped 270 accounting graduates gain vital workplace experience. Supplied.