Despite the quarterly uptick, these same confidence indicators reported a year-on-year decrease which raises concerns around whether this indicates that the slightly more positive outcome during the third quarter may be short-lived, considering the country’s low growth economic landscape and recent ratings downgrade of South Africa’s foreign currency debt to junk with a stable outlook by S&P Global.
Commenting on the Index, Siphethe Dumeko, Chief Financial Officer at Business Partners Limited (BUSINESS/PARTNERS), highlights two significant results which present the general sentiments of some small business owners in South Africa; the first being the increase of the average importance levels of access to finance for the growth and sustainability of a business to 81 percentage points – up 3 percentage points from the previous quarter. The other most notable result was on how much SME owners attribute the average importance levels of having a mentor when it comes to the development and growth of a business. This significantly declined by 9 percentage points when compared to the previous quarter and decreased by 11 percentage points when compared to the third quarter last year.
“The greater need for funding indicated by respondents in the third quarter of 2017 is testament to the cashflow challenges being experienced by some SMEs, but the fact that the perceived importance of mentorship has drastically declined both quarter-on-quarter and year-on-year is more concerning.
“SMEs often consider accessing additional financing as the fastest way to rescue a struggling business, however if they don’t possess the necessary technical skills – for example, specific management functions such as budgeting, marketing, credit control, cash flow management – to use this funding effectively in their business, they may find themselves in either the same situation or worse off than before as they will have accumulated additional debt,” says Dumeko.
When finance is combined with the correct, well-planned and structured mentorship or technical assistance, this is when the funding becomes most powerful to an SME and their success, says Dumeko. Also, BUSINESS/PARTNERS has found over the years that good mentors are rare to find as they are not necessarily produced by business schools but are forged rather through years of experience in the business trenches. As such, these mentors impart not only the science of business but rather the art of business as well through wisdom based on years of experience.
He points to an independent assessment conducted on the BUSINESS/PARTNERS Mentorship and Technical Assistance Programme, which reported that businesses who coupled finance with technical assistance showed a 26% increase in job creation, a 32% increase in turnover and a 79% increase in profit. “Running a small business requires a varied skill-set that is not always possible for one person to possess,” Dumeko explains.
Dumeko acknowledges that when a small business is in crisis, especially financially, it may seem unreasonable to ask a business owner to spend time and money on mentorship, but urges business owners to seek mentorship or technical assistance where they can. “Often, problems within a small business could have been avoided completely if the right mentorship or technical assistance was utilised. Similarly, the right advice can go a long way in minimising the impact of these challenges.”
Dumeko says “There is no quick-fix solution with secured outcomes in business, therefore, attempting to fix problems through additional funding can be a wasted exercise if there is a mentorship need and there is no-one to advise, counsel and guide the business owner on how to avoid repeating mistakes a second time around.”
He adds that considering the current low growth economic climate SMEs are expected to operate in, mentorship can play a pivotal role in not only navigating the economic headwinds impacting or hindering business performance but also identifying other opportunities the SME owner may not be aware of.
“An improvement and turnaround to South Africa’s economy is critical in order to support Moody’s latest ratings decision to keep the country at investment grade pending the Budget Speech in February 2018. The role SMEs can and must play in this turnaround cannot be overemphasized,” concludes Dumeko.