Introduction
He discovered his talents as a businessman when selling sweets and newspapers on trains and vegetables to supplement his income. This resulted in him finding 14 companies, including General Electric, still in existence as one of the largest publicly traded companies in the world.
One of his famous quotes is, “Opportunity is missed by most because it is dressed in overalls and looks like work.” Any guess who this person may be?
A tip: he also invented the first long-lasting practical electric light bulb. Of course I am talking about Thomas Alva Edison.
Why starting an small medium and micro enterprise (SMME)?
Edison has something in common with all successful self-employed people: they have discovered that if they run far enough they get a second wind. One of the reasons why people keep pushing themselves is to see their money increasing.
SMMEs and cooperatives are certainly founded to improve their founders’ income. In South Africa the 2010 FinScope SMME Survey established that there are an estimated 5.9 million small businesses in South Africa, most of them in Gauteng, the Eastern Cape, KwaZulu-Natal (KZN) and the North West.
The survey also found that one in two small business owners started their business because they lost their jobs or were unable to find jobs, and that for 67% of small business owners, the small business was their sole source of income. Although incomes in the informal economy are often very low, cumulatively the estimated contribution is between 7% and 12% to national Gross Domestic Products (GDP). A policy designed to help creating an enabling environment for informal traders has recently been launched in the province.
Small businesses therefore play an important role as livelihood sources and drivers of economic development in South Africa, particularly when viewed within the context of the latest unemployment figures. The opportunity for self-employment gives people the ability to better provide for themselves and ultimately escape poverty.
Benefits for country
SMMEs and/or Small and Medium Enterprises (SMEs) are internationally recognised as the backbone of most economies. The most important spin-off of SMMEs is that it is a major job-creating machine. President Jacob Zuma has declared 2011 as the year of job creation.
Economist Mike Schussler believes that South Africa needs to create 10 million jobs in the next 10 years if we were to wipe out our unemployment rate. Approximately 350 000 new jobs had been created over the last 11 years, but it is not enough, especially if we take into consideration the increase in our population.
When looking across the globe it is clear where tomorrow’s jobs will come from small, medium and micro enterprises.
Statistics in Europe in 2004 showed that approximately 30 million enterprises provide employment to about 122 million people, with 99.8% of these enterprises being SMEs.
The SMEs in India, a fast developing economy, are responsible for over 40% of industrial output through 95% industrial units, forming a strong backbone of economy. SMEs contribution to India's GDP is 10 percent. Besides, SMEs are the second largest employment generator after agriculture. On average SMEs in India are responsible for creating one million jobs annually.
Scope for improvement
Two weeks ago South Africa launched a R9 billion fund designed to create 150 000 jobs in three years. Two billion rand has been set aside to fund employment projects in 2011. The fund is open to proposals from government departments, municipalities, business and NGOs and will issue grants for job programmes. Here is really an opportunity to do something innovative. The fund works on a co-funding approach, with the private sector expected to match grants awarded.
It is crucial that we step up our entrepreneurial activities to provide more employment opportunities for our young people. We need to move from being job seekers to job creators. In the 2009 Global Entrepreneurship Monitor South Africa scored only 7.2% in the overall entrepreneurial activity category. This is well below the average of 17.7% across all 54 countries participating in the survey.
The high failure rate of SMMEs shortly after they have opened their doors is a bone of contention. For business to flourish, and especially during the start-up and expansion phases, an enabling climate must be created. Some challenges SMEs are facing in South Africa include access to finance and unmet skills development and training needs.
Government provides a variety of support structure to small business owners through entities, such as the Department of Trade and Industry (dti), the Small Enterprise Development Agency (SEDA), the National Youth Development Agency (NYDA), Khula Enterprise Finance and various initiatives through the KZN Department of Economic Development and Tourism. However, government cannot do it alone and we need partnerships with experts in the industry. We are grateful to entities who have reached out to emerging businesses.
Central to the helping hand is financial education. A lack of knowledge and financial illiteracy is one of the major challenges to emerging entrepreneurs.
The importance of financial education
Obtaining Start-Up Money
Obtaining funding is a major issue for small business. It crucial that we dispel the idea that handouts will build a strong economy. Some South Africans want to be given easy money. However, that is most often the reason for failure. Research in the USA into why some cooperatives fail and other thrive found that the greater the financing supplied by the members, the more efficient the co-operative. Nobody looks better after money when it is his or her own money.
There must be some conditions for money to be given out, whether it is from a bank or government or another source. Business financing is not charity and capital is hard to come by, especially if:
- You don’t have a good business idea or business plan
- You have a good business idea but you don’t know anyone who matters
There are many sources to consider when looking for financing. But you need to be financially literate when exploring these options before making a decision.
An option that only a few potential entrepreneurs seem to consider is to start saving to fund their business start-up. Savings can be used as collateral to borrow against it at a low interest rate. Sound financial management will not only make small businesses more attractive to lenders and investors but it will also free up cash resources within the business and reduce the reliance on borrowing.
Keeping the doors open
A small business owner has to take responsibility to know enough about his or her financial statements, if the business is profitable and when to expand.
Some of the most common mistakes that new business owners seem to make:
- Mixing their personal and business transactions in the same accounts;
- Using the wrong bookkeeping system; and
- Not charging the correct sales tax.
A proper business plan – which the business owner understands – and not just written by someone else to obtain funding – is crucial to ensure that there is sufficient working capital to withstand losses in the start-up phase.
Importance of Marketing
Another chance a self-employed small business owner cannot afford to take is to take chances on ideas without getting more information about what its market audience wants and what they are willing to pay for it.
Market research or also called a "feasibility study" is essential. We all have different tastes, different ideas about what is important in our lives and different willingness to pay a particular price for what we want.
Market research also tells you what your competition is doing. You have to develop a Unique Selling Point for your product or service. So often entrepreneurs are not sure how their products are different from those already in the market.
Marketing is key to business success. One of the main obstacles in the success of SMMEs is that these entrepreneurs lack comprehensive marketing plans for their products. There needs to be greater understanding that before creating new products and services, a clear strategy must be in place defining how to bring those goods and services to the market, otherwise the effort is futile.
Successful entrepreneurs must also find innovative ways of telling their potential customers about their product.And no, it does not always require expensive advertisements in the newspapers.
Of course, word of mouth remains the most powerful marketing tool. When people are happy with your product and service they will tell others. And your business will grow.
But then the next danger lurches when business grows – can you deliver the same quality when the orders are streaming in? It reminds me of the comedian Eddie Cantor, who said that “it takes 20 years to make an overnight success.”
Conclusion
It is clear that setting up a business, keeping the doors open and growing it from micro to small and medium – and eventually big – is not everybody’s cup of tea. You need certain stamina, innovation but most of all you have to be financially educated.
Self employment creates a culture of self-reliance, self-determination and economic independence that curbs the dependence syndrome on the state. People who own enterprises can ensure economic empowerment of nationals. This is most certainly the way of ensuring income redistribution and social justice. Successful business owners provide role models to our young people to develop their entrepreneurial and managerial skills.
We need many more successful entrepreneurs in our province and country. As custodian of public funds, the KwaZulu-Natal Treasury realises the impact that financial education can have on households, emerging entrepreneurs and our young people. I made it a priority to include financial education in outreach events with communities. However, as the demand for these programmes grew, it became clear that the Provincial Treasury was only scratching the surface of the need for basic financial education.
The collaborative efforts of government, business, financial institutions, regulatory bodies, academic institutions and NGOs – coordinated by the KZN Financial Literacy Association – is a response to the need for financial education.
Today we are launching Financial Literacy for SMMEs in KZN. I would like to thank Ntokozo Zikalala, the group leader of this very important group, as well as the focus group executives, who represent different banks, organisations and entities.
We are also grateful to Ithala Finance Development Corporation for sponsoring the catering of today’s event and the Umfolozi Further Education Training College for the free use of the facilities at the Esikhawini campus. Isolezwe has also joined as a member of the Association and we are looking forward to see all the free coverage they have offered.
Working together in a co-ordinated way will make a much better impact than working in fragmented isolation, which often leads to some communities being over serviced, while others miss out.
We appeal to all potential entrepreneurs and existing entrepreneurs to make use of the financial education opportunities offered under the KwaZulu-Natal Financial Literacy Association.
Forward to a financially literate KwaZulu-Natal! Phambili!
