9 May 2012
The results of recent research and studies into the small and medium enterprises (SMEs) space in SA may be painting an overly gloomy picture of the sector, which is in far better health than these statistics suggest.
That is the view of Christo Botes, executive director at Business Partners, a specialist risk finance company for SMEs, who said the actual situation on the ground was far more encouraging than recent studies would suggest.
Botes said there were a number of factors that may be skewing the negative findings of studies such as the February Adcorp employment index, which reflected that about 440,000 small businesses closed in SA over the last five years.
"Firstly, when tendering for government contracts at national, provincial and local levels, as well as parastatal companies, it is usually necessary to have a registered company and in the past, businesses also needed to obtain a VAT number. As a result, thousands of companies are registered each year for tender processes, the vast majority of which will be deregistered should they fail to secure the intended contracts."
He said that another explanation was that the Companies and Intellectual Property Commission cleaned their register of those companies that did not file their normal statutory returns timeously. "Many of these deregistered companies have not been activated again as they were in any case, not trading." Botes said that companies that were registered as shelf companies, but never started trading, had also since been deregistered, mainly because of the cost of compliance in submitting returns. It could also be a result of the New Companies Act and requirements to comply to international accounting standards, which had resulted in increased cost of compliance. "As such, many businesses operating multi-company structures have consolidated their operations and de-registered any unnecessary entities."
He added that acquisitions could also be playing a part in skewing the numbers, "As part of many acquisitions, the acquiring company will often choose to wind-up the acquired business and form a new entity that will be protected from any claims that might arise from business dealings before the acquisition. It is important that the correct processes had been followed should such steps be taken."
He said all these issues were exaggerating the SME closure figures.
Botes said that although the situation wasn't as bad as made out to be, there was definitely room for improvement as SMEs played such an important role in the economy. "The initiatives that both government and the private sector have implemented so far, such as the Small Enterprise Finance Agency and the Job Fund, could improve the situation, but much more should be done to assist entrepreneurs and SMEs."
He explained that SMEs needed more than just finance to succeed. "They need technical assistance and support in order to grow and flourish into profitable and successful entities. Mentoring and advice to provide skills transfer is also a critical part of the process."
Botes said that the private sector can play a big role in procurement programmes when it came to SME growth and assistance.
Original report from http://www.businesslive.co.za/southafrica/sa_companies/2012/05/09/smes-not-as-gloomy-as-stats-suggest