9 things you need to know about small businesses in South Africa

South African research group, World Wide Worx has released its 2016 State of South African Small Business report, showing what small business leaders in the country are facing in the country.

The report’s findings are based on a survey of 400 small business owners across 22 sectors in South Africa, and was compiled by WWW, in partnership with Xero, a cloud based accounting software firm.

South Africa does not invest in procuring accurate statistics on small businesses in South Africa, making it difficult to find the exact number of companies that operate in the country.

According to SME experts, what complicates matters is that there is no clear definition of what a small business is, and a lack of measurability across informal industries.

According to previous findings by World Wide Worx, there are an estimated 650,000 small businesses in South Africa, employing around 7.8 million people.

Estimates place the GDP contribution of small businesses at 52% and 61%.

Here are 9 other findings about small businesses in South Africa – and how owners are coping in the current economic environment.

1. The majority of small business owners are self-funded

63% of small business owners report using personal savings while 20% found investment or a loan from a family member, partner or friend. Only 6% turned to business angels or venture capitalists.

2. Initial start-up funding is below R100,000

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, the report said.

3. Small business owners are not big on ‘the cloud’

When it comes to financial management, over half (51%) the small business owners surveyed use desktop accounting tools, and over a third still manage their finances manually. Only 8% have moved on to cloud accounting software.

4. Cash flow is a big worry

While 41% of business owners said they had no cash-flow worries, a big chunk of responding owners (38%) said that they were hit with unexpected cash flow issues – from late-paying clients, to unforeseen slumps in sales.

5. Small businesses are super successful

A massive 94% of businesses surveyed said that they were profitable, with more than a third (37%) saying they were profitable from the start. Three quarters of business owners believe they are making more money than they would have working for someone else.

6. Running a business means sacrificing time off

95% of business owners said they worked more than 8 hours a day, with 27% saying they never take time off – working every day of the year. Only 4% of of business owners said they worked less than 8 hours a day.

7. The biggest challenge is the competition

Business owners cited competition from other business as the biggest challenge they face – though access to funding was another challenge worth noting. Keeping ahead of competitors was cited as the thing most likely to keep small business owners up at night.

8. Small business embrace technology

Two-thirds of small business owners said that technology was very important or essential for their business operations, with smart devices and apps making their lives and the running of their businesses easier. Only a small portion of businesses (29%) generate income online, though, with 49% of businesses opting for traditional brick and mortar.

9. SMEs are surprisingly positive about the economy

Small business owners were bullish about the South African economy, with more than half (58%) expecting the country’s economy to grow in the next year (versus 12% who expect it to shrink). Economic growth was the thing businesses were most looking forward to, and along with it, increased consumer demand and possible tax breaks from government.

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9 things you need to know about small businesses in South Africa