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5 common reasons why SMEs fail

Article provided by YVR Consulting

The World Bank Group suggests that there are between 365-445 million SME businesses operating in emerging markets. From this only 80-100 million of these businesses are formal registered tax-paying SMEs and the remaining being informal SMEs so, in essence, unregistered and not tax paying. Another interest fact is that 25% of SMEs fail in their first year and 50% within their first 4 years. That is all scary if you ask me and this is just in emerging economies.

Let’s now think about the number of informal SMEs operating in the rest of the world and if we were to combine these with emerging markets and try to formalize these, what the impact of this could be on the local and global economies and not forgetting SME sustainability and growth?

Now, if I bring this closer to home, in South Africa there are +- 1.5m unregistered or informal SMEs such as local supermarkets or general traders which really operate wherever they can.

The potential for growth and societal change here too is massive. However, not all these informal and formal SMEs have the necessary support structures or systems in place to allow for their growth and sustainability.

So, what do we mean? Well – currently in the South African context large corporates are being forced to think about how they positively impact the societies they operate in and the role they can play in trying to promote SME trade. Because of this, specialised development programmes with varying focuses are run, however these are for short periods of time and usually only a handful of small to medium businesses benefit.

The group of SMEs without any form of support is the category that we want to specifically talk about. Based on our experience of being an SME as well as working on various SME development programmes, we see five common reasons why SMEs fail. These being:

1. Capital constraints
2. Lack of planning
3. Ineffective marketing
4. No business oversight
5. Pricing

From these five reasons, there is an opportunity to learn and respond to failure or possible threats by using previous experiences as lessons. Essentially, we are saying that these factors impact all businesses, not size or industry-specific – and what differentiates successful SMEs is their ability to be agile – to learn, respond and adjust to their environments that are so dynamic.

This brings me to the next point – learning. If we know that we operate and live in a world where information is available and accessible 24/7 and that the world is driven by technology, how are SMEs responding to this? It doesn’t matter where SMEs operate, whether it be in emerging markets or not, information and technology must be seen as an enabler.

Some factors or tips for consideration that we believe SME’s should be capitalizing on,

· Access to information
· Globalisation
· Cost controls and
· Information management

Let’s look at these individually.

1. Access to information

We have access to information 24/7! This gives SMEs a competitive advantage which has changed drastically over the last decade. Research, statistics and solutions are available to business owners with the click of a button.

2. Globalisation

Barriers to entry in certain instances have decreased. SMEs can access a global market and also have opportunities for global collaboration.

3. Cost controls

Costs need to be controlled for any business to be effective and to become more competitive. Examples such as automation and outsourcing are just some of the actions that can be taken – mindful tradeoffs have to be made.

4. Information management

Specifically, the accessibility, relevance and validity of internal SME business performance data – this is crucial in any business. Should SMEs have the correct information available at the time it’s needed, this could be used to make better-informed business decisions.

If an SME is looking to grow, improve or transform, these should be considered. We understand that for an SME business owner, so much time is spent working in the business that there is not enough time to work on the business to plan and adapt to the environment in which the business operates in.

We also understand some of the main challenges that owning a business can bring! We aim to assist SMEs in becoming more sustainable, empowering them to make better decisions and fostering growth for their businesses.

With that being said, we have developed B.E.T which is short for Business Enabling Toolbox for the, but not limited to, SME market. With B.E.T at your side, you don’t have to take on these challenges alone. B.E.T is a self-diagnostic digital advisor giving you access to leading consultancy, guidance, your own real-time business performance dashboard as well as tools and templates to assist you in your business.

Not being industry or business size-specific, this makes B.E.T a trusted advisor in the business owners’ possession 24/7!

For more on B.E.T visit www.yvrbet.com

By developing such a platform, we hope that we play our part to assist SMEs on their growth and sustainability journey as well as uplifting the economies in which they operate.

YVR Consulting is a proud Premier Member of the NSBC.