Signs the rules may start to work for – not against – small business

The possibility of having the Red Tape Impact Assessment Bill revisited has been welcomed in small business circles.

The bill requires all departments and self-regulatory agencies to reduce red tape by 25% over a period of five years. The bill was rejected in 2017 by parliament on procedural grounds.

However, National Treasury proposed in its growth plan – published in August – that the bill be revisited. It also proposed that the government consider full or partial exemptions for small businesses from certain kinds of regulation such as the extension of bargaining council agreements.

Read: Small enterprise: The canary in the coal mine of a toxic business environment

Kumaran Padayachee, CEO of Spartan SME Finance, says the company welcomes any proposals that will assist small businesses.

Read: How government can achieve its ‘entrepreneurial state’ vision

“One of the biggest constraints that entrepreneurs have is capacity,” he says. “It is quite unfair to impose regulations that require internal capacity that is more aligned to a larger company on a small business.”

Treasury admits obstacles are ‘significant’

Treasury says the combination of impediments such as a high regulatory burden, inflexible labour markets, and high levels of concentration present “significant” obstacles for small businesses.

“The costs of compliance with red tape [obtaining black economic empowerment certification], applying for a tax incentive, or accessing a learnership through a sector education and training authority [Seta] is the same across companies, making it much more expensive in relative terms for smaller companies.”

Padayachee says efforts to reduce red tape are certainly a noble idea, but he remains concerned about implementation.

Non-payment a serious problem

He says one of the biggest elephants in the room is the non-payment of small and medium-sized enterprises (SMEs) – and the seriousness of this is not sufficiently addressed in the latest treasury growth plan.

“It is causing financial and even survival distress to otherwise decent and established SMEs. That remains worrisome.

Read: Hey! Big Businesses! Pay your suppliers!

“We have seen exceptional growth under small businesses over the last two years, but many suddenly find themselves in business rescue or being liquidated because of non-payment.”

Treasury suggests that interest should be automatically added on outstanding balances after a certain period.

Padayachee expresses the hope that the tax base will expand. The only way that can happen is for the economy to grow. That will ensure more revenue for the government, and hopefully that will ensure better payments to SMEs.

Plans to ease visa requirements have also been welcomed. Padayachee says tourism is one of the sectors that has huge employment potential. Government should double down on these efforts.

It’s a jungle (but symbiosis is possible)

He says the funding community finds itself in a position where there is more money chasing deals than there are quality deals, yet small businesses continue to complain about the lack of funding.

He sketches the picture of a jungle inhabited by funders and entrepreneurs. They have to find each other in this maze.

Both sides have different requirements and needs, and finding a funder – and, more importantly, a funder that is a match – is the trick.

He says the big banks have large advertising budgets, so they are the elephants in the jungle and easy to spot. Alternative funders that are not as “big or noisy” are easily missed. This creates the perception among small businesses that the jungle is empty.

Padayachee says there has been an improvement in the ability to search for alternative funders. There have been various attempts by support organisations to create “landscape documents” to give some plan to the maze.

These documents are however not widely distributed, and aren’t always updated regularly, sending funders and entrepreneurs back to the onerous process of finding each other.

Clarity

On top of that there is also the “unrealistic expectation” that all funders can be all things to all businesses. Padayachee says the funding community needs to be more explicit on their criteria and area of specialisation.

This will make it easier for someone who lands on their websites to understand what they can do and what they cannot do.

Entrepreneurs should ensure that they have the minimum required financial information on hand to assist funders in conducting a proper assessment.

They also need to have a certain level of “maturity” in order to engage with funders. If they are not sure of “the language and process” of engagement, it would be wise to get an external advisor or accountant to help navigate the process.