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The importance of SMMEs against the high Unemployment Rate

We all would have seen that South Africa’s unemployment rate currently sits at 29.1%, its highest rate in 16 years. This is according to the Stats South Africa’s Quarterly Labour Force Survey for the quarter ended September 2019.

Despite this bleak news, there are ways to combat unemployment. Small, Micro and Medium Enterprises (SMMEs) are acknowledged around the world for their contribution towards job creation and economic growth. If one were to look at all the wealthy nations in the world one would notice that SMMEs are the backbone of their economies. For instance, in the United States SMMEs accounted for 99.7% of employer firms and 64% of net new private sector jobs, according to the latest SBA Office of Advocacy’s report. In South Africa only 40% of employer firms are SMMEs.

Therefore, the SMME market in South Africa is largely untapped and thus an attractive market for investors. This has not gone unnoticed for may aspiring business owners in South Africa, as there are many entrepreneurs putting in the hard work to start their businesses. However, over 50% of start-ups fail due to two factors: Inexperience and lack of access to funding.

Regarding the second factor, the lack of access to funding, there are a number of funding agencies already in South Africa that provide loans and grants to entrepreneurs. For instance, the Industrial Development Corporation (IDC) invested R2.6 billion in start-ups and expanding businesses on KwaZulu-Natal alone. On a national scale IDC approved R13 billion in loans, which is expected to create and save 19 178 jobs across the country.

However, these agencies need to ensure that the businesses they are funding are sustainable and will be able to repay their loans. Many entrepreneurs were turned away, because they were unable to show the profitability of their businesses. The inability to show profitability was due to the lack of detail in the aspiring entrepreneurs business plans.

Pat Moodley, the regional manager of IDC said of business owners applying for a loan; “Ideally they should give us a comprehensive business plan that outlines the management, the technical side and capacity, the marketing and financial side of the business.”

When we at Funding Connection receive business plans that were written by business owners, we notice that a common mistake they make is not providing enough detail to their business plans and applying generic information. For example, business owners do not show how they will be better than competitors and how they will penetrate their intended target market.

We know exactly what funders want to see in a business plan and how to effectively express that in the business plan. This will significantly increase your chances in obtaining funding. We can give you the ticket to the financial dance and the ticket being a comprehensive, detailed business plan.

Written by Stephen Thring (MSS Economics; Project Manager at Funding Connection)


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