Almost half (49%) of small business owners in South Africa reported an increase in turnover in 2010 while the remaining businesses reported stagnated or decreased revenue. But, despite the seemingly good news, profit margins were squeezed with just more than a third of SMEs (32%) reporting an increase and an almost equal amount (29%) facing a decrease in profitability – the real indicator of a business’s ability to make money.
These are the initial findings to emerge from the inaugural SME Survey conducted by Softline Pastel, the country’s leading developer of business software for SMEs.
Of the 2000 respondents, two thirds (63%) reported an annual turnover of less than R5 million. Only 5% turnover more than R50 million and the other third (32%) is evenly spread between these values. When it comes to employee size, 52% of survey participants currently employ a maximum of 10 people, 17% employ 10-20 and 14% employ up to 100 people.
“The Pastel SME Survey has really gone to the heart of the small business sector,” says Steven Cohen, managing director of Pastel Accounting. “The survey provides us with empirical data that the financial success of SMEs is based on a delicate balance of factors, not all within the control of the business owner. And the marked increase in 2010 in the price of electricity, rates and taxes, labour and inflation has put many small businesses under severe pressure as they have had to keep their own prices low to remain competitive.”
Although 46% reported an increase in demand for their service or product, participants blamed market uncertainty due to the current economic condition for the slump in profitability. “There’s just no growth and we have no idea when it will pick up but we have to continue running our business like we did in the past,” said a respondent. “There are still too many unknown variables to the economic situation so it’s difficult to plan for the year ahead,” said another.
In contrast, JSE trading statistics for the first half of 2010 were up year-on-year in volume by 22% and value by 17% to R1.5 billion. “These kinds of numbers often mask the struggle that SME’s face,” says Cohen.
Softline Pastel has been servicing SMEs for over 21 years and currently claims thousands of small business customers. “The SME sector is constantly referred to as the powerhouse of the economy with the greatest potential to eliminate joblessness and enhance social and economic development,” comments Cohen. “But small business faces a myriad of challenges and has no voice to raise its concerns. With our experience in the sector, we intend that this survey becomes the mouthpiece to provide a good understanding of the current state of the sector so that it can be empowered to move forward.”
The Pastel SME Survey, which will become an annual review, was conducted online amongst small businesses nationally during December 2010 and probed a range of factors that impact on the ability of this market segment to make a meaningful contribution to the local economy. As data is analysed, further insights will be released.