Pat Mokgatla | 14 April 2025
Pat Mokgatle is a chartered accountant who is head of entrepreneurial business at audit, tax and advisory firm BDO. He also runs a start-up, Decorum Stylists, which provides grooming, tailored suits, accessories and image consulting.
In the vibrant landscape of South Africa's economy, small and medium-sized enterprises (SMEs) form a crucial part of the growth and development narrative.
One such enterprise, specialising in the production of uniforms, stands out for its efforts to thrive amidst numerous challenges. This business employs unskilled unionised workers including 50 machinists dedicated to the production of uniforms.
Despite its potential, the company faces significant hurdles in securing funding due to a weak balance sheet and a short track record as the business is 11 years old.
The journey for funding in South Africa is fraught with difficulties, particularly for SMEs with limited financial muscle in assets such as property, plants and equipment on their balance sheets.
Banks, the traditional bastions of financial support, often require substantial collateral to mitigate their risks. For a uniform producing SME, this presents a formidable challenge. Collateral, in many cases, involves assets that the business may not possess in sufficient quantity or value, which prevents them from accessing necessary capital through conventional banking channels.
Short-term funders, while ostensibly more flexible, have their own set of stringent requirements. These organisations require constant revenue streams to ensure that their investments are secure. For an SME with a fluctuating income, meeting these demands can be particularly taxing. The pressure to maintain steady revenue not only strains business operations but also hampers long-term strategic planning and growth initiatives.
Angel investors are often seen as the saviours for start-ups and SMEs, providing the much-needed initial capital while sharing the risk. Unfortunately, the market in South Africa is tough, and it is estimated that angel investors fund less than four percent of SMEs, which is a drop in the ocean for a nation seeking to eradicate unemployment by growing entrepreneurs. Their scarcity further exacerbates the funding woes of emerging businesses, leaving a vacuum that is difficult to fill with alternative financing options.
In addition to financial constraints, the uniform producing SME faces operational challenges that compound its difficulties. The workforce, comprised of unskilled unionised labour, requires careful management with careful negotiations to ensure smooth production processes. While unionisation provides security and rights to the workers, it also entails rigorous compliance with labour laws and agreements, which can sometimes lead to operational rigidity and increased costs.
The SME landscape in South Africa is a testament to resilience and innovation. However, the challenges faced by these businesses, particularly in securing funding, are profound. From the need for collateral and constant revenue to the scarcity of angel investors, the financial hurdles are significant. Coupled with operational challenges such as managing a unionised unskilled labour force, the path to success is not straightforward.
Yet, amid these obstacles, SMEs continue to strive to navigate their unique environment, leveraging every possible resource and strategy.
As an entrepreneur in this tough environment, you can increase your chances of success by implementing the following steps in your business:
Your biggest “lender” is your client base, so ensure that you nurture your clients and understand that their happiness is directly linked to your business growth.Happy hunting business leaders - remember entrepreneurship is a rollercoaster, but you can enjoy the ride.
