Conference Presentation · Conference Presentation. 02/08/2019 FINANCIAL MANAGEMENT CHALLENGESFACING SOUTH AFRICAN SMALL BUSINESS AND INFORMAL RETAILER’S IN THE TOWNSHIP RETAILING

02/08/2019

9th ROGE

Conference Presentation

02/08/2019

FINANCIAL MANAGEMENT CHALLENGESFACING

SOUTH AFRICAN SMALL BUSINESS

AND INFORMAL RETAILER’S IN THE TOWNSHIP RETAILING

ENVIRONMENTbyMaphelo Malgas

Cape Peninsula University of Technology

-Retail Business Academic

Why this research?

“There are about 2.4 million people working in the informal sector.

If every 3 years each person were able to gain a new co-worker,

South Africa’s unemployment problem under the expanded

definition, could be solved in 10 years.”

Peter Attard Montalto, 2014

Agenda

Questions, Context & Literature

Methodology

Research Findings

Recommendations

Conclusion

• What is the South African small business retailers understanding of financial

management factors in small business retailing?

• How can the South African small business retailers improve their understanding of

financial management and control factors?

Research Questions?

02/08/2019

Context &

Literature

▪ The South African economy slumped sharply in the first three months of 2019,

contracting by 3,2% (Stats SA, 2019)

▪ The youth aged 15–24 years are the most vulnerable in the South African labour

market as the unemployment rate among this age group was 55,2% in the 1st quarter

of 2019 (Trading Economics).

▪ Projected GDP growth for 2019 is 0% - while inflation is expected to be 4.5% (Trading

Economics)

▪ Small business is a driver of job creation (Anthony Farr, 2010)

▪ Less dependency on the State leads to a stable political and investment climate

(Anthony Farr, 2010)

So what is our current economic situation in South Africa?

▪ The South African retail sector makes up 15.1% of GDP and contributes 23% to employment.

▪ Number of large malls in South Africa is estimated to have passed 2000 by now since there

were about 1959 shopping malls by 2017.

▪ The National Development Plan suggests that about 90% of jobs could come from small, micro

and medium enterprises (SMMEs) by 2030. Thus, about 70% of new jobs by 2030 will be created

by small retailers (W&R SETA)

▪ Small business development plays an important role in employment creation and poverty

alleviation.

▪ When large retailers enter the townships and rural areas, there is an erosion of the small

business market share.

South African Retail industry is growing

▪ The informal sector entrepreneurs in South Africa have limited ability to generate income due

to their low business skills and low capitalisation of start-up and this reduces small business

entrepreneurs to permanent survivalist business owners (Rolfe, Woodward, Ligthelm &

Guimarães, 2010).

▪ Even though entrepreneurs struggle with external factors in their entrepreneurial endeavours,

such as competition and rising costs of doing business in the small business micro-enterprise

sector, they need to take ownership of their own development (Fatoki, 2014).

▪ Entrepreneurs, even though they need training, but they must also be prepared invest their

own financial and human resources in the business they intend to start (Frid, Wyman and

Gartner, 2015).

▪ Ayandibu and Houghton, (2017) noted that South African small business owners also face

challenges that affect their growth and survival just like their counterparts in other African

developing countries.

▪ The South African market also face a unique challenge in that it has a large number of

Literature Review

02/08/2019

Research

Methodology

The sample consisted of:

Local Traders

55 Migrant trader

• 45 Delft

• 10 Eindhoven

Research Instruments

▪ Questionnaire

▪ Observations

Desktop Literature Review

• Local SA Traders

Sample profile of Respondants

02/08/2019

Research Findings

Table 4.1 Depicting How Local Trader Funded Their Start-up Business

Frequency Percent Valid Percent

Cumulative

Percent

Bank Loan 4 7.3 7.3 7.3

Other – Family &

Rentals

6 10.9 10.9 18.2

Own Funds 45 81.8 81.8 100.0

Total 55 100.0 100.0

Table 4.1 above indicates that 81.8% of South African small business retailers mostly use their own funds tostart a small retail business while very few (7.3%) use bank loans to start a business. Funding is viewed as astumbling block for start-ups in small businesses. Potential new entrants might be discouraged to start asmall business retail

Table 4.2 Depicting Whether Traders Rent or Own Their Business

Premises.

Table 4.2 above, indicates that the majority, 61.8%, of local South African small business retailers

own their stores. This means that they do not pay rental which is usually paid by those store owners

who rent their business premises. So the local traders have some form of advantage when it

comes to rental as the majority own their stores.

Frequency Percent Valid Percent Cumulative Percent

Neither 2 3.6 3.6 3.6

Own 34 61.8 61.8 65.5

Rent 19 34.5 34.5 100.0

Total 55 100.0 100.0

Table 4.3 Depicting the Bank used by the Local Trader.

Table 4.3 indicates that the majority, 36.3%, of local South African small business retailers do use

any form of banking for their businesses. This is a lost revenue for South African economy as

banking requires formalisation of the ownership of the small businesses. The table also shows that

among those small business retailers who use a bank, the majority at 27.3%, prefer to use Capitec

bank. In South Africa Capitec is a bank that has the lower income earners as its target market with

very low banking fees.

Frequency Percent Valid Percent Cumulative Percent

ABSA 5 9.1 9.1 9.1

CAPITEC 15 27.3 27.3 36.4

FNB 3 5.5 5.5 41.9

NEDBANK 7 12.7 12.7 54.6

NOT BANK 20 36.3 36.3 90.9

IMB / POST

OFFICE

1 1.8 1.8 92.7

STANDARD

BANK

4 7.3 7.3 100.0

Total 55 100.0 100.0

Table 4.4 Depicting the Local Trader’s Business Monthly Turnover.

Table 4.4 above, indicates that the majority, 96.4%, of local South African small business retailers

have a monthly turnover of less than R20 000. This means that even if these small businesses were

to be formalised, they will be exempted from paying any taxes as they are below the South

African tax threshold for small businesses. Monthly turnovers are used in South Africa to classify

businesses and this study reveals that township traders fall under the small business category.

Frequency Percent Valid Percent

Cumulative

Percent

Less than R20

000

53 96.4 96.4 96.4

R20 000 - R30

000

1 1.8 1.8 98.2

R40 000 - R60

000

1 1.8 1.8 100.0

Total 55 100.0 100.0

Table 4.5 Depicting the Number of Times the Local Trader does Budgets

for their Business.

Table 4.5 above indicates that the majority, 69.1%, of South African small business retailers do

budgets on a monthly basis. There are very few, 5.4%, small business retailers who do not do

budgeting at all for their small businesses. Budgeting should be the primary focus of managing the

finances of the business in order to also project growth target. Small businesses in retailing requires

a daily assessments of budget since they are likely to be doing daily and weekly orders.

Frequency Percent Valid Percent Cumulative Percent

Daily 4 7.3 7.3 7.3

Weekly 1 1.8 1.8 9.1

Monthly 38 69.1 69.1 78.2

Quarterly 3 5.5 5.5 83.7

Annually 6 10.9 10.9 94.6

Don’t Budget 3 5.4 5.4 100.0

Total 55 100.0 100.0

Table 4.6 Depicting if the Local Trader has a Financial Advisor in their

Business.

Table 4.6 indicates that the majority, 89.1%, of small business retailers do not have a financial

mentor or advisor to advise them on their business and finances. Business financing requires special

skill and formal business have highly qualified accountants to help manage the finances of the

business. However small business cannot afford to pay for outsourced financial management.

Frequency Percent Valid Percent Cumulative Percent

No 49 89.1 89.1 89.1

Yes 6 10.9 10.9 100.0

Total 55 100.0 100.0

Table 4.7 Depicting if the Local Trader has ever Received Business or

Retail Finance Training.

Table 4.7 indicates that the majority, 92.7%, of local South African small business retailers have

never been trained on financial management for business. This is an area that would require

urgent attention for traders because when business owners have not been trained on financial

management then they make use of an external financial management consultant, which small

business retailers cannot afford.

Frequency Percent Valid Percent Cumulative Percent

No 51 92.7 92.7 92.7

Yes 4 7.3 7.3 100.0

Total 55 100.0 100.0

Table 4.8 Depicting Is Local Trader Offers Credit Sales To Their Customers.

Table 4.8 indicates that the majority, 69.1%, of local South African small business retailers do not

offer any form of credit to their consumers. Credit can either help the traders to sell more to their

consumers but it can also destroy the business when the credit is not paid by the consumer.

Therefore, if credit is provided by small businesses it needs to be managed very carefully.

Frequency Percent Valid Percent Cumulative Percent

No 38 69.1 69.1 69.1

Yes 17 30.9 30.9 100.0

Total 55 100.0 100.0

02/08/2019

CONCLUSION

Conclusion• The study has found these small business retailers are lacking in

their understating of financial management control measures

used by small businesses.

• The major problem facing local traders is their retail financial

illiteracy which manifests itself in their lack of understanding on

the impact of financial decisions in their businesses.

• Retail financial literacy is the biggest part of running a small

business in the retailing sector and local traders need a

thorough training on it.

02/08/2019

Recommendations

How can the South African traders improve their understanding of

financial management and control?

Recommendations

• It is also recommended that the South African

government, through its wholesale and retail training

sector agency (W&R Seta) establish a targeted retail

finance training and development programme to train

local retailers on among other things budgeting skills,

cash flow management, stock management and

rotation.

Recommendation for SA Traders to Improve

Co-Curricula training

Incubation

Funding

Entrepreneurial Culture

Government Intervention

W & R SETATraining and

Incubation

Legislation

Enforcement

Small

Enterprise

Finance

Agency

Access to

Finance

Access to

Finance

Information

Sharing

Government

Funding

Formation of

Strong Business

Networks for Small

Business Retailers

Competitive Pricing Structure

and Long Term sustainability

of South African Small

Business Retail

Progress

Reports

Progress

ReportsResource

Management

Progress

Reports

Necessary

Resources

Progress

Reports

Progress

Reports

Training - 9

months

Application

for

incubation

- 3 months

Incubation

Independent

Application for funding

Business Case for SA Traders to Improve

THANK YOU