Five Challenges SMEs Face in Africa and How to Solve Them
Running a business in Africa and growing it isn’t always a smooth ride. You will face several challenges that will test your zest, determination, and patience. With statistics indicating that there are over 17.4 million SMEs in Nigeria alone, standing out from the completion is one of the top SME challenges you will have to face as a business owner.
SMEs in Africa are therefore consistently tasked with looking for innovative ways to distinguish themselves from their counterparts. Failure to do so puts these businesses at the risk of lagging. We have put together the top five challenges SMEs face in Africa and how you can solve them.
Top Challenges African SMEs face and Their Solutions
Below are the top five SME challenges you are likely to face as a business owner and how you can solve them:
1. Accessing Funds
One of the common challenges of SMEs in Africa is accessing funds to enhance productivity to help achieve overall business goals. Due to the volatility of small and medium-sized businesses, most banks in Africa are unwilling to approve loans for SMEs. As a result, most business owners are forced to fund their businesses themselves or lookout to external sources such as angel investors, partnerships, or friends and families.
According to Xero’s report in 2016, 63% of South Africa’s entrepreneurs had to use their savings to run their businesses. The report further stated that only 20% could secure loans from partners, families, and friends or access funds from angel investors.
Solution
To escape the challenge of accessing funds to either scale your business or startup capital, you must be willing to explore other funding options such as bootstrapping. This funding option helps you retain control of your business while keeping you from being distracted by sending reports to investors or financial institutions.
2. Attracting New Customers
As if keeping existing customers is not enough hurdle for SMEs in Africa, business owners are also tasked with finding new ones. One of the factors that make the latter more challenging is that they often have to compete for new customers with the big players also. The downside of this struggle is that top businesses are often armed with historical successes and strong brands. Hence, tipping the competition scale towards the top shots more than small businesses.
Solution
Focusing on smart branding is one of the fastest ways to attract new customers, enhance business value, and attain greater business recognition. Another way to tackle this is by taking advantage of digital marketing as it helps to even the competitive scale between top businesses and SMEs.
3. Maintaining Profitability
Maintaining profitability is one of the top SME challenges you will most likely face as a business owner. If this isn’t your struggle yet, you are most likely to experience this at some point in your entrepreneurial journey. Maintaining profitability is a challenge that all businesses, irrespective of the industry, have to go through at some point.
Solution
There are three things you can do to maintain profitability in your business and they are;
· Increasing turnover
· Reducing costs
· Enhancing efficiency and productivity
SMEs have to research new investors, production processes, and suppliers constantly. The reason for this is that your suppliers, production processes, and investors may no longer be the best solution for your business, even if they were a couple of years ago. For example, in your research, you may come across a new supplier that is cheaper and more efficient than your former supplier.
One of the ways you can reduce costs is by working remotely. This is an effective way to downsize and enhance employee efficiency.
4. Avoiding Burn out
One of the SME challenges entrepreneurs tend to face is having to do all the work themselves. At this stage in your business, you probably are the one that understands your business goals and core values the most. You are most likely going to be the one with the most passion for your business. Hence, the reason why you feel that no one can do most work better and quicker than yourself. However, the downside to this mentality is that doing all the work will cost you your relationships and health. In some cases, it might even cost you some cash.
Solution
Doing all the work yourself will cause you to burn out physically and mentally, which will negatively impact your business. To avoid this, you have to train your team and learn to delegate responsibilities. In some cases, you may even have to go as far as hiring some help or networking with other businesses. Delegation will give you the time you need to focus on more important tasks.
5. Delayed Payments
Delayed payments are one of the challenges that most SMEs in Africa face. The bad aspect of chasing delayed payment is that it reduces productivity, hence, negatively impact the cash flow of your business. According to research conducted by Xero, South Africa’s SMEs spend an average of 10.4 hours each month chasing delayed payments. Apart from negatively affecting small businesses, delayed payments can sometimes affect their suppliers which may eventually strain their relationships.
Solution
The best way to tackle this problem is to use an efficient, cloud-based invoicing software that will allow you to send invoices to your customers from any device. These invoicing software often come with a “pay now” button, hence, automating the invoice chasing process. Making this invoicing software a vital part of your payment process will ensure that you receive payments before dispensing the products or services ordered by the customer. Hence, eliminating delayed payment.
Conclusion
Since challenges are part of the process, all SMEs in Africa will experience them on their paths to success, finding the most efficient way to scale through them can be a lifesaver among entrepreneurs. This is why we have put above a list of the top five challenges SMEs face in Africa and how you can solve them.
