Small businesses need system change

02 Apr, 2021 - 00:04 0 Views
Small businesses need system change

eBusiness Weekly

Small businesses, especially new small businesses, face a myriad of problems from financing and marketing through finding the foreign currency they might need to growing.

Yet such businesses are the drivers of many economies and should be the bedrock that the foundations of any modern and growing economy are laid on.

The first problem is that to be successful a new small business has to be the right business in the right place at the right time, a lot of hurdles to cross. And this is difficult. The established businesses, if they are any good, have a degree of lock on customers and markets, being trusted and a known quantity.

Then there is the rise of the major chains, a problem across the world. In most town centres, even in the smaller towns, and in suburban shopping you will find at least one of the major supermarkets, probably an outlet for the major take-away company, these days the growing chains of hardware stores and do-it-yourself shops. This makes it hard for the little business to survive and harder still for a new one to get a foothold.

Even when you have some special products or special services to offer, there is the marketing problem, getting potential customers to know you physically exist. Advertising is both expensive for the little business and these days requires use of a range of media: newspapers, online, radio and television. In many cases small businesses have to rely on being on a street or a market where a lot of people walk past or visit to start building that customer base.

Financing can be a serious problem. A new small business will chew up the savings of the proud owner, and often that will not be enough. Banks want collateral. Foreign currency, especially if you are productive, is hard to find. Even the minimum on the SME auction is far more than a small business needs, hence the use of black markets and costing using those black-market rates, which makes the business less competitive against big firms that can hit the auctions.

But something can be done.

On the financing side this came up at the first meeting of the new Monetary Policy Committee of the Reserve Bank of Zimbabwe. The committee tried to think round ways of allowing small business people with almost zero collateral to borrow and how to allow them access to legal sources of foreign currency.

On the borrowing side the best solution was term loans. These work in the same way as those bank loans that salaried people can access, where the sum borrowed is chopped back each month as the paychecks arrive.

In the case of a small business this would require the business to be viable and to have cash flows that can support monthly repayments. But the system is used in other countries. The business would obviously have to have perfect records, tax clearances and the like to even get an application on someone’s desk.

But if those exist then capital expenditure could be financed this way, buying the machinery and tools a plumber needs, buying the scales and saws a butcher must have for example. So the RBZ needs to pursue this recommendation of its policy committee, It sill not solve all finance problems, but would open a new avenue.

The committee also realised that what it refers to as “micro” businesses are too small to use the SME auction, and that many businesses graded as SMEs have currency demands that are too small to make the auctions a practical source.

Initial thoughts were to encourage bureaux de change to sell the required currency. This would work well if there was no black market, and everybody with a few foreign banknotes used the bureaux. Unfortunately the bureaux have to compete against the black market, and while they can offer a bit more than the auction rate, they are still going to be ignored by many who prefer the street dealers, even if they have to use several street dealers to cope with what they have to sell after the Reserve Bank and Government cut illegal liquidity in the black market.

But at least the RBZ recognises the gap exists and is starting to think how it can be filled legally. There might well have to be several solutions to filling that gap, rather than a single source.

Marketing is a major problem. In the days when all phones were fixed lines the telephone directory would at least list the business and the yellow pages allowed some classified listing for modest charges. Someone wanting a plumber, for example, would flip to the yellow pages, find the list of plumbers and choose the nearest.

No such lists now exist, at least no such lists with universal access. This is where innovative small businesses have tried to take up the load, but they suffer the same problem that people do not know they exist and, in any case, to be successful such lists have to include a critical mass of businesses so they are used.

This is where business associations could do a great deal more for their members. Simply listing their members under classified headings would be a start. Small additional fees would cover the extra costs.

The growing numbers of markets, industrial parks and malls could do a lot more for tenants. Telling people they exist would be a start, and having a chart showing the businesses near the entrances would at least tell passers-by what is available. Such groups could also combine to produce the leaflets and other advertising material that could be distributed to potential customers.

In the end small businesses, even if they are financed and have marketing, have to deliver. To compete against the big businesses and the established businesses they have to offer something extra. For a start quality, pricing and personal service seem to be the requirements.

Some small businesses are second rate, and so will never be viable. Some overprice, or even insist on pricing the same as the big businesses, who we must remember can foreign currency cheaper on the auctions. And some seem to think that putting in a cashier removes the need for the owner to be physically present.

When someone deals with a small business they want to talk to the boss, and they want the boss to know exactly what can be done or made. This is the one major weakness of large businesses, since they have to rely on hired staff who might not be willing to give their all.

Mind you that personal service is useful in large businesses. When Barbours was the top department store old H. M. Barbour himself left his desk and his business dealings and would help out at one of his counters for a couple of hours. As he said, when recognised, how else was he to know his customers and what they wanted, and how else was to show his staff how he wanted them to work.

But for a small business this customer service is absolutely vital. Customers need advice as well as products.

We have seen several small industrial companies in the last few years moving into making local branded goods to replace imports.

They rely on the auctions for raw materials, they pay a lot less duty for raw material than those importing finished products pay. Some tried, at first, to price in the same range as imports, and found that did not work.

When they price according to costs they suddenly started grabbing markets, and if they had the quality, the other critical factor, they started selling to repeat customers. That quality requirement cannot be overemphasised. Import substitution is a great catchphrase, but it cannot be built on producing a substandard product and relying on pricing,

The days when a local producer could make any old rubbish and then get the Government to ban competing imports are long gone. The meltdowns we experienced eliminated those who thought that monopolies could last forever.

These days the local product has to be at least as good.

But that said a walk around any supermarket, a walk through the hundreds of little shops in Harare city centre, will show where imports still dominate, either because of price or because of quality or because of availability.

Moving into production can solve availability, but the questions of price and quality must be answered well to turn that availability into sales. And to complete the chain, sales mean that financing becomes possible, because the business is viable.

Share This:

Sponsored Links

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds