Why startups in South Africa fail

The current state of South Africa’s economy, combined with the debilitating effects of Covid-19 and the subsequent lockdown, have been the cause of many small businesses’ closure. Research shows that more than 80% of new businesses in South Africa fail, very few making it beyond their first year of existence, with around 50% surviving beyond year three. In a country where the solution to unemployment lies within the SME sector, this is a serious concern. In this article, we unpack the most common reasons for failure of new businesses.
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  1. Lack of awareness of the extent of disciplines required to successfully build a business, including regulatory requirements and lack of marketing knowledge. Business owners try to DIY, rather than outsourcing to similar small businesses to ensure the survival of the collective.
  2. Onerous compliance requirements for small businesses, who are not aware thereof and subsequently find themselves in a position of owing monies to SARS for income tax or VAT. These debts to SARS incur interest and penalties sufficient to send an ailing small business into liquidation before they have even survived their first three years. 
  3. Failing to separate personal cash requirements from business cash needs, living out of the proverbial “cookie tin”.
  4. Limited accounting skills, resulting in poor record-keeping, failing to keep detailed employment records, etc.
  5. Difficulty in accessing seed finding or bridging finance, due to poor administration protocols, lack of up-to-date financial records or poor management skills overall.

Without current financial statements, it is impossible to secure commercial funding. Poor financial management further translates into tax clearance issues and failure to secure BEE status – both of which serve to further distress the business.

The MMS Cloud Accounting team understands the challenges of building a business – we are entrepreneurs ourselves. This is why we have designed a solution to support our clients, essentially serving as the back office of your business, while you focus on growing it.

We offer three monthly accounting packages, all of which offer you as the small business owner access to a dedicated professional to ensure your business does not fall into the same traps as more than 50% of other South African small businesses. For a fresh approach to cloud accounting, reach out to our team.