South African small businesses are feeling positive about the future, but need more support to tackle ongoing challenges, Xero’s 2024 State of Small Business Report reveals.
The top barriers facing small businesses this year are political and economic instability (55%), persistent loadshedding (50%), lack of government support (49%) and access to funding (26%). However, 87% of small businesses are optimistic about their 2024 outlook – a 6% increase from last year – and nearly three-quarters (73%) have grown over the past 12 months.
This optimism amongst small businesses is reflected in their plans for the future, with 56% planning to invest in new technology, 55% in upskilling their current staff, and half (51%) planning to invest in their employees’ wellbeing.
“Our research once again shows an industry driven by optimism, resilience, and ambition. But this doesn’t disguise the challenges facing our small business community. Many of them are crying out for more support – this year’s research shows a 50% increase in small firms calling government support insufficient. This is especially important as we approach the election. We need to work together to create a more connected support system for people to start and grow businesses,” says Colin Timmis, Country Manager, Xero South Africa.
Digitalisation on the rise
Technology is playing a key role in small business success, with 68% using cloud-based technology in their business – growing from 50% in 2021. And 37% report that adopting new technology has increased their business profits in the last year.
Adopting new tools is having a positive impact on their businesses. The top benefits are easier collaboration with their team (70%), better management of their finances (68%), and improved business operations (62%). However, there’s still untapped potential as small businesses cited cost (66%) , having a skills gap (65%), and not knowing how to get started (41%) as the main barriers to adoption.
When it comes to emerging technology, only 18% say they are using AI currently. The main areas they are using AI are for customer relations (39%), generating content (33%), and data analytics (38%).
“With over half (55%) planning to invest in new technology this year, it’s crucial that we offer support and advice to help small businesses choose the right tools for them. A part of this is closing the knowledge gap when it comes to emerging tech like AI, with our research suggesting that many don’t understand how it can fit into their business,” says Timmis.
Accountants and bookkeepers are a lifeline for small businesses
According to the report, 81% of small businesses placed their accountant or bookkeeper as their most trusted business advisor. The report indicates this relationship will continue to evolve, with 58% believing their accountant will act as more of a consultant in the future, compared to just 23% in 2023.
Cash flow challenges
Late payments and cash flow continue to be the primary financial challenges for small businesses. This year’s data revealed 24% experienced some degree of cash flow issues, and out of those, 72% have used personal funds to keep the business afloat. Despite these challenges, 92% have not applied for funding or loans in the past 12 months. Furthermore, 46% of respondents said they spend 1-2 months on average chasing late payments.
“South Africa has the potential to grow the small business economy through digitalisation, and accountants and bookkeepers will be key drivers of this. We continue to use this research to engage with small business groups, their accountants, banks, government, funders and other technology companies, to collaborate on creating a more connected environment for small businesses,” says Timmis.