Inadequate investment in financial tech and not investing in fintech fast enough are among the top most expensive mistakes small businesses made over the last 12 months.
Furthermore, a lack of financial knowledge cost South African small businesses an average of R91 311 per year, based on insights from Xero South Africa’s financial literacy survey.
Titled “Accelerating small business growth in SA”, the survey is based on responses from 400 South African small business owners/entrepreneurs.
Colin Timmis, country manager at Xero SA, a provider of a cloud-based software platform for SMEs, notes fintech is made up of all financial management technology, including accounting software, payroll software and spend management tools.
According to Timmis, 34% of respondents expressed that having to choose the right technology is an area of their business that makes them feel most vulnerable. This, he says, indicates many small company owners are not confident in knowing the right technology when it comes to managing their business.
“Fifty-four percent of small business owners said improving operations with technology was one of their key goals for 2022, while nearly six in 10 (57%) said they wish they were better at cash flow forecasting.
“It is encouraging to see that over three-quarters (77%) said they are optimistic about their business outlook for 2022.”
The survey indicates the other costly mistakes include being irresponsible with cash flow (41%), not knowing about or not using appropriate government support schemes (32%), as well as being too slow to adapt their business (29%).
Timmis says the cost implications of the lack of financial knowledge severely impacted cash flow.
“Financial literacy is the backbone of any small business. Having a clear view of cash flow and what money is coming in and out is the only way to make informed decisions. Small businesses simply can’t afford to make mistakes.”
While financial tech investment might be on the low side, small businesses are increasingly adopting cloud technology.
Cloud adoption has surged in recent years, from 13% of SMEs using it in 2017, to 61% in 2020, according to the report.
Even though the pandemic and subsequent lockdowns forced business owners to adopt more advanced technologies to enable their teams to work remotely, cloud adoption was on the rise prior to the pandemic, Timmis indicates.
This is mainly to do with the fact that small firms are increasingly seeing the benefits of cloud technology, including access to real-time business data, anywhere and at any time, as well as the flexibility it brings them.
“Technology like cloud accounting software is helping them better manage their finances, track cash flow and simplify processes like filing taxes. This is freeing them up to focus on growth − something that is essential for the future of our economy.”
While the role of technology and digital adoption is increasingly becoming more apparent within small business, affordability remains a concern.
Timmis says it’s essential to consider whether the price of new technology will pay for itself over time. “Task automation technology, for instance, will save time, reduce mistakes, streamline processes and cut costs in the longer term.
“Similarly, cloud technology often works out to be more cost-effective in the long run rather than running computing locally. The software-as-a-service model uses fixed monthly payments, rather than large sums up-front and is, therefore, easier to trial before investing.”
“We’ve already seen the transformational role digitisation can play during the pandemic. It’s been critical in helping firms get, sell and operate online, be ready for future disruption and work remotely. For many, it’s been a lifeline in helping them to adapt and survive.
"To keep pace, small businesses need to continue thinking about how new digital tools can support their objectives. The playing field has been levelling up for small businesses. Today, they have access to the best technology out there − things like digital payment tools and apps that forecast cash flow,” he concludes.
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