Summit TV speaks to Frencel Gillion from the National Empowerment Fund (NEF) about the online tools they’re offering to help small business entrepreneurs with their planning and financial control

Semeyi Zake: Welcome to business IQ. The National Empowerment Fund recently launched an online business planner - that’s a tool for small businesses to plan and for financial projection purposes. This is meant to help a sector under immense pressure in South Africa with the crunch. How can small businesses benefit, and what advice can the NEF offer? Frencel, from the NEF’s perspective how much pressure are small businesses under here in South Africa?

Frencel Gillion: Maybe just to take a step back the National Empowerment Fund is a development finance institution so our focus is to provide financial and non-financial support to SMEs and to BEE transactions at the medium sized level as well. From what we’ve seen in terms of our own portfolio SMEs are under a lot of pressure - we’ve seen a number of indicators that I can take you through later on. From our perspective there is a lot of pressure on SMEs and the NEF has actually come up with programmes to basically address our own portfolio and to be of assistance to SMEs out in the market.

Semeyi Zake: You’ve talked about some of the indicators that are showing the pressure they are facing - can you talk us through some of those?

Frencel Gillion: Looking at our own portfolio - obviously you can look at macroeconomic stats as well - but looking at our own portfolio what we’ve seen is that there’s a couple of indicators and one is around demand. In many sectors demand has fallen off - as the economic contraction occurred demand has fallen off. If you look at some of the sectors - for example the transport sector - you will find that many companies have cut back so where an SME may have done transport services for example for mining companies they’ve cut back because commodity prices have come down and they’ve had less to sell themselves and therefore the mine has come down. The other aspect is also about cost - many of the SMEs are faced with additional costs and inflation has had an impact on their cost base. If you look at for example fuel costs and the cost of servicing debt those are some of the issues. Of course that has an impact on the cash flows of the business - how the business can actually generate cash flows and pay creditors and lenders. Those are some of the key practical issues that we have seen in our own portfolio.

Semeyi Zake: What are some of the specific sector challenges that are coming through as well?

Frencel Gillion: If you look at the franchise sector what we’ve is as disposable incomes have come down - if you look at the SA Reserve Bank statistics and so on - you’ve seen that many households have had more debt and less disposable income and so on so if you look at for example the franchise sector you will find that people have got less money in their pockets therefore there is less for them to spend on eating out so in the franchise sector you’ve also seen food franchises coming under a lot of pressure. We’ve seen many SMEs having to actually close down their businesses because of the reduction in the demand for their services.

Semeyi Zake: I want to get to this business planner that you have introduced. What are some of the reasons why you saw a need to introduce this tool?

Frencel Gillion: Our mandate is to promote sustainable black economic empowerment. For us it’s important to provide funding - but non-financial support is also important. We believe that business planning is very fundamental so both in terms of accessing funding from a funder but also once you have that funding planning your business strategically I think is very important. The business planner serves in our mind two purposes - one is for the SMEs to access funding that’s been identified as a key challenge for them, also once they have the funding to be able to plan for your business going forward three years out and so on so that you can manage your business strategically as well.

Semeyi Zake: Is that something the SME sector here in South Africa is weak at - in terms of financial planning and the like?

Frencel Gillion: I would definitely say so. I think we can speak about macroeconomic issues - but at a practical level what we find in our portfolios is many of the companies do not have the necessary financial management and planning systems in place. They don’t necessarily have management accounts and they make decisions on inadequate information. They may want to expand their businesses and so forth - but don’t really have the real time information to do so. So I would say the whole financial planning systems aspect particularly in SME environment is fundamental.

Semeyi Zake: Given the current economic environment that we are in and the challenges the sector is facing what would your advice be to small businesses to weather out the storm and prepare themselves for opportunities for growth?

Frencel Gillion: Planning is obviously key to them but I think also working capital management - in other words collecting your debtors, and particularly the relationship with creditors. Also, keeping in contact with the lenders - speaking to them as opposed to not meeting their requirements