The path of growth for small businesses

Business growth is not rocket science, but fundamentals like book-keeping ought to work. FILE PHOTO | NMG 

By ALEX LITU
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Summary

• Some players ignore steps like mentorship at own peril.

Over the past two years or so, there has been a step-up in the focus on interventions targeting the informal economy, with a lot of rhetoric on solutions to challenges facing this sector.

It is no secret that Micro Small and Medium sized Enterprises (MSMEs) are important drivers of
growth across Sub Saharan Africa, as they account for up to 90 percent of all businesses in these markets.

Figures from the Kenya National Bureau of Statistics have put MSMEs output at an estimated 33.8 percent GDP contribution in 2015.

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In terms of employment, 83 percent of employed Kenyans sat in the informal sector (which constitutes mainly of SMEs) in 2017.

Further, the informal sector was responsible for creating 89 percent of new jobs in 2016.

The figures point to the glaring fact that if there is going to be any meaningful approach in as far as societal economic empowerment is concerned, the informal sector has to be at the core of any such agenda.

There are certain internal business practices in informal businesses that dampen their attractiveness to prospective investors.

Skills and technology

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These include sub-par accounting practices, lack of access to appropriate skills and technology, inadequate self-marketing, as well as the lack of guidance and mentorship.

These internal factors often prevent small businesses from accessing capital and an ecosystem of support that would allow them to thrive and scale.

As various interventions are fronted, there are some that cut across most, if not all sub-sectors.

These include capacity building aimed at improving internal operations of these businesses such as basic book-keeping.

This aspect has been a major stumbling block when it comes to assessing the creditworthiness of small businesses.

Beyond using collateral as a parameter to gauge the risk level of a business, internal business transaction records provide potential lending institutions with a historical financial narrative of the health of a business in a way that enables them to assess lending.

Addressing the lack of access to appropriate skill and technology is another key intervention that would benefit informal businesses.

Access to markets

This aspect is a big cause of standardisation for the goods that they produce, which robs them of access to certain markets such as supermarkets and potential clientele across our national borders.

Also, better technology will facilitate the production of higher quality goods on a larger scale.

When it comes to self-marketing, most rely on word-of-mouth and are yet to adequately embrace digital platforms such as social media.

Last is the issue of business management guidance and mentorship.

On the path towards sustainable and long-term growth, this aspect is crucial in setting strategic goals for a business and, thus, offering clarity on the direction a business is taking.

It enables a business to identify what challenges should be addressed immediately.

Through mentorship, small businesses can scale the ladder to success faster by being in a better position to navigate pitfalls along the way.