Dr Nkosi Kumalo, managing executive of sales at BCX.

Dr Nkosi Kumalo, managing executive of sales at BCX.

A whopping 91% of formal entities in SA are SMEs, employing 61% of the country's total workforce and contributing up to 57% of SA's GDP.

So why do 63% of SMEs fail within the first year?

This was the question posed by Dr Nkosi Kumalo, managing executive of sales at BCX, during his keynote address at ITWeb Cloud Summit 2019.

To find the answers, Kumalo conducted research, surveying 265 mature SMEs that use technology in the course of their business. These SMEs were past the survival stage and employed between 50 and 200 employees.

"I needed to understand why they made it, and what set them apart from those that failed."

He discovered there is a low cloud computing adoption rate within SMEs, despite the fact that it could meet their key technology challenges and provide IT resources that are scalable and cost-effective, on a pay-per-use basis and independent of location.

When examining the inhibitors to growth, he found six reasons SMEs fail: regulatory burden, skills shortage, labour legislation issues, pressure to innovate, funding and crime.

It emerged in Kumalo's research that 43% SMEs said VAT hinders growth, and 47% cite income tax as a challenge in terms of being compliant, submitting all the right documentation and getting it all in order.

There are cloud solutions to assist with this, such as SAP Business by Design and Sage Accounting Payroll, he noted.

Kumalo said it's onerous for SMEs to follow all the amendments surrounding the Basic Conditions of Employment Act, Employment Equity Act and Skills Development Act. "For businesses to understand all of these, even the BEE codes, they would need to spend a lot of time."

However, there are software-as-a-service solutions available to assist, such as legal registers, SHEQ (safety, health, environment and quality) compliance software, as well as incident management solutions.

Over 70% of SMEs said they battle to hire adequately skilled employees due to the skills shortage in the country.

But according to Kumalo, a lack of IT skills within SMEs should not be a problem when there is a ‘cloud first' approach. Software-as-a-service solutions such as workflow management, project management, service-level agreement management and online training can alleviate this challenge.

He said cloud solutions such as Web hosting and workflow management can help SMEs experiment before they go to market.

"You can try a cloud solution for six months, and walk away if it doesn't work. It gives SMEs the platform to experiment."

The survey also revealed 53% of SMEs had not applied for bank finance due to fear of rejection. "Again, technology is there to help them mitigate the fears they may have. There are software-as-a-service solutions for tax compliance, accounting and online payroll. Being able to do your own assessment will give you confidence in your ability to secure funding."

Finally, 25% of SMEs said they have experienced theft, fraud or cyber crime. "Software-as-a-service can help here too, with cloud inventory management, as well as integrated security solutions."