Small and Medium Enterprises (SMEs) are an essential part of any growing economy. According to research, SMEs make up 95% of firms in most countries. These small and medium enterprises create lots of jobs, innovate, and come up with new ideas while also contributing to GDP. In Africa, especially Kenya, SMEs have been instrumental in creating employment for the middle class. While they are vital for creating local products and services, SMEs face a lot of challenges.
Below are the 5 main challenges faced by SMEs:
1. Lack of funding and limited access to credit
Many small and medium enterprises find it very hard to get financing or even get access to credit. This is because most traditional funding models ask for collateral before giving out a loan, which is something that many small businesses cannot provide. Most of them end up borrowing capital from friends, family, and well-wishers. However, this is usually not a very sustainable model that contributes to most SMEs shutting down within three years. In recent years, HEVA Fund has stepped into this void and helped many creative SMEs to avoid this huddle.
2. Cash flow management
Due to having a small base, many SMEs have a huge problem with managing their finances. Most of the time, no one is available to keep track of the expenses versus income. Without this data, SMEs are more likely to be unable to sustain their growth and shut down after a few years. This may also affect tax remissions which may lead to expensive tax fines or paying the government more than necessary.
3. Inadequate knowledge and skills
When starting out, many SMEs hire just about anyone to get the work started to justify they received. However, most of these people have little to no skills for the job involved. Research shows that the majority of SME employees are not adequately educated for the role that they play within the business. This leads to very poor management of resources which is not a sustainable model for any SME. In addition, there’s little room for training on the job which leads to a high turnover in management and staff.
4. Technology changes
Many SMEs as a whole heavily rely on technology to get work done; from machines that track expenditure to those that create new products. Technology is a huge part of SME growth. Unfortunately, much of the technology used is quite expensive so many small and medium businesses go for the cheapest option available. Due to the rapid technological advances happening almost daily, it gets very hard for SMEs to keep up due to the high costs of installation.
5. New laws and regulations
In recent years, SMEs in Kenya have enjoyed government support as part of the Vision 2030 initiative. While this has helped a great deal, it is also not enough as new rules and regulations keep coming up. For example, the process of starting a small and medium enterprise in Kenya is quite long and expensive to a business owner just starting out.