NONTLE NDLOVU | Compliance failures stall growth for SMMEs

As a female professional who interfaces with small businesses on a daily basis, I know all too well the challenges facing this sector — particularly access to funding — with women-owned and -run businesses bearing the brunt.

Seventy years after the heroic march by 20,000 determined women to the Union Buildings demanding that the apartheid regime hear and see them, the struggle has entered a new terrain: economic emancipation.

But this cannot happen when skilled people like me don’t lend a hand to empower small businesses to get a head start.

For me, the first thing is setting up structures to enable the business’s future success.

To this end, building a compliant business is non-negotiable. In my professional career, which spans two decades in finance, compliance and organisational development, I have seen too many brilliant business ideas perish because compliance became an afterthought rather than a key business risk that must be mitigated against.

This is not only tragic but also unforgivable if you consider that South Africa is not short of competent professionals with years of experience in helping businesses build compliance-proof entities well positioned to grab growth opportunities in the market.

A significant proportion of SMMEs operate informally or are partially compliant due to limited resources, lack of awareness, administrative barriers or inadequate access to professional support.

For a country with the world’s highest youth unemployment rate, the lack of compliance and knowledge of the regulatory framework hinders the growth of a key sector, which is critical to South Africa’s economic development, job creation and poverty alleviation.

In township and rural economies, small enterprises are often the backbone of local livelihoods.

Noncompliance — whether with tax, labour, the Companies and Intellectual Property Commission (CIPC), the Compensation for Occupational Injuries and Diseases Act, financial reporting or regulation — has far-reaching consequences that undermine business sustainability, restrict growth and weaken the broader economic ecosystem.

The economic consequences of noncompliance are as real as they are serious. Noncompliance with the above-mentioned laws can lead to small businesses being unable to access funding.

Some of the funding that noncompliant businesses can be closed out of includes:

• Bank loans;
• Government grants;
• Development finance (Small Enterprise Finance Agency, Small Enterprise Development Agency, National Youth Development Agency); and
• Corporate supplier development funding.

Financial institutions require tax clearance certificates, CIPC compliance and valid financial records. Without these, township and rural SMMEs remain excluded from formal financial systems, limiting their ability to expand, modernise or stabilise operations.

The consequences don’t start and end with lack of access to funding. The not-so-small matter of taxes also comes to the fore — opening the door to South African Revenue Service (Sars) administrative penalties, accrued interest on outstanding taxes, debt recovery actions and garnishing of business bank accounts.

These financial burdens can rapidly escalate, pushing small businesses into insolvency.

When SMMEs fail due to noncompliance, local supply chains collapse, community income levels decline and informal trading increases without regulatory protection. All of this perpetuates poverty and economic stagnation — with women bearing the brunt of these consequences.

Compliance is not merely a regulatory requirement; it is a strategic enabler of business growth, financial stability, market access, community development and long-term sustainability.

While compliance might be seen as a burden, the opposite holds true. Compliant businesses signal reliability to customers, banks and major investors.

Hesitating to seek professional expertise to help your business comply with the country’s laws is not only negligent but akin to cutting off your nose to spite your face.

Delaying seeking help is like feeling sick and hoping the pain will go away on its own. Help is available. The stumbling block is realising the importance of having a compliant business and seeking the requisite professional services.

A mindset shift is needed in the South African SMME market to grow a large number of businesses into the next frontier of their growth. Being compliant is the key needed to unlock opportunities that remain plentiful in the market.

• Ndlovu is a finance and compliance professional associated with Tax Edge, a tax and compliance advisory firm