Business Funding in South Africa
Business funding in South Africa is one of the key components required for business owners to succeed. It might have been straight forward to get your business of the ground with your own cash or that raised form friends and family, but when your business is starting the grow, in most cases, the business will require additional business funding. Business funding in South Africa, often described as both a lubricant and a fuel, access to business funding will enable your business to move forward. Revenue will provide some of the funds required, but revenue does not mean cashflow, may be sporadic or seasonal and often may nit support aggressive growth plans. That’s when the assistance of outside business funding is especially useful.
Many of the entrepreneurs and CEO’s we meet sees lack of start-up or growth capital a key challenge for their business. Most entrepreneurs will agree that gaining timely access to business funding in South Africa plays a key role in succeeding with your business. In today’s business world, funding is a critical component that helps a start-up grow. In fact, there are a number of financial tasks that must be coordinated and managed by an organization.
However, when funds are properly allocated, arrangement and management of tasks can be accomplished successfully. Apart from start-up capital required, the level of which in itself will differ dependent on the type of business you are starting, the typical clients we speak to, require business funding in South Africa for some of the below reasons:
Business Funding for Expansion
In South Africa, business growth funding is normally required by those businesses which need funding to growth tie businesses but who do not want to relinquish control. Business growth funding is normally sought by those business owners or CEO’s who need funding to grow their businesses but do not want to relinquish control. This could be done for a number of reasons. The business might be looking at creating new products perhaps or entering feasible markets. This is often done during times of economic downturn where you might find other markets are growing faster in comparison with your current market. You might be interested in acquiring another business which might support the ownership of the organisation increasing market share, reducing competition. Your business might be looking at improving it’s IT systems or perhaps buying new equipment to improve production capacity.
Business funding for Inventory
Having sufficient inventory in stock could be another reason why the business requires additional business funding. In retail we often get a case where the manufacturer is providing certain products to a retailer but payment for the products are only received once the stock is actually sold. This might put you as the manufacturer of the product in a difficult financial situation because even though you might show that your sales are positive, there is not sufficient cash flow within the business at the moment to cover expenses, buy additional raw material, or pay salaries and other expenses. This might then lead two business owners seeking additional business funding to cover the period between products being shipped to retailers and payment finally received.
Transportation and logistics
We have certainly seen that since the covid-19 pandemic Set a reliability of transportation and logistics have become rather poor in different markets drivers may be ill they might be locked down in place all the increased demand for certain products within different parts of the country. Online sales have also increased dramatically as more consumers are shopping from home. This is also lead to the challenge for organisations requiring enough stock with which to serve its markets. Transportation service availability from the supply side of the business has also not always been reliable. If your business relies heavily on transportation either for goods or products received, or for the shipping of your products to retailers or end customers, it might have led to the requirement for additional business funding to acquire your own logistics capabilities. Some of our clients for instance acquire large volumes of products with a view to supply to their clients. In this case, having the necessary transportation infrastructure in place will allow the business owner not only to control the reliability of delivery but also in future perhaps to scale up the amount of products that it can make available to clients.
Machinery & equipment
Investment in machinery and equipment is certainly another area that we’ve seen a tremendous amount of interest in over the last few years. Investing in machinery for any manufacturing organisation of course not only provides the business with additional opportunities to scale its production but also to increase the speed of productivity.
The speed of productivity has certainly increased significantly even if we just consider the last five years. As new technologies come along machinery and equipment is required within the business to either leverage these new technologies or ensure that the business remains competitive.
We also need to consider the improvement of efficiency for manufacturing based businesses. Additional machinery within organisation that allows you to operate more efficiently and use your workers and time more efficiently. This not only helps a business to cut costs but also further to enhance production. The improvement of production efficiency has perhaps been one of the main drivers behind businesses seeking additional investment in equipment and machinery.
Furthermore we have seen companies identify new opportunities in other words perhaps new types of products that could be manufactured. For example, we might have seen company’s previously manufacturing or producing food, entering the beverage space. As this new category of product requires additional types of machinery and equipment, it’s no surprise that organisations often try to enhance their productivity and revenue by targeting gaps in the market.
Additionally we have seen that as new safety equipment has come along and where health and safety specifically has become increasingly important for organisations, that companies often invest heavily in safety-related equipment.
For whichever reason your organisation is looking to buy additional machinery and equipment the Caban team is here to help
Business infrastructure investment
Infrastructure investment by small medium sized businesses has been another area that we’ve seen a significant rise in the need for additional business funding. If you think about information technology and communication infrastructure, it’s difficult not to see how investing in your infrastructure will further enhance the productivity and effectiveness of your business. In some sectors we have also seen that customer demand has led to additional requirements for investment in IT infrastructure. The Radisson hotel group for example, recently did a survey amongst its clientele asking them what the main reasons might be that they might choose one hotel vs another. Interestingly, within the survey, more customers indicated that reliable access to WI-Fi in hotel rooms and restaurants was more important than having clean water in hotel rooms.
Research and product development
Lastly, research and development is another area where we see, dependent on sector, a significant increase in investment. This of course has a direct impact on the revenue of the business as research and development expenses will precede by number of years, the business actually being able to generate revenue from the research conducted.
If you consider global figures then you’ll see that in some sectors, such as computer and electronics for instance, spent about 22% of the overall expenses on research and development. This followed not too far behind by healthcare at 21%, software and internet types of companies at 15% and industrial type of organisations and around 10% of overall budgets.
It’s no surprise to see innovative countries like South Korea and Israel being a top of the global list of countries spending on research and development. In the financial technology space(FinTech) we’ve seen research and development spend increase significantly by 19% just over the last year and about 125% over the last 5 years. To further underline the importance of research and development spending we see companies like Amazon spend about $28 billion on research and development in 2018 while Apple spent about $14 billion on research and development. The top 5 technology companies worldwide spent about $76 billion and research development in 2018. These statistics underline the importance of research and development spending and access to the necessary business funding for this exercise, to small and medium sized businesses in South Africa.