Undertaken by Plum Consulting, the ‘Sweating the Small Stuff: The Impact of the Bureaucracy Burden’* research showed that an increase in productivity of 3.7% in South Africa could boost GDP by at least R7.3 billion per year. To put this into perspective, the time South African businesses lose to admin amounts to 1,616 hours, or 96,960 minutes, per year spent on the following tasks:
- Generating invoices
- Paying taxes
- Chasing payments
- Issuing payslips
- Other paperwork that adds little value to the business
Globally, the amount of days spent on administrative tasks is overwhelming, with only Small & Medium Businesses in the US (266 days) and Spain (210 days) spending more time on admin than South African companies. By contrast, businesses in the UK spend just 71 days a year and businesses in Ireland 72 days a year on admin.
Though survey respondents in South Africa and the US appear heavily burdened when considering the total number of days they spend on admin, the picture looks better when one considers the percentage of total man days they spend on administration each year. This is because the burden is spread over a greater number of employees, compared to countries like Spain that have a high proportion of micro-companies.
The accounting overhead
Complying with administrative and regulatory requirements has a significant impact, both in terms of manpower that must be devoted to the tasks and the actual cost to the bottom-line.
Of the administrative tasks analysed, the report found that time spent on accounting is most costly, amounting to over 20% of total administration time in South Africa:
- Generating invoices came in second at 17%;
- Processing invoices was third, consuming 13% of time spent on administration; and
- HR, payroll and chasing late payments each accounted for 10% of time.
While our research showed that South Africa compares favourably to many developed nations when it comes to the admin burden facing small businesses, there is still scope for improvement. Imagine how we could all benefit if all that time was given back to them to reinvest in innovation and growth.
The high price of admin
Admin costs an average of $39,000 (R 532 801) a year for local Small & Medium Businesses. And, South African businesses expect administration costs to rise by 15% over the year to come. Given the significant effort and cost that is required to meet administrative and regulatory requirements, this will have an impact on the profitability of SMEs.
Imagine if business builders could reduce this business admin; if they could spend that time on growing their businesses, on innovation and invention, on spending time with their customers. Some of the spin-offs could be higher survival rates for startups, more job creation, and a wider choice of services and products from thriving scale-up companies.
One particular challenge comes from late payments, with 16% of South African respondents reporting that they spend time chasing up overdue payments. Some 40% say a barrier in doing so is protecting client relationships, while 26% say they don’t have dedicated resources to chase late payments.
Global snapshot: Small & Medium Businesses’ contribution to global economy
Across the 11 countries analysed, Small & Medium Businesses account for at least 96% of total enterprise, so if lost time was given back to them, the impact on GDP would be appreciable.
The ‘admin problem’ is ultimately the same question as the other million-dollar question that economists around the world are struggling to crack: the so-called ‘productivity problem. In South Africa, Small & Medium Businesses appear to be significantly less efficient than larger firms, with over 70% of the workforce contributing less than 45% of GDP.
Alleviating the burden with technology
As businesses become more digitally savvy, the opportunity for technology to alleviate much of this admin drain is huge. But the data showed that this digital shift is happening slower than expected. Even in those countries with the highest take-up of digitalisation, South Africa and Spain, only around 25% of tasks are fully digitalised, and around 40% are not digitalised at all.
- 74% of South African Small & Medium Businesses said that they had dedicated software for accounting;
- 80% for payroll; and
- 46% said they had automated HR.
Technology is the key to unlocking billions of rands a year more in productivity and growth from our nation’s businesses. But to do that, they need our help. We’re committed to find ways to enable business builders to manage everything from money to people digitally, in real-time and in the cloud.
We call on other businesses to do more to help small businesses in this transition to digital. This could be through subsidisation of new technologies, simpler procurement through digital platforms, prompt payment of small suppliers or clearer guidance demonstrating how the use of such technology will improve their cashflow.
*‘Sweating the Small Stuff: The Impact of the Bureaucracy Burden‘, researched over 3,000 business builders worldwide. The markets surveyed include Australia, Brazil, Canada, France, Germany, Ireland, Singapore, South Africa, Spain, the UK and US.