The Key Triggers for the Transitioning of Informal SMMEs to Formal SMMEs: A Baseline Survey of the Gauteng Province—South Africa

Abstract

This paper presents the views of 623 informal and formal small, medium, and micro enterprises (SMMEs) operating in the Gauteng Province of South Africa. The objective of the study was to identify challenges and benefits that are experienced by SMMEs during and after the registration process leading to the transition from informal to formal business, the level of awareness by the SMMEs of the registration information, and the procedures in addition to the potential factors that inspire or discourage informal and prospective business registration. The reason for including both informal and formal SMMEs in the survey was to compare the perceptions of these groups of businesses regarding the triggers and/or barriers to register as a formal business. The results show that for both informal and formal businesses, the liability of paying taxes was a major challenge while improved workers' health and safety accrued as a major benefit. Own research emerged as the main source of access to business registration information and procedure. The costs involved in registration were highlighted as one of the major factors discouraging registration but the prospects of expanding the customer base and the ability to achieve a higher turnover as some of the main inspiring factors. The study recommends the development of policies that provide an enabling environment for sustainable enterprises but also to implement measures that improve productivity through access to finance, skills, infrastructure, markets, and technology transfers.

Contributing Elements and Issues to Strategic Management in the Construction Industry Among Small and Medium Enterprises: A Case Study in South Africa's eThekwini Region

“…In the construction sector, medium, small and micro enterprises consist of a total number between 5 to 200 fulltime equivalents of a paid employee, a total turnover between R200 thousand to R26 million and a total gross asset to the value of R100 thousand ($5,835) to R5 million ($291,703) (fixed property excluded). Many of these small and medium enterprises (Kibuuka and Tustin 2019) face a threat of failure within the first few months, and the lack of strategic planning may prevent them from achieving their full potential (Lestari et al 2020). When starting a business, success or failure is always possible (Anamalay 2014).…”

“…SMEs have the capacity to reduce unemployment and poverty in the country through job creation and innovations (Kibuuka and Tustin 2019;Nuseeb et al 2021). Small businesses tend to seize opportunities in the market and provide the necessary products and services to satisfy demand (Williams Jr et al, 2018).…”

“…SMEs that adopt a strategic objective tend to be more focused on growth within the business; it provides a formalised company structure. For example, an informal small business may want to formally register and create a business plan to attract investments (Kibuuka and Tustin 2019).…”

Support from the government for SMEs in South Africa

“…SMEs cannot afford the services of external accountants due to a lack of business funding and sustainability, which results in poor financial records (Kibuuka & Tustin, 2019). Previous studies have shown that SMEs, particularly in South Africa, struggle to meet their primary financial goals (Bruwer, Beck, Smith, Naidoo, & Green, 2019;Fatoki, 2014;Ngary, Smit, Juan-Pierré & Ukpere, 2014).…”

The use of e-government services by small businesses in municipalities

“…For example, a study on the financial problems that SMMEs encounter highlights how enterprises of varying sizes and forms all struggled to gain either public or private sector funding [17]. Other challenges, faced by Gauteng-based SMMEs, "included poor municipal service delivery, high compliance costs, registration and licensing complexities and high operational costs" [18].…”