Challenges and issues faced by the local SME sector

When you set up a business and join the ranks of the small to medium-sized enterprises (SMEs), you pride yourself on being a nippy speedboat compared to the oil tanker that a corporation feels like in comparison. However, what we often forget is all the administration to deal within your own company, that a corporate has dozens, if not hundreds of employees to do — and the economies of scale that you lose out on…

Funding your enterprise

A big corporation has a track record and years of financial statements. If they’re in need of financing, it’s a much easier sell to the banks. As an SME, financing your business idea is probably the biggest hurdle you will face.

Unless you or your family has funds to hand, you are going to have to turn elsewhere. Although the traditional funding route was to turn to a bank, that road can often lead to a dead end. According to our recent survey of SMEs, only 28 per cent of respondents — less than a third — had secured business financing and, of those that did, over half said the process was not easy.

Hurdles range from high interest rates to eligibility issues if you are a start-up (banks generally prefer to lend to companies that have been operational for a few years) and the vast amounts of paperwork needed to secure that loan — audited financial statements, visa copies and supplier contract copies.

Instead, you may have to think outside the box and approach angel investors, venture capitalists or even crowd-funding programmes. Don’t forget, it is you who will personally be doing everything, from business plans to cashflow statements and approaching the bank or investor.

The revolving door

In a big corporation, outside of an employee’s direct team most people won’t even notice when he/she decides to move on. Harsh but true. In an SME, every employee counts. So every staff member who comes and goes impacts the entire company’s morale. The advantage, however, is that if you build a solid team with a passion for growth, it can do wonders for your revenue numbers.

Visas and recruitment costs

There’s no getting around it — recruitment in the UAE is expensive. You have to sponsor each member of staff — costing around Dh8,000 each (including an Dh3,000 deposit) — whether you are a multinational or a start-up with two employees.

But as an SME, even if your new member of staff only works part of their probation and then quits, you instantly lose the Dh5,000 you have just spent processing their employment visa. For a big corporate, this is small change; for that start-up of two employees, it’s 50 per cent of their staffing admin budget for the year.

No economies of scale

While corporates have admin staff, legal, human resources, these functions are too small to necessitate a full-time person in many SMEs. So you outsource. But finding the right supplier is daunting — where do you find the specialised lawyer? Would your supplier really understand your business without being physically present — or possibly even in the same country? Do they understand the market, the region? Finding suppliers can end up being a trial and error exercise — and therefore costly and time-consuming.

Insurance? What insurance?

Many of your staff will be jumping ship from big companies and expecting to receive the same levels of premium medical insurance cover (dental, eye care, alternative health, physiotherapy…). As an SME, you cannot benefit from corporate rates — so you end up with individual policies, exorbitant premiums and still fairly minimal coverage.

To secure a corporate plan — which supplies coverage en masse to all staff rather than a set of individual policies — it might be worth tying up with a couple of other SMEs you are friendly with to form a collective, or finding a broker to do that for you. That would give you the numbers to qualify for corporate rates, cutting your premiums by up to 30 per cent. One of the drawbacks, however, is that your premiums will be set centrally, and the claims of all employees of the SME collective will impact the following year’s premium.

While SME founders loathe upfront costs, neglecting your company insurance needs can also be a big mistake. But it happens often, all the same, due to a lack of knowledge or understanding of the insurance needs of an SME.

Certain types of business insurance may be compulsory depending on the jurisdiction or free zone your business falls under. Even if not compulsory, insuring against these future calamities will probably help you sleep easier at night, when you already have so much to worry about with a new business.

Policies to consider include third party liability (to cover fires or random incidents such as someone tripping in your office); workmen’s compensation liability (in case of an occupational injury), travel insurance and key man/ person insurance — life insurance for key members of the business.

This level of knowledge and requirements is often taken care of by a specialist in large corporations — but when it comes to your SME, you will probably be the one initiating the process and having to learn all the insurance requirements for your business.

The writer is the founder and chief executive officer of Souqalmal.com. Views expressed are her own and do not reflect the newspaper’s policy.