Ina Opperman

By Ina Opperman

Business Journalist


WATCH: How women-led SMEs can move from informal to formal sector

Women are often trapped in the informal business sector and do not have the opportunity to formalise their businesses.


Women-led SMEs must move from the informal to the formal sector to grow, because keeping a business informal is holding women entrepreneurs back from their true potential. Managing informal businesses often results in women embracing the ‘side hustle mentality’ and they do not move past the informal business structure.

The entrepreneurial spirit is strong among women in Africa. According to the Global Entrepreneurship Monitor, more than 50% of entrepreneurs are women, but 70% of economically active women are in the informal sector with limited access to financial services.

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Many women-led SMEs end up trading in the informal sector out of necessity, operating as traders and entering the world of entrepreneurship through retail, says Diariétou Gaye, World Bank director of strategy and operations for the Africa region.

Having less of a formal structure and limited access to financial services prevents female business owners from scaling their businesses and they need to break the cycle of cash transactions in accepting and making cash transactions, otherwise they are merely perpetuating the cycle.

“We often find that women-led SMEs mainly accept cash or EFT transfers into their personal bank accounts and have no separate financial record with business transactions which makes it exceptionally hard to unlock working capital to scale their businesses,” says Erin Louw, chief brand officer of Retail Capital.

Informal structures result in women-led SMEs being excluded from the formal economy.

“It is vital to create business structures and embrace best practice from the start of a business journey. Networking within the community, financial literacy and especially business literacy is key in unlocking funding opportunities,” says Louw.

She says digitising transactions, using a business bank account and accepting digital payments using card machines, save time and make small business accounting less complex.

Women can formalise their businesses and scale in five ways Louw recommends to change their operating basis and formalise their businesses, thereby improving their chances of accessing finance.

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Improving business literacy

Louw says it is important for women to learn about the financial elements that make their business a success. “While learning about these financial metrics can be daunting, it is vital that they familiarise themselves with business levers for growth and scale which includes financing and other forms of credit.”

Business funding should not be viewed as debt when it is used to invest in growth initiatives. “Making use of credit does not have to be a bad thing. If you handle credit responsibly and pay on time it can, in fact, boost your credit record and make your business look good for any future financing needs.”

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Opening a separate business account

While opening a separate business account may sound like a minor step, Louw says it is a significant one as it helps to separate the business from your personal finances. It then becomes easier to set up systems for accounting, tax and payroll.

“Building a financial record starts with creating a separate account. This will go a long way to help women entrepreneurs understand their own business’ cash flows and financial obligations. It will directly impact their ability to receive financing,” says Louw.

Networking is also important for women-led SMEs

Female solopreneurs do not have to struggle alone. Louw says it is important to have a network to tap into.

“It can help to boost confidence while steering you towards the right business decisions at the right time. Communities like Xena, a networking mobile app for female entrepreneurs in South Africa and the Businesswomen’s Association of South Africa can play a vital role.”

This is where ‘fempreneurs’ can support each other, grow their business and share advice on how to improve working conditions and business best practices.

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Seeking professional help

Louw says mentorship is one of the key ingredients of business success. “Mentors can help you realise your strengths and weaknesses. They can show you where you need to improve and offer advice on how you can scale your business.”

You can find a business mentor by looking into your personal network, researching influencers in your field of expertise online or contacting your networks to get recommendations. Alternatively, you could contact non-profit company Coaches and Mentors of South Africa (COMENSA), which could help match you to the right coach for your business.

Creating a business plan

If you can create a well-developed and researched business operating plan with clear forecasts on where you would like to scale your business, it will not only give you direction but pave the way to accessing finance as well as track where the growth is happening, Louw says.

“In the past there have been many hurdles that held women back from pursuing their business goals. With the rise of the global female economy, it becomes increasingly important for women to fully embrace their role as business owners and expand beyond the side hustle stage.”

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