Why I don’t do small business with South African government: entrepreneur

In some countries, like the UK, government is a rich source of business opportunity for many entrepreneurs who figure out where subsidies are and how the funding systems work. Governments are considered good clients because they are unlikely to default on payments.

In South Africa, doing business with the government is a risky business, says small business entrepreneur Irvine Green. In his latest Biznews.com blog, he explains why he has shied away from working on projects where a government department is the client.

Irvine has worked as a tax consultant for small business operators and has launched and run several ventures himself, so he is speaking from experience. Before you go it alone, read what Irvine has to say. You can avoid many mistakes and he will point you in the direction of new business ideas. Links to more of his blogs are available at the end of this piece. – JC

Why I don’t do small business with South African government: entrepreneur

By Irvine Green

Irvine Green, a small business expert who is pictured here when he was small, explains why he avoids doing business with government.
Irvine Green, a small business expert who is pictured here when he was small, explains why he avoids doing business with government.

Beware the business client called Government…

Running your business is probably the best source of adrenaline and joy you’ll ever find. The fact that someone you have never known before gets to hear of you and chooses to ask YOU to provide a product or service can make you feel as if you have just been elected State President, Chief Pilot or Ship’s Captain.

You will also feel really great while you are busy with that contracted service or job, and if you do what it is you have to do well, on time, at a price that is reasonable (even if not the lowest) and is of the highest quality, you will have a customer for life.

Unless it’s a GOVT department. Many businesses, small or big, new or well established, local or national, have come to a sticky end by doing work for a Govt department. Govt is notorious for not paying on time, paying short or even shutting up shop and disappearing like fly-by-night businesses. This applies equally to one off tasks and tenders.

This problem reared its ugly head many years ago, and so legislation was put in place that Govt would/should pay 30 days from invoice. As with anything Govt based, the idea and legislation was probably good, but then we come to that oft heard word (and cause of many nightmares) – implementation (usually the lack thereof).

Many small businesses (that Govt chooses to assist with business growth and new start-up support) have gone to the wall by doing business with Govt. Many entrepreneurs have hocked their houses, life insurance policies, investments and even family inheritances to the hilt to obtain funding for getting Govt jobs underway (for buying capital equipment and paying staff and overheads, etc for the first few months until the first payments come in for work done to date).

Then the relevant Payments Dept loses the invoice – or can’t find/has mislaid matching tender documentation, the appointment as service provider, or the documentation submitted to get the tender (tax clearance certificate, Company Registration info, PAYE and UIF numbers, and such).

Thirty days becomes sixty and ninety and more. The service provider has bills and staff to pay… and goes under, thanks to Govt payment/administration inefficiency. There are times the invoice IS paid, not to the service provider but rather to some corrupt Department official who then disappears into thin air before the crime is discovered.

The service provider now owes a million or two and loses all the assets s/he has used as collateral for loans – from the house to life insurance policies and more. And the business is also gone – wound up as bankrupt, and the company founder/owner/member registered at ITC as not credit worthy due to business mismanagement. (The latter not being of his doing but related to Govt).

This sort of outcome is a regular occurrence – not a rarity. Peruse info regarding businesses and private estates wound up (available via/at DTI and in Commercial Crimes Court and ITC records).

Perhaps you might do a credit check on new private clients if you are not sure and the business is of a large amount – but it won’t help to try that approach on a Govt department. There’s no such record about Govt in credit info files.

There’s been times the failure of small and medium size businesses has spiked heavily – with a major percentage being because of Govt admin and payment foul ups.

Take the safe way out. Let Govt provide ITS services to itself  BY ITSELF. I recommend private business only does business with private individuals and corporates.

Print this out and stick it to the wall next to your desk so you can re-read it whenever you get the urge to tender for a major Govt job you could likely be awarded. The adrenaline and joy of getting the Govt tender/task is no match for the mental down that could be the end of you as well as the business when Govt fails to cough up.

 

For more by Irvine Green, read:

 

Best blogs 2013: Irvine Green looks back in time at gold, South Africa – and Alec Hogg

Small business advice: Looking for money-making inspiration? Then, Irvine Green’s 50 Shades of Lemon is recommended reading

Turning a business dream into reality – Irvine’s success started with an outrageous idea

Government regulation of business: is it right? Arguing the case for less red-tape.

Small business: South Africa’s labour laws killing millions of job opportunities

South African government shackles small businesses, leaving them a few crumbs – entrepreneur

How to promote small business on a small budget – expert advice

Small business advice: How to use your big mouth to make big money

Small business advice: Easy tax tips for sole proprietors

Small business success: it’s all about doing pretty much anything for the money

 

 

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