This article first appeared in Business Day

By Angie da Silva, Chief Operating Officer, PKF South Africa

South Africa stands at a crossroads—its small business sector is its engine of job creation and innovation, yet many enterprises sputter and die before reaching their prime. As founders exit without a plan, the consequences echo through communities and the economy at large.

Failure by the Numbers

• 70%–80% of SMMEs collapse within five years, according to University of the Western Cape research—markedly higher than the global average.
• A growing 49% of people globally now say they would not start a business for fear it might fail, up from 44% in 2019, as per the GEM 2024/25 report.

This mounting fear of failure creates a vicious cycle: fewer startups, fewer resilient successors, and fewer thriving legacies.

Why Succession Planning Is Critical—and Overlooked

Valuation Blind Spots

Without clarity on the business’s market value, founders struggle to negotiate fair exits—or to plan for smooth transitions.

Founder Dependence

SMEs often collapse when the founder steps away, due to a lack of delegation, systems, or cultural roots that outlive the individual. As UWC research highlights, success lies in “the person of the entrepreneur”—40% of outcomes depend on founder traits like proactivity and planning.

Legacy in Limbo

Without proper transfer mechanisms, businesses lose strategic focus and erode stakeholder confidence post-exit.

Regulatory Drag

The VAT threshold has not moved for well over a decade (still R1 million), adding costs and complexity that hamper sustainability and succession readiness. Stringent labor laws and red tape are seen as significant obstacles, making it difficult for SMMEs to manage and comply with regulations, especially during challenging economic times.

Legal Pitfalls to Avoid

1. Blurry Ownership Structure – Without clearly defined shareholding and exit terms, succession can trigger disputes.
2. Tax Overload on Exit – Capital Gains Tax (CGT) planning is critical; failure to structure properly can make exits prohibitively expensive.
3. Non-Compliance Risk – Unresolved labour or tax issues carry forward and threaten continuity.
4. No Successor Training – Without mentorship or defined roles for successors, leadership transfer often fails.
5. Debt Traps and Guarantees – Founders need to unravel personal guarantees and settle liabilities before stepping back.

Sound Advice for Sustainable Succession

1. Start Valuation Early – Get independent valuations now to frame fair transitions and ensure transparency.
2. Build Systems and Culture – Transfer the business beyond your personality—institutionalise daily operations.
3. Mentor Successors – Prepare internal leaders through mentorship, clear documentation, and ownership clarity.
4. Use Tax Tools Smartly – Explore entrepreneurial relief and CGT deferral strategies to shield founders and successors.
5. Simplify Structure – Use holding companies, clear board structures, or trusts to manage power handover gracefully.
6. Lobby for Compliance Reform – Advocate for policies like a VAT threshold increase—it’s time the compliance burden reflects economic realities.

The Bigger Picture: Why Thriving SMEs Matter

• Thriving SMEs are jobs engines, especially in previously marginalised communities.
• SMMEs in South Africa, however, are not creating enough jobs. The target should be as high as 70% of employment created in a low- to middle-income country, yet SA remains well below this level of job creation.
• Succession means continuity—jobs, innovation, and economic equity must outlast founders.
• Reducing the fear of failure—through tangible support and legal clarity—will unlock more entrepreneurial potential.

South Africa’s SME crisis isn’t just about business failures—it’s about broken legacies. Without succession planning, founder departures become death knells. It’s time to reframe: supporting SMEs to survive and thrive is both sound economics and social justice. With better valuation, legal foresight, and streamlined compliance, we can build resilient legacies—not just ventures.