SMEs in Mexico: basic guide for starting a successful venture
Micro, Small and Medium Enterprises, also known as SMEs, contribute positively to the generation, productivity, competitiveness and sustainability of the country.
In Mexico, there are 4.2 million SMEs that generate 52 percent of GDP and 78 percent of employment, according to the National Institute of Statistics and Geography (Inegi). According to the International Council for Small Business, they represent 50 percent of the world's Gross Domestic Product (GDP).
Based on the experience of Alfonso Quintero, executive director of PyME Scotiabank, these economic units must be attentive to changes in the environment and in the global market to take advantage, or even grow their businesses.
"At Scotiabank, we understand that SMEs are critical to the country's economy; we know that they are hungry for innovative, high-quality products and services to drive their growth. With our comprehensive SME offering, we believe we're on the right track to meet their demands; we go hand in hand supporting every step of the business, from startup and consolidation to expansion. We have financial products that respond to every moment," says Quintero.
According to the executive, in addition to personal obstacles, the mishandling of finances is one of the main factors for an SME not to prosper.
"The basic financial education is often the one that allows the accounts to come out and thus have more chances of success. The average life span of such a company is estimated at 18 months. For this reason, we are interested in boosting its development and growth, we want all businesses to turn opportunities into great results," says the executive.
In this sense, he offers the following recommendations to entrepreneurs:
Stay true to your ideas, without fear of failure; find possibilities to resolve the mistakes you make and, above all, improve based on experience.
Avoid using personal sources to finance the business. The return on investment will be long term, so your savings or those of your family could be affected. If you decide to occupy them, the solution is to open a savings or investment account that you use only for your business, with no other purpose. "Separate the personal from your company"
Seek expert advice on financial education. This is a basic step that will help you foster a savings culture and promote an awareness of ability to pay to avoid over-indebtedness, as well as compare different options of financial products and services, and have a strategic vision to realize growth opportunities, among other benefits that will make you more aware of your financial situation.
Keep up to date. It's essential to stay on top of the latest trends; read about your industry, attend expert conferences, get to know your competitors deeply, invest in professional advice and consider networking.
Think holistically. There are financial institutions such as Scotiabank, which handle solutions to meet the requirements in an integrated way, both for your business and for you and your team, considering credit cards that suit your needs, insurance for home, car or business, auto loans for the acquisition of cars or motorcycles, whether new or used, or investment funds, channels and means of payment, among many others.
Insure your business and also your employees, this way they will be calmer and happier knowing that they have a backup in case of any fortuitous event.
Make it simpler, safer and more effective. Managing the operation of the online business will give you a lot of agility. Look for a product with which you can easily manage from the cloud the most important things for your company: sales, customers, suppliers, treasury and billing, among other assets such as some banking products and services.
Don't be afraid: credit is not a cost, it is an investment to take your company to the next level. A specialized loan will help you finance the needs of your business for the purchase of fixed assets, improvement of equipment or facilities, as well as for the expansion of your business. Take a good look at the additional benefits that credit can give you.
THESE ARE THE 5 FACTORS THAT LIMIT THE GROWTH OF SMES IN MEXICO
The expensive credit, the economic uncertainty, the insecurity, the competition, and the inflation generates a complex scenario.
For entrepreneurs in Puebla, the land did not stop moving after the September 2017 earthquake. Their sales fell 15% that year and continued to fall in the following due to the theft of businesses, the lack of financing and the lower influx of tourists, activity hit by insecurity. The situation did not improve with the start of this year and shows what many companies are doing throughout the country.
The subsidies from the federal and state governments have been a financing alternative for 2,355 micro, small and medium enterprises (mipymes) in Puebla, which do not have access to bank credit. The benefit reaches less than 1% of the total number of companies in the entity. They are insufficient but necessary, considers Navarro. "The lack of support continues to be one of the factors that reduce their growth."
The lack of access to credit affects three of every 10 MSMEs in the country and is the main reason why their business does not grow, according to the Growth and Credit Report of Pymes 2019, from the Konfío loan platform. "Formalizing a business is simpler than taking out a checking account or obtaining a point-of-sale terminal for your business," says Filiberto Castro, the company's director of growth. The fintech interviewed 1,700 entrepreneurs in the country, to know the factors that slowed its growth in 2018. These are the five main reasons:
Lack of access to financing. In fact, in 2018 there was a decline in access to credit for SMEs, says Castro, as a result of last year's economic uncertainty (generated by the presidential election environment and insecurity). An analysis of the number of active loans granted by the bank and that was included in the report shows a decrease of 5.8% in that line with respect to the previous year. By amount, the decline was 2.2%. "Rates from 18% to 20% are very expensive for MSMEs, their profit margins have been falling," says Daniel Curiel, coordinator of the Council of Industrial Chambers of Jalisco (CCIJ).
It is not only a matter of fees but of financial culture. 30% of those interviewed by Konfío admitted having problems with the Credit Bureau. "We have not been able to develop a financial culture and make a credit history since young, that's a lot," says Juan José Sierra, president of the Employers Confederation of the Mexican Republic (Coparmex) Veracruz.
Entrepreneurs expect government support programs for their businesses. Jalisco has the Business Development Fund (Fojal), which grants loans at rates of 8% to 12%. "His stock market is 1,000 million pesos, but it is insufficient. They pay and they ask again. It has not been able to grow ", exposes Curiel.
Economic uncertainty One in five businessmen pointed to the economic situation as a factor that limited the growth of their business, says the manager of Konfío. According to the report, the percentage of entrepreneurs with sales greater than three million pesos went from 23% in 2017 to only 17% the following year.
The presidential elections and the change of power generated a scenario of uncertainty that does not end. "There is great discomfort due to the issue of shortage - in Jalisco - that generated losses of up to 5,000 million pesos in the first 20 days," says Curiel. The discouragement is, especially in medium-sized companies. "That you need the basics to move your merchandise affected a lot the perception in the entity and in general".
According to the Konfío report, 11% of the interviewees pointed to this factor as a limitation for the growth of their business. This situation is more present in micro and small companies little technified. "In the metropolitan area of Guadalajara there were 4,000 restaurants seven years ago, today there are 17,000. This speaks to the size of competition that this sector has ", exemplifies the CCIJ coordinator.
Informal commerce is also another variant that affects business, abounds Navarro, of Canacope Puebla. "In 2018, there was a considerable growth of street vendors in the Historic Center of the capital. In the previous government, there was a program to make them migrate towards formality, but with the current one we do not know what will be their axes of action ".
8.7% of employers consulted by Konfío said that insecurity was a factor that slowed down their business. This was most evident Veracruz, Tlaxcala, Puebla, and Hidalgo. "We had an increase in 'curtains' - criminals destroy the curtains of business at night to steal merchandise - in the first four months of the year," says Navarro. Cargo theft by road or train is one of the scourges in Veracruz, "In the last three years there was a rise of 500% in that crime," says the president of Coparmex.
The increase in prices and currency risks was present in 8% of the interviewees. An issue that especially affected entities such as Jalisco, Colima, Michoacán, and Nayarit, according to the Konfío report.