Setting up a business is one thing, but scaling it up is another.
In the case of start-ups and small and medium enterprises ( SMEs ) in Indonesia, many get stuck sooner or later because they rely solely on ideas to set up the business, while financial management, a cohesive team and visible long-term planning are left wanting.
SMEs, which are the backbone of the country’s economy and account for more than 90 percent of the workforce and business units, need to be aware of such things in order to scale up, the Creative Economy Agency ( Bekraf ) and a number of start-ups have said.
Hanna Faridl, chief community officer of online Muslim fashion outlet HijUp, deals with 279 SME tenants that have expressed their intention to improve their businesses, particularly in how they manage their finances. There have been many cases of SMEs mixing up their financial records or having no financial recording mechanism at all.
“A lot of times, the problem with SMEs is that they tend to mix personal finances with their business finances. Some tend to dip into their profits to pay for their child’s tuition, for example. That kind of attitude needs to change if the businesses are to innovate,” she said on Tuesday at the Sharia Funds Management for SMEs workshop in South Jakarta.
Business units in the country are dominated by 58 million micro, small or medium enterprises ( MSMEs ), which account for 99.9 percent of all businesses. However, the contribution of MSMEs to the gross domestic product ( GDP ) is only 57.8 percent. That compares to the 42.2 percent contribution from big enterprises, which make up only 0.1 percent of total businesses.
Scaling up will help SMEs increase their capacity and income as well as their contribution to the economy. Hence, investors play an important role in funding the development of the businesses, according to the Creative Economy Agency. To achieve investment by third parties, SMEs need to develop a more long-term attitude of sound financial planning.
“Teamwork, conducted by a committed and competent team, is what potential investors tend to look for before funding a start-up. That, and having a clear financial and exit strategy for their company. Where will they go after this? They don’t want to stay small forever, do they?” the agency’s deputy for financial access, Fadjar Hutomo, explained.
Exit strategies that SMEs should think of, he said, included entering the stock market or even being open to the idea of mergers or acquisitions, thus working to support the national financial market.
Fadjar added that the most effective way for SMEs to monetize their activities was to use intangible assets and intellectual property to their benefit.
Other ways included taking out micro credit loans ( KUR ) that, at 9 percent, offer much lower interest rates than commercial bank loans for similar purposes, where rates can exceed 20 percent. Sixteen industries within the creative economy are eligible for KUR, including fashion, the culinary business, the crafts, music and design.
The Creative Economy Agency had received Rp 2 trillion from the state budget to disburse KUR to SMEs in the 16 industries this year, Fadjar said.