CHAPTER 2 A PROFILE OF SUBCONTRACTORS IN THE CAPE
2.2 ENTREPRENEURSHIP AND MANAGEMENT
2.2.3 Organisational Skills
The level and extent of record-keeping and financial management practiced in SSEs is an important indication of basic management expertise in the sector. Yet research results in South Africa
(Nattrass and Glass, 1986:73; Nattrass and Nattrass, 1988:85;
Desmidt, 1988), and abroad (Nihan, Demol and Jondoh, 1979:365;
Chuta and Liedholm, 1985:50; Harriss and Rowe, 1966:79), indicate that operators fail to keep even rudimentary records. In this study operators were asked to what degree they practiced a wide variety of basic accounting procedures. The results confirm that, in general, the organisational abilities of operators were very weak.
2.2.3.1 Bank Account
Although a significant proportion of operators (58%) keep at least a single bank account (Appendix B, Table B4), only 28% of all operators use a separate account for domestic and business affairs. While the use of a single account may be an advantage to a family undertaking (Lipton, 1980), this is not the case where the firm makes exclusive use of non-family labour (Schmitz, 1982b: 167) .
2.2.3.2 Calculation of Cash Flow Requirements
Even a labour-only subcontractor is likely to have to meet certain expenditures prior to payment for work completed.~ These expenditures include wages and tool replacement and must be met from a fund of working capital. In order to use projected cash flows as a management tool i t is necessary that these are calculated consistently and, at least, monthly. The latter condition is necessary given that virtually no operator had
24. Obviously the need for a consistent check on cash flow requirements is even greater for operators who provide their own raw materials.
22
an accurate schedule of work, if any, for a period exceeding the forthcoming month . . Table 2.925 shows the frequency with which operators monitor future cash flow requirements.
Table 2.9
Frequency of Cash Flow Assessment by Trade
Trade Never Weekly Monthly Yearly Irregular Total
(%) (%) (%) (%) (%) (%)
Bilayer 65.0 11. 6 9.4 0.0 14.0 100.0
Carp/er 66.7 14.3 14.3 0.0 4.7 100.0
Plast/er 75.0 6.3 12.4 6.3 0.0 100.0
Painter 76.9 15.4 7.7 0.0 0.0 100.0
Elec/n 40.0 20.0 40.0 0.0 0.0 100.0
Plumber 45.0 45.0 10.0 0.0 0.0 100.0
All .. Trades 64.3 15.2 13.4 0.9 6.2 100.0 A majority of 64.3% of operators never estimate future cash flow requirements, while only 28.6% of operators are in a position to use these as an aid in the management of the firm. A distinction can be made, however, between operators in the wet trades and painting, and operators in the electrical and plumbing trades. A total of 68.8% of the operators in the former trades never
calculate future cash flow requirements, while only 22.6% are able to use these calculations as a consistent management device.
Conversely, only 42.1% of the operators in the plumbing and electrical trades never calculate cash flow requirements, while 57.9% are able to use this indicator as a management device.
2.2.3.3 Bookkeeping System
In order to utilise financial records to monitor the progress of the firm, a record of income and expenditure is required, at least. Table 2.10,26 below, shows that 58.9% of operators fail to keep even rUdimentary records of the activities of the enterprise, while 66.9% of operators are unable to use their records to monitor the progress of their firm.
25. See Appendix F, question 17 for the sUIVey question.
26. See Appendix F. question 18 for (he sUlVey question.
Table 2.10
Operators by Type of Bookkeeping System and Trade27
Trade None Y & E Hrs Hrs,Y Djentry AjC Total
(%) (%) (%) & E(%) (%) (%) (%)
B/layer 67.4 9.3 14.0 4.7 2.3 2.3 100.0 Carpjer 57.1 2S.5 0.0 4.S 4.S 4.S 100.0 Plast/er 56.2 lS.7 12.5 6.3 0.0 6.3 100.0 Painter 69.2 15.4 7.7 7.7 0.0 0.0 100.0 Elec/n 30.0 30.0 0.0 0.0 10.0 30.0 100.0 Plumber 44.5 11.1 0.0 0.0 11.1 33.3 100.0 All Trades 5S.9 17.0 S.O 4.5 3.6 S.O 100.0 A cross tabulation of bookkeeping and trades introduces a
familiar distinction. A proportion of 63.4% of operators in the wet trades and painting, as compared with only 36.S% of operators in the electrical and plumbing trades, do not keep any records.
Similarly, a significantly lower proportion of those in the wet trades and painting (5.3%) keep sophisticated records as opposed to those in the electrical and plumbing trades (42%).
2.2.3.4 Other Indicators of Management Ability
The author has concentrated on the above indicators of management ability as they are directly measurable. During the course of the interviews, however, several other relevant factors were observed. For example, a number of operators complained of the difficulty of disciplining workers and ensuring daily, timeous arrival on site. It seemed as if they were uncomfortable with any sharp distinction between themselves and their employees. In addition, operators had a very limited knowledge of the legal provisions in the industry and the details of their contract.
Finally, from personal observations on site, the negotiating skills of the majority of operators appeared very weak:
2.2.4 Summary
The literature stresses that SSEs contribute to economic
development by drawing on an untapped source of entrepreneurial initiative and by providing management training, particularly to
27. Operators were asked to specify the type of bookkeeping system, if any, that they used. The question was open-ended and the answers were collated subsequent to the interviews. For clarification, the categories of bookkeeping highlighted in the table arc:
a) "none" = operators who lIsed no boo~keeping system whatsoever.
b) tty & e" = operators who kept a rudimentary record of income and expenditure of the firm.
c) "hrs" = operators who only kept a record of hours worked in order to calculate wages.
d) "hrs,y & e" ~ operators who kept a combination of method band c.
e) hdjentryh = operators who followed a standard double entry ledger system.
f) "A/e" = operators who employed the setvices of a part-time accountant.
lower-income groups. The results of this study suggest that this entrepreneurial response is not as efficient as i t could be.
Although operators had, on average, relatively high levels of education and the necessary technical expertise in their trade;
their organisational-ability was generally weak. Few operators had any management or supervisory experience, while the majority were unable to exercise even the most basic forms of financial management. Levels of management ability were, however, higher among electricians and plumbers than among those in the wet trades and painting. This may be explained by the longer subcontracting experience among the former trades.
Nevertheless, after entering the sector, operators across all the trades do show sufficient initiative and drive to continue
operating in the building industry. Further, successful
operators will be required to develop management expertise as the size and complexity of the enterprise grows. In this way the sector may well provide a useful training ground to develop management resources in the economy, particularly to those denied access to direct employment in LSEs.