Across Zimbabwe’s towns, growth points and trading centres, the Small to Medium Enterprises (SMEs) sector has become the backbone of livelihoods and economic activity.
From the busy markets of Mbare and Sakubva to the crowded streets of Chitungwiza, and from rural business hubs in Gokwe, Murehwa and Mwenezi, thousands of entrepreneurs wake up every morning believing they are making profits.
They travel long distances to buy goods, spend countless hours trading, and proudly count daily cash collections at the end of the day.
Yet the painful truth is that many of these businesses are not truly profitable. Most are merely surviving.
Others are breaking even without realising it. Some are operating at a loss while appearing busy and successful from the outside.
This raises an important question: What exactly is profit? For many SMEs, profit is wrongly defined as the difference between buying and selling prices.
If someone buys a bale of clothes for US$500 and sells the contents for US$700, they immediately assume they have made a US$200 profit.
A commuter omnibus operator who collects US$300 in fares after buying fuel worth US$100 may conclude that the remaining US$200 is profit.
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A grocery operator who sells products worth US$1,000 after purchasing stock worth US$800 may celebrate a US$200 gain.
But economics teaches a very different lesson. True profit exists only after accounting for Total Costs, which are made up of total fixed costs plus total variable costs.
This simple formula is often ignored by SMEs, yet it determines whether a business is genuinely growing or simply rotating money in circles.
Fixed costs are expenses that remain relatively constant regardless of production levels.
These include rent, licenses, insurance, machinery depreciation, storage fees and security costs. Variable costs change with production and sales volumes.
These include fuel, transport, labour, packaging, airtime, electricity usage, loading and offloading charges, marketing and communication expenses.
However, beyond these visible expenses are hidden costs that silently destroy profits.
Time itself is a cost. The hours spent travelling to source products, waiting at borders, queuing for transport, or sitting at markets without customers represent economic value.
Lighting and heating costs consume money daily. Mobile data bundles, phone calls to suppliers, vehicle wear and tear, and even meals during business trips all contribute to total costs.
Many SMEs ignore these costs because they are not directly recorded in books. Yet they steadily consume revenue.
A vendor travelling from Harare to South Africa to buy stock may return with products sold at a margin of US$300.
However, after accounting for transport fares, accommodation, meals, border charges, time lost, currency exchange losses, spoilage risks and personal exhaustion, the real profit may be close to zero.
This is where the concept of average total cost becomes critical. Average total cost is calculated by dividing total costs by the quantity produced. It measures the cost of producing or selling a single unit.
This deeper analysis reveals the true cost of each product or service.
For example, a bakery may believe each loaf costs US$1 to produce, based on flour and labour costs.
Yet after accounting for electricity, transport, packaging, rent, machine maintenance and wastage, the actual cost per loaf may rise to US$1.40, while the selling price remains US$1.30.
The business appears busy, but every loaf sold results in a loss. This is the hidden tragedy affecting many SMEs across Zimbabwe.
In commuter transport, the same story repeats itself. Many individuals once owned fleets of minibuses and appeared highly successful.
Some controlled more than 50 commuter omnibuses at the peak of urban transport demand.
Today, many of them are left with no vehicles at all. The revenues looked impressive, but the businesses were not sustainably profitable.
Why did this happen? Vehicle owners often calculated only fuel and driver wages, ignoring depreciation, maintenance, tyre replacement, police fines, insurance, licensing, accidents, downtime and inflation.
Vehicles aged faster than replacement funds accumulated. Daily revenue created an illusion of prosperity, yet the business was slowly consuming itself.
The same applies to grocery shops and bottle stores. A tuckshop owner in Chitungwiza may boast of daily sales of US$500.
But after accounting for transport to wholesalers, electricity for refrigeration, unsold and expired products, theft, rental costs, and family members consuming stock without payment, there may be little or no actual profit.
Unfortunately, many SMEs focus on revenue rather than profitability. Revenue is vanity; profit is reality. A business can generate thousands of dollars in sales while remaining financially weak. True business success lies not in movement, noise or activity, but in sustainable returns after all costs are covered.
There is therefore an urgent need for SMEs to revisit their business models with honesty and precision. Entrepreneurs must begin by keeping accurate financial records.
Every expense, no matter how small, should be documented. Many small businesses fail because owners mix personal and business finances. Money intended for restocking is diverted to social spending, family obligations or luxury purchases before actual profits are calculated.
Simple bookkeeping can transform business understanding. Entrepreneurs should maintain daily records of sales, transport costs, utilities, packaging expenses and labour contributions. Even family labour should be assigned a value, as unpaid labour still carries an economic cost.
Secondly, SMEs must conduct cost analysis before setting product prices. Many traders set prices by copying competitors rather than calculating actual costs.
This dangerous approach leads to underpricing and hidden losses. A product should be sold only after confirming that the selling price exceeds Average Total Cost by a reasonable margin.
Thirdly, entrepreneurs must assess opportunity costs. Time spent pursuing unprofitable ventures could be invested elsewhere.
Some businesses continue operating only because owners fear embarrassment or are emotionally attached. Yet economics is unemotional.
If a business consistently fails to generate profit after a full cost analysis, restructuring becomes necessary.
Sometimes the wisest business decision is not expansion but retreat and reassessment. In places like Mbare and Sakubva, competition has intensified dramatically.
Hundreds of traders now sell identical products sourced from the same wholesalers. Profit margins shrink daily while operational costs continue rising. In such environments, survival requires innovation rather than imitation.
SMEs should therefore consider differentiation strategies. Rather than selling the same products as everyone else, businesses can specialise in niche markets, superior customer service, home deliveries or customised products.
Technology can also reduce costs through mobile payments, online marketing and inventory management systems.
Cooperative purchasing is another powerful strategy. Small traders can form buying groups to reduce transport and procurement costs. Instead of ten individuals travelling separately to buy stock, they can combine orders and share logistics costs. This lowers average total cost and improves profitability.
Local sourcing should also be prioritised where possible. Many SMEs import products that could be sourced or produced locally at lower cost. Supporting local supply chains reduces transport costs and currency risks while stimulating domestic industry.
Financial discipline is equally essential. Businesses should separate operational funds from personal consumption. A major weakness among SMEs is premature celebration of revenue. Large cash inflows create false confidence, leading owners to increase personal spending before determining actual profits.
Another important strategy is depreciation planning. Assets such as vehicles, refrigerators, machinery and generators lose value over time. Businesses must set aside replacement reserves rather than consuming all revenues immediately. Failure to plan for asset replacement will eventually destroy operations.
Training and financial literacy also warrant urgent attention. Many entrepreneurs enter business with courage and energy but lack accounting knowledge. Government agencies, local authorities, universities and business associations should intensify financial management training for SMEs. Understanding cost structures, pricing models and profit analysis is more important than ever.
There is also a need for a mindset transformation. Being busy is not the same as being profitable. Travelling across borders every week, operating from dawn to midnight, or handling huge volumes of goods does not automatically translate into business success.
A trader can work tirelessly for years yet remain financially stagnant because revenues merely cover operational costs.
This explains why some businesses operate for decades without meaningful asset accumulation.
Owners become trapped in endless cycles of buying and selling without building sustainable wealth. The enterprise survives, but the entrepreneur does not progress.
Zimbabwe’s SME sector remains critically important for job creation and economic resilience. However, sustainability requires a deeper understanding of profitability.
Businesses must move beyond superficial calculations and adopt comprehensive cost accounting. The future belongs to entrepreneurs who understand not only how to generate revenue but also how to control costs with precision.
In today’s harsh economic climate, SMEs cannot afford financial illusions. Every dollar must be accounted for.
Every product must justify its cost. Every business model must be scrutinised honestly. Sometimes the greatest business wisdom is recognising that movement without progress is merely exhaustion. For many SMEs across Zimbabwe, the time has come to stop running in circles and to start building enterprises grounded in real profitability, strategic thinking and long-term sustainability.
