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Entrepreneurs  |  Startups  |  Small Businesses

​​Starting a Business

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So you've decided to start a business? Congratulations! You're in for the roller-coaster ride of your life. There will be many thrilling highs along the journey, but  -  frankly - there will be many brutal lows as well.

It is said that more than 90% of startups fail within the first five years. One of the first things you'll learn as a business owner is that failure is common - but it's also not the end of the world. As long as you learn from your mistakes, and get up again every time you're knocked down, you can keep progressing towards success.

Having said that, it is important to do everything you can to minimise the chance of business failure. Whatever your reason for starting your own business - be it to provide for your family, financial needs, a terrible work environment or just the burning desire to be your own boss, you need to put everything you have into making your business a success. We know your life and the life of your family may depend on it.

First, consider the reasons most startups fail, so you can prepare for them.

ENSURE YOUR STARTUP SUCCEEDS

Practical

1. Market demand

The most common reasons startups fail is because they create a product or service for which there is insufficient market demand.

Starting a business needs to be a completely objective decision – it’s not a case of following your passion. You need to dispassionately assess whether the product or service you want to sell is something people want to buy. Yes, there is space for fun, passion and fulfillment - but you can guarantee that those things quickly disappear if the business isn't making sales.

 

 

2. Lack of preparation

 

Business can be fun, even thrilling at times, but running one mostly requires vision, rationality, objective thinking, financial skills and interpersonal skills. Prepare a comprehensive business model before you start your business, to keep you focused and true to your end goal. Your business model should be around 30 – 40 pages, and should cover your product offering, projected expenses and turnover, market analysis, funding requirements and an analysis of your cash flow. Do not skip this step.

 

 

3. Lack of focus

 

Understand right now that building a company takes time, effort, money and focus. You need to dedicate a huge amount of time and effort to it, and avoid getting distracted by other business ideas.

 

 

4. Not having enough money!

In the beginning of your business life cycle and for much of the first few years, cash flow is an issue. You need to surround yourself with a team of professional experts, one of whom will be an accountant. Learn as much as you can about cash flow, financial calculations and keeping your business expenses down. Ask yourself the following questions:

  • What are my profit margins?

  • What is the minimum turnover I need per month to survive?

  • What will next month’s expenses be – have I prepared for those?

  • Am I spending enough on marketing?

  • Do I have my liabilities under control? (Like the debtor’s book, and my own debts to suppliers/lenders) *

 

* While technically, in accounting terms, a debtor’s book (aka “Accounts receivable”) is viewed as an asset, in practical terms, that’s B.S.

Clients who have not paid your bills are a serious business liability which you need to fix urgently.

 

At the same time, also be aware of what your business needs to grow. If you are running on a shoestring budget, you may be surviving, but without excess cash, it is difficult to get to that next step. If you can get access to funding and are capable of repaying it, consider doing so. Consult a financial expert (not just one trying to sell you a product) to determine whether your business needs funding, and whether it should risk seeking funding.

 

 

5. Not having the right people

 

Starting a business with someone is more serious than a marriage. Your team can make or break your startup, and having the wrong partners or employees can destroy your business. Make sure you hire the right people – get a qualified recruiter to assist you with the process. They are experienced in psychology, human behaviour, and spotting positive and negatives aspects in candidates.

 

If you're partnering with someone in business, first ensure that your fundamental goals and beliefs align. Ensure that you get a properly-drafted partnership or shareholder’s agreement drafted – we’ve lost count of the number of clients we’ve had come to us trying to fix a dispute with a business partner.

 

 

6. Not having the right team behind you

 

If you don’t have the right employees and partners, your business will not succeed. Similarly, without a team of experts, you will run into financial, legal and other problems. Get an accountant to help you with your finances, get us to help you with legal cover, and get a business coach and even therapist if necessary.

 

Have a look at our Business Plan product for startups and small businesses. It gives you the contracts and advice you need to run your business safely and is easily affordable - even for startups. Find out more here.

 

 

7. Product quality and the competition

 

Business is brutal. Unless you have a rare, completely new product or service, you’re most likely entering a market already of competitors offering the exact same thing you are. That should not put you off, but it is a warning to ensure that your product/service has some aspect to it that makes it stand out in the crowded marketplace.

 

In addition, you must ensure at all times that the quality of your product / service is excellent. In today’s age of the Internet and endless choices, customers have the power to choose their service provider in a heartbeat. The reputation of your business is sensitive and easily affected by an online review – so ensure your quality is impeccable at all times.

 

 

8. Poor customer feedback

 

Linked to the concept of product/service quality is customer feedback. Regular feedback and communication need to be integral to your business. Customers demand it, and without, you can bet they will go somewhere else in the blink of an eye.

 

 

9. Pricing issues

 

Before you launch your product, conduct thorough research on your competitors and their pricing. Where will your product fall on the pricing spectrum? Can it get away with being more expensive than average? Are you starting off with the cheapest price? Research the economic and psychological effects of pricing on consumers.

 

 

10. Poor marketing

 

Insufficient or poor marketing is a major reason many businesses fail. Understand and accept this fact right now: marketing your business is essential. If you do not market your business, it might as well not exist. If you’re one of those people who doesn’t believe in marketing, or who believes marketing is beneath you - fix your attitude right now or otherwise don’t bother going into business. Intelligent, highly educated people seem to struggle with this especially, because they tend to believe they are above sales.

 

If you are starting your own business, understand that you are not above sales and you never will be. In fact, you will spend much of your time in the initial years of your business personally marketing your business until you can afford to hire someone to do it for you.

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Business Protect® for SMEs helps you protect your business - from only R500 a month.

Plan

LEGAL REQUIREMENTS AND PITFALLS IN BUSINESS

Req

Like it or not, there are legal requirements and challenges to your business even before you start.

 

1. Business Structure

The very first decision you must make concerns the structure of your business. Is it going to run as a sole proprietorship, a Closed Corporation, a Private Company or even a Public Company? There are advantages and disadvantages to each. As a sole proprietor, you are [Your Name] trading as [Your Business Name]. It requires less work to start, and less admin to maintain, but has some severe disadvantages:

  • As a sole proprietor, your business is not regarded as a separate entity from you - exposing you to personal liability for debts and lawsuits.

  • As a sole proprietor, you are taxed at the personal income tax rate, which can be as high as 45% depending on your income. By comparison, the maximum tax on a private company is 28%.

  • If you intend to secure funding, bear in mind that the banks and other lenders often regard a private company as more professional than a sole proprietorship.

If you want to be taken seriously, you need to register a private company. We also strongly recommend it for the other legal and tax benefits it provides.

If you're starting a business with partners or shareholders, we additionally recommend you implement comprehensive written contracts with them - i.e. a partnership agreement, joint venture or shareholders agreement.

2. Default Legislative Requirements

There are many legislative requirements imposed on businesses. The first important Act is the Companies Act 71 of 2008, which prescribes the rules for starting, running and closing a business. Then there are multitudes of other rules imposed by various pieces of law, like:

 

  • The National Credit Act - which prescribes the rules of lending money or providing credit to customers;

 

  • The Consumer Protection Act - which contains the rights of consumers and the requirements on your business in dealing with consumers fairly;

 

  • The Protection of Personal Information Act - a new Act which imposes strict rules regarding marketing to consumers and processing of their personal information;

 

  • The Income Tax Act and other tax legislation - which contain the rules to payment of tax by your business and (more interestingly) which expenses are tax-deductible;

 

  • The Prescription Act - which limits the amount of time you have to collect outstanding debts;

 

  • The King Codes - a set of guidelines for business governance in South Africa;

 

  • The Competition Act - which governs how you may advertise, to ensure fair competition between businesses; and

 

  • The Trade Marks Act -  which allows you to trademark your brand (an essential early task in the life of your business)

- just to name a few.

3. Additional Legislative and Controlling Body Requirements

Depending on the business you want to start, there are often requirements in addition to the default ones above.

 

If you are in a regulated profession (for example, an accountant, attorney or medical professional), you are also required to comply with the Codes of Conduct and other rules set by your specific governing body.

If you want to start a restaurant, bar or liquor store, you will need a liquor licence. Restaurants and food stores will naturally also have to comply with food legislation.

If you're unsure of what legal requirements apply to your business, contact us and we'll advise you.

4. Proactive protection for your business

We say this time and time again - take steps to protect your business legally before legal problems rear their ugly heads. In the daily running of your business, you may encounter any one or more of the following problems:

  • Clients not paying outstanding accounts - and an escalating debt book

 

  • Customers wanting to return a product after an unreasonable period

 

  • Staff problems

 

  • Damages to your business reputation

 

  • Copyright or Trademark infringement - either by you, or a competitor

 

  • Accidents and injuries at your premises, and ensuing lawsuits

 

  • Disputes between business partners, or franchisees

 

  • Refusal by insurers to pay insurance claims

 

  • Lease issues and other disputes with your landlord

 

  • Breach of contract and resultant litigation

- again, just to name a few.

Take action to minimise the effect of these things happening by allowing us to assist your business from the start. We'll provide the advice and contracts your business needs to avoid or lessen the impact of these legal pitfalls - before they become massive expenses.

Our Business Plan gives your business this cover for a small, fixed monthly fee - learn more here.

5. When disputes are inevitable

Despite your best efforts, some disputes are inevitable. You may have an employee who breaches their employment contract - but, if you have implemented a written contract, you will be in a far better position to minimise the financial and other damage caused to your business. For example, the written contract may contain a penalty clause entitling you to repayment of some amount, or a legal costs clause entitling you to the highest possible scale of legal costs should you be forced to take action against the employee.

Starting a business?

 

Our Plan covers your most common legal needs.

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