Business basics: what every entrepreneur should know when starting out
If South Africans are to turn the tide against unemployment, a new approach is needed. Young people need to innovate, think creatively, and find ways to empower themselves by starting their own businesses not only to benefit themselves but others too by creating jobs.
A large number of South Africans have recognised this, and many are starting or building their small businesses while medium business owners are scaling operations too.
Viresh Harduth, Vice President, Small Business, Sage Africa & Middle East, believes that whether budding entrepreneurs are looking to start a side hustle to supplement their incomes from their day jobs or create a start-up to provide their main source of income, the opportunities are out there.
The truth is starting a new entrepreneurial venture can be daunting, and entrepreneurs are faced with a massive amount of uncertainty when it comes to going about starting their businesses.
He said: “We know that small and medium-sized businesses (SMBs) are the backbone of the global economy. Building your own business can be financially and emotionally rewarding. But if you’re starting, you may have questions about how you can get going and some concerns about how you take care of the admin, tax, operations, and funding.”
Harduth answers some questions young and first-time entrepreneurs might be grappling with.
Do I need a business plan?
Drawing up a business plan is a great idea. A business plan is a document that explains what your company does, how you plan to grow it, and your product/service and target market. A business plan tracks your business's strategy, structure, and financials to secure its sustainability and support growth.
A business plan helps you to:
Reality-check whether your business will be financially viable - for example, how long it will take to be profitable, how much cash flow it will generate, and how much profit it will generate.
- Understand how much funding you need.
- Stay true to your vision and goals.
- Show lenders or investors why they can feel comfortable working with you.
Like any good strategy, your business plan should be flexible and performance-oriented. Think of it as a CV for your business – keep updating and adding to it as your experience and knowledge grow, and your business evolves to ensure your framework stays current. Start with a blank page and download your free business plan template to simplify the process.
How do I find my first customer?
It’s best to find a customer or establish market demand for your product and services before committing too much time and resource to a business you haven’t validated yet. Establishing whether your idea solves a specific problem or if people are willing to pay for it is the first step in determining if it will be successful.
Tips for getting your first customer:
- Go online: Start building your online presence with a website, e-commerce functionality, and social media profiles to share your business information and discuss what you do and who you help. You can also advertise your services on social media, Google, or business directories to increase your business’s visibility.
- Cold call: This method is not for everyone and takes time, but it’s a great way to connect with potential clients and build relationships.
- Partner up: Approach businesses that offer products or services that complement yours and leverage cross-promotion to reach a bigger audience.
What are my tax obligations?
Many people think they don’t need to pay tax or declare additional income if the business is small or unregistered. Whether your business is registered or not, you’re still considered a sole proprietor, which has tax implications. You must pay provisional tax if you don’t have a registered Pty (Ltd) company. Be sure to budget for your tax payments.
Most of what you need to run your business – like your phone, computer, wi-fi connection, software, inventory, and printers – is tax-deductible. There is one rule: it must be an expense incurred to produce your business income. Capital investments like an expensive computer or delivery vehicle will be depreciated over several years.
Unfortunately, it’s not that easy to claim home office expenses. Simply working from home at the kitchen counter or dining room table does not mean you can claim wi-fi costs. If you want to file home office expenses on your income tax return, get an expert assessment first to ensure you qualify.
It’s only necessary to register as a VAT vendor once your business generates or is expected to generate revenue above R1 million over 12 months. Once you reach the threshold, you have 21 days to submit your VAT registration via e-Filing or a VAT101 registration form, which you must submit at a Sars branch.
How should I manage cash flow?
Good cash flow management is essential for SMB resilience. The fundamentals are simple: ensure that you have more money coming in than going out. Money must also arrive on time so that you can pay suppliers and staff and invest in new stock. Having access to cash also gives you more purchasing and negotiating power, which can save you money.
Anticipating funding shortfalls is also important because it allows you to make contingencies such as accessing credit. The most important step in ensuring you get paid on time is establishing strict payment policies from the outset. Making it quick and easy for customers to pay by invoicing them accurately and on time and offering a range of payment options can help.
Any other admin tips and tricks I should know?
- Automate: Today’s digital technology provides SMBs with the visibility, flexibility, and efficiency to manage finances, operations, and people. Automating repetitive, low-value activities such as invoicing clients and chasing payments can free up your time to focus on growing your business. For example, accounting and payroll solutions make it easier to record transactions and file tax submissions.
- Keep records: You can’t deduct any expenses if you don’t have documents to prove you paid for them. Keep both the invoice and receipt for your qualifying expense.
- Work with professionals: Many accountants, tax consultants and labour experts specialise in knocking down barriers and helping SMBs to thrive. Their advice can be invaluable regarding complex tax and regulatory matters.
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