Starting A Business In South Africa - May The Force Be With You! - Outsourced Finance

Starting a Business in South Africa is the road less traveled, and it is a scary road, According to a study by The Small Enterprise Development Agency (SEDA: 2007), South Africa has one of the highest failure rates of new SMEs in the world, at an estimated 75%. According to a speech given by the South African Trade Minister, Rob Davies in May 2013, five out of seven new small businesses started in South Africa fail within the first year. That is an alarming failure rate of 71%. How do you make sure your Business is part of the roughly 25% that succeed? Is it a game of chance or is there a blueprint for success?

Well, the important thing is to start right,  this gets you to towards the 25% that succeed.

1. Business Plan

Do a Business Plan; this is the roadmap for your business.  It allows you to understand your Business’ Industry, Market and Competitors. With this knowledge you can formulate your Business Strategy; how will you get to your target market, how will you price your product/ service, is your Business viable, What is your X factor!
During the drafting of your Business plan, you will chop and change because with the right market research you will realise things are not what you thought it to be.

2. Legal Identity

Next, think about the legal entity of your Business, will you be a Sole Proprietorship, Partnership, Company or NPO. Understanding the pros and cons of legal entities allows you to make the right choice and adequately protect your investors from financial liabilities.

3.  Cashflow

You can have the best idea or product, but without proper funding, your business might never take off.  Consider how you will fund your business, will it be owners equity or external funding. Essential to have at least six months cash flow funding to run your operation. Majority of Entrepreneurs fail in the 1st year due to cash flow issues; they just cannot meet their immediate obligations.  A comprehensive Financial Plan with scenario analysis will allow you to know how much funding you require.

4. Business Partners

Get the right Business Partners. Your Banker is a crucial Business Partner, make sure you have a dedicated relationship manager that understand your Business. Hence your Bank can meet you at your point of need. Supplier agreements are vital for your survival, make sure it is a comprehensive agreement stating the terms of purchase, quality of the product, delivery timeline and payment terms. If your supplier does not deliver on their promise, it might directly impact on your client and damage your reputation.

When all is said and done, get out your light saver, join the battle and May the force be with you

Depo Ogunruku


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