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					Tips for starting a business
1) Considering starting a business?

Why start your own business?

Starting your own business is exciting and potentially rewarding. Taking this route offers you a
sense of freedom and power, which makes you feel that you are in charge of your own destiny.
It also allows you to determine your own income. But there are risks! It is important to make the
move into entrepreneurship with your eyes wide open, as starting and running a business is not
for everyone.

What you should know

Starting and running your own business takes planning, effort, determination, and stamina. It
also requires a willingness to make sacrifices, especially during the early years.

The next step is to examine your motivation. Provide an honest answer to the following
question:

What is my real motivation?

When asked why they want to go into business, most people will be quick to say: “to make lots of
money!” Fair enough, but this in itself may not be a good enough reason. Building up a
business requires long-term commitment and experience has shown that only those who take
this step for the right reasons stay the course.

Some “right” reasons for going into business

•   You have a passion for a specific product or service.
•   You have a particular talent, skill or interest in this field.
•   You have identified a gap in the market that you know you will be able to fill better than
    existing suppliers can.

Some “wrong” reasons for going into business

•   Greed in the form of unrealistic expectations of becoming wealthy within a short period
    and/or without the need to work hard.
•   Finding it difficult to work with others. To be successful as an entrepreneur, you need to be
    a people person.
•   Not wanting to be accountable to anyone. If your main motivation for branching out on your
    own is the hope that once you are in charge, you can literally do as you please, watch out.

What kind of business should I start?

The answer to this question should flow from an examination of your unique skills, interests and
experience on the one hand, and market realities on the other. Do not attempt to start a
business in a field in which you have neither interest nor proven ability!


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Franchising

Franchising is widely seen as a blueprint for business success. But while franchising has much
going for it, it does not come with a built-in guarantee. Franchising is a business tool, and just
like any other tool, the results it produces depend in large measure on the skills of the person
using it.



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It should come as no surprise, then, that while the vast majority of participants in franchise
schemes are extremely happy with their lot, there are some spectacular failures on record as
well. However, even the most superficial analysis of franchise failures will reveal that it is rarely
the concept of franchising that is to blame, but a blatant disregard of a set of well-defined and
time-honoured rules designed to guide ethical franchising.

The role-players

The main participants in any franchise scheme are the franchisor and the franchisees. The
franchisor has created a commercially viable product range that is distributed under a
respected brand in accordance with clearly defined guidelines. Franchisees, members of the
network, operate individual outlets under the network’s brand, in close co-operation with the
franchisor but for their own commercial gain.

How a franchise functions

Every franchised network worthy of this title evolves from an existing business that has a solid
record of accomplishment, operates in a growing market and is ready for expansion. At this
point, the business’s founder has several options, with the establishment of branches and
franchising being the most popular.

Setting up branches is capital intensive. It also places great strain on a company’s
management capacity. Moreover, experience has shown that customers prefer dealing with the
owner of a business rather than a manager. These factors combine to make growth through the
establishment of branches a less attractive option.

The establishment of a franchise system, on the other hand, enables the entrepreneur to
expand the business with the enthusiastic assistance of a growing number of franchisees,
entrepreneurs in their own right who finance the expansion of the network from their own
resources. Their investment serves as a virtual guarantee of their long-term commitment to the
business and they can be relied upon to maximise its potential. Best of all, franchising places
the owner of the business back behind the counter, to the delight of its customers.

But franchising is by no means a one-way street. Seen from the franchisee’s viewpoint, a
carefully selected franchise offers an inexperienced entrepreneur:

    •   A tried and tested business concept
    •   An established brand name
    •   Assistance in all aspects of setting up and operating the business
    •   Access to bulk deals offered by the network’s suppliers
    •   The spin-off resulting from network-wide advertising campaigns

Win-win scenario needed

For a franchise system to succeed, it must offer tangible benefits to everyone involved – the
famous win-win scenario:

•   The franchisor benefits because the network expands through entrepreneurs who provide
    the necessary finance and have a tangible interest in the long-term success of the brand.

•   The franchisee benefits because the network’s standing in the marketplace and the
    support provided by the franchisor combine to enhance the new business’s chances of
    success.

•   The public benefits because they have access to their favourite brands in a growing
    number of locations yet are generally able to deal with the owner of the business on a face-
    to-face basis.




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To obtain comprehensive information on all aspects of franchising, including financial
implications, advantages and disadvantages of going this route, visit the following websites:


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Establishing a family business

You may consider starting a family business. One big plus in favour of such a move is that you
know you can trust members of your family. This option has its pros and cons as well. If you
decide to start a family business:

•   Make sure that the family members you want to involve in the business actually share your
    enthusiasm for it.
•   Keep in mind that there is a significant difference between asking someone to “help you out”
    during the early stages when money is tight, and becoming truly involved in the business.
•   Satisfy yourself that those members of your family you want to involve in the business can
    handle the dual pressures of sharing a working life and a personal life – some people find
    this extremely difficult to handle.
•   Agree in writing on the roles, rights and obligations allocated to specific family members,
    especially when it comes to shareholding, remuneration and working hours.


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Buying an existing business

You can either start a business from scratch, or you can purchase an established business.
Both approaches have compelling pros and cons:

•   If you start a business from scratch, you can set it up precisely the way you want it.
    However, you will face a few problems along the way:
    o You may make mistakes in one of several key areas – location, equipment, product
         range, pricing, to name but a few.
    o You may find it difficult to establish accounts with essential suppliers who will probably
         insist on COD to begin with. This could put pressure on your cash flow.
    o Your staff will be new. If your business is a manufacturing or service business, it may
         take some time before the business reaches acceptable levels of productivity and
         customer service.
    o The day you open your doors for the first time, you are an unknown quantity. Convincing
         people to do business with you will take time and, as we all know, in business, time is
         money. This is of specific concern in the case of a retail business where rentals tend to
         be sky-high.

•   If you buy a business as a going concern, its track record provides some assurance
    regarding its future viability. Moreover, since everything is up and running, it should be
    business as usual from day one. However, this approach is not without its drawbacks either:
    o Effectively, you are locked into the “status quo”. Of course, as the owner of the
         business, you can make whatever changes you want, but as the purchase of an
         established business usually involves a payment for goodwill, making fundamental
         changes on day one would not make commercial sense.
    o Suppliers and staff may feel a sense of allegiance towards the previous owner and fail to
         give you their full co-operation.
    o The same can be said for customers who may have been doing business with the firm
         because of the owner’s personality.


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2) Successful business planning

The importance of planning

Planning is an essential stepping stone to business success. You have probably heard the old
saying:

If you fail to plan, you plan to fail!

Although in today’s fast-moving world, change is the order of the day, this simple pearl of
wisdom has stood the test of time. To be effective, planning needs to take place at several
levels:

•   The strategic level
    Here you set the overall direction of your business by mapping out medium to long-term
    plans and objectives.

•   The operational level
    Planning at this level aims to ensure that the day-to-day activities you have identified as
    being essential to the successful operation of the business are carried out as planned.

Planning is an ongoing process. You need to understand that no matter how well you draft your
plans, they are essentially meaningless unless you actually use them to steer your business in
the right direction. This means that your plans need to be frequently updated. How frequently
will depend on the nature of the business sector, but as a rule of thumb, operational plans need
to be updated daily to weekly, and strategic plans at least monthly.

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Strategic planning demystified

At the outset, let us acknowledge that having a strategic plan will not guarantee success. It is
equally true, however, that without one, crisis management will be the rule rather than the
exception and your business’s chances of long-term survival will be slim.

Essentially, your strategic plan provides the framework for the business's policies, which you
use to make key decisions. In other words, the strategic plan acts as the focal point for every
activity in the business. It serves as a concise explanation of the business, its objectives
and activities. If something does not form part of the strategic plan, it should not be
undertaken.

It is important, therefore, that your strategic plan is well thought out and developed in
consultation with other key players (partners, managers and key staff members). This will
ensure that they take ownership of the final plan and are committed to implementing it.

The primary purpose of the strategic plan is not to help you run your business. This is the
function of the operational plan. The strategic plan is a high-level, conceptual document,
intended to provide an overall vision and direction in which you want to take your business.

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Business plan creator and other tools

FNB sponsors a detailed business plan creator on www.enterprisesa.com. You have to go
through a short, free registration process to access the tool. Once you have registered, you will
also be able to utilise the site’s Cash Flow Projection tool.




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3) Executing your plan

The legal environment

If you think that the amount of red tape that you need to contend with when wanting to operate a
business in South Africa is bad, think again. Experts tell us that in comparison to the obstacles
faced by business owners in countries throughout the European Union and other parts of the
African continent, our bureaucracy is benign.

A study commissioned by the World Bank reveals that poor countries tend to regulate business
the most. According to the researchers, it takes two days to start a business in Australia, 203
days in Haiti and 215 days in the Democratic Republic of the Congo. Local feedback suggests
that it takes about 60 days to get a business up and running in South Africa – somewhat better
than “middle of the road”, wouldn’t you say?

In a groundbreaking move, Geraldine Fraser-Moleketi, the Minister of Public Service and
Administration, challenged business people to tell her department how it could ease the
administrative burden. The Centre for Public Service Innovation, a section 21 company set up
for this purpose, is currently studying the responses, so there is hope that the administrative
burden faced by small businesses may soon be eased.

As our point of departure, let us agree that no business can operate in isolation. Every business
has to operate according to a set of rules drawn up by public servants and you have to accept
this. Of course, you can always try to beat these rules, but you do so at your peril. It is much
smarter to abide by them.

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Choosing your trading format

You have several options when you set up a business. For the purposes of starting an SME,
you can operate as a sole trader, partnership, CC or company. Aspiring entrepreneurs often
ask, rather anxiously, whether they are legally obliged to register a formal business. The short
answer is, “No, you are under no legal obligation to register a formal business.” However, unless
the business you plan to start is extremely small to begin with and you expect it to stay this way
indefinitely, registering a formal entity has its advantages and is definitely recommended.

Why you should consider registering a formal business:

•   Should you decide to operate as a sole trader, your business has no legal personality of
    its own as you are trading under your personal name. You are free, of course, to add a by-
    line to your name, such as John Smith, sole proprietor, trading as Master Plumbers, but your
    name must be stated on all business-related documentation.
•   Unless you are a very famous personality, trading under your own name is unlikely to
    impress prospective customers. This makes it difficult to market the business effectively –
    people tend to forget names that they cannot associate with a specific product or service.
•   Under intellectual property law, the trading name of a sole trader is not protected. Should
    your business become highly successful, someone else could register your trading name as
    the name of a CC or company and use it without fear of repercussion.
•   A possible way around this is to register the trading name of your business as a trademark
    but you would still have to use your personal name in all business dealings.
•   Government agencies and many large corporations have a policy of dealing with registered
    entities only. This means, that as a sole trader, you would be automatically disqualified from
    participating in many tender opportunities.
•   SARS offers certain tax benefits to small businesses that are not accessible to sole traders.



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•   To qualify for assistance schemes offered by government agencies, for example export
    marketing subsidies offered by the Department of Trade and Industry, you need to operate
    through a registered entity.
•   In a legal sense, you and the business are one and the same. This complicates matters
    should you want to dispose of the business.

In practice, the close corporation is the most popular, primarily because of the relative simplicity
of setting one up and operating it.


Registering a CC

The business format that is most commonly used in the SME environment is the CC. Registering
a CC is straightforward and inexpensive. You can do it yourself quite easily or, if you prefer,
your accountant or attorney will do it for you.


The forms needed to register your CC can be downloaded from the CIPRO website.

Alternatively, you can purchase a pre-registered shelf company from providers like the Shelf
Company Warehouse. FNB has negotiated an agreement with Shelf Company Warehouse that
will entitle its clients to a 20% discount on the fees Shelf Company Warehouse charge for
purchasing a close corporation and private company off the shelf.

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Statutory registrations

Regardless of whether you plan to operate as a sole trader or register a CC or company with
the Registrar of Companies, you need to register with SARS, the Department of Labour and the
Regional Services Council in your area.

Registration with SARS

As a tax payer

If you register a CC or company, the Companies and Intellectual Property Registration Office
(CIPRO) in Pretoria will notify your local SARS office and they will register the business as a
provisional taxpayer.

Should you plan to employ staff, you need to register for PAYE, UIF and the Skills Development
Levy. (You are exempt from the Skills Development Levy if your total wages and salaries bill for
the forthcoming year is expected to remain below R500 000.)

It is important to note that should you plan to conduct business as a sole trader, the onus is on
you to notify SARS and register as a provisional taxpayer. (As your business does not have a
legal identity of its own, it does not need to be registered separately – you are taxed on its
income.)

For VAT purposes

To register for VAT, you must complete form VAT101, and return it to your local SARS office.
Documents that must be submitted by a CC together with the application for registration as a
VAT vendor are the following:

    •   Form VAT127 – business plan to accompany application for registration as a VAT
        vendor
    •   A copy of form CK1
    •   Certified copy(ies) of the Identity Document(s) of member(s)


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      •   A cancelled business cheque
      •   A copy of the letter issued by the CC’s accounting officer accepting his or her
          appointment as the CC’s accounting officer
      •   A list of existing business contracts (if available)

In practice, we have found that requirements tend to vary slightly from region to region. It is best
to follow the instructions on the information sheet that accompanies form VAT101. You can also
approach SARS personnel for assistance.

Note: Voluntary registration for VAT is recommended even if you expect sales to remain below
the threshold for compulsory VAT registration, currently set at R300 000 per annum. Being
registered for VAT purposes entitles the business to claim input tax refunds. Input tax is the VAT
the business is obliged to pay on purchases. This has the effect of reducing costs by the
amount of VAT paid. Moreover, there seems to be a tendency among suppliers and customers
alike not to take a business seriously unless it is registered for VAT.

Other statutory registrations

Regional Services Council

With the exception of highly specialised businesses, for example bottle stores or arms dealers,
businesses no longer require a licence to trade. Instead, you are obliged, for the time being, to
register the business with the Regional Services Council (RSC) in your area. Once registered,
the business will be charged levies based on the total bill for salaries and wages as well as
gross sales. Returns and payments must be lodged on a monthly or annual basis as determined
by the RSC.

The steps below will guide you through the registration process:

•     Contact your local Regional Services Council office, obtain form RSC1, complete and return
      it to the Regional Services Council. (As this form, and even the levy percentages that are
      payable, vary slightly from one RSC to the next, we cannot make it available for download on
      this website.)
•     After approximately one month, you will receive confirmation of the registration of the
      business in the form of a certificate (RSC2). This form contains a reference number which
      you need to quote in all future dealings with the RSC.
•     Subject to the prescribed payment terms, which will depend on the projected volume of
      business, the RSC will send you an account (RSC4) either monthly or annually (see below).
•     Typically, the RSC tends to lean towards monthly returns until a pattern has been
      established. Fees payable are calculated as a fraction of one percent, so if your salaries
      and sales figures are relatively low, triggering monthly levy payments of R50 or less, you
      can request at any time to be permitted to tender returns and make the corresponding
      payments annually. Such requests will usually be granted.
•     Complete form RSC4 (because of the way the form is laid out, you have to complete it twice)
      and return the bottom portion together with your payment, to reach the RSC by the return
      date – the 20th day after the reporting period, as printed on the form.
•     The levy is a fraction of a percent of sales and payroll. These rates vary somewhat from
      region to region but your RSC will inform you of the exact rate. The percentages are also
      printed on the RSC4 form.
•     Keep in mind that even if you do not employ any staff, you still have to pay the levy, based
      on your sales and personal drawings. If, during a specific month, no activity whatsoever has
      taken place, you still need to lodge the return.
•     Late payments attract penalties and interest charges. Although the RSCs do not have the
      power to audit your books, they can call on SARS to conduct an audit.
•     The 2005 budget provides for the abolition of the RSC levy by 30 June 2006. There is an
      expectation that to protect municipalities’ revenue streams, some other form of taxation will
      take its place but this is currently up in the air. Your accountant should keep you updated.

UIF



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UIF stands for Unemployment Insurance Fund and regardless of whether you employ staff or
not, you need to register with the Department of Labour. This is in addition to the registration
with SARS.

•   Download form UF8, complete and return it to the Department of Labour.
•   UIF covers all employees and owners of an enterprise. On registration, you will receive form
    UI33 as confirmation. UIF payments must be made monthly, together with PAYE and the
    Skills Development Levy, to SARS (if you are registered for PAYE), otherwise directly to UIF.
•   While writing to the Department of Labour, request a supply of Form UI-19. You will need
    these forms to register new employees for UIF.

COIDA

This abbreviation stands for Compensation for Occupational Injuries and Diseases, a statutory
body that provides compensation for work-related accidents or illnesses. If you employ staff, you
must register with the office of the Compensation Commissioner.

•   Download form WAs2, complete and return it to the Compensation Commissioner in
    Pretoria.
•   Once the registration has been processed by COIDA, you can expect to receive the
    following forms:
    o WAs8: This form must be filed within 30 days of the financial year-end of your business.
         It reconciles your account with COIDA.
    o WAs6a: This form shows the assessment made by the Commissioner for premiums
         payable, less amounts paid in advance.
    o WG30, WAs2 and WAc1(E): These forms must be kept in a safe place. Should an
         employee have a work-related accident, he or she must be issued with the prescribed
         form so that a claim for compensation can be set in motion. Claims should be lodged
         with the Compensation Commissioner for processing as speedily as possible.

Disclosure of information

In terms of the Business Names Act of 1960, businesses (including SMEs) must provide the
public with adequate information about the business they are dealing with. The following is the
minimum required information:

•   The full and correct name of the business including its legal status (sole proprietorship,
    partnership, close corporation or private company).
•   The street address from where the business is operating (please note that to give a post
    box number only is not sufficient).
•   The full names of the people who represent the business:
    o If the business is a sole proprietorship, its owner's name
    o If the business is a partnership, the names of all the partners
    o If the business is a CC, its CK number and the names of its members
    o If the business is a private company, its registration number and the names of its
        directors

In terms of the Act, this information must be kept up to date at all times and must be disclosed
on all business correspondence including trade brochures, letters, invoices and order forms.

Business information manual

Under the Access to Information Act 2000, anyone operating a business regardless of its size
was originally required to compile an information manual that lists all the records the business
keeps and how they can be accessed by members of the public.

The Act stipulates that this manual has to be prepared in accordance with detailed guidelines
issued by the Human Rights Commission (HRC). Once completed, the manual must be
submitted to the Human Rights Commission. Furthermore, the law provides that everyone


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operating a business, regardless of its size, has to publish this manual in the Government
Gazette, at considerable cost.

It was this requirement more than any other that drew fierce criticism from organised commerce
and industry. As a result, the deadline for compliance was postponed several times.

As matters stand at present, businesses are obliged to produce the manual by 1 January 2006
unless they qualify for exemption for a further five years. To qualify for exemption, a business
must employ less than 50 people and have sales below a certain threshold which varies
according to the industry sector. For example, the threshold is:

    •   R2 million for an agricultural business,
    •   R10 million for a manufacturing concern, and
    •   R15 million for a retailer.

For the latest on this issue, and to obtain a detailed template for the correct compilation of the
manual once it becomes necessary to produce it, visit www.sahrc.org.za.

Return confirming continued existence

An amendment to the Companies Act, 1973, which came into operation on 25 August 2003,
requires companies and close corporations to submit an annual return to the Registrar of
Companies.

This return is due at the end of the month following the entity’s anniversary of registration.
It is a paperless process, in other words, the business itself, or its authorised representative, is
required to register as a customer on CIPRO’s website and to undertake the update. A fee
linked to the business’s turnover is also payable electronically.

Non-compliance will attract penalties and persistent defaulters may be removed from the
Companies Register.

For the latest on this issue and to ascertain the actual fee payable, visit www.cipro.gov.za.

Employment equity (EE) report

At this stage, only businesses employing 150 employees or more are obliged to complete this
report. Should the situation change, the Department of Labour will notify employers in good
time.

Ongoing statutory compliance

Once your business is up and running, you will want to focus on building your business –
completing the paperwork will be the last thing on your mind. Although this is understandable,
failure to comply will create problems for you. Remember that failure to comply with statutory
requirements is a criminal offence.

Registering a trademark

Although there is no legal requirement to register a trademark, it is in your own best interests to
do so. In your customers’ minds, your trademark represents your business. Over time, a
trademark can become extremely valuable, prompting large companies to reflect it on their
balance sheet as an asset. It makes sense, therefore, to protect it against unauthorised use by
copycat operators.

Remember that even if you register a formal business structure, for example a CC, the business
name is not protected as a trademark. This means that someone could copy your business
name and register it as a trademark. Should this happen, the onus would be on you to lodge an
objection with the Registrar of Trademarks. Unless you do so within six months, the other party’s
right to the trademark will be confirmed.


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To register a trademark, proceed as follows:

•   Check the trademark register to ensure that nobody else has registered the same (or a
    confusingly similar) trademark:
    o You can visit CIPRO’s offices in Pretoria, or their website (www.cipro.gov.za) and
         undertake the search yourself.
    o Alternatively, in return for the payment of a small fee, CIPRO staff will undertake the
         search on your behalf.
•   CIPRO registers trademarks in 45 different classes of goods and services, so the next step
    is to determine the trademark class you wish to register under:
    o CIPRO staff will help you decide which class is the most appropriate for your type of
         business.
    o Business activities often overlap and you can seek protection in more than one class,
         but you cannot seek blanket protection for all 45 classes unless you can prove that your
         business activities are extremely broad.
•   Download the application form (Form TM1), complete and submit it together with the
    prescribed fee to CIPRO for consideration.
•   According to CIPRO’s website, the approval process takes some time but do not let this
    worry you. Once the application has been lodged, you enjoy automatic protection against
    applications that are presented later.
•   Trademark protection, once granted, lasts indefinitely but must be renewed every 10 years;
    at this point, a renewal fee becomes payable.

For more information, on issues surrounding trademark registration, visit www.cipro.gov.za.

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Working from home

The number of people who run their businesses from their homes is increasing rapidly. Before
you do anything else, discuss your plans with your immediate neighbours and with your local
municipality.

Certain basics apply across municipalities. You can expect to be asked for assurances that your
proposed business activities will not:

•   Impact negatively on your neighbours' quality of life.
•   Place strain on the available infrastructure.

In some municipalities, approval of your plans may depend on your obtaining written approval
from your immediate neighbours.

If you enjoy a residential rebate on rates, it will be withdrawn once you use your dwelling, or
even part of it, for commercial purposes.


Setting up a home business

Space allocation

You need to allocate a clearly defined space that will be used for your business activities. This
space should be declared off-limits for members of your household.

Furnishings and fittings

•   Purchase office furniture of good quality and have proper lighting installed.
•   The installation of a dedicated telephone line for business use is a must, and a second line
    for your computer modem and/or your fax machine will be useful. You should investigate the



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    viability of having a high-speed telephone line installed. Using one number, it allows two
    different activities to take place simultaneously.
•   Buy good computer hardware and software.
•   Link up with a reliable Internet service provider. Very few businesses can operate without
    email and having your own website could be useful, if not vital.

Will working from home affect the image of my business?

Demonstrate professionalism

Not every type of business lends itself to the owner working from home. For example, to operate
a plumbing repair business from your home makes perfect sense. By contrast, a retail operation
that depends on a steady flow of walk-in customers is unlikely to prosper in a home
environment.

Lifestyle matters

More than anything else, the success of your home-based business will depend on your level
of self-discipline. You should dress properly, keep reasonable office hours and restrict
interruptions from family members to genuine emergencies.

How does operating a business from home affect my legal or statutory obligations?

You will be expected to comply with all the rules and regulations, just as if you were operating
the business from commercial premises.

Statutory issues

Should you employ staff, you need to be extra careful about creating an acceptable working
environment. If an employee leaves your employ because of unacceptable working conditions,
he or she could lodge a claim of constructive dismissal at the CCMA.

The term 'constructive dismissal' means that although the employee terminated the employment
relationship seemingly of his or her own free will, he or she took this step because of the
unacceptable working conditions. If such a claim is brought before the CCMA, it can become
time-consuming and expensive.

Issues of taxation

Apart from statutory requirements, tax laws (including VAT) also apply to home-based
businesses in the same way that they apply to businesses that operate from commercial
premises. However, subject to circumstances, and depending on how effective you are in
keeping proper books of account, additional tax breaks may be in the pipeline. If, for example, a
specific area of the home has been clearly demarcated for exclusive business use, expenses
that are associated with the ongoing operation and maintenance of this portion of the premises
will be tax deductible.

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Choosing the right site for your business

Everyone knows that selecting the correct site can make or break a retail business. The reality
is that no matter what kind of business you plan to establish and what your projected sales
levels are, site selection remains an essential consideration. Of course, desired site
characteristics differ widely between, say, a fast food outlet and a plumbing repair service, but
they remain a critical factor as the following examples show:

•   The typical fast food outlet requires a relatively small space but its success depends to a
    large degree on impulse buyers. This calls for a high level of passing traffic but the business


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    can absorb high rentals. A fast food outlet should be located at or close to a shopping
    centre.
•   A plumbing repair service requires adequate space to handle long pipes, store materials
    and park vehicles without inconveniencing neighbours. Passing trade is of no interest
    whatsoever because most of the service calls will be placed over the telephone. As this is a
    service business requiring a relatively large space, low rentals are an important
    consideration. A plumbing repair service can be operated from its owner’s home, assuming,
    of course, that its location allows the movement of goods and vehicles without upsetting the
    neighbours.

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4) Building and managing your new business

The accounting function

Accounting helps you to keep track of the inflow and outflow of cash, which is vital to the
financial wellbeing of your business.

The arrival of affordable computers and the creation of accounting software has turned the
bookkeeping process into a task that is quick and easy to accomplish. Software packages are
available that can do just about all the processing required to carry out the complete accounting
function yet will run quite happily on entry-level machines.

As a result, developments surrounding computerised budgeting and accounting have changed
the way we do business. The ability to generate up-to-the-minute reports literally at the touch of
a button empowers entrepreneurs to stay on top of every facet of the business at any given
time. For this reason alone, a sound understanding of the accounting function is an essential
prerequisite for success.

It is quite true, of course, that as the owner of the business, you can spend your time more
profitably by talking to customers rather than punching figures into a computer and you should
indeed delegate this task. However, you need to understand the potential of this success tool
and know how to exploit it to best advantage.

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Marketing

Although marketing is an essential function of business, this discipline is often poorly
understood. The first thing we need to acknowledge is that the term, marketing, is not a
synonym for selling. Rather, marketing spans the entire spectrum from creating a product to
getting it to the end customer. This includes:

    •   The development of the product or service,
    •   The identification of its target market,
    •   Tweaking of the product range to ensure that it meets market expectations,
    •   Storage,
    •   Merchandising,
    •   Advertising and promotion,
    •   Selling,
    •   Distribution, and
    •   Warranty issues and after-sales support.

Even competitor analysis forms part of the marketing function. However, marketing’s main aim
should always be the satisfaction of customer needs:




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Successful marketing is all about building a relationship with your customer that is
straightforward, intended to be long term and not only profitable for the company in terms of the
product sold, but also rewarding to the customer in terms of the product purchased.

The marketing process

One important thing about marketing that is all too often ignored is the fact that it should never
be seen as an event. To be effective, marketing must be treated as an ongoing process.

Inexperienced entrepreneurs tend to sink money into marketing-related activities until sales pick
up then stop altogether. This is not a clever move. When the next slump in sales manifests itself,
it will be far more expensive to re-establish the brand in customers’ minds.

This does not mean, however, that your marketing budget should be spent evenly throughout
the year. If, for instance, you are in the consumer business, or in a business-to-business sector
where your customers deal directly with consumers, their financial situation needs to be taken
into account. It is rather pointless, for example, to spend heavily on the promotion of high-priced
consumer goods during January. Most people have just been on a spending spree, are still
paying off their credit card accounts and making additional purchases is the last thing they will
consider.

If, on the other hand, you are hopelessly overstocked and need to get sales moving, why not
consider a two-for-the-price-of-one offer or similar promotion? Subject to business realities, this
may be more effective than dropping prices. Quite clearly, this strategy is not suitable for every
type of business. If you sell motorcars, for example, you cannot afford to give away cars. But
how about modifying the offer, for example by offering buyers of 4x4s a free trailer on condition
that they purchase the vehicle before a certain date?

The marketing plan

Like any other business process, marketing should be carried out in accordance with a carefully
composed plan, known as the marketing plan. This plan will set out:

   •   What will be done,
   •   When it will be done,
   •   Where the resources are coming from,
   •   Who is responsible for implementation, and
   •   How results will be measured.

The marketing plan, to be effective, must be a living document. Once it has been compiled, it
should be frequently reviewed to ensure that it continues to reflect the demographics and
preferences of the target market, as well as the needs of the business, for example, maximal
utilisation of available resources.

Planning your marketing efforts in this way will enable your business to assume market
leadership, either by initiating change in response to new trends, or at least by being ready to
respond to change before the competition does. This, in turn, requires market research,
market segmentation and the ability to communicate effectively with your target market.

One final comment involving price – to rely on low prices to increase sales is a highly overrated
tactic. Most people are far more interested in receiving enthusiastic and knowledgeable service,
good quality and outstanding after-sales backup than in obtaining the lowest possible price.
Those buyers who are prepared to search high and low for a bargain will never become loyal
customers anyway, so what can you possibly gain by cutting margins to the bone?

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Building a winning team



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Very few businesses become successful and stay this way without the help of a committed and
dedicated team. While many businesses start out as the vision of one person, until that person
takes on staff to help grow the business, the full responsibility for generating income will rest on
that person’s shoulders. This severely limits the business’s capacity to generate revenue during
the best of times. Should the owner fall ill or be unable to perform his or her duties for any
reason, it could lead to the closure of the business.

One-man-shows tend to be vulnerable for yet another reason, namely capacity constraints.
You will probably have too much work one day and too little the next. As a result, you will find
yourself fighting fires most of the time and profitability is likely to be erratic at best.

Calculating manpower needs

Working out how many people you need to hire at the start-up phase, and what skills and
attributes they must possess to ensure that they make a meaningful contribution to the overall
goals of your enterprise, should be a top priority.

Our labour legislation makes it difficult to fire people without “just cause”. This may sound fair
and reasonable, were it not for the fact that the Commission for Conciliation, Mediation and
Arbitration (CCMA) has been known to apply its own peculiar interpretation of “just cause” which
tends to favour the employee.

It follows that unless you take care to hire the right number of carefully selected people in the
first place and subsequently train and motivate them to become real assets to your business,
you could find yourself carrying deadwood on your payroll, individuals who plod along but never
sparkle. Just because they show up for work each day, it is difficult to dismiss them but having to
rely on such individuals could jeopardise the growth of your business.

Begin by working out what you want to achieve in your business. Beginning with sales
projections and working backwards, you can identify the work processes that need to be carried
out, and estimate how many hours each task requires. The resulting findings will enable you to
project your human resources needs with relative accuracy.

The need for job descriptions

Now that you know what positions you need to fill, the time has come to draft job descriptions.
Do not for a moment think that once you have completed this task you can forget about it.

Here are some useful pointers:

   •   Give the job description to the first incumbent and let him or her get on with the job for a
       while
   •   Three to four months later, find out how the task is performed in practice and whether
       any unauthorised procedures have crept in
   •   Analyse your findings
   •   Unauthorised but useful practices should be legitimised by writing them into the job
       description
   •   Put an immediate stop to undesirable practices

Developing a remuneration scheme

Perceptions that labour holds all the aces while employers have no rights are false. In reality,
employers have never had it so good.

The typical 21st century staff member seeks career advancement. This means that he or she is
quite prepared to help you grow your business – as long as you are willing to remunerate them
well and help them advance their careers.

While “going rates” need to be taken into account and should in fact serve as a starting point,
business realities may preclude you from offering lavish salaries and perks during the start-up


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period. It is precisely at this point, however, that you need to attract top performers. The solution
is relatively simple:

•   Offer good performers performance-related pay. Structure salary packages in such a
    manner that every team member receives an average basic salary, enhanced by a bonus
    based on reaching clearly defined targets. This shifts the risk away from you – those who
    perform above par earn above par.
•   Consider offering top performers shares in the business. Provided that you select
    candidates with care, you will find ownership to be the ultimate incentive.

Setting and communicating company policy

Precisely because our labour law is relatively onerous, it is important to set clear policies right
from the start. This makes it impossible for errant staff members to claim that they did not know
what was expected of them and you will have little to fear should they decide to take a grievance
to the CCMA.

To be effective, policies must be set out in writing and communicated to every member of your
team. This is best done by publishing an employee handbook. It is best to write this handbook in
a conversational tone, using language that everyone is likely to understand. There is no reason
why the task of writing an employee handbook should not be carried out in-house. It is
advisable, however, to have the final document reviewed by an expert in labour law.

The recruitment process

Employing people is an essential step in setting up your own business. This means that you
need to attract applicants, interview them, evaluate them on their merits and make the hiring
decision. You can do this yourself or you can outsource much of the task to an employment
agency. Should you go the latter route, the agency will advertise on your behalf, screen
applicants and present you with a shortlist of suitable candidates.

The final hiring decision must always be yours and yours alone. Most agencies calculate their
fees as a multiple of the successful candidate’s salary so their services do not come cheap. On
the upside, should the selected applicant fail to make the grade and be dismissed within an
agreed period, reputable agencies will supply a replacement free of charge. Moreover, agencies
active in business sectors where staff turnover is typically high are often prepared to work on a
fixed retainer, so it is worthwhile to shop around.

A thought on managing winners

Attracting winners to your team is only the first step. Managing the type of self-motivated
individual who will help you drive your business forward can be a challenge. However, if handled
properly, it will turbo-charge the growth of your business.

The performance appraisal

In keeping with the adage “if you can’t measure it, you can’t manage it”, assessment of your
team members’ level of performance is a vital management task. It is in your mutual interest
because those individuals worth having will want feedback on the level of contribution they make
to the company’s overall goals so that they can improve their performance.

•   A performance appraisal is nothing more than a structured discussion with the team
    member, and is intended to assess his or her performance.
•   Performance appraisals should be carried out annually, usually around the anniversary of
    the employee joining the company or moving into the current position.
    o At the beginning of the session, satisfy yourself that the team member has a clear idea
        of what the performance criteria are for his or her position.
    o Next, stress all the positive aspects related to the team member's work performance.
    o Move into areas of performance that are less satisfactory, but do so with tact and
        compassion. Using the appraisal session to heap negative criticism on an employee is


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         not constructive. If the situation is beyond repair, other mechanisms are available that
         are better suited to deal with it.
•   If, on balance, performance falls short of reasonable expectations, you and your team
    member should agree on a course of action likely to address identified shortcomings. The
    course of action should be linked to a definite timeline.
•   Offer employees who perform well opportunities for advancement.
    o Quite clearly, this will depend on available opportunities. In the case of a start-up SME,
         these opportunities may be severely limited.
    o Be mindful of the fact that top performers tend to become frustrated if it appears to
         them that they have reached a dead end career-wise. This calls for creativity on your
         part, and a willingness to recognise achievements in a meaningful manner. You could,
         for example, preview the year ahead and explain how expected growth will create
         opportunities for advancement.
•   Should the appraisal process be poorly managed, employees will view it in a negative light. It
    is up to you to allay any fears employees may have that the process will be used “to catch
    them out” by assuring them that the process will help them maximise their potential.

__________________________________________________________________________

Using technology effectively

Advances in computer technology have made work processes more efficient. If one takes the
increased processing power of new computers into account, their cost has actually come down
substantially. Second-hand computers that are far from obsolete flood the market but beware,
unless you are familiar with the technology, purchasing second-hand equipment can be tricky.

State-of-the-art computers have their place in the SME environment. For example, firms in the
graphics sector use software packages that need plenty of processing power. For general
business use, top-end computers appear to be overkill.

A basic computer set-up

Your basic computer consists of a case that contains a microprocessor, also known as the
central processing unit (CPU), random access memory (RAM) and a hard disk. Then there is the
computer monitor, which looks like a TV screen and displays the results of your work in full
colour. Data input is done via the keyboard and a mouse helps you activate various functions.

Be careful when you set out to buy a computer, as the lowest advertised price may not be the
best deal overall. It happens frequently that dealers advertise computers cheaply to lure buyers
into their stores but you may find, for example, that the monitor is not included in the price.
When studying various advertisements, make sure that you compare apples with apples (no pun
intended – the most popular computer by far is the PC, not the Apple). You should also
understand the meaning of the following:

•   CPU: This is the heart of your computer. The Pentium 4 processor is the current de facto
    standard.

•   RAM: The term RAM (random access memory) refers to the computer chips that store
    programs and data while your computer is running. The more RAM you can afford, the
    better your machine will operate. 256 MB is today’s middle-of- the-road choice but 512 MB
    would probably be better. Insist on either DDR (double data rate) or, better still, RDRAM
    (Rambus Technologies) chips.

•   Hard disk: The hard disk stores programs and data permanently. It supplies chunks of
    software that are needed to carry out a specific task to RAM. (This is the reason why it is a
    good idea to have plenty of RAM – it facilitates faster access to the programs and data you
    are working with.) Hard disk capacity is measured in gigabytes (GB) and for the average
    SME, 80 GB should be more than adequate.




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•   Monitor: Two types of monitors are available – TV-like screens powered by cathode ray
    tubes (CRTs) and liquid crystal displays (LCDs). CRTs are cheaper but they are old
    technology and definitely on their way out. LCD screens offer a better image, take up less
    space and generate less heat. As most business users spend a lot of time looking at their
    computer screens, it is false economy to buy the cheapest monitor on the market. The
    recommended specification for office use is a 17-inch LCD screen with a resolution of 1280
    x 1024 lines and a .27 dot pitch.

•   Video adapter: Whatever monitor you choose, it will require the presence of a video
    adapter in your computer. The basic model is standard on every computer and unless you
    are a power-user, it will do an acceptable job.

•   Ports: To connect printers, modems and other auxiliaries to your computer, it needs several
    ports. Today’s standard is the universal serial bus (USB) port, version USB2.

•   Sound card, speakers and/or audio microphone: In the past, most business
    applications did not really require sound but with voice-to-text applications becoming more
    prevalent, this is changing rapidly.

•   Drives: The minimum configuration for every computer is one CD-ROM drive. Most
    computers continue to come with a stiffy drive but this is old technology and stiffy disks are
    hardly used anymore. The CD-ROM drive enables you to load programs and listen to music.
o   Due to falling prices, CD writers (drives that read and write) have become the preferred
    option. They do everything a CD-ROM drive does, plus allow you to make copies of CDs or
    back up your valuable computer data.
o   The latest development in this sector is the DVD writer, which enables you to read and write
    on CD and DVD disks. These drives offer superior storage capacity and prices are falling
    rapidly.

•   Printer: The best buy is a black and white laser printer. Colour laser printers have just
    become affordable. Ink jet printers are cheap and give good quality, but the hidden cost of
    ink cartridges and special coated paper put them out of the running.

•   Modem: This item connects your computer to the outside world via a telephone line or
    wireless connection. It makes it possible for you to access the Internet and send and receive
    emails and faxes.

Software

In the world of business, software can be broken down into operating software (OS) and
application software. Software is a basic requirement – without it, a computer will not run.

•   Operating system: Microsoft Windows is the standard operating system, with Linux slowly
    making some inroads. Although Apple users are fanatical about their system, their numbers
    are relatively small.
o   Should you purchase a computer and the OS has already been loaded, insist on receiving
    the original disks, manuals and a registration number. This gives you free access to
    Microsoft support and you qualify for upgrades at reduced prices. Remember, too, that the
    large software houses have become quite effective in sniffing out pirate users and will not
    hesitate to prosecute offenders.

•   Microsoft Office: This software suite allows you to type letters, work with spreadsheets, set
    up a database, produce newsletters and communicate through the Internet, all from one
    software platform. The common platform enables you to input information once but access it
    from different packages.

•   Accounting package: An accounting package makes easy work of keeping your books of
    accounts up to date at all times. They come in several degrees of sophistication but most
    offer facilities to produce invoices and debtors statements as well as process your cash
    book, age analysis, income statement and balance sheet. Information needs to be entered


                                                                                               17
    only once and as long as you choose the right package for your type of business, you will
    soon find it indispensable. If in doubt, ask your accountant for advice.

•   Voice-to-text equipment: Specialised software enables your computer to convert speech
    to plain text. Over the past few years, this technology has improved to such an extent that it
    is now of definite interest to entrepreneurs who want to dictate letters and have them
    transcribed automatically, or generate minutes of meetings.

In practice, used equipment will perform most of the tasks that arise within an average SME
environment and the savings on hardware can be as high as 60%. Should you go this route, be
sure to buy from a reputable source, preferably one that has refurbished the equipment and
offers a warranty as well as reliable back-up.

Make sure that the software you plan to use will run on the computer. Software packages state
minimum hardware specifications and, if in doubt, the software vendor can advise you. As a rule,
pre-Pentium machines (486 processors or older) and first/second generation Pentium machines
should be avoided.

Connecting to the outside world

In addition to helping you keep books, generate up-to-the-minute management accounts and
performance reports, handle your correspondence and build databases, your computer is also
a link to the outside world. At entry level, you can use an ordinary telephone line to send and
receive emails and connect to the World-Wide Web. The only add-on you need is a modem.
The modem can either be built into your computer or it can be housed in a small box that stands
next to your computer on your desk.

While a standard telephone line will do an adequate job of sending and receiving emails, surfing
the Internet can become a frustrating experience. The reason for this is that the Internet is
bursting with information and ordinary telephone lines struggle to cope. If you want to set up
your own website – an increasingly attractive option for all manner of businesses – a faster
connection will be needed.

Options range from ISDN and a whole range of DSL offerings available from Telkom to wireless
connections. The latest development is 3G, short for third-generation mobile telephone
technology. It provides the ability to transfer both voice data (telephone calls) and non-voice
data (emails, information from the Internet, etc.). It is popular for use with laptop computers,
primarily because it can be used at “hotspots”, locations where the service can be accessed.

Hotspots are becoming available at a growing number of locations, for example at airports,
coffee shops and fast food outlets. Use of this service is currently quite expensive but costs are
coming down rapidly and it is only a matter of time when full integration of computing, cell
telephony and high-speed data transfer will become commonplace.




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