Starting a business can be daunting. There are many aspects that need to be considered, meaning lots of homework needs to be done before you make your final decision. Here we point out a few of the things you should consider before taking the leap to becoming your own boss.
Why will you be successful in this business?
- Consider what will make your business stand out from the rest.
- Why would customers or clients buy your products or services over competitor’s products?
- Why would customers come to you instead of going to more established businesses?
Identify the gaps in the market, and modify your product offering until you are confident that despite these challenges, you can make a success of the business.
What is your experience in this industry?
Consider here what you will need to know before going into this business.
Most first time start-up businesses are owner-managed, so you will need to be very hands-on. How much do you know about the industry you plan to enter?
Many financiers when deciding if they will fund your business, will ask you this same question. They want to be sure that their investment/loan will be safe with you. They will expect you to run the business and know what’s going on there. They know that managers and staff dont care as much about the success of the business as the owner does.
Have you spoken to suppliers and trade partners?
Consider how you will receive assistance from suppliers and customers.
Are suppliers committed to supporting you regarding technical aspects? Are suppliers reputable? Do you have contracts in place with customers who will support or will you be able to secure these contracts?
If you want to do construction for example, consider how good your relationship with suppliers are.
- Will they give you credit?
- Will they give you longer than normal payment terms if needed?
- How reputable are suppliers?
- Are their products of a good quality?
- Will they honour guarantees on their products?
About your customers,
- Have customers already undertaken to support you once your business is operational?
- Will these customers honour their commitments?
- What about payment, will they pay you before or after the job is done?
- Will you give them credit?
- Who is your market?
- What is the present size of the market?
- What percentage of the market will you have?
- What is the growth potential of this market?
Consider here how you will market your products. A guideline is to consider the 4 P’s, that is Product, Place of distribution, Price, Promotion. Ask who, what, why, how.
A SWOT analysis is where you identify the four key aspects of the businesses success.
S- Strengths: Consider the strengths of the business.
W- Weaknesses: Consider the weaknesses of the business.
O- Opportunities: Identify what opportunities exist that the businesses can exploit.
T- Threats: Identify what factors can threaten the success of the business.
A mentor is somebody with experience in a particular field who you could ask for guidance or assistance in you ever need assistance with issues that may arise. They may be family or friends, or anybody you feel has done well in the industry you intend to enter.
It is an important area that many entrepreneurs dont bother about. Mentors can give you valuable insight regarding business. Some of the things a mentor can assist with are:
- Identifying habits of customers,
- Identifying aspects you should watch out for,
- Tips on how to handle human resource issues,
- Tips on how to manage business processes,
- Tips on how to deal with regulatory bodies like SARS, CIPC, etc,
- Tips on customer and supplier and customer relations,
If you for example want to enter the construction industry, approach a successful person in this industry and ask for assistance. But you could also approach a businessperson in the catering business for example. Many aspects in all businesses are the same, and any guidance from any successful businessperson would be beneficial to you.
Consider what it will cost to start and run the business. Work out break-even points and do financial projections. Consider every expense here and do preliminary calculations.
It’s obvious, but finances are the most important part of any business. If you not going to make money there, why would you want to start the business in the first place?
It’s important to do the sums accurately, realistically, and honestly. Sometimes, we fall so deep in love with the idea of a certain business idea, that we lose sight of why we want to go into business in the first place, to make money.
Business people are optimists and want to see things work, but they also calculate every risk, and think with their heads and not their hearts.
If the finances dont add up and the business doesnt seem to be financially feasible, it doesnt have to abandoned completely. Review all considerations you have made.
Examples of considerations you need to review:
- Can products be sourced cheaper?
- What effect will a price increase have?
- Can you find a cheaper premises to rent? Or can space requirements as initially considered be reduced?
- Can you tap into markets that you previously didn’t consider?
- Is it possible to add extra products to your product offering?
- Are there additional products you can add to your product line that have a higher gross profit margin? This would in-turn boost your bottom-line.
- Can staff costs be cut? For example, if you initially worked out that you would need 5 employees, consider if you can make it work with 3.
- What other costs can be cut without affecting the quality of your business?
These are only a few considerations that you need to take back to the drawing board. Every business would have different considerations that would need to be considered.
After you’ve reviewed these considerations, run the numbers again. If the result is now positive, then good for you. If they still dont add up, consider again and again how you can make it work for you.
If the numbers still dont add up, shelve the idea, do not abandon it altogether. Market conditions could change and the business would be feasible to go into at a later stage. Your research is valuable. Keep all your workings-out safe.
Consider how you will fund the business, will the business be funded by a loan or your own capital? Will you require investors to invest in your business, and do you know who they are?
Many government organisations and departments give loans and grants to businesses who they assess to be commercially viable businesses. Some you could contact are:
- The DTI (Department of trade and industry)
- The NEF (National empowerment fund)
- The IDC (Independent development corporation)
- The NWDC (North West development corporation)
There are many more, and you should contact them if you require funding.
Tax and business structure considerations
Consider what business structure would be best for you. Will you trade as a sole proprietor, partnership, or as a private company?
What are the tax benefits of choosing one over the other?
Deciding properly now what business entity to go with will save you many heartaches later. You dont want to sit with a huge tax bill at the end of the year, that could have been significantly reduced had you used another type of business entity to trade in.
The decision to start a business involves consideration of many more aspects that we have not mentioned. The things to look out for are endless, and every industry would have many more key factors to consider.
Running your own business takes a lot of effort, but it is also very rewarding. The feeling that you are your own boss is an important highlight to many business owners. For others, the joy you receive knowing that you are creating jobs is more important. Whatever your reason, it will always be the right one.
Feel free to contact us should you require assistance getting your dream business off the ground.